Attendees at the Health Care Compliance Association’s Health Care Enforcement Compliance Institute are reporting that, Michael Granston, Director, Civil Frauds, Commercial Litigation Branch of the Civil Division of the US Department of Justice (DOJ), announced a significant shift in policy for the DOJ in dealing with False Claims Act (FCA) complaints that are deemed “frivolous” on the merits. Acknowledging the burden on the resources of all parties caused by the litigation of frivolous FCA matters, Mr. Granston reportedly stated that, going forward, once it has determined that the allegations of a qui tam complaint lack merit, the DOJ will more aggressively exercise its discretion to move to dismiss the case rather than leave to the qui tam relator in every instance the option of whether to continue the litigation. Senior management—including boards of directors, in-house corporate counsel and chief compliance officers—should take notice of this new, potentially meaningful, opportunity to extricate FCA defendants from burdensome qui tams pursued by relators purely for settlement value. Continue Reading DOJ Announces Significant Shift Towards Affirmative Dismissal Of “Frivolous” Qui Tam Complaints: A New Exit Strategy For Defendants?
T. Reed Stephens represents clients in the life sciences industry, including pharmaceutical and biotech manufacturers, wholesalers and individuals, as well as health care systems and non-health care related companies in other global industries such as the defense and financial services/banking sectors. He also represents clients in matters involving state and federal government law enforcement, voluntary disclosures and congressional investigations. Read T. Reed Stephens' full bio.
This April, providers cheered when a federal district court in the Middle District of Florida found insufficient evidence to support a relator’s theory that a hospital had provided free parking to physicians, in violation of the Stark Law and Anti-Kickback Statute (AKS). In the Report and Recommendation for United States ex rel. Bingham v. BayCare Health Systems, 2017 WL 126597, M.D. Fla., No. 8:14-cv-73, Judge Steven D. Merryday of the Middle District of Florida endorsed magistrate judge Julie Sneed’s recommendation that Plaintiff Thomas Bingham’s Motion for Partial Summary Judgment be denied and that Defendant BayCare Health System’s Motion for Summary Judgment be granted. However, as we discussed in a previous FCA blog post regarding these allegations, this type of case encapsulates a worrying and costly trend where courts allow thinly pleaded relator claims in which the government opted not to intervene, to survive past the motion to dismiss stage into the discovery phase of the litigation.
Bingham is a serial relator who practices as a certified real estate appraiser in Tennessee and was unaffiliated with BayCare. In his latest attempt, Bingham alleged that BayCare Health System had violated the Stark Law and the AKS by providing affiliated physicians free parking, valet services and tax benefits to induce physicians to refer patients to the health system. Continue Reading A Hospital’s Deserving Stark and AKS Victory—But At What Cost?
In light of the rising civil monetary penalties under the False Claims Act (FCA) and the looming threat of bank-breaking treble damages, avenues to dismissal are paramount to defendants operating in industries vulnerable to FCA claims, including health care. The United States Supreme Court’s unanimous decision in State Farm Fire & Casualty Co. v. United States ex rel. Rigsby, issued on December 6, 2016, narrows the path for one such avenue.
In Rigsby, the Supreme Court closed the door on what would have been a powerful tool for defendants facing qui tam complaints brought under the FCA: mandatory dismissal based on a relator’s violation of the 60-day seal requirement. The Court did not, however, foreclose dismissal as a possible sanction against relators who violate the seal‑requirements.
After the federal government’s victory against Tuomey Healthcare System Inc., we have seen an increasing number of large False Claims Act settlements with hospitals involving Stark Law allegations. Relators are even citing, as evidence of ongoing recklessness, that hospital executives have been emailing articles about the Tuomey case to their staff. Given the Stark Law’s intricate requirements, it is unsurprising that many hospitals are presented with Stark Law compliance questions. However, the U.S. Department of Justice has not shown much leniency in its treatment of these cases, as shown by two recent settlements.
After the federal government’s victory against Tuomey Hospital, we have seen an increasing number of large False Claims Act (FCA) settlements with hospitals involving Stark Law allegations. Despite the intricacies of Stark Law compliance, the U.S. Department of Justice (DOJ) has not shown much leniency in its treatment of these cases, as shown by two recent settlements involving Columbus Regional Healthcare System and North Broward Hospital District. This On the Subject explores some “lessons learned” from these settlements as well as DOJ’s emerging interpretation of the Stark Law that may put vertically integrated health systems’ physicians arrangements at risk for scrutiny.
