Last week, President Trump declared the opioid crisis a public health emergency. The President’s opioid Commission has now issued its final report with recommendations on how to combat the country’s drug crisis. While both important, neither have a significant impact on law enforcement efforts to address the crisis. That impact will likely come from public reaction to reports suggesting that a 2016 law stripped the Department of Justice (“DOJ”) and Drug Enforcement Administration (“DEA”) of certain police powers to enforce the nation’s drug laws.

Congress passed the Ensuring Patient Access and Effective Drug Enforcement Act (the “Act”) in the Spring of 2016 with little fanfare, and with unanimous consent in the House and Senate. Over one year later, the Act is the subject of great debate and the source of tension among lawmakers, law enforcement, pharmaceutical manufacturers, distributors and wholesalers, and public health advocates.

Before the Act’s passage, DEA regulations permitted the DEA Administrator to issue an immediate suspension order (“ISO”) of a DEA-registered business or health care provider where there was an “imminent danger to the public health or safety.” However, “imminent danger” was not defined, and was subject to loose and inconsistent interpretation. In seeking ISOs, DEA conducted historical analyses of a registered entity’s sales and would claim that the volume of orders, coupled with a failure to report suspicious orders, constituted the requisite “imminent danger” to the public. This finding, which was not subject to judicial review, would temporarily strip a registered business or health care provider of its license to manufacture, distribute or dispense controlled substances pending a hearing before a DEA administrative law judge. Unhappy that DEA could claim “imminent danger” based on past practices, without regard to remedial measures the registered business might have taken, industry lobbyists urged lawmakers to enact a statute that would more clearly define “imminent danger”[1] and would allow a company to present a remedial action plan prior to the imposition of an immediate suspension order.

Critics, led by a former DEA insider-turned-whistleblower, whose allegations were aired in a recent 60 Minutes-Washington Post report, say that the new Act eviscerated DEA’s ability to stop the illegal flow of addictive opioid medications to the public. They claim that “[t]he new law makes it virtually impossible for the DEA to freeze suspicious narcotic shipments from the companies.[2] Similarly, advocates for increased government crack-downs argue that the Act’s new meaning of “imminent danger” and heightened evidentiary standard requires DEA to pierce through “too many levels between distributors and manufacturers to logically establish any causation of death, serious bodily harm, or abuse to a specific patient down the chain to support” an ISO. [3] The reaction to the whistleblower’s allegations was explosive. Among other things, it led to the withdrawal of President Trump’s nomination of Representative Tom Marino of Pennsylvania, a sponsor of the Act, to be the nation’s next drug czar. There is surely more fallout from the Sixty Minutes-Washington Post piece, and it will likely result in scaling back of the Act.

Meanwhile, the President’s Commission on Combating Drug Addiction and the Opioid Crisis (the “Commission”), which will release its final report tomorrow, recommended numerous enforcement measures to combat the opioid epidemic. For example, the Commission suggests that DEA require prescribers to participate in continuing education to better understand the potential for drug misuse before their registrations to prescribe opioids can be renewed. In addition, the Commission urges the President to endorse the federal Prescription Drug Monitoring Act, which requires states that receive federal grants to track and actively manage controlled substances through a state-wide prescription drug monitoring program (“PDMP”). As an alternate to enforcement, the Commission also calls for drug courts in every federal district nationwide. The Commission expects that drug courts will advance individuals’ treatment and recovery efforts, while saving enforcement efforts for those in the medical supply chain that manufacture, distribute, prescribe and dispense large volumes of opioids in the first instance. Finally, the DOJ has leaned on its Corporate Fraud Strike Force and the Opioid Fraud and Abuse Detection Unit to ferret out opioid-related health care offenses and to hold responsible actors accountable.

As the DOJ and DEA retool and consider new enforcement measures, the following industry participants must remain alert:

Doctors: DOJ and DEA will prioritize identifying doctors who overprescribe opioids or who prescribe them without a legitimate medical purpose. Both agencies are well-equipped to seek out not only doctors who overprescribe opioids by providing weeks’ worth of pills when only a few days are necessary, but also other doctors who operate lucrative “pill mills” that distribute opioids for non-medical reasons.

