Court Compels Medicare Advantage Plan to Comply With CID for Testimony in Diagnosis Coding Investigation

On November 13, 2018, a magistrate judge issued a report to the United States District Court for the Southern District of New York recommending that the Department of Justice’s (“DOJ”) petition to compel deposition testimony from Anthem regarding its procedures and processes for verifying diagnoses for Medicare Advantage payments be granted and that a date be set for Anthem’s witness to testify.  DOJ is seeking the testimony in connection with its investigation of Anthem as part of its broader enforcement efforts under the FCA focused on the Medicare Advantage program.  (more…)

DOJ Backs Down From Challenge to CIDs Issued After It Declined to Intervene in FCA Case

Faced with a challenge to its authority to do so, DOJ recently withdrew several Civil Investigative Demands (“CIDs”) which it had issued after declining to intervene in a qui tam case brought by former employees who had accused their employer, Lexington Foot & Ankle Center PSC, of fraudulent billing.  In re Civil Investigative Demands 18-13-EDKY, 18-02-EDKY, and 18-03-EDKY, No. 5:18-cv-00283 (E.D. Ky.) (filed Apr. 23, 2018).  (more…)

New Jersey Supreme Court Curtails Attorney General’s Subpoena Power in FCA Action

On June 7, 2017, the New Jersey Supreme Court, in a 3-2 decision affirming the decision of the Appellate Division, found that the Attorney General’s administrative subpoena power under New Jersey’s False Claims Act is limited to the 60 day period (which may be extended by motion) in which the Attorney General must make his or her intervention decision. “[A]fter the Attorney General declines to intervene in a qui tam action and leaves that action in the relator’s control, the Attorney General loses the authority to issue administrative subpoenas.” In the Matter of the Enforcement of New Jersey False Claims Act Subpoenas, A-5-16 (No. 077506). (more…)

DOJ To Increase Criminal Fraud Probes

Earlier this month, the Justice Department announced that federal prosecutors are increasing their scrutiny of whistleblower complaints that allege fraud against the government, in order to discover evidence of criminal conduct.

Previously, the criminal division had concentrated its efforts through a “strike force” in nine cities deemed to have the worst healthcare fraud problems. Lauding the successes of these efforts, Assistant Attorney General Leslie Caldwell, in a speech before the Taxpayers Against Fraud Education Fund, announced that DOJ was “stepping up” its analysis of whistleblower complaints so that it can “move swiftly and effectively to combat major fraud involving government programs.”

To do so, the criminal division will now review “all new qui tam complaints . . . as soon as they are filed.” By DOJ policy, the civil division will maintain supervisory authority over all False Claims Act cases with damages exceeding $1 million, but the criminal division will no longer be reliant on referrals from civil authorities for potential prosecution. Going forward, “[e]xperienced prosecutors in the Fraud Section are immediately reviewing the qui tam cases . . . to determine whether to open a parallel criminal investigation.”

Ms. Caldwell promised that the Department would be “committing more resources to this vital area.” In addition to earlier review by criminal prosecutors, the additional resources will allow for more coordination between Main Justice and local United States Attorney’s offices. Ms. Caldwell further encouraged whistleblower lawyers to “reach out to criminal authorities in appropriate cases” because “the sooner [prosecutors] on the criminal side learn about potential conduct, the sooner [the criminal division] can investigate.”

The Justice Department’s focus on criminal fraud prosecutions, particularly in the healthcare sector, is an increasing trend that shows no sign of slowing down. This makes careful responses more vital anytime a company is the subject of a whistleblower lawsuit or subject to a civil investigative demand or subpoena from DOJ. Even if a case begins as civil in nature, one can be sure that criminal prosecutors will be reviewing it closely for any evidence of criminal misconduct.

District Court Refuses To Allow Government To Use CID To Try To Remedy Deficiencies In Complaint

Posted by Douglas Axel and Anand Singh

We previously wrote about a decision in United States v. Kernan Hospital, in which a district court dismissed an FCA complaint brought by DOJ based on the failure to plead with particularity under Rule 9(b). The government’s attempt to remedy its pleading deficiencies has spawned another interesting opinion in the same case. In an opinion issued on November 20, the district court held that the authority to issue a Civil Investigative Demand (“CID”) under the False Claims Act is unavailable to the government after it files a complaint.


