May 01, 2018

The Travel Act: sixty-year old “new” tool in healthcare fraud enforcement

Patrick D. Souter, Gray Reed & McGraw LLP, Dallas, TX

It is undisputed that a major hurdle in being able to provide the financial resources necessary to deliver quality healthcare in the United States is the amount of fraud prevalent in the industry. Fraud committed against both governmental and private payors drains resources better spent on the provision of healthcare rather than lining the pockets of those who take advantage of these payors. Federal enforcement has traditionally been through prosecutions utilizing the Federal Anti-Kickback Statute (AKS),1 the Physician Self-Referral Law, or “Stark Law”,2 and the False Claims Act (FCA),3 as well as administrative actions such as Civil Monetary Penalties4 and exclusion authority to prohibit those committing fraudulent acts from participating in federal programs.5 The federal government utilizes other fraud-related statutes in its prosecutorial efforts such as mail and wire fraud, fraudulent act statutes, and accompanying financial-based statutes such as money laundering to supplement the traditional federal healthcare fraud, waste and abuse laws.



The circumstances, however, may not provide for federal standing for prosecution. Often, nefarious actors attempt to bypass federal jurisdiction from the business transaction so as not to be subject to the aforementioned laws. These actors will commonly “carve out” federal governmental payors from the questionable business arrangements as a way of escaping a federal law and triggering federal jurisdiction.  There are three reasons for the attempt to navigate around federal jurisdiction. First, it is the belief of some that by failing to trigger the aforementioned traditional healthcare fraud and abuse laws the arrangement will avoid, or at least minimize, the level of scrutiny since federal authorities are not involved. Second, many states do not have the breadth of healthcare fraud and abuse laws that are available at the federal level.  Finally, state and local authorities have fewer resources to investigate and prosecute the healthcare violations.

Federal enforcement authorities have recently begun using a law enacted 60 years ago to fight racketeering and corruption involving organized crime in their efforts to combat fraud against healthcare payors.  The Travel Act (Act) is the new arrow in the quiver of federal prosecutors to pursue those whose aim is to commit healthcare fraud, waste and abuse, but dodge federal standing to prosecute for them.

The Act was never considered until recently an important tool in prosecuting healthcare fraud crimes.   Nevertheless, as evidenced upon its expanded recent use by federal authorities, it is readily apparent that prosecutors now believe the Act allows for federal prosecution of health care crimes when no federal violation has occurred. It creates federal jurisdiction when there is criminal activity that violates state law, rather than federal law, and the activity is directed from, or crosses, state lines. The need for implicating another federal law is not necessary. Recent healthcare enforcement activity has utilized state commercial bribery laws as the basis for prosecution.

Why is the use of the Act beneficial in fighting healthcare fraud? State and local enforcement will have access to cross-agency enforcement resources utilized in federal prosecutions that would not be available for state and local enforcement. It allows for the choosing of whether to prosecute under federal law or state law due to the alleged activity, the parties involved and the ease of proving a violation. These reasons may overcome the inadequacies that previously hindered needed enforcement action at the local level.

The Travel Act and its History

During the infancy of the Kennedy Administration, organized crime was the focus of the U.S. Department of Justice (DOJ). Prosecutorial efforts had become frustrated due to the lack of federal prosecutors’ ability to pursue and prosecute organized, localized criminal activity.  The Act was the solution envisioned by U.S. Attorney General Robert Kennedy to prosecute  criminal activities such as illegal gambling, illegal production and distribution of liquor, prostitution, illegal narcotics, and bribery of public officials by organized crime.6  The Act, when enacted in 1961, was heralded as a new weapon, in addition to traditional causes of action, to combat racketeering activity.7  Its purpose was “… to aid states in the enforcement of their laws by cracking down on those avoiding state prosecution by operating criminal enterprises from outside a state’s boundaries.”8  The Act provided much needed additional support for local law enforcement in the combating of organized crime.9

Before the House Judiciary Committee on Legislation Involving Organized Crime, Attorney General Kennedy stated the following:

In summary, our information reveals numerous instances where the prime mover in a gambling or other illegal enterprise operates by remote control from the safety of another state – sometimes half a continent away.  He sends henchmen to the scene of operations or travels himself from time to time to supervise the activity and check on his underlings.  As for the profits, he receives his share by messenger.10

While Attorney General Kennedy’s statement mentions gambling, which is commonly associated with organized crime, it also mentions “illegal enterprises.”  This use of this term serves as the basis as to why federal authorities expanded the Act to healthcare fraud cases.        

