Modernizing Medicine: Better Software, If You Used the Paying Lab

In the Modernizing Medicine kickback settlement, the electronic health record vendor agreed to pay $45 million to resolve allegations involving pathology referrals, software donations, paid recommendations and inaccurate claims for federal incentive payments. The government alleged that useful features in the software depended on which laboratory a physician chose, while the vendor earned more as that laboratory captured more orders. For someone who worked on the product, sold it or used it inside a practice, the case turns on familiar things: an interface restriction, a sales credit, a referral report and what the software could actually do.

The Software Vendor and the Settlement

The Justice Department announced the company’s settlement on November 1, 2022. Modernizing Medicine, also called ModMed, sold Electronic Medical Assistant, a cloud-based electronic health record system used by specialty practices, including dermatology practices. The government alleged that its kickback schemes ran from January 2010 through July 2017 and violated the Anti-Kickback Statute.

A former vice president of product management brought the qui tam case, and the government joined it in Vermont. The Justice Department announced that the whistleblower would receive approximately $9 million. A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers.

The Justice Department’s Civil Division and the U.S. Attorney’s Office for the District of Vermont coordinated the resolution. The FBI and the Department of Health and Human Services, Office of Counsel to the Inspector General provided investigative assistance.

The laboratory’s resolution was separate. Miraca Life Sciences, later known as Inform Diagnostics, had agreed in January 2019 to pay $63.5 million over allegations that it provided referring physicians with EHR subsidies and free or discounted technology consulting services. ModMed’s case concerned the software vendor’s role in directing business and causing claims for government money.

Pathology Referrals Bought Through the Interface

The government alleged that ModMed accepted payments from Miraca in exchange for recommending its pathology services and giving it exclusive access to enhanced software features. The interface connecting laboratory orders and results to the medical record was where the alleged commercial preference became part of the physician’s working day.

The government’s complaint described an agreement under which Miraca would pay ModMed $250,000 to develop enhanced orders and results interfaces. Physicians could send clinical history and photographs with an order, then receive results directly into EMA. According to the complaint, physicians ordering from competing laboratories could not use those enhanced features.

The alleged payment structure rewarded both volume and market share. Miraca paid ModMed a fee for each specimen, with the rate rising as a practice sent a greater percentage of its specimens to Miraca. The agreement also provided a monthly minimum of $20,000. The vendor’s financial interest therefore followed which laboratory got the specimen, as well as how many specimens moved through the system.

The complaint alleged that ModMed shared physician-client specimen volumes with Miraca to target practices for a switch. It also described complaints from competing laboratories and the response ModMed instructed its employees to give:

We see a peculiar version of neutrality in the alleged arrangement: every lab was equal until the physician tried to use the software. The useful features belonged to the lab that paid, and the vendor earned more as that lab captured more orders.

The government connected the arrangement to Medicare claims. Its complaint reported that ModMed users submitted 17,705 claims for Miraca laboratory services in September 2016, when Medicare payments exceeded $1.2 million. Those were claims the government tied to its referral allegations, giving the interface and payment agreements a direct connection to public money.

EHR Donations Priced Against Future Lab Orders

The EHR donations allegedly brought Miraca laboratory orders and ModMed new software customers at the same time. Before approving a donation, Miraca required its sales staff to project the referrals the practice would send back and their aggregate value. Management used that return-on-investment analysis to decide who would receive a donation and how much it would be.

The complaint alleged that ModMed knew how those decisions worked. A salesperson expected a small donation for a small practice because it had little volume, while the companies exchanged sales leads and provider data to identify prospects. By December 2013, the government alleged, the arrangement had reached more than 40 dermatology practices that purchased the software and referred pathology orders to Miraca.

Calling it a donation did not change the commercial calculation alleged in the complaint. The laboratory expected future orders to cover its investment, and the software vendor gained a paying customer. That is why the donation approval and the projected referral value belong in the same account of physician kickbacks.

A similar use of software dependence appeared in the Family Dermatology litigation. A whistleblower alleged that practices already reliant on a practice-management and medical-record system faced an 85% price increase unless they directed pathology services to a designated laboratory. The mechanisms differed, but both allegations put the practice’s access to software into the bargain for its laboratory referrals.

Paid References With Unhappy Customers Filtered Out

ModMed also allegedly paid existing customers and industry influencers to bring in new software users. The government’s complaint described referral credits tied to successful sales steps, paid reference calls and site visits, and a billing expert whose compensation increased with the subscription business she generated.

In 2016, according to the complaint, ModMed offered a $200 service credit when a referred prospect completed a demonstration and a $1,500 service credit when the prospect signed a contract. The complaint also described payments for reference calls and site visits, with visit fees unrelated to the time spent. The government alleged that these arrangements bought recommendations rather than fairly priced services.

The selection of references mattered as much as the payments. The complaint described an internal system that kept prospects away from dissatisfied customers:

The alleged influencer arrangement extended the same sales incentive beyond existing customers. A dermatology billing expert agreed to endorse and promote EMA, with compensation equal to 5% of the monthly subscription fees from her customers during their first year of use. The complaint alleged that her compensation followed the business she generated.

These programs reached government payments through the practices buying the software. The government alleged that providers who acquired EMA through the reference and referral programs subsequently submitted false claims for meaningful-use incentive payments. The promotional budget, the new customer and the incentive claim were parts of the same alleged chain.

Meaningful Use Claims Built on Missing Vocabulary Support

The certification allegation concerned whether EMA could perform the functions underlying a practice’s incentive claim. Under the Medicare and Medicaid meaningful-use programs, health care providers sought payments for adopting certified EHR technology and meeting requirements for its use. Certification and the practice’s reports about actual use both mattered to payment.

The required standard vocabularies included RxNorm for drugs and SNOMED CT for clinical terminology. The government alleged that, from April 2014 through July 2017, EMA did not always enable users to conduct transactions using the required vocabularies. It alleged that this failure caused users to report inaccurate information in claims for incentive payments.

That places false physician practice incentive claims at the point where product capability meets the practice’s report to the government. The complaint describes providers relying on certification for assurance that the system has the capabilities they need. For an insider, the meaningful comparison is between what the software could do in use and what the provider reported when requesting payment.

What Product, Sales and Practice Staff Could See

The case shows why evidence of physician billing fraud can reach well beyond the billing department. Interface restrictions, donation approvals and customer-reference records described decisions made before a practice submitted a claim. Each explained a different part of how the government alleged the vendor caused claims to be submitted.

The 2020 Journal of Forensic and Investigative Accounting paper A Forensic Accountant’s Guide to the Most Potent Federal Laws Used Against Healthcare Fraud explains how whistleblower cases bring inside information about fraud to light. It also describes how knowledgeable whistleblowers supplement the government’s limited resources. In this case, the person who brought the allegations forward had worked in product management.

Here, product knowledge explains the laboratory restrictions and vocabulary capabilities. Sales knowledge explains the donation projections, reference selection and compensation arrangements. Practice knowledge connects the orders and incentive submissions to what happened in the software. We work with the person who knows one of those parts to understand how it connects to the government’s money.

You Know What the Software Was Built to Do

If you worked on lab interfaces, donation approvals, reference programs or incentive reporting, speak to one of our Whistleblower Experts about what you saw. We connect your knowledge of the product and the business to the government payments, bring in healthcare fraud whistleblower lawyers who understand EHR and referral cases, and stay beside you to build your strongest healthcare whistleblower case.