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By Eric Topor
May 23 — The federal government increasingly has pushed to investigate individuals who may be culpable in health-care fraud cases after Deputy Attorney General Sally Quillian Yates eight months ago issued a memo saying the DOJ would more closely scrutinize company executives in corporate investigations.
Bloomberg BNA's database of health-care related False Claims Act settlements shows that to-date in 2016, 46 percent of settlement agreements included a cooperation clause directing corporate entities to cooperate fully with investigations of individuals who could be involved in related fraud. ( Editor's Note: The settlements are available at Bloomberg Law’s Health Practice Center and Bloomberg BNA’s Health Law Resource Center. )
This represents a significant increase from prior years, in which the clause appeared in 17 percent to 32 percent of health-care related FCA settlements since 2008.
Kirk Ogrosky, an attorney with Arnold & Porter in Washington, and a former DOJ prosecutor, told Bloomberg BNA that the policy directive behind the Yates memo was likely “in the works long before [Yates] was confirmed,” and that numerous departments within DOJ “had a seat at the table in crafting what this document looks like.”
He said the Yates memo guidance is a renewed directive to front-line DOJ prosecutors that, “if you’re going to settle a case, make sure you’re doing the investigation, and if there is an individual that is responsible, make sure that your resolution takes into account holding that person responsible.”
The DOJ wouldn't confirm whether an increase in the inclusion of corporate cooperation clauses in health-care FCA settlements was one of the changes it made in response to the Yates memo guidance.
However, DOJ spokesman Wyn Hornbuckle told Bloomberg BNA that under the Yates memo guidance, “the [DOJ] will not release individuals from liability based on releases of business entities, except in extraordinary circumstances.”
To that end, Hornbuckle said “business entities are increasingly aware that their cooperation in the investigation of individual wrongdoers is an appropriate term of settlement,” and added that the DOJ's “increased focus on holding such individuals responsible will certainly be enhanced by such cooperation.”
The FCA is one of the top fraud enforcement tools the federal government has to fight health-care fraud, and the DOJ each year touts the billions of dollars it recovers through FCA settlements, including $1.9 billion in 2015. But, the Yates memo made clear that money damages alone aren't sufficient in combatting fraud.
Yates told the New York City Bar Association on May 10 that the guidance in her September 2015 memo was “designed to change practices both within the department and outside the department.”
One direct change was the revision of the Filip Factors in the United States Attorneys' Manual (USAM) §9–28.000, with renewed emphasis in directing DOJ prosecutors to focus on investigating individuals who may be culpable in alleged fraud at the start of a corporate fraud investigation.
Additional emphasis was placed on full corporate cooperation with fraud investigations, including investigating whether individuals within the corporation itself are liable, as a threshold for the corporation receiving cooperation credit in a settlement resolution.
Yates said the internal policy change has “shifted the presumption on what a corporate resolution looks like,” and said those changes include “new component-level policies focused on individuals.”
She singled out the DOJ's antitrust division as now “erring on the side of carving out” individuals who might receive waivers against prosecution, “in order to ensure that those individuals most responsible for wrongdoing are not given a pass.”
That component-level focus may have also filtered into FCA settlement agreements involving alleged health-care fraud, which in 2016 have seen a significant spike cooperation clauses.
These cooperation clauses generally state that the settling entity will:
For example, this type of cooperation clause appears in paragraph 14 of the recent DOJ settlement with Pfizer for $785 million on April 27 on allegations that Pfizer subsidiary Wyeth failed to report to Medicaid certain drug rebates that were given to hospitals (82 HCDR, 4/28/16).
Cooperation clauses aren't new to FCA settlements, Laurence Freedman, a former DOJ prosecutor, now with Mintz, Levin, Cohn, Ferris, Glovsky and Popeo PC in Washington, told Bloomberg BNA. But, in the past they were the exception, and inserted only when the DOJ expected to investigate individuals who may have been involved in the fraud.