On June 3, 2008, the government began investigating Kernan Hospital (“Kernan”) for Medicare fraud. On October 17, 2011, it filed a False Claims Act suit alleging that Kernan had engaged in fraudulent practices respecting Medicare billing.

Kernan filed motions to dismiss based on the government’s failure to state a claim (under Federal Rule of Civil Procedure 12(b)(6)) and failure to plead fraud with sufficient particularity (under Federal Rule of Civil Procedure 9(b)). The court agreed that the government had failed to adequately plead its fraud allegations and dismissed the government’s complaint without prejudice.

Following the court’s dismissal, on August 23, 2012, the government served Kernan with a CID seeking additional documents concerning Kernan’s billing practices. Kernan filed a petition to set aside the CID (“Petition”), asking the Court to set aside the August 23 CID on the grounds that section 3733 of the False Claims Act does not authorize the government to issue CIDs after it has filed a False Claims Act complaint.

The Court’s Analysis and Holdings

The court agreed with Kernan and granted the Petition. Under section 3733 of the False Claims Act, an Attorney General may issue a CID “before commencing a civil proceeding under § 3730(a) or other false claims law.” 31 U.S.C. § 3733(a)(1). Thus, the court recognized that “[s]ection 3733 sets out a prefiling limitation on the use of the civil investigative demand.” United States v. Kernan Hospital, No. RDB-11-2916, 2012 WL 5879133, *4 (D. Md. Nov. 20, 2012). However, “neither the statute nor the case law interpreting it suggests whether that limitation expires after an initial complaint is dismissed.” Id. The government advanced two arguments why the court should deny the Petition, both of which the court rejected.

First, the government argued that section 3733 “inherently deprives the Attorney General of the power to issue a civil investigative demand only if a suit is pending.” Id. (emphasis added). In rejecting this argument, the court explained that the “plain words of the statute does not invite an interpretation of ‘before commencing a civil proceeding’ to include the period after the commencement of a civil proceeding when no suit is pending.” Id. The court also analyzed the legislative history of the False Claims Act and concluded that it “suggest[ed] that when Congress circumscribed the period during which the Government could issue a civil investigative demand to the prefiling stage, it did not mean to provide the Government with that power at any time a suit was not pending.” Id. at *5.

Second, the government argued that the Petition should be denied “based on policy,” because the government was considering filing an amended complaint and the granting of the Petition “would prevent [the government] from obtaining the information it need[ed]” to cure the deficiencies in its pleading, i.e., the government’s failure to plead fraud with particularity and satisfy the requirements of Federal Rule of Civil Procedure 9(b). Kernan, 2012 WL 5897133 at *6. In rejecting this argument, the court explained that the government already had “conducted a thorough investigation and gathered the information it needed to determine whether to file suit,” and therefore, the court was “not persuaded that the Government needs to exercise its section 3733 power before it can sufficiently amend its complaint.” Id. The court also explained that “the civil investigative demand provision and Rule 9(b) are intended to encourage careful behavior when alleging fraudulent conduct,” and therefore its granting of the Petition was “in keeping with the policy goals underlying both section 3733 and Rule 9(b).” Id. at *7.

Based on the court’s ruling, the government is not able to use CIDs to obtain information after it has initiated an action. This may benefit defendants in False Claims Act cases. However, the ruling may counsel the government to issue broader CIDs at the pre-filing stage, which may impose additional burdens on companies and individuals that are potential defendants in such cases.

Recent District Court Decision Highlights Risks Where Non-Attorneys Are Tasked To Conduct Internal Investigations With Minimal Involvement Of Counsel

In a recent decision, United States v. ISS Marine Services, Inc., No. 12-mc-481, Mem. Op. (D.D.C. Nov. 21, 2012), the U.S. District Court for the District of Columbia ruled that an internal investigation report prepared by an internal auditor of an affiliate of respondent ISS Marine Services, Inc. (ISS) was not subject to the protections of the attorney-client privilege or the work-product doctrine despite the involvement of outside counsel. The opinion serves as a strongly-worded reminder that direct attorney oversight and supervision of internal investigations is the surest way to safeguard privileges.

