In early July, and with little fanfare, Attorney General Jeff Sessions and the Department of Justice (DOJ) all but gutted the Health Care Corporate Fraud Strike Force – stripping it of several key personnel.  Nevertheless, the investigation and prosecution of health care fraud will likely continue, and the Department will remain vigorous in its pursuit of health care fraud, perhaps with a more individual focus.  In a May 2017 speech at the Annual Institute on Health Care Fraud, Deputy Assistant Attorney General Kenneth Blanco said, “health care fraud is a priority for the Department of Justice.  Attorney General Sessions feels very strongly about this.  I can tell you that he has expressed this to me personally.”

Anonymous sources close to DOJ reported that three of five full-time attorneys had been removed from the Corporate Fraud Strike Force.[1]  Asked for comment on the new-look Corporate Fraud Strike Force, a DOJ spokesperson stated, “the Health Care [Corporate Fraud] Strike Force, as with the entire health care fraud unit, is going strong under steady leadership—continuing to vigorously investigate and hold accountable individuals and companies that engage in fraud, including tackling an opioid epidemic that claimed 60,000 American lives last year.”[2]  Interestingly, AG Sessions did not cut positions within other strike forces, such as the Medicare Fraud Strike Force and the Organized Crime Drug Enforcement Task Forces Program.  In distinction to the Medicare Fraud Strike Force, the DOJ’s Health Care Corporate Fraud Strike Force focuses on complex corporate health care fraud.

Gutting the Corporate Fraud Strike Force Aligns with AG Sessions’ Priorities

On the surface, it may appear that the dismantling of the Corporate Fraud Strike Force comes as the Department of Justice shifts resources to combat new priorities.  AG Sessions has repeatedly announced his commitment to combating health care fraud, as well as cracking down on drugs, violent crime, and illegal immigration.  However, a deeper dive into AG Sessions’ priorities signals a clear shift: corporate health care fraud investigations will take a back seat to the focus of DOJ headquarters on the prescription drug epidemic ravaging America.  Indeed, the appointment of Kenneth Blanco as Deputy Assistant Attorney General fits Sessions’ priority commitment to tackling the opioid crisis—Blanco brings experience from several narcotics-focused roles throughout his career, including Acting Chief of Narcotics in the United States Attorney’s Office for the Southern District of Florida and Chief of the Narcotic and Dangerous Drug Section at DOJ.

While acknowledging extensive health care corruption at the corporate and grass roots levels, the Sessions-led DOJ has put the opioid crisis at the top of its list and will divert resources to components better positioned to tackle drug abuse.  For example, in July 2017 Sessions announced that 412 defendants in over 20 states were charged with orchestrating health care fraud schemes totaling $1.3 billion in false claims.  Importantly, over 120 of the defendants were charged for their roles in the unlawful distribution of opioids and other prescription narcotics.

Caution: Corporate Health Care Fraud Prosecutions Are Not Dead

The DOJ established the Medicare Fraud Strike Force during the George W. Bush administration to coordinate and staff the investigation and prosecution of health care fraud cases in “hot spots” around the country, identified by data analysis.  Those hot spots were originally Miami and Los Angeles.  The Obama Administration expanded the Medicare Fraud Strike Force to seven more “hot spot” cities: Detroit, Houston, Tampa, Baton Rouge, Brooklyn, Dallas, and Chicago.  As DOJ and the Medicare Fraud Strike Force took on more cases – and as complex Medicare fraud cases involving large corporates became even more common – the Department identified a need for dedicated attorneys to oversee the most complicated corporate health care fraud cases.

As a result, in 2015, Attorney General Eric Holder formally established the Health Care Corporate Fraud Strike Force, separate and apart from the Medicare Fraud Strike Force.  With a staff of five experienced trial attorneys, the Corporate Fraud Strike Force had one mission: to detect, investigate, and prosecute complex corporate health care fraud matters.  Notably, in October 2016 the Corporate Fraud Strike Force orchestrated the Justice Department’s $516 million settlement with Tenet Healthcare Corporation to resolve civil and criminal allegations that Tenet received kickbacks in exchange for patient referrals.  John Holland, a former senior vice president at Tenet, was also charged in connection with the fraud.