Read the full On the Subject.
On September 9, 2015, the U.S. Department of Justice (DOJ) released a memorandum to prosecutors nationwide regarding “Individual Accountability for Corporate Wrongdoing,” authored by Deputy Attorney General Sally Q. Yates. Dubbed the “Yates Memorandum,” this missive consolidates both long-standing DOJ policy and newly minted guidance for prosecutors and civil enforcement attorneys that could significantly alter the course of both criminal and civil investigations under the False Claims Act (FCA) particularly for health care entities. The day after releasing the memo, Yates spoke at NYU School of Law, where she noted that DOJ’s mission is “not to recover the largest amount of money from the greatest number of corporations,” but rather, “to seek accountability from those who break our laws and victimize our citizens.”
At its core, the Yates Memorandum calls for a substantially increased focus on individual accountability for corporate wrongdoing and amendment of prior Department policies that have become standard operating procedures in both criminal and civil investigations. While this is nothing new for FCA defendants, the renewed focus on individuals – and the corresponding guidance in the Yates Memorandum – will have an immediate and lasting impact on internal investigations, pre-intervention negotiations, litigation and any extra-judicial resolution of the case.
Leaving aside the policy statements that deal solely with internal DOJ operations, the Yates Memorandum outlines three key areas of focus that will be relevant for FCA defendants facing exposure from an investigation or qui tam litigation:
Increased Focus on Individuals
As part of this increased focus, corporations will be incentivized to tailor internal investigations to include a hard look at individuals. First, the DOJ will limit or decline to provide “cooperation credit” unless the corporation “completely disclose[s] to the Department all relevant facts about individual misconduct.” While the application of cooperation credit in criminal cases is more commonplace, the Yates Memorandum makes clear that this principle will apply equally in the civil context. Citing the FCA, the Department’s position on “full cooperation” under 31 U.S.C. 3729(a)(2) will be “at minimum, all relevant facts about responsible individuals must be provided.” The Yates Memorandum also directs prosecutors and civil attorneys to proactively investigate individuals “at every step of the process – before, during, and after any corporate cooperation.” By focusing on individuals from the inception of the investigation, the DOJ hopes to “increase the likelihood that individuals with knowledge of the corporate misconduct will cooperate with the investigation and provide information against individuals higher up the corporate hierarchy.”
The implications of these directives will impact all stages of the corporate response to an FCA investigation. While the DOJ recognizes that investigations must be “tailored to the scope of the wrongdoing,” corporations should anticipate a need to expand internal investigations to gather facts and potentially assess the roles played by individuals in the overarching corporate wrongdoing at issue. As the corporation seeks to resolve the corporate liability, the Yates Memorandum suggests that defense attorneys will be under increased pressure to focus attention on individual employees and former employees creating pressure to share information with the government regarding individuals in order to receive favorable treatment in the negotiated resolution. While it is uncertain how the DOJ will value such cooperation, it is possible to envision a scenario where a favorable settlement for the corporation will only be reached if the Department perceives that the corporation was forthcoming about all individuals involved in the wrongdoing (as opposed to the “sacrificial lamb” that may have been put forth in the past).
Limited Release of Individuals When Resolving Corporate Case
In perhaps the most significant departure from the current regime for resolving FCA cases, the Yates Memorandum dictates that “[a]bsent extraordinary circumstances, no corporate resolution will provide protection from criminal or civil liability for any individuals.” Such a directive discouraging prosecutors from providing a commonly expected settlement term in a civil FCA matter – i.e., the release from liability of the corporation’s officers, directors and current/former employees – could significantly complicate the settlement decision-making process of senior management. In the absence of the traditional global civil and administrative release, not only could DOJ consider pursuing individuals under the FCA, but the Office of Inspector General (OIG) would also be free to consider pursuing individuals for civil monetary penalties. OIG may have a different – and lower – dollar threshold for deciding to pursue those cases than DOJ.
