The Department of Justice (DOJ) announced this week that it has entered into a settlement agreement with Davita Medical Holdings (Davita) for $270 million dollars to resolve certain False Claims Act liability related to Medicare Advantage risk adjustment payments.

As the settlement agreement describes, Davita acquired HealthCare Partners (HCP), a large California based independent physician association in 2012. HCP, subsequently Davita Medical Group (or Davita), operated as a medical service organization (MSO) who contracted with Medicare Advantage Organizations (MAOs) to provide services and manage the care of its beneficiaries. Davita would provide beneficiary diagnostic information to its MAOs which would be used by the Centers for Medicare and Medicaid (CMS) to calculate the MAO’s risk adjusted capitated payments under the program’s risk adjustment payment methodology. Payments would then be made by MAOs to DaVita under the terms of its risk sharing arrangements.

The settlement resolved allegations raised in the qui tam action filed in District Court for the Central District of California, United States ex rel. Swoben v. Secure Horizons, et al., by James Swoben, a former employee of a MAO that contracted with HCP. Swoben alleged that HCP hired coding companies to perform “one-way” retrospective reviews of member records, whereby the MAO would submit additional diagnosis codes to CMS but not validate previously submitted codes.

The settlement further resolves allegations related to incorrect coding guidance, unsupported but un-retraced codes identified during audits, in-home assessments, incorrect diagnosis mapping to appropriate ICD-9 codes in its electronic medical record, and acute condition codes in the primary care setting.  In its press release, the DOJ emphasized that the failure by Davita to delete unsupported or undocumented diagnosis codes caused the MAOs to retain payments from CMS that they were otherwise not entitled.

Importantly, Davita as downstream provider to MAOs, did not directly submit claims to the Centers for Medicare and Medicaid. Accordingly, this settlement is extremely significant to downstream entities such as MSOs, IPAs, physician practices and risk adjustment vendors who can themselves potentially be subject to “causes to be submitted” and other theories under the FCA.

Epstein Becker Green’s Jason Christ, Teresa Mason and Tom Hutchinson served as counsel and advisor to the Member Representative of the former owners of HCP. Epstein Becker Green was actively involved in co-defending this matter.

On June 25, 2018, the Office of the Inspector General of the Department of Health and Human Services (“OIG”) published Advisory Opinion 18-05, allowing a nonprofit medical center to provide or arrange for certain support services for individuals who care for adults with chronic medical conditions (the “Opinion”).  The Opinion is significant because it helps to define the limits of recently enacted exceptions to the Civil Monetary Penalties Law (“CMP Law”).  In addition, the Opinion follows other recent guidance and regulations promulgated by OIG and the Centers for Medicare and Medicaid Services that demonstrate a trend toward permitting providers to offer various forms of caregiver assistance, including Advisory Opinion 09-01 (regarding complimentary local transportation provided by a skilled nursing facility to friends and family of residents of the facility) and Advisory Opinion 11-16 (regarding a hospital’s provision of free transportation, lodging, meals and other items and services to patients and their family members).

As described in the Opinion, the requestor is a nonprofit hospital that established a center to provide various forms of assistance to caregivers (the “Center”).  The Center is funded by a foundation affiliated with the hospital and primarily staffed with unpaid volunteers.  The Center provides, either directly or via collaborations with other local nonprofit organizations, a variety of free and fee-based services, for example:

Free Services

  • Resource library,
  • Educational sessions,
  • Support groups,
  • Respite care during Center-sponsored activities attended by caregivers, and
  • Equipment lending program.

Fee-Based Services

  • Massage therapy,
  • Low-cost ride-share programs, and
  • Additional respite care resources.

If caregivers require financial assistance for the Fee-Based Services, then volunteers of the Center connect the caregivers to financial assistance resources in the community.  If additional financial assistance is required, then volunteers provide the caregivers with the hospital’s application for financial assistance.

OIG indicated that the services provided by the Center implicated both: (1) the Anti-kickback Statute (“AKS”) – which prohibits offering “remuneration” to induce the referral of items or services reimbursable by a federal healthcare program, and (2) the CMP Law – which prohibits offering “remuneration” to a Medicare or State health care program beneficiary that is likely to influence the beneficiary’s selection of a particular provider, practitioner, or supplier.  With respect to the CMP Law, OIG discussed the potential applicability of two exceptions that were created under the Affordable Care Act and further clarified by OIG in regulations promulgated in 2016 – the “Promotes Access to Care Exception” and the “Financial Need-Based Exception.”

