The Supreme Court’s Narrowing of Mail and Wire Fraud May Affect RICO Litigation in the Health Care Industry

In recent years, the Supreme Court has made a project of reining in the federal mail and wire fraud statutes, 18 U.S.C. §§ 1341 and 1343. This will have profound implications for federal prosecutors, one of whom described the mail fraud statute as “our Stradivarius, our Colt 45, our Louisville Slugger, our Cuisinart–and our true love.” But it will also have nearly as powerful an impact on civil lawsuits under the Racketeer Influenced and Corrupt Organizations statute (RICO), most of which are now based on allegations of mail and wire fraud. 

Among the RICO cases affected will be those filed by health insurers against health care providers, pharma/biotech companies, and sellers of medical devices and equipment. In some of these cases, insurers allege that such companies have engaged in mail or wire fraud by paying kickbacks to obtain patients, and then billing their insurers for the resulting claims. The recent trend of narrowing the federal fraud statutes could make these cases harder to pursue.

Health Insurers Use RICO and Fraud Statutes to Attack Kickbacks

RICO allows “any person injured in his business or property” by others’ commissions of certain crimes to sue the perpetrators for treble damages. Among the crimes covered are mail and wire fraud, which in some ways are akin to ordinary, common-law business fraud torts. As a result, while RICO was originally designed to combat traditional organized crime, nowadays it is most often wielded as a “thermonuclear weapon” in heated business litigation. 

Health insurers have sometimes sought to turn it against companies that have allegedly paid kickbacks for patient referrals. One theory is that a provider that pays kickbacks without disclosing them to the insurer, and then bills the resulting treatment or goods to the insurer, has committed fraud by omission, or by implicitly certifying that it has not paid kickbacks.

For example, GEICO filed a RICO claim in New York federal court against acupuncture providers who allegedly paid for patient referrals. The court granted GEICO’s motion for summary judgment, agreeing that the provider “was not entitled to reimbursement due to its payment for patient referrals,” and thus that the defendant had violated the mail fraud statute in submitting its claims. 

In other cases, insurers have recently used RICO to sue biotech company Regeneron for using a charity organization to help patients cover copays for an expensive Regeneron drug that treats macular degeneration. In part, the theory is that the financial assistance is a form of kickback to the patients, and the scheme defrauds the insurers in violation of the mail and wire fraud statutes. The cases have been stayed pending a separate DOJ lawsuit over the same conduct.

The Courts Crack Down on Overbroad Mail and Wire Fraud Theories

In last year’s Ciminelli v. United States, 598 U.S. 306 (2023), the Supreme Court rejected the “right to control” theory of mail/wire fraud, under which a defendant could be guilty if he “deprives a victim of potentially valuable economic information necessary to make discretionary economic decisions” or of “intangible interests such as the right to control the use of one’s assets.” According to the Court, the fraud scheme had to aim at depriving the victim of more traditional property rights, rather than such intangible interests.

Lower courts have begun to respond to this directive. Several months ago, in United States v. Constantinescu, a Texas federal court dismissed an indictment against defendants accused of a pump-and-dump scheme in which they used social media posts to induce their followers to buy certain securities, then sold their own shares when the price went up. The court said that because the defendants had not sold inflated stock directly to their followers–but rather to the general market–their scheme did not involve depriving the victims of traditional property rights.

In some circuits, courts have also held that even if a defendant misleads someone else into parting with their money or property, that defendant does not commit mail or wire fraud where the alleged victims “received exactly what they paid for” and “there was no discrepancy between benefits reasonably anticipated and actual benefits received.” See United States v. Starr, 816 F.2d 94 (2d Cir. 1987). Thus, where a misrepresentation does not go to “the nature of the bargain” between defendant and victim, it does not amount to federal mail or wire fraud. United States v. Milheiser, 98 F.4th 935 (9th Cir. 2024).

The Supreme Court may be on the verge of adopting this theory, too. In the October 2024 term, it will consider Kousisis v. United States, in which the first issue is “whether deception to induce a commercial exchange can constitute mail or wire fraud, even if inflicting economic harm on the alleged victim was not the object of the scheme.” The Court’s decision may extend the “nature of the bargain” theory nationwide.

Under the Supreme Court’s New Holdings, Kickbacks May Not Equal Fraud

These decision could make it harder for insurers to base RICO claims on a theory of kickbacks as mail or wire fraud. Where a patient has a legitimate medical need for a certain treatment, and a provider has provided that treatment properly, then arguably both patient and insurer have received what they bargained for. While the insurer might claim that it had been deprived of money it would otherwise have kept, if the treatment was medically necessary, then presumably the insurer would have had to pay someone for the treatment. Under Starr, Milheiser, and perhaps Kousisis, that would arguably mean there has been no mail or wire fraud–regardless of how the patient ended up with the provider.

The insurer would then be left to argue that it was denied its intangible right to be informed of and reject claims somehow “tainted” by kickbacks. But that right would be strikingly close to the “right to control” that was deemed insufficient in Ciminelli.

Insurers would perhaps pivot to a different strategy: arguing that the kickbacks constitute other types of “racketeering” crimes under RICO. For example, in Health Net v. Dual Diagnosis Treatment Centers, an insurer successfully sued a provider under RICO by invoking Section 750 of California’s Insurance Code, which prohibits using “runners, cappers, or steerers” to obtain insured patients. That law was considered a type of state “bribery” statute that qualifies as a RICO offense.

Even more creatively, in In re EpiPen Direct Purchaser Litigation, drug wholesalers sued Mylan, the maker of EpiPens, under RICO. The plaintiffs claimed that Mylan had paid rebates to pharmacy benefit managers in order to induce more orders of the devices. This, they claimed, violated the federal Anti-Kickback Statute, which amounted to “bribery” in violation of the federal Travel Act, which was a type of “racketeering” offense covered by RICO. A Minnesota district court accepted the theory and allowed the case to proceed.

Other plaintiffs have invoked the “honest services fraud” statute, 18 U.S.C. § 1346, which extends the mail and wire fraud statutes (and thus RICO) to cover accepting kickbacks in return for shirking one’s fiduciary duty to another. Some courts have held that a doctor owes the equivalent of a fiduciary duty to her patients, and thus that accepting kickbacks for patient referrals violates § 1346.

Two major challenges to these strategies are standing and causation, which are required for a valid RICO claim. That is, a RICO plaintiff must show that the defendants’ illegal conduct caused “concrete financial harm” to the defendant’s “business or property.” As mentioned above, if the treatment provided in a kickback scheme was medically necessary, then presumably the insurer would have had to pay for it one way or another, regardless of who ended up providing it. 

In some contexts–like the copay assistance case in Regeneron–the insurer might retort that the kickbacks steered the patient to a more expensive provider, treatment, or drug than a cheaper alternative the patient would have chosen if forced to cover the full copay amount. This might satisfy RICO’s harm causation requirements.

Takeaway

Many have discussed how the Supreme Court’s scrutiny of the mail and wire fraud statutes will affect the prosecution of federal white collar crimes. But fewer have mentioned the parallel effect on RICO litigation, which is heavily grounded in those same laws. The health care industry may be among the first to feel the effects, as the battlefield in kickback-related litigation shifts, and insurers–like prosecutors–must seek out a new “true love.”