Another aspect of the Yates Memorandum guidance is the directive that corporate cases will not be resolved without a “clear plan” to resolve related cases against individuals. This guidance appears to be aimed at ensuring that prosecutors are diligent in their investigation of individuals in order to keep those efforts on track with the corporate resolution.
Relevance of Individual Ability to Pay
Finally, the Yates Memorandum calls on attorneys in civil enforcement efforts to look beyond an individual’s ability to pay as the basis for pursuit of claims against the individual. In prior years, resource constraints at the DOJ have influenced the qui tam intervention decision‑making process. Under the new guidance, civil attorneys are urged to consider the seriousness of the individual’s misconduct, whether it is actionable, whether the admissible evidence is likely to obtain and sustain a judgment, and whether pursuit of the action “reflects an important federal interest.” Civil attorneys are advised to follow the model of their criminal prosecutor colleagues by considering the individual’s misconduct, past history and the circumstances related to the misconduct when determining whether to expend limited federal resources to pursue individual cases. The Yates Memorandum notes that while cases against individuals may not result in substantial monetary recovery in the short-term, pursuit of these cases will result in “significant long-term deterrence.” Whether the DOJ implements this directive remains to be seen.
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In summary, senior management, including boards of directors, in-house corporate counsel and chief compliance officers, should take notice of the Yates Memorandum and prepare for the ways this enhanced focus on litigating claims against individuals could impact the company’s action plans for responding to, defending and ultimately resolving FCA qui tam litigation.
After the federal government’s victory against Tuomey Hospital, we have seen an increasing number of large False Claims Act (FCA) settlements with hospitals involving Stark Law allegations. Relators are even citing, as evidence of ongoing recklessness, that hospital executives have been e-mailing articles about the Tuomey case to their staff. Given the Stark Law’s intricate requirements, it is un-surprising that many hospitals are presented with Stark Law compliance questions. However, the U.S. Department of Justice (DOJ) has not shown much leniency in its treatment of these cases, as shown by two recent settlements. Continue Reading Huge Stark Law Hospital Settlements and Physician Culpability – The New Normal Post-Tuomey?
Health care leaders should closely note the new guidelines on corporate conduct released on September 9, 2015 by the Department of Justice (DOJ) (Memorandum from Sally Quillian Yates, Deputy Attorney General, U.S. Department of Justice, September 9, 2015, Individual Accountability for Corporate Wrongdoing (Guidelines), available at www.justice.gov/dag/file/769036/download). These Guidelines reflect a substantially increased focus on individual accountability for corporate wrongdoing, both civil and criminal, and on the importance of corporate cooperation in the context of governmental investigations. It is not a “rifle shot” enforcement initiative focused solely on Wall Street or the broader financial sector. Rather, it is intended to apply across industry sectors (including, health care) (See http://www.reuters.com/article/2015/07/30/doj-compliance-hire-idUSL1N10A26420150730 (note reference to health care). The Guidelines can reasonably be expected to impact an organization’s approach to legal compliance, internal investigations, D&O insurance and indemnification protection, and interaction with management on matters of regulatory concern. They should, therefore, be taken seriously by senior leadership of health care companies.
Health care leaders should closely note the new guidelines on corporate conduct released on September 9, 2015 by the Department of Justice (DOJ). These Guidelines reflect a substantially increased focus on individual accountability for corporate wrongdoing, both civil and criminal, and on the importance of corporate cooperation in the context of governmental investigations. It is not a “rifle shot” enforcement initiative focused solely on Wall Street or the broader financial sector. Rather, it is intended to apply across industry sectors (including, health care). The Guidelines can reasonably be expected to impact an organization’s approach to legal compliance, internal investigations, D&O insurance and indemnification protection, and interaction with management on matters of regulatory concern. They should, therefore, be taken seriously by senior leadership of health care companies.
Defending False Claims Act litigation is often a costly budget item. The disposal of weak cases by the government through the intervention decision making process has always been a critical safety valve for non-culpable defendants. Two of the more concerning trends in False Claims Act litigation, however, are (1) the increasing likelihood of relators pursuing factually and legally weak allegations after the government declines to intervene, and (2) courts allowing such cases to survive a Rule 9(b) motion to dismiss. A recent case in the Middle District of Florida involving the unintended consequences of a health system’s adherence to a local zoning obligation serves as a prime example of these troubling trends.