Even though the Corporate Fraud Strike Force has been effectively dismantled, private and public companies must realize that corporate health care fraud prosecutions are not dead.  Because expertise in complex health care fraud investigations and prosecutions has been developed over the past decade, the need to augment expertise in the field from Main Justice has diminished.  U.S. Attorney’s Offices around the country now have a well-trained, sophisticated staff to continue the Department’s work in combating corporate health care fraud.  While the Department of Justice continues its re-positioning of resources to focus on Sessions’ priorities – drugs, violent crime, and illegal immigration – don’t expect to see a reduction in interest from U.S. Attorney’s Offices, given past successes and the Department’s overall commitment to health care fraud.  Sessions has expressed no soft spot for corporate fraud, saying, “I was taught if [companies] violated a law, you charge them.  If they didn’t violate the law, you don’t charge them.”

Additionally, the President’s proposed FY2018 budget request would increase spending in Health and Human Services’ Health Care Fraud and Abuse Control (HCFAC) program by $70 million, to $751 million.  Money allocated to the HCFAC is shared among the Centers for Medicare and Medicaid Services, DOJ, and Health and Human Services Office of Inspector General.  The takeaway for the health care sector is that the federal focus on health care fraud will continue.  Stay tuned.

[1] Sue Reisinger & Kristen Rasmussen, As Priorities Shift at DOJ, Health Care Corporate Fraud Strike Force Gutted, The National Law Journal (July 10, 2017), http://www.nationallawjournal.com/id=1202792591440/As-Priorities-Shift-at-DOJ-Health-Care-Corporate-Fraud-Strike-Force-Gutted.
[2] Id.

DOJOn May 31, 2017, the Department of Justice announced a $155 million settlement with eClincialWorks (ECW), an electronic health records (EHR) software vendor, to resolve a whistleblower complaint that alleged violations of the False Claims Act and the Anti-Kickback Statute.  This settlement, the “largest financial recovery in the history of the State of Vermont,” should put EHR vendors on notice, as well as vendors that offer services or products to health care providers: providing misinformation to a government contractor or health care provider about their products or services, or furnishing nonconforming goods or services, may expose them to significant financial exposure under the False Claims Act, even if they do not themselves submit claims to the government.

Background:  Pursuant to the Health Information Technology for Economic and Clinical Health Act (HITECH Act) of 2009, the United States Department of Health and Human Services (HHS) established a program to provide incentive payments to health care providers who demonstrated “meaningful use” of “certified” EHR technology.  The incentive payments are to encourage health care providers to transition to using EHR.  To obtain the proper certification, EHR vendors are required to affirm that their products meet certain requirements adopted by HHS and then pass certain tests by a certifying agency approved by HHS.

Allegations:  The lawsuit, in which the federal government intervened, alleged that ECW falsely attested that its products met the applicable certification criteria and prepared its software to pass the certification testing without actually meeting the certification criteria.  Significantly, ECW was alleged to have violated the False Claims Act because it had “caused” the end user health care providers to submit inaccurate attestations concerning their use of “certified” EHR in support of their claims to the government for “meaningful use” incentive payments.

Settlement:  ECW agreed to pay $155 million to settle the complaint and entered into an onerous, five-year Corporate Integrity Agreement (CIA).  In what the DOJ described as “innovative,” the CIA requires, among other things, that ECW (a) retain an Independent Software Quality Oversight Organization to assess ECW’s software quality control systems, (b) provide prompt notice to its customers of any safety related issues, (c) maintain on its customer portal a comprehensive list of issues and steps users should take to mitigate potential patient safety risks, (d) provide its customers with updated versions of their software free of charge, (e) offer customers the option to have ECW transfer their data to another EHR vendor without penalties or charges, and (f) retain an Independent Review Organization to review ECW’s arrangements with health care providers to ensure compliance with the Anti-Kickback Statute.

Implications:  EHR and other health care vendors cannot assume that their liability is limited to breach of contract or indemnification of its customers.  Rather, the ECW case points to the risk of direct exposure under the False Claims Act, without ever submitting a single claim to the government.  In a similar vein, in the context of the Health Insurance Portability and Accountability Act (HIPAA), software and other vendors may also be directly subject to penalties under HIPAA for breaches of protected health information – as a business associate to their health care provider customers.

Combating health care fraud will continue to be a priority for the Jeff Sessions-led Department of Justice (DOJ).

