With Cerebral in the spotlight, DOJ, regulators to ramp up scrutiny of telehealth startups, former prosecutor says

Even prior to the COVID-19 pandemic, the Department of Justice (DOJ) was ramping up its focus on telehealth companies and prescribing practices for controlled substances.

The agency's recently launched investigation into mental health startup Cerebral represents a perfect storm of these two enforcement areas, according to a former federal prosecutor. And the DOJ likely won't stop there.

"I think we're going to see a lot of activity in the space," Miranda Hooker, a partner in the health sciences department at law firm Troutman Pepper, told Fierce Healthcare.

"I think we're going to see an increase in a lot of investigations and inquiries into services that are being provided via telehealth, including the prescription of controlled substances. I think it's one of many facets the government will be looking at to make sure that operations are compliant," said Hooker, who previously served as an assistant U.S. attorney in the healthcare fraud unit of the U.S. Attorney’s Office for the District of Massachusetts. As part of that unit, she was responsible for investigating and prosecuting Medicare and Medicaid fraud and violations of FDA laws and regulations, including allegations of off-label marketing and violations of the Anti-Kickback Statute.

Hooker has no involvement or knowledge of the DOJ investigation into Cerebral.

Cerebral is currently mired in a DOJ investigation into its prescribing practices and "possible violations" of the Controlled Substances Act. Last month, Cerebral Medical Group received a grand jury subpoena from the U.S. Attorney’s Office for the Eastern District of New York. The Controlled Substances Act regulates the distribution of potentially addictive medicines like Adderall and Xanax.

"To be clear, at this time, no regulatory or law enforcement authority has accused Cerebral of violating any law," the company said in a statement regarding the subpoenas.

Cerebral provides comprehensive, online mental health services for depression, anxiety, PTSD, attention-deficit/hyperactivity disorder, bipolar disorder and a range of other conditions. In May, the company announced it will no longer prescribe most controlled substances to patients, citing the eventual expiration of telehealth waivers that allowed online prescriptions for drugs like Xanax and Adderall.

The Federal Trade Commission is also investigating the company's business practices, including whether Cerebral engaged in deceptive or unfair practices related to advertising or marketing of mental health services, The Wall Street Journal reported.

With the dramatic rise in telehealth in the past two years, the DOJ has stepped up enforcement of telehealth fraud in which sham companies have doctors write unnecessary prescriptions that are billed to Medicare. 

A year ago, the department charged 14 people, including telehealth executives and physicians, for alleged healthcare fraud schemes that exploited the COVID-19 pandemic and resulted in over $143 million in false billings. Some of those defendants were charged with telehealth fraud by taking advantage of CMS policies that broadened telehealth access during the pandemic so Medicare beneficiaries could receive healthcare services from their doctors without having to travel to a medical facility.

"What we've seen in the past is a large amount of telehealth fraud enforcement that's been rooted in true fraud schemes or violations of the Anti-Kickback Statute where someone's being paid to just write a prescription or check a medical file and they are not really consulting with a patient," Hooker said.

"With the huge increase in telehealth services that we're seeing, there's an expectation that what we're going to see in the future are inquisitive investigations by the government, whether it's DOJ or the Office of Civil Rights, into things where it comes down to billing fraud. Are you actually providing services in this 30-minute telehealth consultation, or are those services being cut in half? Are you billing for 30 minutes of service but you only spoke to a patient for 15 minutes? Things of that nature," she said.

The DOJ's probe into Cerebral marks a shift into investigating the actual provision of telehealth services and whether they are being billed properly, Hooker noted.

"This is a different spin on it, where they're saying, 'Can you properly make a medical determination about a patient and then prescribe a controlled substance to them in the time of the telehealth appointment?'"

Cerebral, which has a valuation of $4.8 billion, launched in January 2020 and grew rapidly, propelled by increased demand for behavioral health care services during the pandemic. The startup banked $300 million in a series C round in December, boosting its valuation to $4.8 billion.

The company is among a handful of virtual care startups that prescribe controlled substances without patients seeing a doctor in person.

In January 2020, the Drug Enforcement Administration announced it was loosening remote prescribing restrictions of Schedule II through Schedule V controlled substances for the duration of the public health emergency. In effect, this rolled back select provisions of the Ryan Haight Online Pharmacy Consumer Protection Act, originally passed in 2008 to narrow the circumstances outlined in the Controlled Substances Act under which a controlled drug can be prescribed via telehealth.

