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One Year Later: The Yates Memo, False Claims Act and Director & Executive Liability

On September 19 and 27, 2016, the US Department of Justice announced two False Claims Act settlements that required corporate executives to make substantial monetary payments to resolve their liability. In the first, announced on September 19, North American Health Care Inc. (NAHC) and two individuals—its chairman of the board and a senior vice president of reimbursement—agreed to settle potential False Claims Act liability for a total of $30 million. The second settlement involves the former CEO of Tuomey Healthcare, who, a year after the $72.4 million corporate FCA resolution and two years after his departure from Tuomey as CEO, is now settling his own liability for $1 million, has been required to release any indemnification claims he may have had against the company, and has agreed to a four-year period of exclusion from participating in federal health care programs. Coinciding with the Tuomey CEO settlement announcement, Bill Baer, Principal Deputy...

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Acting Associate Attorney General Remarks on Yates Memorandum and False Claims Act

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. Baer led by highlighting the fact that FCA filings “are trending at all-time highs” – with 630 qui tam actions filed last year alone - and that since 2009, FCA recoveries have exceeded $29.5 billion.  He then moved on to a discussion of individual accountability under the FCA, and observed: The “Yates Memo” certainly has generated its fair share of client alerts. I have read a lot of them. The...

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Claims Against Individuals Fail in Northern District of Illinois

On December 15, 2015, the U.S. District Court for the Northern District of Illinois dismissed Relator’s claims against two individual defendants in United States ex rel. Sibley v. A Plus Physicians Billing Service, Inc., No. 13C 7733, 2015 WL 8780548 (N. D. Ill. Dec. 15, 2015). The court granted the individuals’ (Laurie Gentile and Eric Schoewe’s) 12(b)(6) motions to dismiss based on, in Ms. Gentile’s case, insufficient allegations to show any sort of kickback, and, in Mr. Schoewe’s case, a lack of specificity on “‘the who, what, when, where, and how’ of the alleged fraud.” Ms. Gentile, Mr. Schoewe and Relator were employees of A Plus Physicians Billing Service. Mr. Schoewe was a co-owner of the business and primarily responsible for submitting claims to payors. Ms. Gentile was Relator’s supervisor and partially responsible for submitting claims to payors. Relator alleged that Mr. Schoewe and Ms. Gentile trained Relator and other medical billers to complete,...

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“Operation Spinal Cap” Sees Former Hospital Executive, Physicians Charged for Their Roles in Kickback Scheme

Last week, the Department of Justice (DOJ) announced charges against a former hospital CFO, two orthopedic surgeons, a chiropractor, and a health care marketer for their alleged roles in a series of fraudulent referral and billing schemes.  According to the DOJ, these referral schemes paid illegal kickbacks to physicians for spinal surgery referrals and caused “nearly $600 million in fraudulent billings over an eight-year period.”  These charges underscore the federal government’s recent emphasis on greater individual accountability for fraudulent healthcare schemes and the potential for those involved to face significant liability. According to a statement from the U.S. Attorney’s Office, the schemes generally involved paying tens of millions of dollars in kickbacks for referrals to two California hospitals, Pacific Hospital in Long Beach and Tri-City Regional Medical Center in Hawaiian Gardens, for spinal surgeries.  Those hospitals then billed those...

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U.S. Attorney Manual Revised To Reflect Yates Memorandum’s Focus on Individuals

On September 9, 2015, Deputy Attorney General Sally Quillian Yates issued a memorandum outlining the Department of Justice’s increased focused on individual responsibility in investigations of corporate wrongdoing, now colloquially referred to as the “Yates Memorandum.”  (We previously reported on the Memorandum here). Pursuant to the Yates Memorandum’s directive that the U.S. Attorneys’ Manual (USAM) be revised to reflect this increased focus on individuals, on November 16, 2015, such revisions were released.  In a speech on that date to the American Banking Association and the American Bar Association Money Laundering Enforcement Conference, Deputy AG Yates highlighted the important nature of the revisions: “We don’t revise the USAM all that often and, when we do, it’s for something important.  We change the USAM when we want to make clear that a particular policy is at the heart of what all Department of Justice attorneys do and when we want to make sure...

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Warner Chilcott Pleads Guilty to Health Care Fraud Charges and Pays $125 Million; Several Company Executives Face Individual Liability

On October 29, 2015, the United States announced a $125 million settlement with a subsidiary of pharmaceutical manufacturer Warner Chilcott to resolve a sealed qui tam in United States ex rel. Alexander, et al. v. Warner Chilcott plc, et al., Civil Action No. 11-CA-1121 (D. Mass.). The global settlement consisted of $22.9 million in criminal fines, $102 million to resolve civil claims, and the company pleading guilty in federal district court in Boston to felony health care fraud charges related to its marketing practices for various osteoporosis treatment medications.  In particular, the United States alleged that Warner Chilcott paid kickbacks to physicians to induce them to prescribe the company’s osteoporosis drugs and engaged in improper billing practices. Simultaneous with announcing Warner Chilcott’s resolution of the corporate case, the company’s former president, W. Carl Reichel, was arrested on an indictment charging that he conspired to pay...

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Ten Years Later — The End of Tuomey’s Journey

In October 2005, Dr. Michael Drakeford filed his qui tam against Tuomey Healthcare System alleging Stark Law and False Claims Act violations. After ten years of investigation and litigation, including two jury trials, two trips to the Fourth Circuit U.S. Court of Appeals, and a staggering judgment of $237 million, on October 16, 2015, the Department of Justice announced that it reached a settlement with Tuomey to pay $72.4 million before its sale to Palmetto Health. Dr. Drakeford received a 25 percent share ($18.1 million) plus an additional $2.5 million payment for attorneys' costs and fees. We have previously analyzed the Fourth Circuit’s July decision affirming the 2013 jury verdict and judgment here, and the Tuomey litigation in great detail here. Consistent with DOJ’s policy announced in the Yates Memorandum (see post), the settlement agreement only releases Tuomey, and does not release any corporate officers, directors or employees. Moreover, the...

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SDNY Holds that Corporate Attorney-Client Privilege Trumps Individual Advice-of-Counsel Defense

In the wake of the U.S. Department of Justice’s (DOJ) recent memorandum regarding increased focus on individual culpability for corporate wrongdoing (on which we previously posted here) comes a district court decision with significant implications for individuals who attempt to assert an advice-of-counsel defense based on consultation with company counsel.In a September 22, 2015 decision in U.S. v. Wells Fargo Bank, N.A, the U.S. District Court for the Southern District of New York ruled that an employee could not assert the advice-of-counsel defense because his employer, Wells Fargo, refused to waive the attorney-client privilege over the relevant communications between the employee and Wells Fargo counsel.In Wells Fargo, the United States brought civil claims against Wells Fargo and individual defendant Kurt Lofrano for violation of the False Claims Act (FCA), along with other claims. Lofrano asserted that he had sought advice from Wells Fargo attorneys...

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DOJ’s “Yates Memorandum” Calls for Increased Focus on Individuals in Investigating Allegations of Both Criminal and Civil Corporate Wrongdoing

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...

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