The case involved a government petition to enforce an administrative subpoena issued by the Department of Defense Inspector General’s Office. The respondent, ISS, had agreed to produce non-privileged, responsive documents but had claimed privilege with respect to an investigative report prepared by an internal auditor of the company’s U.K. affiliate. While the facts surrounding the commissioning of the investigation and report were disputed, the court found ultimately that, although an outside law firm had initially proposed conducting the investigation, had provided advice on issues to investigate and documents to review, and was provided a copy of the finished report, neither outside nor in-house counsel directed or supervised the work of the auditor to the extent necessary to protect the final report with a privilege.

Regarding the attorney-client privilege, the court focused on the purpose for which the investigation was conducted and the audit report was created. The court applied a strict test, concluding that the party claiming privilege must demonstrate that the communication in issue would not have been made “but for” the purpose of seeking legal advice. Mem. Op. at 9. The court first noted that, despite the fact that outside counsel suggested the investigation, there was evidence that the report was prepared to allow the U.K. affiliate of respondent to make a business decision about what further action should be taken to address the issues. Id. at 11. Then, in strikingly strong language, the court found the outside law firm’s involvement too tenuous to support blanketing the internal auditor’s work with privilege:

At bottom, respondent’s claim to privilege appears to be premised on a gimmick: exclude counsel from conducting the investigation but retain them in a watered-down capacity to “consult” on the investigation in order to cloak the investigation with privilege. Unfortunately for respondent, this sort of “consultation lite” does not qualify the Audit Report for the protections of the attorney-client privilege.

Mem. Op. at 12. The court continued that “[t]his sort of arms-length coaching by counsel, as opposed to direct involvement of an attorney, undercuts the purposes of the attorney-client privileged in the context of an internal investigation.” Id. at 13.

The court emphasized that, for the results of an internal investigation to be privileged, “the company must clearly structure the investigation as one seeking legal advice and must ensure that attorneys themselves conduct or supervise the inquiries and, at the very least, the company must make clear to the communicating employees that the information they provide will be transmitted to attorneys for the purpose of obtaining legal advice.” Id. at 14.

The district court also rejected the respondent’s claim that the report was protected from disclosure by the work-product doctrine. In a detailed analysis of various tests for determining whether a document was prepared for purposes of litigation, the court concluded that the respondent had not met its burden under any potentially applicable test. After pointing out that the investigation was conducted and the report was prepared some two years before the government commenced its investigation of respondent, as well as evidence that the company had an alternative business purpose for conducting the investigation, the court returned again to the fact that counsel was not closely involved with the investigation. The court stated: “Minimal attorney involvement in an internal investigation represents a distinct difficulty for corporations claiming work-product privilege because it is the rare case in which a company genuinely anticipating litigation will leave its attorneys on the outside looking in.” Id. at 26.

A copy of the opinion is available here.

Fraud and Abuse Changes in the New Laws Enhance Government Enforcement Power and Heighten Industry Transparency Obligations

President Obama recently signed into law two pieces of legislation that, together, represent the most comprehensive reform that the U.S. healthcare system has seen in decades.1 In addition to providing for sweeping changes to health insurance coverage, healthcare delivery, and healthcare funding mechanisms, these laws substantially expand the government’s investigative and enforcement authority in connection with healthcare fraud and abuse. Additionally, the new laws include increased penalties for fraud and abuse in several contexts, as well as heightened disclosure and compliance obligations for providers, manufacturers, and other entities as part of government efforts to reduce fraud and to increase transparency.

This update highlights the key provisions of the new laws pertaining to anti-fraud and pro-transparency initiatives. Several of these new enforcement risks and compliance obligations take effect immediately or within one year, so affected entities will need to familiarize themselves with these provisions and plan for their implementation accordingly.