The Criminal Case
On November 30, 2023, the CEO and several other leadership and management personnel at Boston Heart Diagnostics, Inc. (“BHD”), a clinical laboratory in Framingham, Massachusetts, were convicted by jury in the federal District Court for the Eastern District of Texas, on one count of kickback conspiracy. In United States v. Hertzberg et al., the Government alleged that BHD entered into a multi-state kickback scheme with two Texas critical access hospitals, which paid BHD to perform blood tests for the hospitals’ patients. The hospitals then billed the blood tests to government payors, including Medicare, Medicaid and TRICARE. Although BHD conducted the blood tests, the hospitals billed the claims because, as critical access hospitals, they could receive higher rates from payors.
At trial, the prosecution sought to tie BHD to a broader kickback scheme by the Texas hospitals to pay physicians kickbacks for patient referrals for the lab testing. Specifically, the hospitals employed recruiters who created shell management service organizations (“MSOs”) which funneled illegal kickbacks to providers who referred patients to the hospitals for lab tests. These kickbacks were disguised as investment “dividends” paid out to providers who held shares in the MSOs. BHD assisted the MSO’s recruiters by helping them identify PCPs and other providers they could “convert” and bring into the scheme. BHD employees also accompanied the MSO’s recruiters on sales meetings with prospective providers.
To demonstrate the individual defendants’ knowing involvement in this conspiracy, the Government’s theory at trial was that BHD sales personnel participated with MSO recruiters in sales visits to the referring HCPs and assisted the MSO recruiters in various ways. The prosecution further established that BHD employees had shared with the individual defendants information regarding the MSO’s clients and their sales managers’ accounts.
However, according to the defendants’ post-trial briefing, sparse evidence was presented as to the individual defendants’ personal knowledge of, and direct involvement in, the hospitals’ kickback scheme. David Kraus, a sales director, also moved for a judgment of acquittal on these grounds, arguing “Not only was there no direct evidence of an agreement to support the charged conspiracy, but there was insufficient circumstantial evidence of one as well. The government called 23 witnesses in its case-in-chief. Not a single witness placed Mr. Kraus in the charged conspiracy. Not a single witness testified that Mr. Kraus participated in the charged illegal conduct. Not a single witness testified that Mr. Kraus knew that doctors were being paid for referrals—if that was happening at all.”
Nevertheless, the jury found Kraus and others guilty of the kickback conspiracy. The jury thus appears to have imputed knowledge of the conspiracy to the individual defendants even where evidence of direct involvement or participation was absent, based on BHD employees’ conduct, the defendants’ positions within the company, and knowledge of the fraud by the company’s top executives.
Key Takeaways
This case is a reminder that the Anti-Kickback Statute (“AKS”) is a criminal statute which can, and often does, give rise to criminal exposure on top of civil liability. In this case, the criminal conviction followed a $27 million civil FCA settlement on the same facts. The criminal exposure extends not only to the corporation, but also its individual executives, directors, and managers.
Laboratories, along with their executives and managers should exercise caution as criminal liability under the AKS may arise if their companies perform services for patients of other providers, hospitals, and facilities, whose patients are obtained through an illegal kickback scheme. The risk persists even when the laboratory’s top personnel had minimal direct involvement in devising or implementing the kickback scheme.
Additionally, in the BHD case, the laboratory could not invoke or seek refuge in one of the many AKS safe harbors and exceptions, as the principal kickback relationship was between the hospitals and referring physicians, and not between the hospital and the laboratory.
It is thus imperative for executives, directors, and managers to be aware of where the company’s patients come from, and to confirm whether the referring providers are paid any sort of remuneration based on the volume of referrals. Stay vigilant to potential liabilities associated with indirect connections to such practices.
How Frier Levitt Can Help
Frier Levitt is a highly experienced law firm dedicated to serving physicians, pharmacies, and other providers in the healthcare and life sciences industries. Even before any enforcement actions, we can help healthcare providers navigate the complex rules and regulations underlying the Anti-Kickback Statute and the Stark Law, including the many safe harbors and exceptions, each of which has stringent requirements. Frier Levitt also routinely represents clients in healthcare and the life sciences in investigation and prosecution brought by the government. Please contact us for assistance.