The “Promotes Access to Care Exception”[1] permits the provision of remuneration that promotes access to care and poses a low risk of harm to patients and federal health care programs.  OIG has interpreted this exception to apply to items or services that improve a beneficiary’s ability to obtain items and services payable by Medicare or Medicaid, and pose a low risk of harm to Medicare and Medicaid beneficiaries and the Medicare and Medicaid programs by –

  1. being unlikely to interfere with, or skew, clinical decision making,
  2. being unlikely to increase costs to federal health care programs or beneficiaries through overutilization or inappropriate utilization, and
  3. not raising patient safety or quality-of-care concerns.

The “Financial Need-Based Exception”[2] permits the provision of items or services for free or less than fair market value if the items or services:

  1. are not advertised,
  2. are not tied to the provision of other reimbursable items or services,
  3. are reasonably connected to the medical care of the individual, and
  4. are provided only after a good faith determination that the recipient is in financial need.

OIG ultimately determined that the services provided by the Center did not satisfy the requirements of either CMP exception.  For purposes of the Promotes Access to Care Exception, OIG reasoned that the services did not improve a beneficiary’s ability to obtain items and services payable by Medicare or Medicaid.  For purposes of the Financial Need-Based Exception, OIG reasoned that the services were not reasonably connected to the caregivers’ medical care, even though OIG conceded that the Arrangement related to the caregivers’ general health and well-being. For similar reasons, the OIG found that none of the AKS safe harbors would apply to protect the services provided by the Center.

Although no CMP exceptions or AKS safe harbors applied, OIG nonetheless concluded that it would not impose administrative sanctions on the hospital because the following safeguards were present:

  1. The services provided by the Center are not tied to federally reimbursable services, and the Center does not recommend any particular service providers. Therefore, there is a low risk that the Free or Fee-Based Services would influence a caregiver (or the care recipient) to choose the hospital for federally reimbursable services.
  2. The services are available to all caregivers regardless of insurance or health care provider.
  3. Financial assistance is awarded on the basis of objective, standardized financial criteria.
  4. The hospital does not actively market the services or the Center in the community or in the media – all promotion is done through the hospital’s own websites and brochures.
  5. Center volunteers direct caregivers to their own providers for any medical services and provide caregivers with a list of all known providers of non-medical services in the area.
  6. The Center’s operations are unlikely to increase costs to federal health care programs because the Center’s staff is comprised of unpaid volunteers, and all of the Center’s operating costs are funded by private donations.

Advisory Opinions 18-05, 09-01, and 11-16 each demonstrate that there is a growing need for various forms of caregiver support.  In fact, in its request for the Opinion, the hospital cited to a report from the National Alliance for Caregiving and AARP Public Policy Institute called Caregiving in the U.S. 2015, which found that many caregivers suffer from physical and financial strain as a result of caring for individuals with chronic conditions, and such caregivers could benefit from various educational and support services.  Thus, providers are beginning to develop programs to address the needs of caregivers, in addition to patients.

Although this Opinion acknowledges that there are limitations to the safe harbors and exceptions that may be used to protect caregiver arrangements from regulatory scrutiny, the Opinion nevertheless demonstrates that providers may still offer certain benefits to caregivers without violating AKS and the CMP Law if appropriate safeguards are in place.

___

[1] 42 U.S.C. 1320a–7a(i)(6)(F) and 42 C.F.R. 1003.110(6)

[2] 42 U.S.C. 1320a–7a(i)(6)(H) and 42 C.F.R. 1003.110(8).

For health care providers and other government contractors, perhaps no law causes more angst than the False Claims Act, 31 U.S.C. §§ 3729 et seq. (“FCA”).  A Civil War-era statute initially designed to prevent fraud against the government, the FCA is often leveraged by whistleblowers (also known as “relators”) and their counsel who bring actions on behalf of the government in the hope of securing a statutorily mandated share of any recovery.  These qui tam actions often can be paralyzing for health care entities, which, while committed to compliance, suddenly find themselves subject to false claims allegations that reflect a lack of understanding about the complex (and sometimes ambiguous) regulatory framework that they operate under.

Apart from the substantial costs associated with defending against qui tam allegations, the threatened financial exposure is heart-stopping: penalties under the FCA currently range from $10,957 to $21,916 per improper claim, plus three times the amount of damages sustained by the government (meaning, for example, if a health care provider is found liable for improperly submitting a level one evaluation and management (or “E/M”) code, the potential maximum exposure would be treble damages—i.e., three times the payment for the service—plus up to $21,916 in penalties per claim).  For this reason, even when facing a meritless FCA suit, a defendant often settles to avoid the cost of litigation and the unpredictability of a jury.  Indeed, very few FCA cases ever go to trial.

