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Enforcement

14 September 2015

New DOJ Guidance Puts Emphasis on Identifying Culpable Individuals in Corporate Internal Investigations

In a memo released on Wednesday, September 9, 2015, followed by a major policy address on Thursday, September 10, 2015, by Deputy Attorney General (DAG) Sally Q. Yates, the Department of Justice (DOJ) issued new guidance regarding individual accountability for corporate wrongdoing. The memo articulates several changes to DOJ policy. Although some of its major points largely reflect and expand upon existing practices regarding the investigation and prosecution of corporate wrongdoing, other aspects of the memo introduce new challenges for corporate internal investigations—particularly with regard to the ability to protect privileged information while still receiving credit for cooperating with a government investigation.  A Sidley Update with a more detailed discussion of this issue can be accessed here.

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21 May 2015

Grassley Pressures CMS and DOJ to Increase Scrutiny of Medicare Advantage Plans

On May 19, Senator Charles Grassley sent letters to Attorney General Loretta Lynch (here) and to the Acting Administrator of CMS (here) demanding information concerning fraud investigations involving Medicare Advantage plans. The letters cite news reports suggesting that some Medicare Advantage plans are fraudulently manipulating risk scores, which reflect the acuity of their patient populations are used to determine reimbursement from CMS. Asserting that “risk score gaming [has] caused approximately $70 billion in improper Medicare Advantage payments,” Senator Grassley requests that CMS and DOJ articulate what steps they are taking to address fraudulent altering of risk scores, how many investigations of risk score fraud have been conducted within the last five years, and what administrative or enforcement actions have been taken to address risk score fraud.

These letters are significant because Senator Grassley is Chair of the Senate Judiciary Committee, one of the architects of the modern False Claims Act, and a founder of the recently-formed Senate Whistleblower Protection Caucus. While there have been relatively few unsealed False Claims Act cases against Medicare Advantage plans, we expect the volume of such suits to accelerate over the coming years as federal spending continues to increase.

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03 April 2015

SEC Takes First Enforcement Action Involving Employee Agreement Restricting Disclosures to Government

Posted by Scott SteinSarah Konsky and Natalie Chan

The Securities and Exchange Commission made good on its promise to crack down on employment-related agreements that it believes improperly restrict protected whistleblowing. The agency broke new ground yesterday, when it issued a cease-and-desist order against a company for using confidentiality agreements with allegedly “improperly restrictive language” that could potentially stifle the whistleblower process. This is a first-of-its-kind enforcement action by the SEC, as it was based solely on the language of the confidentiality agreement. In fact, the SEC specifically stated in its order that it was unaware of any instance in which the agreement had prevented any employee from communicating with the SEC, or in which the company had enforced the agreement against any employee.

According to the order, KBR, Inc., a Houston-based global technology and engineering firm, used the confidentiality agreement in connection with internal investigations. When KBR received a complaint or allegation from an employee about potentially illegal or unethical conduct by KBR or its employees, KBR required employees interviewed as part of its internal investigation of the complaint or allegation (including the employee or employees who originally lodged the complaint or allegation) to sign the confidentiality agreement. The confidentiality agreement provided that:

I understand that in order to protect the integrity of this review, I am prohibited from discussing any particulars regarding this interview and the subject matter discussed during the interview, without the prior authorization of the Law Department. I understand that the unauthorized disclosure of information may be grounds for disciplinary action up to and including termination of employment.

The SEC charged KBR with violating Rule 21F-17, a whistleblower protection rule enacted under the Dodd-Frank Act, by requiring employees to sign the confidentiality agreement in internal investigations. That rule prohibits a company from “tak[ing] any action to impede an individual from communicating directly with the [SEC] about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement . . . with respect to such communications.”

Without admitting or denying the charges, KBR consented to entry of the cease-and-desist order. The order states that KBR has amended its confidentiality agreement to say that it does not prohibit employees from reporting possible violations of federal law or regulation to any governmental agency or entity, without prior authorization. KBR also agreed to pay a civil money penalty of $130,000 to the SEC.

This is a significant action by the SEC, further signaling its intent to crack down on agreements that could be construed as restricting whistleblowing behavior. This crackdown comes on the heels of actions by the EEOC and NLRB challenging confidentiality and non-disparagement provisions in severance agreements that, according to the government entities, improperly prohibit employees from engaging in protected activities.

