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In latest EHR False Claims Act Settlement, Modernizing Medicine Agrees to Pay $45 Million

After losing a motion to compel production of a key document, the U.S. Attorney’s Office in Vermont nevertheless has managed to notch another large False Claims Act settlement with an electronic health record (“EHR”) company. On November 1, 2022, that office announced that Modernizing Medicine, Inc. (“ModMed”), a Florida-based electronic EHR technology vendor, has agreed to pay $45 million to resolve allegations that it (1) accepted and provided unlawful remuneration in exchange for referrals and (2) caused users of ModMed’s EHR software to report inaccurate information in connection with claims for federal incentive payments.

The government’s complaint alleged that ModMed engaged in three kickback schemes. First, ModMed allegedly conspired with a pathology lab, Miraca, to give physician practices ModMed software in exchange for referrals. Second, ModMed agreed to take money from Miraca in exchange for modifying its software in such a way that physician practices would be more likely to send pathology samples to Miraca for analysis. Third, ModMed paid various forms of remuneration, including gift cards and service fee credits, to existing ModMed EHR users and to industry influencers who referred potential new users to ModMed.

The government also alleged that ModMed’s EHR software did not work as it should have, because the “software did not always enable users to conduct transactions using required standard vocabularies.” As a result, ModMed allegedly caused its users to obtain Meaningful Use Programs incentive payments to which they were not entitled.

Unlike recent False Claims settlements in other districts, such as the Northern and Southern Districts of New York, the Eastern District of Washington, and the District of Massachusetts, this settlement does not contain any factual admissions, and ModMed denied the government’s allegations.

The settlement comes a little over four months after a federal district court in Vermont denied the government’s motion to compel a document from Warburg Pincus LLC (“Warburg”), a New York private equity firm that purchased a controlling stake in ModMed in 2017. In responding to a government subpoena, Warburg produced just 87 documents, including an email that the court characterized as “reflect[ing] advice from outside counsel.” According to the court, a non-lawyer Warburg employee, Boying Shui, sent the email, which “discussed a legal review by Warburg’s outside counsel related to ModMed and summarized outside counsel’s legal advice” during the course of Warburg’s due diligence review of ModMed (i.e., before there was any privilege for communications between Warburg and ModMed attorneys). The court explained that Mr. Shui “intended to send the Subject Email to Mark Colodny, an employee of Warburg. Instead, he sent it to Mark Fleisher, general counsel of ModMed.”

After Warburg produced the email in response to the government’s subpoena, the government used it as an exhibit during a deposition of a Warburg executive. The next day, Warburg asserted that it had inadvertently produced the email and that the email was privileged. Nonetheless, ModMed’s attorneys at Ropes & Gray, a large national law firm, subsequently produced the same email to the government again. Notwithstanding the repeated disclosures of the email to the government, the court agreed with Warburg that all of these productions were “inadvertent” and thus ruled that the email remained privileged. The court rejected the government’s argument that Warburg was so careless with its production – which, after all, contained very few documents to review for privilege – that the inadvertent production rule should not apply. Although the court agreed with the government’s contention that the privilege review by Warburg’s outside attorneys at Alston & Bird, another large national law firm, was “less than robust,” the court ultimately found that the “review process utilized by Warburg was not exemplary but was not so lax, careless, inadequate or indifferent to consequences as to constitute a waiver.” (Quotation omitted.)

A whistleblower brought the qui tam case that caused the government to investigate ModMed, and that whistleblower will receive an award of $9 million, or 20 percent of the settlement amount.