The Travel Act forbids the use of such transmission methods as the U.S. mail, or interstate or foreign travel, to facilitate the occurrence of criminal acts.11 Specifically, it provides that:

(a) Whoever travels in interstate or foreign commerce or uses the mail or any facility in interstate or foreign commerce, with intent to—

  • (1) distribute the proceeds of any unlawful activity; or
  • (2) commit any crime of violence to further any unlawful activity; or
  • (3) otherwise promote, manage, establish, carry on, or facilitate the promotion, management, establishment, or carrying on, of any unlawful activity,

and thereafter performs or attempts to perform—

(A) an act described in paragraph (1) or (3) shall be fined under this  title, imprisoned not more than 5 years, or both; or

(B) an act described in paragraph (2) shall be fined under this title, imprisoned for not more than 20 years, or both, and if death results shall be imprisoned for any term of years or for life.

b) As used in this section (i) “unlawful activity” means … (2) extortion, bribery, … in violation of the laws of the State in which committed or of the United States ….12

The elements of a violation of the Act include (1) interstate activity through such activity of the use of the wires or travel, but it is not necessary that those conducting the activity know that it is interstate in nature; (2) there is the intent to violate state law; and (3) the activity is in furtherance of a subsequent overt act that violates state law.

The scope of the Act is not limited to underworld kingpins or bribery of government officials.  The term “bribery” as used within the law is interpreted to include those acts that constitute commercial bribery under state law.13  Prosecution under the Act, when supported by the violation of state law, recognizes the intent of Congress to use a generic reference to “bribery” and not one specific to a particular pattern of illegal activity or industry.  Therefore, it does not result in double jeopardy since each prosecution is based upon a separate offense.14

The Rise of the Travel Act in Healthcare Fraud Prosecutions

Federal authorities have traditionally been frustrated in their efforts to pursue illegal activity if it did not affect federal governmental payors.  To avoid the reach of federal prosecutors, business arrangements may “carve out” federal programs from schemes that violate the typical fraud enforcement laws.  It is not uncommon that healthcare ventures such as physician-owned hospitals, laboratories and pharmacies commonly take only commercial or cash pay patients when marketing to physicians for investment purposes or use of the venture’s products and services. This business model helps defeat federal jurisdiction since no federal program is billed, which would be the root of illegal activity should fraud, waste or abuse occur. The use of “carve outs,” however, should not be automatically considered indicia that the venture is operating for improper purposes.  The provider or supplier may not want the administrative headaches of dealing with federal payors or is not satisfied with the amount of reimbursement paid by those programs. Nevertheless, the carve out, whether for proper or improper motives, may limit federal jurisdiction.

Recently, federal prosecutors have utilized the Act on two occasions to prosecute those involved in kickback and bribery schemes, one involving a laboratory and the other involving a physician-owned hospital.15  These prosecutions utilizing the Act used state commercial bribery statutes for activities that involved interstate commerce.  The use of state law violations allows for the federal authorities to have standing to assert a violation of federal law through the Travel Act rather than needing to rely on activity related to a federal healthcare benefits program.

The Two Recent Healthcare Fraud Prosecutions Utilizing the Travel Act

In March 2016, Bernard Greenspan, D.O. was indicted on 10 counts of conspiracy to violate the AKS and the Travel Act and to defraud patients of Honest Services (as defined by state law) as well as use of the mails and wire to carry out fraudulent acts.16  The arrangement involved Biodiagnostic Laboratory Services, LLC (BLS) and a bribery scheme with physicians located in New Jersey and New York.  The physicians, including Dr. Greenspan, a family practice physician from River Edge, New Jersey, were accused of accepting bribes to refer to BLS for laboratory services. Dr. Greenspan was convicted of multiple counts of healthcare fraud including conspiracy to violate the AKS and the Act.  The prosecution also snared BLS, its president and numerous associates.17

In December 2016, 21 individuals including physicians, chiropractors, healthcare executives, advertising executives and an attorney were indicted for an alleged kickback scheme utilizing, among other causes of action, those state laws related to commercial bribery as the basis for violating the Act.18  The alleged actions of these individuals were related to a physician-owned hospital, Forest Park Medical Center, located in Dallas, Texas.  The Forest Park indictment, like in Greenspan, focuses on payments for referrals that included not only cash remuneration but also the hospital’s payment for advertising services benefiting physicians and their medical practices.19  These alleged acts would violate Texas law prohibiting commercial bribery and solicitation of healthcare professionals. The case is currently pending in the Federal District Court for the Northern District of Texas with an expected trial date for the later part of 2018.

