AMARILLO, TX – Two recent Department of Justice (“DOJ”) cases focus on fraudulent telehealth arrangements affecting DME suppliers.

In August 2024, Christopher Vehovec pled guilty in a Trenton, NJ federal court to one count of conspiracy to commit health care fraud. According to the DOJ press release announcing the plea: “Vehovec and his conspirators solicited and received kickbacks and bribes in exchange for providing durable medical equipment (DME) companies with completed doctors’ orders for medically unnecessary DME, such as orthotic braces. Vehovec and his conspirators utilized the service of telemedicine companies to obtain these prescriptions for DME, and the DME orders were subsequently fraudulently billed to Medicare and other health care benefit programs.”

According to the DOJ, Vehovec and his conspirators caused losses to Medicare and other federal health care programs of at least $4.2 million. The press release states: “The charge of conspiracy to commit health care fraud is punishable by a maximum potential penalty of 10 years in prison and a fine of $250,000, or twice the gross profit or loss caused by the offense, whichever is greatest.”

In September 2024, the DOJ announced that Dr. Vishal Patel, a Wilmington, DE physician, agreed to pay $1,080,000 to resolve allegations that he violated the federal False Claims Act by ordering medically unnecessary DME for patients covered by a federal health care program (“FHCP”). According to the DOJ press release:

• Between February 2018 and April 2019, Dr. Patel referred patients for more than 1750 orthotics devices, including wrist, shoulder, knee, ankle, and back braces.
• The United States alleged that Dr. Patel had no medical relationship with the patients and that the referrals were based on brief reviews of the patients’ medical charts, that failed to establish any legitimate medical justification for the devices.
• Patient files were provided to Dr. Patel by RediDoc, LLC, a purported telemedicine company based in Phoenix, AZ whose owners pleaded guilty to participation in a $64 million health care fraud conspiracy in May 2022.
• “Fraudulent telemedicine companies such as RediDoc rely on licensed healthcare providers to make their operations appear legitimate and avoid detection,” said U.S. Attorney David C. Weiss.

Lessons for DME Suppliers

The above cases provide valuable lessons to DME suppliers:

• Be Wary of Sham Telehealth Companies – Certainly, there are legitimate telehealth companies. These are companies that (i) are paid by patients and/or their insurers, (ii) have contracted with physicians, (iii) require their physicians to be licensed in the appropriate states, and (iv) ensure that the telehealth encounters with patients comply with applicable federal and state laws. On the other hand, there are sham telehealth companies that are in bed with lead generation companies (“LGCs”). In a sham arrangement, (i) the LGC generates leads from patients who are interested in a certain DME item, (ii) the LGC forwards the leads to the telehealth company, (iii) the telehealth company provides patient information to the physician, (iv) the physician has a two minute call with the patient…or does not talk to the patient…but rather, reviews a document provided by the telehealth company on the patient, (v) the physician writes the order and transmits it to the telehealth company, and (vi) the telehealth company sends the order to the DME supplier. The money flows like this: (i) the DME supplier pays the LGC, (ii) the LGC pays the telehealth company, and (iii) the telehealth company pays the physician. What this means is that the DME supplier is paying the physician. It just so happens that the money “flows through” the LGC and telehealth company…each of which retains its cut. What I have just described is a kickback…and the submission of false claims by the DME supplier (i.e., a claim that arises from a kickback arrangement is a “false claim”).
• Be Wary of an LGC that Offers to Furnish Signed Physician Orders to the DME Supplier – See the above discussion. There is a risk that the signed order results from a kickback scheme.
• In Fact, Simply Be Wary of LGCs – LGCs have nothing to lose. They do not have PTANs. They are not accredited. When an arrangement is investigated by the DOJ, the LGC can normally just “fade into the night” and look for its next scam. On the other hand, the DME supplier has everything to lose. It is the one that (i) is accredited, (ii) has state DME licensure, (iii) has a surety bond, (iv) has a PTAN, (v) has a state Medicaid provider number, and (vi) has third-party payor (“TPP”) contracts. All of this can disappear in the event that the DME supplier is investigated (and if the investigation goes badly for the supplier).
• Confirm that Patient/Physician Encounter is Legitimate – Ideally, the patient will drive to his family physician’s office and have a face-to-face encounter with his physician. If the patient is to have a telehealth encounter with the ordering physician, the DME supplier needs to confirm that the encounter complies with federal and state laws governing telehealth encounters.
• Patel is Lucky – Dr. Patel settled his part of the investigation by paying money. This was a civil settlement. He is fortunate that he did not have to enter a criminal plea. The bigger lesson is that if a DME supplier is a target of a DOJ investigation, the supplier and its attorney need to immediately enter into discussions with the DOJ with the goal of reaching a civil settlement…and avoiding a criminal plea.
• Avoid an Indictment – Christophe Vehovec pled guilty without being indicted. My hunch is that his attorney worked out the plea before a Grand Jury issued an indictment. The DOJ has more flexibility in negotiating a pre-indictment plea than in negotiating a plea after an indictment has been handed down. And so if a person is the target of a DOJ criminal investigation, and if the facts show that the person is criminally liable, the target and his attorney need to work out a pre-indictment plea. Such a plea will likely be more favorable to the target than a post-indictment plea.

AAHOMECARE’S EDUCATIONAL WEBINAR

How Compliance Issues Affect a Company’s Valuation

Presented by: Jeffrey S. Baird, Esq., Brown & Fortunato & Wayne van Halem, The van Halem Group

Tuesday, April 22, 2025

1:30-2:30 p.m. CENTRAL TIME
Every DME supplier must have a functioning compliance program. Such a program serves three functions. First, the compliance program establishes guardrails that, if followed, will result in the avoidance of serious legal problems. In a sense, the compliance officer is the “canary in the mine shaft.” He/she does not need to be an expert on compliance matters…but needs to know enough to recognize a potential problem. Second, if a problem does arise, a compliance program should be able to solve the problem before it turns into a recoupment, whistleblower action or government investigation. Third…and this is the focus of this program…a functioning compliance program will help the DME supplier maintain an accurate valuation. If a supplier wants to sell, or if it wants to secure a bank loan, the most important question is: “What is the DME supplier worth?” For example, a standard formulation for calculating a purchase price for a supplier is “3 to 5 x EBITDA.” EBITDA stands for “earnings before interest, taxes, depreciation and amortization.” Essentially, EBITDA is the DME supplier’s net profit. While the 3 to 5 x EBITDA is standard, the multiple can be higher (e.g., 7 to 8 x EBITDA) if the supplier is unique enough…and successful enough…to justify the higher multiple. If the DME supplier’s EBITDA is built on a false pretense (e.g., a business model that is not legally compliant), in a sale the EBITDA will be discounted…meaning that the seller will receive less than what it anticipated. Or the purchaser may simply walk away. This program will discuss (i) how a compliance program can be drafted and (ii) how a compliance program can be implemented in order to achieve three goals discussed above – and especially the goal of maintaining the supplier’s valuation.

Register for How Compliance Issues Affect a Company’s Valuation on Tuesday, April 22, 2025, 1:30-2:30 p.m. CT, with Jeffrey S. Baird, Esq. and Wayne van Halem.

Member Benefit
Non-Members: $129

Jeffrey S. Baird, JD, is chairman of the Health Care Group at Brown & Fortunato, a law firm with a national health care practice based in Texas. He represents pharmacies, infusion companies, HME companies, manufacturers and other health care providers throughout the United States. Mr. Baird is Board Certified in Health Law by the Texas Board of Legal Specialization and can be reached at (806) 345-6320 or [email protected].