Pharmacists: Pharmacists are on the front line of providing medical care and have a corresponding responsibility to ensure that prescriptions are legitimate. Accordingly, pharmacists must exercise a high degree of professional judgment when assessing a patient’s condition and that patient’s need to use opioids to treat a condition. Pharmacists should be familiar with PDMP systems and know how to balance patient pain with overprescribing opioids. Concomitantly, chains that employ pharmacists have an obligation to educate and train their pharmacists on the safe use of opioids and the potential for misuse and abuse and will bear responsibility for a pharmacist’s failure to detect illegitimate opioid prescriptions.

Manufacturers and Wholesalers: DOJ and DEA will continue to monitor large pharmaceutical companies’ business practices to identify any drug makers who illegally incent doctors to overprescribe opioids, commit fraud on insurance companies, employ deceptive marketing techniques that deceive patients, or who fail to detect and report suspicious orders.

In sum, the opioid crisis, while largely viewed as a health crisis, has important enforcement impacts that are likely to affect industry in a number of ways.

[1] 21 U.S.C. § 824(d) (2016). Specifically, the Act requires that DEA prove that “there is a substantial likelihood of an immediate threat that death, serious bodily harm, or abuse of a controlled substance will occur in the absence of” an ISO.
[2] Scott Higham & Lenny Bernstein, “The Drug Industry’s Triumph Over the DEA,” The Washington Post (Oct. 15, 2017), https://www.washingtonpost.com/graphics/2017/investigations/dea-drug-industry-congress/?hpid=hp_hp-top-table-low_deanarrative-hed%3Ahomepage%2Fstory&utm_term=.9b6172efd59d.
[3] John J. Mulrooney, II & Katherine E. Legel, Current Navigation Points in Drug Diversion Law: Hidden Rocks in Shallow, Murky, Drug-Infested Waters, 101 Marq. L. Rev. (forthcoming Feb. 2018).

Tom Price is out as Secretary of the U.S. Department of Health and Human Services (“HHS”).  Mr. Price announced his resignation on September 29th as he faced more questions and increasing scrutiny over his use of taxpayer-funded private planes.  While Mr. Price’s departure from HHS will impact some aspects of the Trump Administration’s health care agenda, health care enforcement and compliance issues are bi-partisan in support and therefore less volatile.

Under Inspector General Daniel Levinson, who has led HHS’ Office of Inspector General (“OIG”) for twelve years, HHS remains committed to detecting, preventing, and prosecuting individuals and companies for health care fraud.  Accordingly, all signs point to OIG continuing to focus on detecting fraudulent billing practices and illegal physician referral programs, and using corporate integrity agreements to ensure that health care providers obey Medicare and Medicaid rules and policies.

In addition to fighting fraud in HHS programs, Health Information Portability and Accountability Act (“HIPAA”) security and cyber security are top priorities for HHS’ Office for Civil Rights (“OCR”).  To combat cyber security threats and to mitigate damage caused by cyber security breaches, OCR will likely increase its enforcement of HIPAA privacy rules and regulations and scrutinize providers’ cyber security policies, best practices, and response procedures.  Driving home this point, new OCR Director Roger Severino said, “I’ve gotten up to speed on HIPAA, and as the threats evolve, we have to evolve in how we approach it – and we have to be smart about who we target.  At most I will say the big, juicy case is going to be my priority and the methods for us finding it – stay tuned.”[1]

Under Attorney General Jeff Sessions, the U.S. Department of Justice has maintained a high tempo in its efforts to combat health care fraud.  For example, in July 2017 DOJ announced a partnership between its Health Care Fraud Unit’s Corporate Fraud Strike Force and Foreign Corrupt Practices Act (“FCPA”) prosecutors to ensure that health care companies are held accountable to the standards of the False Claims Act and the FCPA.  And DOJ’s new Opioid Fraud and Abuse Detection Unit will help combat the ongoing opioid crisis, in keeping with Attorney General Sessions’ enforcement priorities.

Tom Price’s departure as HHS Secretary is significant for other important aspects of health care, including the future of the Affordable Care Act and the Medicare and Medicaid bundled payment models.  However, current HHS and DOJ enforcement programs remain a priority under President Trump and Attorney General Sessions.

[1] Marianne K. McGee, Top HIPAA Enforcer Names His Top Enforcement Priority, Data Breach Today (Sept. 5, 2017), https://www.databreachtoday.com/top-hipaa-enforcer-names-his-top-enforcement-priority-a-10258.