In light of these actions, entities should review their agreements with employees that contain confidentiality and non-disparagement provisions. Government entities are making clear that they intend to crack down on provisions that they deem to restrict or prohibited protected activity – including whistleblowing and certain other communications or cooperation with government agencies. As a result, entities should ensure that the confidentiality and non-disparagement provisions in their agreements with employees contain appropriate carve-outs for protected activity.

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01 December 2014

DOJ Announces Nearly $6 Billion in Fraud Recoveries During 2014

Posted by Kristin Graham Koehler and Monica Groat

On November 20, Acting Associate Attorney General Stuart F. Delery and Acting Assistant Attorney General Joyce R. Branda announced that the Department of Justice recovered a record $5.69 billion in settlements and judgments from civil cases involving alleged fraud against the Government in fiscal year 2014. This figure represents the highest annual total recovery and an increase of nearly $2 billion over the Government’s recovery in fiscal year 2013.

Recoveries from the financial industry accounted for the most significant proportion of fraud-related recoveries, representing $3.1 billion of the total $5.69 billion. This amount was more than double the previous record for recoveries from banks and other financial institutions, which paid $1.4 billion in fiscal year 2012. Healthcare fraud represented the second largest area of recovery; DOJ recovered $2.3 billion from pharmaceutical and device manufacturers, hospitals, and other healthcare providers. Fiscal year 2014 was the fifth straight year during which the Government has recovered more than $2 billion in cases involving false claims against federal healthcare programs, including Medicare and Medicaid.

Of the $5.69 billion recovered this year, nearly $3 billion related to lawsuits filed under the FCA’s qui tam provisions, and relators recovered $435 million. The number of FCA qui tam suits filed in 2014 decreased slightly: 713 suits were filed in 2014, compared with 754 in 2013. These numbers indicate that both DOJ and private relators are continuing to bring FCA cases; although the volume of cases did not increase, recoveries by both the Government and relators increased. The announcement also confirms that DOJ is continuing to aggressively pursue fraud cases, with a continuing interest in healthcare fraud and an increasing focus on the financial industry.

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30 September 2014

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.

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06 June 2014

OIG Issues Proposed Rules on Exclusion Authority and Civil Monetary Penalties

Posted by Scott Stein and Brenna Jenny

In May, the Department of Health and Human Services’ Office of Inspector General (“OIG”) published two proposed rules, one expanding its exclusion authority (“Proposed Exclusion Rule”) and the other broadening and strengthening the availability of civil monetary penalties (“Proposed CMP Rule“). Some of these proposals merely codify provisions of the Affordable Care Act (“ACA”), whereas others are a product of the OIG’s own initiative, but interwoven within both are changes reflecting the influence of the False Claims Act on the enforcement landscape.

For example, in the Proposed Exclusion Rule, the OIG is proposing to add a provision expressly stating that there is no time limitation for the conduct that can form the basis for exclusion, regardless of whether the conduct is based on the violation of a statute with a statute of limitations. 79 Fed. Reg. 26810, 26815 (May 9, 2014). Much of the OIG’s rationale reflected its desire to be able to match the time lag often associated with FCA litigation. The OIG explained that with a time limitation, it might feel compelled to file a notice of proposed exclusion against a defendant in a pending FCA suit to avoid losing its window of opportunity, even where it might subsequently decide against exclusion with a fuller understanding of the allegations.

The OIG also proposes to borrow definitional terms from the FCA for its own enforcement purposes. As a consequence of being excluded, individuals and entities cannot receive payment “for any item or service furnished” to a federal healthcare program (“FHCP”). The OIG’s new definition would expand the meaning of “furnish” to encompass not only individuals and entities who “submit claims to” FHCPs, but also those who “request or receive payment from” FHCPs, such as organizations that receive block grants from FHCPs. While this definition generally makes explicit the government’s pre-existing enforcement approach, the OIG specifically notes that this “revised wording would be consistent with the False Claims Act’s broad definition of ‘claim'” and “would appropriately encompass all current and future payment methodologies.” Similarly, in the Proposed CMP Rule, the OIG plans to codify the ACA’s new source of CMP liability, based on “any false statement, omission, or misrepresentation of a material fact in any application, bid, or contract to participate or enroll as a provider of services or a supplier under a Federal healthcare program.” The ACA did not define “material,” and the OIG proposes to define the word so as to “mirror[] the False Claims Act definition.”

