Eventually, any health care organization with an effective compliance program is very likely to discover an issue that raises potential liability and requires disclosure to a government entity. While we largely discuss False Claims Act (FCA) litigation and defense issues on this blog, a complementary issue is how to address matters that raise potential liability risks for an organization proactively.

On August 11, 2017, a group of affiliated home health providers in Tennessee (referred to collectively as “Home Health Providers”) entered into an FCA settlement agreement with the US Department of Justice (DOJ) and the US Department of Health and Human Services Office of Inspector General (OIG) for $1.8 million to resolve self-disclosed, potential violations of the Stark Law, the Federal Anti-Kickback Statute, and a failure to meet certain Medicare coverage and payment requirements for home health services. This settlement agreement underscores the strategic considerations that providers must weigh as they face self-disclosing potential violations to the US government. Continue Reading DOJ Settlement with Home Health Providers Underscores Strategic Considerations for Self-Disclosure

In US ex rel. Michaels v. Agape Senior Community, the Department of Justice has assented to a $275,000 settlement after having rejected a $2.5 million settlement two years ago (despite declining to intervene in the case). This case garnered substantial attention because the relators sought to employ statistical sampling to establish liability on hundreds of millions of dollars of allegedly false claims to Medicare and Medicaid.

Previously, the Fourth Circuit heard–on interlocutory appeal–argument as to (1) whether statistical sampling could be used to establish liability in a False Claims Act case; and (2) whether the government could veto a False Claims Act settlement in a case in which the government declines to intervene. The Fourth Circuit ruled that the government did possess the authority to veto a settlement in a non-intervened case, and refused to address whether sampling could be used to establish liability. We discussed the Fourth Circuit’s decision here.

Although the Fourth Circuit declined to reach the question of whether False Claims Act plaintiffs can establish liability by using statistical sampling, the presiding district court judge had already concluded that plaintiffs could not do so. Having represented to the court that they could not marshal the resources to establish liability on a claim-by-claim basis, the court granted partial summary judgment on the vast majority of claims at issue. The relators subsequently settled for the value of the claims originally at issue: approximately one percent of the claims at issue in this case and 11 percent of what the relators and defendants previously agreed to.

The Fourth Circuit was to be the first appellate court to address the sampling issue, and this case demonstrates the importance of this issue. Where plaintiffs in this arena may lack sufficient resources to prove their cases on a claim-by-claim basis, the use of statistical sampling makes it far more cost-effective to prosecute their cases. If appellate courts rule on this issue in the future, and in favor of defendants, such rulings will deprive plaintiffs of this potential shortcut. This would appropriately limit plaintiffs’ recovery to claims plaintiffs actually prove are false by a preponderance of the evidence.

The Department of Justice (DOJ) doubled-down on emphasizing corporate compliance programs with new guidance from the Criminal Division Fraud Section with the “Evaluation of Corporate Compliance Programs” (Criteria).  This document, released February 8 without much fanfare, contains a long list of benchmarks that DOJ says it will use to evaluate the effectiveness of an organization’s compliance program.  The Criteria may publicize the factors Hui Chen, the Criminal Division’s 2015 compliance counsel hire, uses to evaluate compliance programs.  The Criteria also provides practical guidance on how organizations can evaluate their compliance programs.  This document operationalizes DOJ’s Principles of Federal Prosecution of Business Organizations (knows as the “Filip Factors”), which stated that the existence and effectiveness of a corporation’s preexisting compliance program is a factor that the DOJ will review in considering prosecution decisions.

The Guidance contains 11 topics that shift the analysis among examining how the alleged misconduct could have occurred, the organization’s response to the alleged misconduct, and the current state of the compliance program.  One entire category, titled “Analysis and Remediation of Underlying Misconduct,” has an obvious focus.  But, the other categories contain questions that touch on each of the three themes.  For example, the “Policies and Procedures” category asks questions about the process for implementing and designing new policies, whether existing policies addressed the alleged misconduct, what policies or processes could have prevented the alleged misconduct, and whether the policies/processes of the company have improved today.  Other categories examine the company’s historic and current risk assessment process and internal auditing, training and communications, internal reporting and investigations, and employee incentives and discipline.  DOJ also discusses management of third parties acting on behalf of the company and, in the case of a successor owner, the due diligence process and on-boarding of the new company into the broader organization. Continue Reading DOJ Releases Detailed Criteria for Evaluating Compliance Programs

On January 26, 2017, the US District Court for the Western District of Virginia rejected a defendant’s attempt to invoke collateral estoppel principles to dismiss an indictment for fraud.  In United States v. Whyte, the defendant, Whyte, argued that the indictment should be thrown out because a jury had previously found in his favor after trial of a relator’s civil qui tam claims under the False Claims Act (U.S. ex rel. Skinner v. Armet Armored Vehicles and William Whyte, W.D. Va. June 4, 2015), based on allegations of fraud that overlapped with those in the indictment.  Whyte argued that the jury’s verdict established that no fraud was committed, and that the government, as real party in interest in the qui tam case, had the full opportunity to litigate the issues.  Accordingly, Whyte contended that collateral estoppel mandated dismissal.

