The recent federal grand jury indictment of 21 health care executives, investors, and physicians in connection with the now defunct Dallas-based Forest Park Medical Center effectively turned the Texas health care compliance environment on its head. The individuals were allegedly involved in what federal prosecutors described as a "massive, multi-faced bribe and kickback scheme."

The charges prompt the following business action items and considerations:

• Texas health care business owners and providers with an investment interest in a provider entity that carves-out federal health care program business will need to reassess any potential kickback arrangement in light of the federal government's enforcement action in Forest Park.

• A business arrangement that was previously considered "low-risk" under the Texas anti-kickback or bribery statutes—due to a lack of state government enforcement action—may now be exposed to a risk that the federal government may use the Travel Act to enforce previously unenforced state law against the arrangement.

• As Texas sovereignty wanes, business owners, investors, and providers will need to reassess business arrangements that could potentially expose them to the risk of criminal enforcement under the federal Travel Act.

Background

The charges brought by the US Attorney's Office for the Northern District of Texas (NDTX) in Forest Park under the Travel Act (18 U.S.C. § 1952) are novel and unprecedented, as:

• The charges require that federal prosecutors demonstrate that the defendants violated federal law by failing to comply with a state law that Texas has chosen not to enforce;

• NDTX's use of federal authority to enforce a previously unenforced criminal statute will create significant investment insecurity among Texas health care business owners, investors, and providers; and

• The enforcement of a state law by a federal authority effectively strips the Texas Attorney General of its discretionary enforcement authority which, to date, the Texas Attorney General has not exercised.

According to the indictment and DOJ press release, Forest Park paid approximately $40 million in bribes and kickbacks to physicians, surgeons, and others in exchange for patient referrals to the physician-owned, out-of-network hospital. Among other charges, NDTX alleges that the kickback scheme violated the Travel Act (18 U.S.C. § 1952), a statute that can transform certain state statute violations into federal crimes when completed in conjunction with interstate travel or use of the mail. In this case, NDTX said the kickbacks constituted illegal bribes under Texas' commercial bribery statute, which criminalizes a fiduciary's solicitation or acceptance of any benefit "on agreement or understanding that the benefit will influence the conduct of the fiduciary in relation to the affairs of his beneficiary." Unlike Texas' bribery provision, commercial bribery does not necessarily involve government officials.

Implications

This prosecution is significant for multiple reasons:

1. First, NDTX effectively used the Travel Act to federalize the Texas commercial bribery statute, which has no analogous provision at the federal level, and which Texas law enforcement agencies have never enforced on their own. As described in a federal district court rejection of the use of the Travel Act, "it is the state, not the federal government, that must make the initial prosecutorial policy decision." A federal court actively prosecuting a state statute that Texas has chosen not to enforce raises significant concerns regarding principles of federalism and deference to Texas's sovereignty. NDTX's action also may raise questions regarding the impact on state sovereignty and the potential for inconsistent federal enforcement across state lines, particularly when many states do not have a commercial bribery statute on the books.

2. Second, the use of the Travel Act in a health care enforcement prosecution is a rather novel concept that — while used in a handful of other indictments in other states to induce guilty pleas — has yet to be ruled upon in federal court. This should be particularly concerning to health care practitioners in Texas who have relied on safe harbor provisions to the Texas Patient Solicitation Act (which mirror the safe harbors of the federal anti-kickback statute) when making decisions as to the propriety of their referrals. Notably, the Texas commercial bribery statute has no such safe harbors.