In February 2017, we wrote about how the Fourth Circuit sidestepped the question of whether a relator bringing suit under the False Claims Act (“FCA”) may use statistical sampling and extrapolation to establish FCA liability when it held in United States ex rel. Michaels v. Agape Senior Community, Inc. that an appeal on that point had been improvidently granted.  The Fourth Circuit would have been the first appellate court to provide guidance on this hotly contested issue.  We noted at the time that the FCA bar would need to continue to await guidance from the appellate courts and contend with inconsistent decisions emanating from federal district courts.

When Agape returned to the district court—which had held that statistical sampling was not appropriate—the relators found themselves unable to afford to continue prosecuting their case and ultimately did not contest the court’s granting of summary judgment on 99 percent of their claims.  Unsurprisingly, the parties announced late last month that they had settled the remainder of the claims for $275,000.

What is surprising, however, is that the Department of Justice has approved this settlement, despite rejecting a $2.5 million amount just two years ago, after the district court already had ruled that it would not accept statistical sampling as evidence to establish liability, and after arguing in its brief in the appeal to the Fourth Circuit that the court did not need to rule on that issue (which, as noted above, it did not).  The relators thus are left with a considerably smaller sum than what they may have expected in a case where DOJ had previously estimated damages at $25 million.

The amount of the Agape settlement in conjunction with the lack of guidance from appellate courts sends a signal to the relator bar that FCA cases that would require the use of statistical sampling to establish liability simply may not be worth bringing.  Given the patchwork of law on this point, healthcare providers nevertheless must continue to be prepared for statistical sampling arguments and monitor for new developments.

DOJIn July, we reported on Attorney General Sessions dismantling DOJ’s Health Care Corporate Fraud Strike Force.  On July 25, Sandra Moser, acting chief of the DOJ’s Fraud Section, announced a partnership between the Health Care Fraud Unit’s Corporate Fraud Strike Force and Foreign Corrupt Practices Act (“FCPA”) prosecutors.  Together, these moves signal DOJ’s reorganization to ensure health care companies are held accountable to the standards of the False Claims Act and the FCPA, and, at the same time, free-up prosecutors at Main Justice to focus on Sessions’ priorities of cracking down on drugs, violent crime, and illegal immigration.

DOJ’s latest move to coordinate the health care fraud enforcement mission with FCPA efforts is not novel—it simply creates an efficient partnership to encourage U.S. health care companies to adopt and follow anti-corruption best practices.  Speaking at last month’s Global Forum on Anti-Corruption in High Risk Markets in Washington, D.C., Moser highlighted the intersection between the FCPA and the health care industry.  Moser noted that, because most foreign health care systems are government run, health care companies will invariably deal with public officials when engaged in business overseas and must ensure that executives and lower-level employees act appropriately to avoid potential FCPA liability.

Citing the need to draw from all necessary DOJ resources to effectively prosecute global health care fraud, Moser pointed to several recent resolutions that DOJ has reached with major pharmaceutical companies to resolve FCPA and domestic bribery charges.  These resolutions include a December 2016 deal reached with Teva Pharmaceuticals, which paid $519 million dollars to resolve charges over FCPA violations in Ukraine, Mexico and Russia.

Moser announced that FCPA prosecutors and the Health Care Fraud Unit Corporate Strike Force will formalize this cooperation into a unified effort to jointly investigate and prosecute foreign and domestic bribery in the health care industry.  Although there had been some level of cooperation between the two on a case-by-case basis, this new arrangement will likely lead to increased DOJ scrutiny into the foreign business dealings of health care companies.  The Health Care Corporate Fraud Strike Force and FCPA prosecutors’ partnership will streamline government efforts to crack down on FCPA violations and signals to the health care industry that, like all companies conducting substantial overseas business in countries with corruption risk, health care companies should ensure that effective safeguards are in place to prevent their employees, subsidiaries and foreign agents from running afoul of the FCPA.

Both DOJ and HHS-OIG have released resource guides on combating fraud this year.  Corporate executives and compliance departments should refer to DOJ’s Evaluation of Corporate Compliance Programs for baseline standards and questions to consider when developing or re-assessing a corporate compliance program.  Health care companies should also design compliance programs, training, and internal controls to prevent FCPA violations and detect them early enough to stop or mitigate the extent of the violation.

The issue of self-reporting takes on added emphasis with the coordination between health care and FCPA.  During her speech, Moser promoted DOJ’s recently introduced FCPA Pilot Program and much better outcomes for companies who voluntarily disclosed violations (self-reporting companies obtaining either a declination with disgorgement of illicit profits, or a non-prosecution agreement with a 50% reduced fine) compared with those that did not (80% of the cases against these companies were resolved through guilty pleas or deferred prosecution agreements, none received more than a 25% guidelines reduction, and most had a monitor appointed).