Until recently, health care providers facing the prospect of a qui tam suit have had little reason for optimism, particularly given the steady increase in cases being filed (674 new qui tam matters were filed in fiscal year 2017, and more than 70 percent of these related to federal health care programs) and the trend of relators continuing to pursue cases after the government declines to intervene.  However, two recent U.S. Department of Justice (“DOJ”) internal policy memoranda issued this month suggest that, at least in some circumstances, the government may be reevaluating its approach in two key areas relating to FCA enforcement: (i) the dismissal of meritless qui tam actions when the government declines to intervene, and (ii) the prohibition of DOJ attorneys relying on a party’s noncompliance with agency guidance as presumptive or conclusive evidence that the party violated the law.

The Granston Memo

Recently, Michael D. Granston, the Director of the DOJ’s Civil Fraud Section, Commercial Litigation Branch, issued an internal memorandum to all attorneys in his branch and all Assistant U.S. Attorneys handling FCA cases (the “Granston Memo”).  The Granston Memo, dated January 10, 2018, addresses “Factors for Evaluating Dismissal Pursuant to 31 U.S.C. 3730(c)(2)(A)” and potentially represents a significant shift in how DOJ treats meritless FCA cases.

DOJ has long had the authority via 31 U.S.C. § 3730(c)(2)(A) to dismiss FCA actions brought by whistleblowers.  However, and as the Granston Memo acknowledges, DOJ has used this power sparingly.  Instead, even in circumstances where a relator’s claims may have no basis in fact or law, DOJ has traditionally elected not to intervene and has permitted the relator to proceed, causing health care providers to spend considerable resources defending against a meritless claim.  The Granston Memo suggests that simple declination may no longer be the status quo and provides a list of factors, not intended to be exhaustive, that DOJ attorneys should consider when evaluating whether the dismissal of a FCA claim is warranted in circumstances where DOJ declines to intervene.  These factors focus on the following areas:

  1. curbing meritless qui tams,
  2. preventing parasitic or opportunistic qui tam actions,
  3. preventing interference with agency policies and programs,
  4. controlling litigation brought on behalf of the United States,
  5. safeguarding classified information and national security interests,
  6. preserving government resources, and
  7. addressing egregious procedural errors.

The Granston Memo instructs DOJ attorneys working on FCA cases to consider alternative grounds for dismissal other than 31 U.S.C. § 3730(c)(2)(A) and to consult affected federal agencies as to whether dismissal may be warranted.

The importance of this potential shift in DOJ policy should not be understated.  While only time will tell how the Granston Memo will effect non-intervened qui tam matters, its issuance should come as a welcome sign to entities potentially subject to, or actively involved in, defending FCA cases, as well as to their defense counsel, who should view the memorandum as an opportunity to establish a dialogue—beyond pressing for declination—to pursue a wholesale dismissal of FCA allegations in a case that previously was thought likely futile.

The Brand Memo

While the Granston Memo represents a potentially significant change in DOJ’s approach to FCA litigation and role in non-intervened cases, on January 25, 2018, Associate Attorney General Rachel L. Brand issued a memorandum to the Heads of Civil Litigating Components / U.S. Attorneys and the Regulatory Reform Task Force, an internal working group within DOJ, titled “Limiting Use of Agency Guidance Documents in Affirmative Civil Enforcement Cases” (the “Brand Memo”).

The Brand Memo provides that, “effective immediately,” DOJ (i) “may not use its enforcement authority to effectively convert agency guidance documents into binding rules”[1] (emphasis added), and (ii) “may not use noncompliance with guidance documents as the basis for proving violations of application law . . . .”  The Brand Memo goes on to state the following:

[DOJ] should not treat a party’s noncompliance with an agency guidance document as presumptively or conclusively establishing that the party violated the applicable statute or regulation.  That a party fails to comply with agency guidance expanding upon statutory or regulatory requirements does not mean that the party violated those underlying legal requirements; agency guidance documents cannot create any additional legal obligations.

Critically, the Brand Memo explicitly provides that “this memorandum applies when [DOJ] is enforcing the False Claims Act, alleging that a party knowingly submitted a false claim for payment by falsely certifying compliance with material statutory or regulatory requirements.”

