RICCO: Ethical and Legal Concerns in Moda Health's Contracting Practices

Mentor Research Institute
March 1, 2025

A Discussion Paper

Introduction

Healthcare contracting practices must adhere to ethical, legal, and regulatory standards to ensure fair market competition, provider autonomy, and patient welfare. However, recent investigations and whistleblower allegations against Moda Health suggest that the organization may be engaging in fraudulent, coercive, and anti-competitive contracting practices that raise serious ethical and legal concerns. This discussion paper examines the evidence supporting these claims and explores whether Moda Health’s actions could constitute violations of the Racketeer Influenced and Corrupt Organizations (RICO) Act.

Background: Moda Health’s Alleged Contracting Violations

Multiple documents in the Mentor Research Library indicate that Moda Health employs deceptive contract terms, restrictive policies, and coercive tactics that force independent mental health providers into disadvantageous agreements. These allegations are supported by complaints filed with the Oregon Health Authority (OHA), the Department of Consumer and Business Services (DCBS), and the Department of Justice (DOJ). The State of Oregon does not investigate allegations and evidence of unlawful contracting practices including fraud and violations of antitrust made by the public or contracted healthcare provider.

Key accusations include:

Fraudulent misrepresentation of contract terms: Moda allegedly changes contract terms mid-agreement, making it difficult for providers to predict financial risks and operational demands.
Coercion through network exclusion: Independent providers who resist unfair contracts reportedly face exclusion from Moda’s network, significantly limiting their ability to serve patients.
Retroactive financial penalties and ambiguous performance metrics: Moda is accused of using vague or misleading quality measures that result in providers being unfairly penalized.
Market manipulation and antitrust violations: Moda’s contracting practices allegedly suppress competition by restricting new providers from entering the market and forcing compliance with unfavorable terms.

These practices undermine the ability of independent mental health professionals to negotiate fair contracts, jeopardizing provider financial sustainability and limiting patient access to high-quality care.

Ethical and Legal Concerns

1. Fraudulent Inducement and Bad Faith Contracting

Contracts between health plans and providers must be based on good faith negotiations and full transparency. However, Moda’s alleged misrepresentation of contract terms and financial obligations may constitute fraudulent inducement, which occurs when one party enters an agreement based on false or misleading representations.

2. Coercion and Unconscionability in Contracting

If providers are forced into contracts under economic duress or the threat of network exclusion, those agreements may be considered voidable due to coercion. Under contract law, coercive practices create unconscionable contracts, which courts may deem unenforceable due to their unfair nature.

3. Antitrust and Market Manipulation Violations

If Moda Health’s actions restrict competition, block new providers, or engage in exclusionary contracting tactics, the organization may be violating federal and state antitrust laws, including:

Sherman Antitrust Act (Sections 1 & 2): Prohibiting contracts or behaviors that unreasonably restrain trade or attempt to monopolize a market.
Clayton Antitrust Act: Addressing anti-competitive practices, such as exclusive contracts and price discrimination.
Oregon State Antitrust Laws: Prohibiting business practices that unfairly restrict competition within the healthcare market.

4. Potential RICO Violations: Classifying the Scheme

The Racketeer Influenced and Corrupt Organizations (RICO) Act prohibits a pattern of criminal activity conducted through an enterprise. The allegations against Moda Health suggest a coordinated scheme to manipulate the healthcare market, coerce providers, and fraudulently induce contractual agreements.

To establish a civil or criminal RICO violation, the following elements must be met:

Existence of an Enterprise: Moda Health, in conjunction with associated contracting entities, could be classified as an enterprise under RICO.
Pattern of Racketeering Activity: Repeated instances of fraud, coercion, and anti-competitive behavior could establish a pattern of misconduct.
Predicate Offenses: Fraud, extortion, and obstruction of fair trade are predicate offenses under RICO, all of which align with allegations against Moda Health.

Examples of How to Classify the Scheme Under RICO:

Health Insurance Fraud Scheme: Moda Health allegedly induces providers into contracts under false pretenses, misrepresenting reimbursement rates and financial risk-sharing models.
Extortion-Based Network Manipulation: Moda allegedly threatens to exclude providers who refuse unfavorable contracts, coercing them into accepting terms that limit their financial and operational autonomy.
Market Control and Monopolization Scheme: Moda's restrictive contracting tactics allegedly block independent providers from entering or remaining in the market, suppressing competition and consolidating control over mental health services.
Wire Fraud and Financial Misrepresentation: If Moda misrepresents financial models, reimbursement rates, or quality performance standards through digital communications, this could constitute wire fraud under RICO statutes.

Directionally Unethical, If Not Illegal

The evidence suggests that Moda Health’s contracting practices are at minimum directionally unethical, if not outright illegal. The misuse of market power, coercion of independent providers, and fraudulent contract inducement are behaviors that threaten provider autonomy, patient care quality, and market fairness.

Given the seriousness of the allegations, further legal scrutiny is warranted. Moda Health’s actions should be investigated for potential violations of contract law, antitrust regulations, and federal RICO statutes.

To ensure fairness and transparency, policymakers must enact stronger enforcement mechanisms, contract transparency requirements, and independent oversight provisions. Without these safeguards, health plans like Moda Health may continue engaging in unethical and potentially illegal contracting practices—harming providers, patients, and the broader healthcare system.

RICO as a Directionally Appropriate but an Insufficient Framework for Moda Health’s Contracting Violations

Introduction

Moda Health’s contracting practices have raised significant ethical and legal concerns, including allegations of fraud, coercion, and anti-competitive behavior. While the Racketeer Influenced and Corrupt Organizations (RICO) Act may seem directionally appropriate for addressing these claims, it may not be the most effective or applicable legal framework. This paper argues that while RICO provides a compelling analogy for the misconduct in question, alternative legal avenues such as antitrust law, contract law, and state regulatory enforcement may offer more precise remedies. It further examines the strengths and weaknesses of using RICO in this context and considers whether Moda Health’s practices, if left unchecked, could evolve into a true RICO violation.