Health care companies are now on alert that, even though Sessions has been focused on prosecuting drugs, violent crime, and illegal immigration, DOJ will continue to put energy and resources towards its anti-corruption enforcement efforts, particularly in the health care industry.

After years of defrauding the U.S. government and taxpayers, Mylan, the maker of EpiPen, last week resolved allegations that it profited at the expense of Medicaid.

On August 17, Mylan and its subsidiaries agreed to pay $465 million to resolve claims they violated the False Claims Act (“FCA”) for knowingly misclassifying its lifesaving EpiPen product as a generic drug to avoid paying rebates owed to the U.S. government.  In a press release, the Department of Justice (“DOJ”) stated, “this settlement demonstrates the DOJ’s unwavering commitment to hold pharmaceutical companies accountable for schemes to overbill Medicaid, a taxpayer-funded program whose purpose is to help the poor and disabled.”

The settlement was first announced in October 2016, amidst fierce public criticism of Mylan’s triple-digit price hikes for the EpiPen, but the settlement agreement, and the fact that Sanofi was the whistleblower, was just released last week.  It is rare for one health care company to blow the fraud whistle on another health care company.

Sanofi’s Qui Tam Suit

Inquiries into Mylan’s misconduct started when rival Sanofi-Aventis US LLC (“Sanofi”) filed a qui tam lawsuit against Mylan under seal in 2016, in the District of Massachusetts, under the whistleblower provisions of the FCA.  The government then intervened in the case.

Sanofi, which had been selling a competing product to Mylan’s EpiPen, alleged that Mylan knowingly misclassified EpiPen as a generic drug, or “non-innovator” product, even though it was marketed and priced as a brand-name product.  Under the Medicaid program, manufacturers must pay higher rebates for brand-name drugs, i.e. drugs only available through a single source.  To avoid price gouging, Medicaid receives a 23 percent discount on brand-name drugs but only a 13 percent discount on generics.  The intentional misclassification of the EpiPen as a generic allowed Mylan to underpay hundreds of millions of dollars in rebates to Medicaid sold through its health coverage program from 2010 to 2016.  During that timeframe, the company increased the price of the EpiPen by 400% but paid the lesser rebate for generic drugs.

Mylan’s $465 Million Settlement

Mylan’s August 17 settlement agreement with DOJ and the Office of the Inspector General of Health and Human Services (“OIG-HHS”) resolves Sanofi and the government’s allegations that Mylan knowingly skirted its rebate obligations under the FCA.

Without admitting any wrongdoing, effective retroactive to April 1, 2017 Mylan reclassified EpiPen as a brand-name product for rebate purposes and Mylan entered into a corporate integrity agreement.  The company’s five year corporate integrity agreement with OIG-HHS requires that Mylan fulfill numerous obligations, including: (1) retain an independent review organization to assess annually whether Mylan is complying with the Medicaid program, and (2) hold executives and board members individually accountable for the company’s compliance with the corporate integrity agreement and federal health care programs.

As the whistleblower, Sanofi was awarded $38.7 million as its share of the federal recovery for alerting the government about Mylan’s misconduct.  Sanofi also stands to recover some money state Medicaid programs will receive under the settlement.

Public Outcry – Mylan’s Settlement “Shortchanges” Taxpayers

Both Republican and Democratic Senators have issued statements showing disapproval with Mylan’s settlement with DOJ.  Senator Chuck Grassley (R-IA) spoke out against the settlement, calling it a “disappointment.”  Senator Grassley continued, “the government’s own watchdog said the taxpayers may have overpaid for EpiPen by as much as $1.27 billion over 10 years.  Did the Justice Department consider the inspector general estimate?  If not, why not?”  Senator Richard Blumenthal (D-CT) also issued a fiery response, saying, “quite simply, the Department of Justice is letting this deceptive pharmaceutical behemoth off the hook.  Absolving Mylan from a finding of wrongdoing has cleared the way for the company to pocket the money it embezzled from an American public in desperate need of lifesaving and affordable medications.”

Mylan is not completely off the hook, at least to other private actions – it still faces Sanofi’s separate antitrust suit in New Jersey federal court.  There, Sanofi alleges that Mylan, to preserve its monopoly over EpiPen-like injectors, offered large rebates to insurers that did not cover competing products.

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.