DOJ Criminal Division’s Acting Assistant Attorney General Kenneth Blanco, in a May 18 speech at the ABA’s Institute on Health Care Fraud, said that Attorney General Jeff Sessions “feels very strongly” that “health care fraud is a priority for the Department of Justice.”  Mr. Blanco called health care fraud “despicable” and said, “the investigation and prosecution of health care fraud will continue; the department will be vigorous in its pursuit of those who violate the law in this area.”  Mr. Blanco continued, “I can tell you that [Attorney General Sessions] has expressed this to me personally.”

Mr. Blanco sent a strong and clear message to the audience of health care attorneys, defense counsel, compliance professionals, and relators counsel that the Justice Department’s longstanding commitment to combating health care fraud will continue. His speech appeared to be designed to address concerns that changes in emphasis in the DOJ Criminal Division towards  immigration and violent crime would come at the expense of health care fraud investigations.  Attorney General Sessions is committed to investigating and prosecuting health care fraud because, Mr. Blanco said, health care fraud hurts vulnerable people seeking medical care and costs the government and tax payers almost $100 billion annually. Continue Reading DOJ’s Focus on Health Care Fraud Continues

The Supreme Court will not hear the most important Park doctrine case in over 40 years. In DeCoster v. United States, the DeCosters appealed their convictions under the Responsible Corporate Office doctrine, commonly referred to as the Park doctrine, because they did not have “actual knowledge” that their egg distribution company sold eggs contaminated with salmonella. The DeCosters presented two arguments in their cert. petition, (1) their convictions and three month prison terms were based on vicarious liability and violated due process, and (2) the Supreme Court should overrule the Park doctrine altogether because anyone in the chain of command faces criminal liability.

Until another case tests the limits of the Park doctrine – or another Court of Appeals conflicts with the Eighth Circuit’s holding – the Supreme Court’s decision not to review DeCoster means executives in the food and drug industries may still face imprisonment for supervisory lapses.

We detailed the DeCoster case and the Responsible Corporate Officer doctrine in an earlier blog post and clients and friends memo.

The most important Park doctrine case in over forty years may be heading to the Supreme Court – but not if the federal government has its way.  On April 12, 2017, the Acting Solicitor General of the United States filed his brief in opposition to the U.S. Supreme Court’s potential review of United States v. DeCoster and the Responsible Corporate Officer doctrine (“RCO doctrine”).  The RCO doctrine, commonly referred to as the Park doctrine, permits the government to prosecute employees for corporate misconduct when they are in a “position of authority” and fail to prevent or correct a violation of the Food, Drug and Cosmetic Act (FDCA).[1]  Not only is it a strict liability offense, it is a vicarious liability offense and is rarely used by the Department of Justice (DOJ) to seek prison time for supervisory employees.[2]

In the DeCosters’ January 10 Petition for Writ of Certiorari, the company’s executives contend that their convictions as responsible corporate officers are based on vicarious liability, because they did not have “actual knowledge” that their egg distribution company sold contaminated eggs.[3]  Therefore, they argue, federal precedent dictates that imprisonment violates due process.[4]  Anticipating the government’s argument that the DeCosters’ own negligence as responsible corporate officers is the source of their liability, the DeCosters state that Park doctrine liability has historically not been based on negligence by the responsible corporate officer.[5]  Rather, the argument continues, the Park doctrine is a strict liability offense based on the corporate officer’s position of authority and the presumption that the officer is in a position to prevent violations of the FDCA.  A sentence of imprisonment for a strict liability violation, they maintain, violates due process.[6]  Accordingly, the DeCosters argue that the Eighth Circuit’s holding, affirming the conviction and sentencing of both executives to three months’ imprisonment, gravely expands the RCO doctrine and an “innocent” supervisor convicted of vicarious criminal liability should not face imprisonment.[7]  Secondarily, the DeCosters argue that the Park doctrine itself should be overruled because it “creates a nearly boundless risk of arbitrary enforcement” whereby it exposes “essentially anyone in the chain of command of a company, large or small, with at least nominal responsibility for a given activity” to criminal liability.[8]  The latter argument was advanced in the cert. petition even though it had not been raised in the lower courts.