The Controlled Substances Act regulates the distribution of potentially addictive medicines like Adderall and Xanax.

"Even with the relaxation of the Ryan Haight Act, there's still a fundamental premise that in order to issue a prescription for a controlled substance, the prescriber has to have a legitimate medical purpose to prescribe the controlled substance," said Hooker. "What I'm guessing the Department of Justice is going to be looking at is whether or not in these half-hour telehealth consultations, there's enough information being solicited from the patient to really be able to diagnose an underlying condition that would make a prescription for Adderall or Xanax medically necessary and appropriate."

If a company is writing prescriptions for drugs that are not medically necessary, that could be the basis for a case alleging fraudulent billing under the False Claims Act, Hooker said.

"What the DOJ is looking for and what they're going to need, frankly, to make a strong case is whether there was a strong directive from the company to be prescribing these controlled substances to as many patients as possible," she said.

She added, "If you're another telehealth company that's prescribing controlled substances, I think you're going to be watching this and you're probably looking at your own controls. What I would imagine other companies are doing is taking a hard look at their practices, the amount of time they're spending with patients, how they're documenting those visits, and what they're documenting. So if the camera turns to them, they can justify all the prescriptions they are issuing."

Growing concerns about online mental health services

The digital mental health space was growing rapidly even before the COVID-19 pandemic, but stress and anxiety brought on by the health crisis have accelerated demand for virtual behavioral health services.

Broadly, the digital mental health space includes direct-to-consumer apps such as Talkspace and Calm, apps that are designed for a clinician to prescribe—such as reSET, which is used to treat substance use disorders—and also mental health platforms that work with employers and health plans such as Ginger, Lyra Health and Modern Health.

There are more than 380,000 health apps available through Apple and Android operating systems, and around 20,000 of them address mental health, according to the European Connected Health Alliance.

With the market growing rapidly, some mental health experts are concerned about whether digital tools deliver what they promise.

"It comes down to, are they meeting the minimum standard of care? And are they offering what patients are expecting? Are they actually developed to deliver on their promises at the most basic level?" John Torous, M.D., director of the digital psychiatry division at Beth Israel Deaconess Medical Center in Boston, told Fierce Healthcare.

Torous, also an associate professor of psychiatry at Harvard Medical School, focuses his research primarily on direct-to-consumer apps and spoke to Fierce Healthcare broadly about online mental health services.

"With mental health, these are multifaceted illnesses. Traditionally, it takes some number of visits to truly understand a patient's diagnosis and what makes her diagnosis case unique to really understand what can be the best treatment. It then takes time to adjust the treatment to make sure you're recommending both medications also non-medication things, so figuring out lifestyle interventions, figuring out a therapy plan and medication and giving someone, hopefully, more holistic care."

He added, "I think you can do all those aspects online. But just because you're using a computer screen or smartphone screen as a medium to talk to a patient, it doesn't change the emphasis on giving high-quality, personalized and effective treatment. Technology doesn't change the rules on what is good or bad care."

Last week, Business Insider published an in-depth report about Cerebral's prescribing practices, including internal reports that providers harmed hundreds of patients. Insider cited more than 2,000 leaked incident reports and interviews with dozens of current and former employees that illustrate a history of grave missteps at the beleaguered mental health startup.

As patients increasingly rely on digital health companies, the possibility of these startups closing shop due to financial issues or no longer writing prescriptions for certain drugs has a significant impact on patient care, Torous noted.

"I think it's a broader issue with digital health companies that there is a lack of continuity and a chance of rapid discontinuation with no plan," he said.

Digital health companies need to think about transitions of care and integrating with the broader healthcare system, he noted, especially for patients with complex mental health conditions.

"I do think we're going to see new ways to evaluate and look at these companies. As we're seeing now, the government can hold them accountable," he said.

As many telehealth companies and online mental health startups grew rapidly during the COVID-19 pandemic, it's likely that their compliance operations didn't have time to catch up with the growth, Hooker, the healthcare attorney, said.

"Many companies don't have a strong legal or compliance function at the outset. And then they find themselves experiencing exponential growth and don't even have the legal compliance controls in place that they probably should," she noted.