Modernizing Medicine, a provider of cloud-based electronic health records (EHR) systems, has agreed to pay $45 million to the federal government to settle a whistleblower lawsuit filed in 2017 by Phillips and Cohen LLP of Washington, DC and Downs Rachlin Martin of Burlington, Vermont.
ModMed, based in Boca Raton, Florida, sells cloud-based electronic health records systems through subscription services, to specialty medical practices including dermatology and orthopedics. Medical providers use the software for clinical documentation, prescribing medications, telemedicine, billing, and more.
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In March 2022, the U.S. Department of Justice joined the case against ModMed and its two founders and executives, Dan Cane and Dr. Michael Sherling, after an investigation. Today the United States filed its complaint in intervention alleging, among other things, that, from January 2010 through July 2017, ModMed engaged in multiple kickback schemes, including creating a “strategic partnership” with a clinical laboratory, Miraca Life Science, where Miraca would directly compensate ModMed when its users sent laboratory orders to Miraca. The alleged illegal conduct included providing Miraca with exclusive “enhanced” laboratory interfaces within ModMed’s EHR that would drive diagnostic testing business to Miraca. The settlement resolves the allegations against ModMed. Allegations against Mr. Cane and Dr. Sherling also are dismissed with resolution of this lawsuit.
As part of the Health Information Technology for Economic and Clinical Health Act (HITECH Act), the federal government has paid billions of dollars as incentives to healthcare providers to buy and implement certified electronic health record systems. In 2017, the United States settled the first groundbreaking qui tam suit against an electronic health record vendor, eClinicalWorks, and certain top executives, for $155 million and established a first-of-its-kind corporate integrity agreement tailored to health IT vendors.
Resolution of the lawsuit with ModMed demonstrates the continued commitment of the United States to enforcing compliance with federal requirements for certification of health information technology. It is also significant because it resolves allegations concerning illegal referral arrangements between the EHR vendor and a clinical laboratory, Miraca. The United States alleges that these financial arrangements improperly generated sales for ModMed and Miraca, while causing healthcare providers to submit false claims for reimbursement to the federal government for pathology services, and false claims for incentive payments for the adoption and “meaningful use” of ModMed’s EHR technology. This is believed to be the first time the United States has taken enforcement action under the False Claims Act against an EHR vendor for providing preferential treatment for a clinical laboratory.