The Acting Solicitor General, however, opposes the Supreme Court’s review and contends the DeCosters’ prison terms were based on their acts and omissions, not vicarious liability.[9]  The government cites United States v. Park to explain the prison terms are appropriate because the FDCA “imposes not only a positive duty to seek out and remedy violations when they occur but also, and primarily, a duty to implement measures that will insure that violations will not occur.”[10]

If the Supreme Court reviews DeCoster, it will provide long-sought-after guidance for corporate executives in the food and drug industries.  Additionally, the DOJ’s defense of the DeCosters’ conviction and sentencing, coupled with its ongoing focus on prosecuting individuals for corporate misconduct, both via the Yates Memo and recent guidance from the Fraud Section, which we highlighted in a prior blog post, suggests that the government’s interest in holding individuals accountable and liable, including those in the c-suite, is not waning in the new administration.

For additional information, please see our Client & Friends memo: The Responsible Corporate Officer Doctrine in the Wake of DeCoster.

 

[1] United States v. Park, 421 U.S. 658 (1975); see also Jose P. Sierra, The Park Doctrine: All Bark and No Bite, pharmarisc.com, (Apr. 6, 2012), http://www.pharmarisc.com/2012/04/the-park-doctrine-all-bark-and-no-bite/.
[2] 21 U.S.C. § 301 et seq.
[3] United States v. DeCoster, 828 F.3d 626, 629, 631 (8th Cir. 2016).
[4] Petition for a Writ of Certiorari at *12-16, DeCoster v. United States (filed Jan. 10, 2016).
[5] Id. at *17.
[6] Id. at *23-26.
[7] Id. at *30.
[8] Id. at *32.
[9] Brief for the United States in Opposition, DeCoster v. United States, at *10 (filed Apr. 12, 2017).
[10] Id.

wooden toolbox with tools. isolated on white.

As we reported last week, on January 17, 2017, staff from the Department of Health and Human Services Office of Inspector General (HHS-OIG) met with Health Care Compliance Association (HCCA) professionals for a roundtable meeting to develop a resource guide aimed at helping health care organizations develop ways to benchmark and measure the effectiveness of compliance programs.

The results of the roundtable meeting were released by HHS-OIG on March 27, 2017, with the release of the Resource Guide on Compliance Program Effectiveness (“Resource Guide”).  The Resource Guide provides a large number of measurement options designed to work across “a wide range of organizations with diverse size, operational complexity, industry sectors, resources, and compliance programs.” It covers the well-established seven elements of an effective compliance program, articulated in the U.S. Sentencing Guidelines:

  1. Standards, policies and procedures
  2. Compliance program administration
  3. Screening and evaluation of employees, physicians, vendors and other agents
  4. Communication, education and training on compliance issues
  5. Monitoring, auditing and internal reporting systems
  6. Discipline for noncompliance and
  7. Investigations and remedial measures

Continue Reading Regulatory Guidance Part II: Synthesizing 2017 DOJ Fraud Section and HHS-OIG Guidance

cheatsheetIn February, to little fanfare, the Department of Justice (DOJ) Criminal Division Fraud Section issued detailed criteria for evaluating corporate compliance programs.  The guidance, entitled Evaluation of Corporate Compliance Programs (“Evaluation Guidance” or “Guidance”) comes two years after DOJ hired Hui Chen as Compliance Counsel in the Fraud Section.  When her position was announced, the DOJ said that Chen would “help prosecutors develop appropriate benchmarks for evaluating corporate compliance and remediation measures” and would “communicat(e) with stakeholders in setting those benchmarks.”  The Evaluation Guidance provides those benchmarks used by the DOJ to evaluate the effectiveness of corporate compliance programs. It covers 11 key compliance program evaluation topics, along with a list of specific questions that DOJ considers important in evaluating compliance programs as part of a criminal investigation. Continue Reading DOJ Compliance Cheat Sheet

DOJEffective February 3, 2017, DOJ announced an increase in civil monetary penalties for FCA violations. This is the second annual increase, indexed to inflation, since the Bipartisan Budget Act of 2015, which required all federal agencies to increase civil monetary penalties under their jurisdiction by the change in the Consumer Price Index.

Last year’s “catch-up adjustment” almost doubled False Claims Act civil monetary penalties, given that they were last adjusted in 1986. That initial increase took minimum per-claim FCA penalties to $10,781 from $5,500 per claim and maximum per-claim penalties rose to $21,563 from $11,000 per claim. The adjustments announced last week increased minimum per-claim penalties by $176 to $10,957 and maximum penalties by $353 to $21,916.

These increases apply to any FCA penalties assessed after February 3, 2017, for FCA violations that occurred on or after November 2, 2015. For violations occurring before November 2, 2015, the 1986 penalty range ($5,500 – $11,000) still applies.