EHR provider Modernizing Medicine pays $45M to settle DOJ, whistleblower case alleging False Claims Act Violations, Kickbacks

Washington, DC, November 1, 2022—Modernizing Medicine (ModMed), 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.

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.

Additional allegations include that ModMed rewarded customers and other influential sources in the healthcare industry to recommend its EHR knowing that providers were receiving Medicare subsidies for those purchases. These financial rewards included gift cards for hosting demonstrations of EMA and licensing or service credit fee.  These fees were solely based on the success of the referral to induce a new user to adopt and use EMA.

“Resolution of this lawsuit is significant for a number of reasons, including that it reminds EHR vendors of the need to comply with the federal laws prohibiting kickbacks when entering into arrangements with third party providers including laboratory and other diagnostic services providers within the EHR ecosystem,” said Colette Matzzie, a whistleblower attorney and partner with Phillips & Cohen LLP. “Steering clinicians to send orders to a preferred laboratory has the potential to inappropriately influence clinical decisions.  Transparency of these financial relationships is essential for quality of care and beneficiary choice.”

The “relator,” or whistleblower, in the False Claims Act case is Amanda (Mandy) Long. Ms. Long was Vice President of Product Management at ModMed. She resigned from ModMed in 2017. Ms. Long is currently CEO and member of the Board of Directors of Ms. Long was previously Vice President of IT Automation at IBM. Ms. Long has over 15 years of experience in software and hardware portfolios across multiple industries and is a subject matter expert in product management processes and artificial intelligence/machine learning.

“I felt compelled to come forward to report my concerns about decisions made by ModMed that appeared to place corporate profits over compliance with federal healthcare laws including those intended to protect patient safety and quality clinical care. I am grateful that the Department of Justice investigated the matter diligently and recovered these funds for taxpayers,” said Ms. Long.

Phillips and Cohen has been a leader representing whistleblowers exposing fraud in the electronic medical records industry, with successful settlements in the eClinicalWorks litigation ($155 million), Konica Minolta ($500,000), CareCloud ($3.8 million), and, now, Modernizing Medicine ($45 million) litigation. These settlements, and three other matters settled by the government, represent a growing trend of DOJ and HHS–Office of Inspector General investigating allegations of fraud in the development and implementation of electronic health records. Read more about the lessons learned since the eClinicalWorks settlement here.   

Lead counsel for Relator were Colette Matzzie of Phillips & Cohen and Tristram Coffin of Downs Rachlin Martin in Burlington, Vermont.  Ms. Matzzie and Mr. Coffin also represented Relator Brendan Delaney in the eClinicalWorks case. Tristram J. Coffin was previously the US Attorney for the District of Vermont under President Obama.

The False Claims Act empowers whistleblowers to file qui tam lawsuits to sue entities that are defrauding the government. The law requires that the cases be filed under seal. The government then investigates the allegations and decides whether to join the case before it is made public. Whistleblower rewards under the False Claims Act range from 15% to 25% of any recovery resulting from allegations in which the government intervenes. In recognition of her substantial contributions, Ms. Long will receive 20% of the settlement.

Ms. Long and her attorneys expressed appreciation to the government for its thorough investigation of her qui tam complaint and specifically thanked US Attorney Nikolas Kerest of the District of Vermont, former Assistant US Attorney Owen C.J. Foster, Assistant US Attorney Lauren Lively, DOJ Civil Frauds Assistant Director Edward Crooke, DOJ Trial Attorney Kelley C. Hauser and DOJ Trial Attorney Sarah A. Hill.

The whistleblower complaint is posted here.

The United States’ Complaint in Intervention is posted here.

The Settlement Agreement is posted here.

DOJ’s press release is here.

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