As with the Granston Memo, it is too soon to predict the impact that the Brand Memo will have on FCA litigation.  But, at least on its face, the Brand Memo could be a game-changer.  Medicare is the largest payer for health care services and the Centers for Medicare & Medicaid Services and its Medicare Administrative Contractors (“MACs”) have produced an enormous body of sub-regulatory guidance that governs health care providers.  Because this informal guidance does not go through the rigorous review of the rule-making process mandated by the Administrative Procedure Act, it often can be ambiguous both in its application and its implementation.  Such guidance also routinely results in different standards being applied to providers in different geographic regions depending upon which MAC has jurisdiction.  The Brand Memo states that in circumstances where noncompliance with guidance is alleged, DOJ litigators are not to presume FCA liability or, perhaps more importantly, not to use such guidance to support or prove FCA violations.

Moreover, to the extent that the Brand Memo prohibits reliance on agency guidance documents, it may present an opportunity to argue that such prohibition must necessarily extend to similar documents prepared by government contractors that do not have agency status.  DOJ attorneys frequently treat contractor guidance as conclusive in deciding whether there has been a violation of an underlying statute or regulation—even when guidance is released after the conduct at issue or by a government contractor in a different jurisdiction occurs.  For example, reliance by DOJ attorneys upon statements in local coverage determinations when investigating and prosecuting FCA cases is commonplace.  The Brand Memo may present an avenue for health care entities to argue that these determinations are fundamentally “guidance documents,” and, as such, DOJ should not reflexively and exclusively rely upon them when pursuing potential FCA liability.

At a minimum, the Brand Memo casts a cloud over practices that DOJ attorneys regularly employ when investigating, evaluating, and proving FCA allegations.  It could have a major impact on the way in which the government handles FCA matters and evaluates both whether to intervene in a qui tam suit or bring an affirmative civil enforcement action.

***

Much remains to be seen as to the implications of the Granston and Brand Memos in practice.  But for those individuals and entities participating in the health sector, as well as all other government contractors, these memoranda are reason for cautious optimism.

 

ENDNOTE

[1] The Brand Memo defines a “guidance document” as “any agency statement of general applicability and future effect, whether styled as ‘guidance’ or not, that is designed to advise parties outside of the federal Executive Branch about legal rights and obligations.”  This definition largely mirrors the definition set forth by Attorney General Jeff Sessions in his November 16, 2017, memorandum setting forth a prohibition on improper guidance documents.

On December 21, the Department of Justice (“DOJ”) reported its fraud recoveries for Fiscal Year 2017. While overall numbers were significant – $3.7 billion in settlements and judgments from civil cases involving allegations of fraud and false claims against the government – this was an approximate $1 billion drop from FY 2016. However, the statistics released by DOJ reflect themes significant to the healthcare industry.

Greatest Recoveries Come From The Healthcare Industry

As in years past, matters involving allegations of healthcare fraud were the driver, accounting for more than 66% of all fraud related recoveries in FY 2017. While the $2.47 billion was effectively constant from FY 2016, this was the fourth largest recovery in the past 30 years. It is also the eighth consecutive year that healthcare fraud recoveries exceeded $2 billion.  Largest recoveries came from settlements involving the drug and medical device sector.

Qui Tam Cases Lead Recoveries – and Healthcare Cases Dominate

Cases pursued under the False Claims Act’s qui tam provisions continue to drive matters pursued against healthcare entities. Of the 544 new matters brought in FY 2017, 491 were initiated by relators, down just slightly from 2016 but, nevertheless, the third largest annual filing since DOJ began keeping records in 1986.

Government intervention in these cases continues to generate the lions share of the recoveries. Of the $2.47 billion recovered in healthcare matters, $2.06 billion was generated from cases where the government intervened. While by contrast cases in which the government declined to intervene generated $380 million, this was the second-highest annual recovery from such cases in 30 years. Thus, while government intervention continues to be a significant concern, the reality is that more cases are being pursued by relators post declination, creating additional risk for healthcare entities.

DOJ statistics also confirm the significant financial incentives for relators to pursue these cases. In FY 2017, the government paid more than $392 million in relator share awards; more than $283 million of these payments came in connection with healthcare cases. Since 1987, almost $5 billion has been paid to realtors. These numbers suggest that the potential of a major financial reward is real and will continue to encourage the filing and pursuit of actions, particularly against those in the healthcare industry.