The district court disagreed, and its opinion rested on the fact that the government did not intervene in the qui tam action.  The court found that the government’s declination meant that the collateral estoppel doctrine’s requirement that the parties to the prior case and the case at bar be identical was absent.  The court acknowledged that party identicality for estoppel purposes can exist where there where “there is such a degree of affinity of interests of the person who was not a formal party to the prior proceeding, as to render the doctrine of collateral estoppel applicable.”  In re Goldschein, 241 B.R. 370, 374 (D. Md. 1999) (citing Va. Hosp. Assoc. v. Baliles, 830 F.2d 1308, 1312 (4th Cir. 1967)).  But it held that in such cases, the non-party must have had the ability to control the prior proceedings.  While the government is a “real party in interest” in a declined qui tam, the court determined that it lacks the ability to control the litigation.  The court reasoned:

By statute, if the government elects not to intervene, it retains no right to control the litigation in any meaningful way.  It may not issues subpoenas, conduct depositions, propound discovery, call witnesses, or cross-examine the defendant’s witnesses. It is entitled to receive pleadings and deposition transcripts, but no more. In instances in which the government elects not to intervene, it cannot reasonably be argued that the government had a ‘full and fair opportunity to litigate’ the issues.

The court further opined that any contrary holding would render meaningless the government’s statutory election decision.  “If the government were bound by private actors prosecuting FCA cases in its name, there would be no purpose to Congress’s decision to permit the government to elect to intervene, or to decline to intervene.  Under Whyte’s proposed interpretation, the government would be forced to be a party regardless of its intervention decision.”

The court’s characterization of the government’s lack of control over a declined qui tam case fails to address the  statutory tools available to the government. Among other things, the government can seek a stay of discovery if the discovery being conducted by the relator is interfering with a parallel criminal investigation or prosecution; it frequently files statements of interest in declined qui tams espousing its views on the legal issues in play in the case; it can object to a settlement between the relator and the defendant and must consent to any dismissal of the action by the relator; the government can settle a case over the objection of the relator and has a broad right to dismiss any FCA case.  Further, a declination decision is not final–the government can later seek to intervene for “good cause” as the case progresses.  Whether these examples suffice to establish “control” for collateral estoppel principles is a question that the Whyte court would presumably answer in the negative, but the notion that the government lacks any control over an FCA case in which it has declined to intervene ignores the many avenues pursuant to which the government can (and does) exert control.  And the irony here is that while the defendant escaped civil fraud liability notwithstanding the lower preponderance of the evidence standard of proof applicable to such claims, he now must face criminal fraud charges which the government must prove beyond a reasonable doubt.

According to a report released last week, the Health Care Fraud and Abuse Control Program (HCFAC) returned over $3.3 billion to the federal government or private individuals as a result of its health care enforcement efforts in fiscal year (FY) 2016, its 20th year in operation. Established by the Health Insurance Portability and Accountability Act of 1996 (HIPAA) under the authority of the Department of Justice (DOJ) and the Department of Health and Human Services (HHS), HCFAC was designed to combat fraud and abuse in health care. The total FY 2016 return represents an increase over the $2.4 billion amount reported by the agencies for FY 2015.

The report serves as a useful resource to understand the federal health care fraud enforcement environment. It highlights costs and returns of federal health care fraud enforcement, providing not only amounts recovered from settlements and awards related to civil and criminal investigations but also outlining funds allocated for each departmental function covered by the HCFAC appropriation. Total HCFAC allocations to HHS for 2016 totaled $836 million (approximately $255 million of which was allocated to the HHS Office of Inspector General (OIG)) and allocations to DOJ totaled $119 million. The report touts a return on investment of $5 for every dollar expended over the last three years.

The report also includes summaries of high-profile criminal and civil cases involving claims of violations of the False Claims Act (FCA), among other claims. The cases include OIG and HHS enforcement actions as well as some of those pursued by the Medicare Fraud Strike Force, which is an interagency task force composed of OIG and DOJ analysts, investigators, and prosecutors. Successful criminal and civil investigations touch virtually all areas of the health care industry from various health care providers to pharmaceutical companies, device manufacturers and health maintenance organizations, among others.

The report follows an announcement by the DOJ last December declaring FY 2016’s recovery of more than $4.7 billion in settlements and judgments from civil cases involving fraud and false claims in all industry sectors to be its third highest annual recovery, the bulk of which, $2.5 billion, resulted from enforcement in the health care industry.

One of the more concerning trends for the defense bar in False Claims Act cases is an uptick in parallel criminal and civil proceedings. While the pursuit of parallel proceedings is long-standing DOJ policy, the last few years have seen a “doubling down” by the government on the use of these proceedings — for instance, the 2014 Department of Justice policy requiring an automatic criminal division review of each qui tam complaint and the 2015 Yates Memorandum’s requirement for defendants to identify all culpable individuals to obtain “cooperation” credit in reaching a resolution with the government. From the defense side, parallel proceedings raise important and troublesome issues, including protecting the defendant’s Fifth Amendment rights while mounting a robust defense in the civil case. But, as shown in recent decisions from the Eastern District of Kentucky and Southern District of New York, parallel proceedings may also prove challenging to DOJ when a judge is impatient with the progress of case on its docket or when the relator is not on board with how the government would like the case to proceed.

Continue Reading The Perils of Parallel Proceedings: To Stay or Not to Stay

On June 9, 2016, Acting Associate Attorney General Bill Baer delivered a speech regarding the impact of the Yates Memorandum’s focus on individual accountability and corporate cooperation at the American Bar Association’s 11th National Institute on Civil False Claims Act and Qui Tam Enforcement.  The focus of the speech was on the interplay between the Yates Memorandum and investigations and litigation under the False Claims Act (FCA), underscoring the fact that the US Department of Justice’s (DOJ’s) focus on individuals is not limited to the criminal context. Continue Reading Acting Associate Attorney General Remarks on Yates Memorandum and False Claims Act