Sidley’s client update providing more detail regarding the proposed rules is available here.

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08 January 2014

DOJ Announces Increase In Qui Tam Suits Filed In 2013; $3.8 Billion In Fraud Recoveries

Posted by Ellyce Cooper and Brent Nichols

In December, the Department of Justice announced that the number of False Claims Act qui tam suits filed in 2013 grew significantly. 752 were filed in 2013 — over 100 more than the prior record established last year. These numbers indicate that both DOJ and private whistleblowers, whom the statute allows to file suit on behalf of the government, are bringing FCA cases with increasing frequency.

In 2013, the Department of Justice again recovered significant settlements and judgments from civil cases involving alleged fraud against the government. In its December announcement, DOJ stated that it recovered $3.8 billion in such cases in fiscal year 2013. This figure represents the second highest annual total ever, but is lower than the nearly $5 billion recovered in 2012.

Health care fraud accounted for the most significant proportion of recoveries, representing $2.6 billion of the total $3.8 billion. Of that $2.6 billion, about $1.6 billion resulted from alleged false claims submitted by drug and device companies to federal health insurance programs.

Procurement fraud (consisting predominantly of cases brought against defense contractors) represented the second largest area of recovery, accounting for $890 million, the highest ever annual recovery in that area.

DOJ’s announcement suggests that it is continuing to aggressively pursue False Claims Act and fraud cases.

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22 October 2013

Medical Device Manufacturer Pays $30 Million to Resolve FCA Claims

DOJ has announced a settlement agreement with medical device manufacturer Boston Scientific, alleging that its Guidant division caused the submission of false claims for two of its implantable cardiac defibrillators. The agreement, pursuant to which Boston Scientific will pay $30 million, resolves qui tam claims brought by a relator who was implanted with one of the devices. The government and relator alleged that the defendant knew of defects in the devices but failed to disclose the issues to physicians, patients, or the FDA. The case is one of an increasing enforcement trend in which the government pursues FCA claims based on allegations that the failure accurately to disclose safety or risk information regarding drugs or devices renders claims for reimbursement false.

This settlement follows the resolution in 2010 of criminal charges stemming from Guidant’s alleged failure to disclose information related to its implantable defibrillators. At that time Guidant pled guilty to two misdemeanor charges for filing a false report with FDA and failing to notify FDA about a safety correction made to one device, and agreed to pay $296 million.

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28 June 2013

HHS Touts FCA Settlement in Spring 2013 Semiannual Report to Congress

The Department of Health and Human Services (“HHS”) Office of Inspector General (“OIG”) recently reported expected recoveries of approximately $3.8 billion for the first half of fiscal year 2013, which included last year’s $1.5 billion global settlement with pharmaceutical company Abbott Laboratories to resolve False Claims Act violations.

In its recently released Semiannual Report to Congress (“Semiannual Report”), which covered the period of October 1, 2012, through March 31, 2013, the HHS OIG touted its global settlement with Abbott as well as other settlements and criminal actions. The Semiannual Report is produced to inform Congress and the HHS Secretary of the OIG’s notable findings, recommendations, and activities over specific six-month periods.

The Semiannual Report highlighted the five-year Corporate Integrity Agreement with Abbott, described as “a global criminal, civil, and administrative settlement,” that the HHS OIG originally entered into with the pharmaceutical company in May 2012 “to resolve allegations that it violated the False Claims Act by improperly marketing and promoting the drug Depakote for uses not approved by the Food and Drug Administration (FDA), including the treatment of aggression and agitation in elderly dementia patients and the treatment of schizophrenia.”

Of the $3.8 billion that the HHS OIG expected to recover, over $521 million was from audit receivables and approximately $3.28 billion was from investigative receivables. Other activity highlighted in the Semiannual Report included:

  • The exclusions of 1,661 individuals and entities from participation in federal health care programs;
  • The filing of 484 criminal actions against individuals or entities that engaged in crimes against HHS programs;
  • And 240 civil actions, including false claims and unjust-enrichment lawsuits filed in federal district court, civil monetary penalties settlements, and administrative recoveries related to provider self-disclosure matters.

The HHS OIG has said that historically, approximately 80 percent of its resources have been directed to Medicare and Medicaid-related work. In the Semiannual Report, it reported that efforts by the government’s Medicare Fraud Strike Force teams led to charges against 148 individuals or entities, 139 criminal actions, and $193.7 million in investigative receivables.

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