Defendants’ Attack on the Federal Government’s Use of the Act in Healthcare Fraud Prosecutions Has Failed in Both Greenspan and Forest Park

The defendants in both Greenspan and Forest Park have attempted to overcome the federal prosecutors’ use of the Act it by asserting similar arguments in their respective motions to have the counts based upon the Act dismissed. The requested relief was not granted in either case, but each illustrates why the defendants had a viable argument that the use of the Act in this fashion may be outside of the intent of why it was enacted.  Their primary argument is that the Act should not be used as the basis for federal prosecution because there is no meaningful distinction between the AKS and the particular state bribery laws used to support the claim of the Act’s violation.  In general, the defendants’ arguments are similar, maintaining that the AKS specifically addresses the alleged activity that makes the payment of remuneration for referrals illegal and the use of the pertinent state bribery laws as the basis for violation of the Act is due to the federal government understanding that it cannot meet its burden under federal law.  Therefore, if the federal government cannot bring charges under the AKS, the Act should not be used to get around the federal government not being able to meet its burden under federal law that is specific to the alleged crime.  The use of more general state healthcare laws, when Congress has specifically addressed healthcare fraud in other legal authority, indicates that the use of the Act is not appropriate.

Greenspan argued that absent the purpose for which the Act that was enacted, or otherwise intended to be used in healthcare fraud cases, he should not be held to any standard whereby it would be used in that context. This argument did not persuade the court. While it appears odd that the Act would apply to a Medicare lab fraud case, the review of the New Jersey Commercial Bribery statute reveals a logical, albeit not express, purpose for the use of the state law to support the use of the Act.  The New Jersey Commercial Bribery Statute provides that:

 A person commits a crime if he solicits, accepts or agrees to accept any benefit as consideration for knowingly violating or agreeing to violate a duty of fidelity to which he is subject as: … (3) A lawyer, physician, accountant, appraiser, or other professional adviser or informant.20

It may be argued the logic of its use is evident in the intent of the statute since the alleged violation was one related to a fiduciary relationship. This viewpoint would confirm the legal proposition that healthcare fraud cases should not simply default to federal and state healthcare anti-kickback statutes.  Rather, a breach of fiduciary duty may be sufficient to serve as a basis for using the New Jersey Commercial Bribery Statute in a healthcare matter, which the court recognized in denying the relief requested.

Forest Park provides a similar use of a state bribery statute.  It is alleged that the Forest Park defendants violated state law using bribes that involved licensed healthcare professionals. The Texas Commercial Bribery Statute states:

A person who is a fiduciary commits an offense if, without the consent of his beneficiary, he intentionally or knowingly solicits, accepts, or agrees to accept any benefit from another person on agreement or understanding that the benefit will influence the conduct of the fiduciary in relation to the affairs of his beneficiary.21

The basis for prosecution using the Act is that payments and other remuneration received to influence the referral of patients to a medical facility violated the Texas Commercial Bribery Statute. The defendants argue that the AKS preempts the Texas Commercial Bribery Statute since the Texas statute criminalizes conduct that is expressly allowed for in the AKS and its safe harbors.  Specifically, the defendants contend that payment for medical director services and marketing services actually provided fall within the AKS personal services safe harbor and cannot serve as a basis for prosecution under state law.

The Forest Park defendants also assert that the use of the Texas Commercial Bribery Statute conflicts with the Texas Anti-Solicitation Statute, which states:

A person commits an offense if the person knowingly offers to pay or agrees to accept, directly or indirectly, overtly or covertly any remuneration in cash or in kind to or from another for securing or soliciting a patient or patronage for or from a person licensed, certified, or registered by a state health care regulatory agency.22

The basis for this argument is that the Texas Anti-Solicitation Statute mirrors the AKS and incorporates the AKS’ safe harbors.  The defendants argue that the use of the Texas Commercial Bribery Statute as the basis for the Act’s claims intentionally deprives the defendants of the use of the AKS safe harbors.  Furthermore, since the AKS safe harbors apply to the Texas Anti-Solicitation Statute, the AKS cannot be used as a basis for prosecution under the Act since the alleged activity is acceptable under the AKS.