But the Yates memo guidance might have changed that, Freedman said.
“I do think that [the cooperation clause] will be much more commonly if not routinely demanded by DOJ now that under the Yates memo the presumption is that individuals will not be released and that investigations of individuals are encouraged,” Freedman said.
In practice, the DOJ needs the assistance of companies' legal counsel to assist in these investigations, Ogrosky said. For example, executing search warrants on a large corporation can easily turn into “a disaster for the government” because of the volume of documents that results.
It's perhaps with that experience in mind that the DOJ has included the cooperation provision with increased frequency in FCA settlements since the Yates memo was released, requiring companies settling health-care false claims allegations to assist the DOJ by conducting investigations into their own organizations and relaying the facts back to the DOJ, with cooperation credit being the incentive to fully cooperate.
Yates noted that the DOJ wasn't looking for corporations “to serve up someone to take the fall,” or “boil the ocean” with an overly broad and costly internal investigation.
Instead, Yates said the DOJ expects corporations to “carry out a thorough investigation tailored to the scope of the wrongdoing,” and to “continue to turn over the information to the prosecutor as they receive it.”
Ogrosky said the expectation that corporations cooperate with DOJ to investigate individuals means outside counsel for companies walk a fine line conducting internal investigations that could uncover incriminating facts that point to wrongdoing by the individual who hired them, Ogrosky said. That means an attorney hired by a company would be bound to recommend that details and documents about potential misconduct be turned over to the DOJ.
In practice, Yates said, corporations are “not only continuing to cooperate, they are making real and tangible efforts” to identify relevant individual conduct, including the production of “Yates binders … that contain relevant e-mails of individuals being interviewed by the government.”
Ogrosky said the impact of the Yates memo guidance, and the investigative effect by FCA settlement cooperation clauses, could start to manifest in two or three years, “when these long term investigations are going to start wrapping up.”
Ogrosky said he will be looking at whether the DOJ demands that individuals pay settlements as part of big qui tam cases in the future.
“It's not so much whether [the DOJ] can extract money from somebody. It's whether they have the resources and ability to pursue a case against these individuals,” Ogrosky said.
A potential preview of that test will be in the trial of W. Carl Reichel, former president of pharmaceutical company Warner Chilcott (now a subsidiary of Allergan), which began May 23 ( United States v. Reichel, D. Mass., No. 15-cr-10324, indictment 10/28/15 ). Reichel is charged with conspiracy to violate the anti-kickback law after Warner Chilcott pleaded guilty to health-care fraud for illegal drug promotional activities, and paid $125 million to the government (210 HCDR 210, 10/30/15).
While Reichel's prosecution is a criminal matter, Yates made clear that DOJ civil attorneys will be pursuing civil suits against individuals who are implicated in fraudulent activities.
Yates also noted that an individual's ability to pay a civil judgment “is one of the factors considered” in deciding whether to pursue a civil action, “but it's no longer the determinative factor.”
One potential hiccup in the DOJ's efforts to extract money from individuals found culpable in fraud is that, according to Ogrosky, “the DOJ traditionally has a policy in civil cases of not looking behind [the payment] for where the money comes from.”
That means a corporation may decide to indemnify an executive found culpable in corporate fraud to compensate that individual for the civil judgment amount paid to the government, in which case the deterrent effect of the Yates memo guidance is blunted.
Ogrosky said it was an open question as to whether the Yates memo guidance will change whether the DOJ looks at exactly where the money to pay civil monetary judgments levied against individuals comes from. The DOJ “could say, in terms of civil liability, we demand that the individual pay the sum, and we’re not going to accept payment if it comes from the company,” Ogrosky said.
Ogrosky suggested that one way to effect a policy change on demanding individuals pay civil judgments from their own assets is to insert a clause in the individual's civil settlement release that demands the money come from the individual. Ogrosky said the DOJ could further specify that the individual settlement amount due would be increased by any amount of money that the individual later received from their employer or other specific companies.
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