On August 14, 2015, in U.S. ex rel. Bingham v. BayCare Health System, the court denied the defendants’ motion to dismiss relator’s claim that BayCare Health System (BayCare) and an independent third party real estate developer, St. Pete MOB, LLC (St. Pete’s)—referred to by relator as BayCare’s “proxy”—entered into a “scheme” to enable BayCare to pass remuneration to physicians in violation of the Stark Law and Anti-Kickback Statute (AKS). According to the relator, the heart of this “scheme” is BayCare’s ground lease to St. Pete’s on a BayCare hospital’s campus to build a medical office building (MOB).
In this ground lease, BayCare provided a non-exclusive easement for MOB tenants to use the hospital’s parking facilities. As pleaded by the relator, and acknowledged by the court, this easement was included in the lease “to satisfy zoning and other governmental requirements.” Despite this salient fact, relator turns this legally-required easement into illegal remuneration under the Stark Law and AKS simply by alleging that one of BayCare’s purposes in providing the easement was for St. Pete to avoid incurring the costs to lease additional land and to build a parking garage, and then for St. Pete to “pass some or all of the millions of dollars in savings to physician tenants to encourage them to make or increase referrals.” However, the relator does not appear to have mustered support for this bald conclusion. The relator does not appear to allege that the terms of the physicians’ leases with St. Pete’s are problematic, other than suggesting that amending the leases in 2013 to allow the physicians, staff and patients to use the parking facilities to access the MOB at no charge is another sign of improper remuneration. The relator also asserts that BayCare provided a “rent concession” to the tenant physicians (even though BayCare is not the landlord) by claiming a tax exemption for what is alleged to be non-exempt property, which saved St. Pete’s about $140,000 in real property taxes. The relator alleges, with little support, that this tax exemption resulted in lower rent charged to the physician tenants and that BayCare is culpable for this alleged remuneration even though St. Pete’s was the lessor.
The legal theory and factual problems with this case are multifold. BayCare’s legal obligation to meet the local zoning requirement for the easement should raise significant challenges for the relator in proving the intent necessary for a criminal AKS violation. Nonetheless, the district court’s unwillingness to dismiss the AKS count demonstrates significant deference to the relator and forces the defendants to continue to expend costs litigating the matter. As for Stark, the relator’s complaint also appears to enjoy the broad benefit of the doubt from the court even though serious questions are presented as to whether the allegations could establish whether either direct or indirect compensation was paid to the physicians.
Notably, Thomas Bingham, the relator, is a serial whistleblower who has been previously successful at extracting settlements in prior FCA matters. Mr. Bingham is a certified real estate appraiser based in Nashville and admits to developing his qui tam allegations, not from insider knowledge, but rather from working with another client in the area, reviewing publically available information, and using “his skills and experience as a commercial real estate appraiser in uncovering the schemes.” He has brought at least two other FCA cases alleging AKS and Stark violations in hospital real estate transactions involving physicians. In 2008, he filed an FCA case against the Healthcare Corporation of America (HCA) and its Chattanooga hospital, Parkridge Medical Center, claiming that Parkridge made rental payments for office space to a physician group in excess of fair market value. This case settled in 2014 with HCA paying $16.5 million to the Government, of which Mr. Bingham received a $2.9 million relator share. Mr. Bingham has filed another FCA case against HCA, this time in Florida, alleging conduct similar to his Tennessee case. His complaint was unsealed on February 23, 2015, after the government declined to intervene. At minimum in his case against BayCare, Mr. Bingham’s admission about having no insider knowledge calls into question his ability to properly qualify as a relator under the FCA’s public disclosure bar.
Unfortunately, in at least some jurisdictions, it seems to be becoming easier for relators to pursue highly questionable fraud claims, after the government declines to intervene. While appellate courts are increasingly being called upon to reverse this trend (the Seventh Circuit’s recent rejection of implied certification claims is an apt example), hospitals and other providers are forced to assume the costly defense of meritless claims and weigh whether to take cases to trial to discourage whistle-blowers or settle matters to mitigate the often outsized risk of a “runaway” jury verdict.