The Greenspan and Forest Park defendants utilized similar arguments, and in other instances those particular to their case and state law, in attempt to overcome the use of the Act in their prosecution.  The courts, in both instances, denied the relief sought to dismiss the use of the Act.   Essentially, the courts’ viewed the elements of federal and state law as substantially different.  Federal law, in the form of prosecution under the Act, requires the violation of state law and some element of the illegal activity occurring across state lines. State law focuses on the activity itself and whether it is illegal under that law.  Therefore, while the state law serves as the basis for the federal law, each is a separate and distinct law with different elements of proof.  Therefore, one law does not necessarily prohibit prosecution under the other one.

Implications of Expanded Use of the Act

Based upon its history and Congressional intent expressed in its passage, the Travel Act was enacted for the primary purpose of prosecuting organized criminal violations of state law in interstate commerce. The evolution of its use has occurred in prosecutions for violating the U.S. Foreign Corrupt Practice Act when the acts involved business transactions and not gangland activities.23 The use of the law as seen in Greenspan and Forest Park expands its availability to even other areas where the federal authorities may not be able to establish a violation of federal law or when determining a violation of state law is much easier to prove if there is activity that crosses state lines. It is conceivable there will be continued expanded use, supported by the rationale presented in Greenspan and Forest Park, in prosecutorial efforts in the areas of consumer protection, fraud and unfair trade cases. Defendants faced with defending themselves against the Act believe that such expansive use is inappropriate and beyond federal authority since the violation of state law should ordinarily lie within the purview of state prosecutors rather than federal prosecutors.

Conclusion

The evolution of using the Travel Act solely for prosecuting individuals and entities for actions that would be more common on The Sopranos than Grey’s Anatomy has begun.  The size of the U.S. healthcare system, the need for additional resources and the level of fraud, waste and abuse has created the perfect storm for the need of expanding the ability of prosecution of those who are willing participants in this problem.  The successful prosecution in Greenspan and the overruling of the Forest Park defendants’ attempt to have the Travel Act counts dismissed prior to trial are an indication that its use in healthcare appear to have judicial support.  These two cases are just the beginning of a new tool for federal prosecutors that should have those in healthcare and the defense bar concerned as to what it may ultimately mean for the expansion of federal jurisdiction.  