The term directionally appropriate means that a concept, framework, or approach aligns in principle with the issue at hand but may not be the most precise description or effective solution. In this context, saying that RICO is directionally appropriate means that Moda Health’s alleged misconduct shares characteristics with racketeering behavior (such as fraud, coercion, and anti-competitive conduct), making RICO a useful lens for analysis. However, it may not be the best legal mechanism for enforcement or change as other legal frameworks (like antitrust and contract law) may provide more targeted and effective remedies.

Strengths of the RICO Argument

RICO is designed to address patterns of fraudulent or coercive behavior within an enterprise and has been successfully applied in cases of corporate misconduct. Moda Health’s alleged actions—such as deceptive contract terms, network exclusion threats, and financial misrepresentation—share several characteristics with RICO predicate offenses. The following strengths support the RICO argument:

Pattern of Activity: RICO requires repeated unlawful actions within a 10-year period. Moda Health’s alleged coercion and fraud-based contracting practices appear to be systemic rather than isolated incidents, aligning with this requirement.
Enterprise Element: RICO applies to organizations engaged in illegal conduct. Moda Health, acting in concert with associated entities, could be viewed as an enterprise engaged in sustained contractual coercion and fraud.
Predicate Offenses: Fraud, extortion, and anti-competitive conduct are predicate offenses under RICO. The allegations against Moda Health include elements of all three, making a case for RICO consideration.
Civil and Criminal Liability: RICO allows both civil suits and criminal prosecution, providing a broad range of potential penalties, including treble damages for plaintiffs.

Weaknesses of the RICO Argument

Despite these strengths, there are significant barriers to successfully applying RICO in this case:

High Legal Threshold: Courts have set a high bar for proving a RICO violation, requiring a clear pattern of racketeering activity and intent. Moda Health’s practices, while coercive and anti-competitive, may not meet the stringent definition of an ongoing criminal enterprise.
Lack of Criminal Element: RICO is often applied in cases involving explicit criminal conduct, such as organized crime, bribery, or money laundering. Moda Health’s misconduct, though unethical and potentially illegal, may be more effectively challenged under civil antitrust and contract law rather than through criminal prosecution.
Alternative Legal Frameworks: The Sherman Antitrust Act, Clayton Act, and state consumer protection laws provide more direct mechanisms for addressing market manipulation, contract fraud, and unfair trade practices. These laws specifically target healthcare monopolization and deceptive business practices, making them stronger tools for legal intervention.
Judicial Skepticism: Courts have historically been reluctant to extend RICO to business disputes unless there is clear evidence of criminal fraud and systemic corruption. Without concrete proof of criminal intent and coordinated enterprise misconduct, a RICO claim might fail.

More Appropriate Legal Approaches

Given the limitations of RICO, alternative legal avenues provide a more precise and actionable path for addressing Moda Health’s misconduct:

Antitrust Law Enforcement: The Sherman Act prohibits anti-competitive behavior, and the Clayton Act prevents market monopolization. Moda Health’s alleged exclusionary contracting and market manipulation could be challenged under these laws.
Contract Law & Unconscionability: If Moda Health’s contracts contain ambiguous terms, deceptive financial calculations, or coercive provisions, they may be voidable under contract law principles, particularly fraudulent inducement and unconscionability.
State Consumer Protection Laws: Oregon’s consumer protection statutes could be leveraged to investigate fraudulent business practices and impose financial penalties.
Regulatory Intervention: Strengthening oversight mechanisms, such as independent health plan audits and contract transparency laws, would provide proactive enforcement rather than relying on litigation.

Could Moda Health’s Conduct Evolve into a True RICO Violation?

While Moda Health’s current practices may not fully meet the threshold for a RICO violation, they present a concerning trajectory that, if left unchecked, could develop into a legally actionable RICO case. If Moda continues to engage in coercion, fraudulent contracting, financial misrepresentation, and coordinated exclusion of providers, the risk of crossing into explicit criminal behavior increases. Examples of escalation include:

Increased Coordination with Other Health Plans: If multiple insurers collude to suppress independent providers, this could constitute a conspiracy under antitrust and RICO laws.
Systemic Financial Fraud: If Moda misrepresents reimbursement structures to regulators or purchasers, it could lead to healthcare fraud charges, a predicate offense under RICO.
Retaliation Against Whistleblowers: If Moda threatens or punishes providers for exposing unethical practices, it could be viewed as extortion or obstruction of justice, strengthening a RICO case.

Conclusion

While RICO is directionally appropriate as a framework for analyzing Moda Health’s misconduct, it may not be the most effective legal tool for immediate intervention. Antitrust, contract, and consumer protection laws provide more precise and actionable remedies. However, if Moda Health’s practices continue to escalate, the potential for a future RICO case remains a serious concern. To prevent this outcome, policymakers and regulatory bodies must strengthen oversight, enhance enforcement mechanisms, and hold health plans accountable for unethical contracting practices. Without meaningful intervention, Moda Health’s actions could serve as a progenitor to a broader pattern of healthcare fraud and coercion, eventually warranting RICO prosecution.

DISCLAIMER and PURPOSE: This discussion document is intended for training, education, legislation, and or research purposes. The information contained herein is based on the data and perspectives available at the time of writing. It is subject to revision as new information and viewpoints emerge.

For more information see: https://www.mentorresearch.org/disclaimer-and-purpose