  1.  42 U.S.C. § 1320a-7b available at https://www.gpo.gov/fdsys/pkg/USCODE-2010-title42/html/USCODE-2010-title42-chap7-subchapXI-partA-sec1320a-7b.htm.
  2.  42 U.S.C. §1395nn, available at  https://www.gpo.gov/fdsys/pkg/USCODE-2010-title42/html/USCODE-2010-title42-chap7-subchapXVIII-partE-sec1395nn.htm.
  3.  31 U.S.C. §§ 3729, available at https://www.gpo.gov/fdsys/pkg/USCODE-2010-title31/html/USCODE-2010-title31-subtitleIII-chap37-subchapIII-sec3729.htm.
  4.  42 U.S.C. § 1320a–7a, available at https://www.gpo.gov/fdsys/pkg/USCODE-2010-title42/pdf/USCODE-2010-title42-chap7-subchapXI-partA-sec1320a-7a.pdf.
  5.  Special Advisory Bulletin on the Effect of Exclusion from Participation in Federal Health Care Programs, U.S. Department of Health and Human Services ( May 8, 2013), available at https://oig.hhs.gov/exclusions/files/sab-05092013.pdf.
  6.  B. Bewley, J. Elberg and C. McNiven, Weapons in DOJ’s Arsenal: Prosecution under the Travel Act and Other Fraud Statutes, ABA 15th Annual Washington Health Law Summit (December 4-5, 2017), available at  https://www.polsinelli.com/~/media/06allauthcheckdamc .
  7.  Rewis, v. U.S., 401 U.S. 808, 811 (1971).  See also Adam H. Hurkland, The Travel Act at Fifty: Reflections on the Robert F. Kennedy Justice Department and Modern Federal Criminal Law Enforcement at Middle Age, 63 Cath. U. L. Rev. 1, 26 (2014).
  8.  U.S. v. Ferber, 966 F.Supp. 90, 101 (D. Mass. 1997) (citing S. Rep. No. 644, 87th Cong., 1st Sess., 2-3 (1961).
  9.  Gabriel, D., The Scope of Bribery under the Travel Act, 70 Jour. of Crim. Law and Criminology, No. 3, p. 337 (1979), available at https://scholarlycommons.law.northwestern.edu/cgi/viewcontent.cgi?article=6129&context=jclc.
  10.  Gabriel at 337, quoting Attorney General Kennedy from his testimony before Subcommittee No. 5 of the House Judiciary Committee on Legislation Relating to Organized Crime, 87th Cong., 1st Sess. 23.
  11.  18 U.S.C. § 1952, available at https://www.gpo.gov/fdsys/pkg/USCODE-2011-title18/html/USCODE-2011-title18-partI-chap95-sec1952.htm.
  12.  Id. (emphasis added).
  13.  United States v. Perrin, 444 U.S. 37 (1979).
  14.  Id.
  15.  J. Feld, M. Wilkinson, L. Courington and A. Carruthers, The Rise of the Travel Act, Law Journal Newsletter, (October 2017) available at http://www.lawjournalnewsletters.com/sites/lawjournalnewsletters/2017/10/01/the-rise-of-the-travel-act/.  See also J. Sheehan and J. Golder, Beyond The Anti-Kickback Statute: New Entities, New Theories In Healthcare Fraud Prosecutions,  J Health Law 40 (2), 167-203 (Spring 2007), available at  https://www.healthlawyers.org/Publications/Journal/PublicDocuments/Vol%2040%20Issue%202/Beyond%20The%20Anti-Kickback%20Statute-%20New%20Entities,%20New%20Theories%20In%20Healthcare%20Fraud%20Prosecution.pdf.
  16.  See United States of America v. Bernard Greenspan, Indictment, Criminal No. 16-114, U.S. District Court for the District of New Jersey.
  17.  Bergen County Doctor Convicted Of Taking Bribes In Test-Referral Scheme With New Jersey Clinical Lab, U.S. Department of Justice Press Release (March 6, 2017), 2017 WL 894809.
  18.  Executives, Surgeons, Physicians, and Others Affiliated with Forest Park Medical Center (FPMC) in Dallas Indicted in Massive Conspiracy, U.S. Department of Justice Press Release (December 1, 2016), available at https://www.justice.gov/usao-ndtx/pr/executives-surgeons-physicians-and-others-affiliated-forest-park-medical-center-fpmc.
  19.  See United States of America v. Alan Andrew Beauchamp, Indictment, Cause No. 3:163:16-cr-016-CR-516; U.S. District Court for the Northern District of Texas.
  20.  N.J.S.A. 2C:21-10 (emphasis added).
  21.  Tex. Penal Code §32.43.
  22.  Tex. Occ. Code §102.001.
  23.  M. Diamant, FCPA + Travel Act: Double Trouble?, CNBS Moneycontrol (April 3, 2012) available at  https://www.gibsondunn.com/publications/Documents/DiamantFleming-FCPAandTravelAct.pdf.

Patrick D. Souter

Gray Reed & McGraw LLP

Patrick D. Souter is Of Counsel with the law firm of Gray Reed & McGraw, LLP in Dallas, Texas where he is a member of the Healthcare, Corporate and Securities Practice Groups.  Mr. Souter’s practice focuses on transactional, administrative, regulatory and antitrust matters for healthcare providers and suppliers.  His representation includes organizational and operational issues with specific emphasis on the areas of fraud and abuse, licensure, reimbursement and compliance.  He is an Adjunct Professor at Baylor University School of Law in Waco, Texas where he teaches Healthcare Law, Healthcare Fraud and Abuse and Regulation of Healthcare Professionals. He is also an Adjunct Professor in the MBA Program at the Baylor University Hankamer School of Business Robbins Institute for Health Policy and Leadership, where he teaches Healthcare Law and Ethics, Healthcare Law: Applications & Strategies and Business Law: Applications and Strategies.  He may be reached at psouter@grayreed.com.