Individual Accountability Remains A Priority…Particularly in Healthcare
Finally, the report reflects the Department’s continued focus on individual accountability. Recoveries included individuals agreeing to hold themselves jointly and severally responsible for multimillion dollar settlements with the government, as well as individual settlements following, and separate and apart from, corporate resolutions.

Significantly, every case cited in DOJ’s press release on the issue of individual accountability was from the healthcare sector. This suggests that those employed in the healthcare industry remain key targets of both the government and qui tam relators.

*          *          *

The FY 2017 DOJ statistics reflect that a change in Administration has done little to alter the government’s belief that devoting time and resources to FCA cases makes “good business sense.” Health care entities—and, as important, individuals in the healthcare industry—need to be mindful of this focus, the potential for violations and to ensure the existence of strong compliance functions to deal with compliance-related matters in a way that is intended to prevent claims and litigation, and to serve as strong defenses when matters are pursued.

The U.S. Department of Health and Human Services, Office of Inspector General (“OIG”), has made pursuing fraud in the personal care services (“PCS”) sector a top priority, including making it a focus of their FY2017 workplan.

Last week, OIG released a report, Medicaid Fraud Control Units Fiscal Year 2016 Annual Report,  which set forth the number and type of investigations and prosecutions conducted nationwide by the Medicaid Fraud Control Units (“MFCUs”) during FY 2016.  Overall, the MFCUs reported 1,564 convictions, over one-third of which involved PCS attendants; fraud cases accounted for 74 percent of the 1,564 convictions.[1]

Looking at data released by HHS, PCS was the largest category of convictions reported in FY 2016. Thirty-five percent (552 of 1,564) of the reported convictions were of PCS attendants, representatives of PCS agencies, or other home care aides. Of these 552 reported convictions, 500 involved provider fraud and 52 involved patient abuse or neglect.[2] Of the reported fraud convictions, PCS attendants accounted for the greatest number of fraud convictions (464 of 1,160).[3]

The emphasis on PCS is likely to not only continue, but increase in 2017.  Notably, recent high-profile investigations and prosecutions this year include the following cases:

  • Six Missouri home health and personal care aides and patients were charged on April 4, 2017, with making false statements to Medicaid. The aides and patients allegedly falsified documentation that claimed the aides were providing services to the patients at particular times when, in fact, no such services occurred. According to the indictments in the case, one defendant patient was vacationing in New Orleans and on a cruise during the times she supposedly received services. One aide was found gambling at a casino during the same time period she claimed to be providing services. The investigation was led by the Kansas City, Missouri office of the OIG and the MFCU of the Missouri Attorney General’s Office.
  • On March 30, 2017, Godwin Oriakhi, the owner and operator of five Texas-based home health agencies pleaded guilty to conspiring to defraud Medicare and Texas Medicaid programs. Oriakhi, along with his co-conspirators, pleaded to defrauding the state and federal governments of over $17 million, the largest home services-based (including both home health services and PCS) fraud in Texas history. Oriakhi admitted that he and several co-conspirators, including his daughter, paid illegal kickbacks to physicians and patient recruiters in exchange for patient referrals. The defendants also paid patients to receive services from Oriakhi’s agencies and in exchange for the use of the patients’ Medicare and Medicaid identification numbers to bill for home health and PCS services.

Given that HHS is securing large monetary recoveries in this space, there is clearly an incentive for HHS to focus on the PCS sector. Indeed, the recent HHS report notes that MFCUs recovered an average of over $7 for every dollar spent towards investigation and prosecution of healthcare fraud cases, including PCS cases, in FY2016.

EBG has been watching this trend and will update this blog with the status of OIG’s and DOJ’s continued focus on home health and PCS prosecutions. For more information on OIG’s investigations into PCS aides, please see our Law360 article “HHS Has Its Eye on Medicaid Personal Care Service.”

Endnotes:

[1] https://oig.hhs.gov/oei/reports/oei-09-17-00210.asp (hereinafter “Report”)

[2] Report at 6.

[3] Report at 7.

On April 18, 2017, the U.S. District Court for the Middle District of Florida adopted a magistrate judge’s recommendation to grant summary judgment in favor of defendant BayCare Health System (“BayCare”) in a False Claims Act whistleblower suit that focused on physician lease agreements in a hospital-owned medical office building, thereby dismissing the whistleblower’s suit.

The whistleblower, a local real-estate appraiser, alleged that BayCare improperly induced Medicare referrals in violation of the federal Anti-Kickback Statute and the Stark Law because the lease agreements with its physician tenants included free use of the hospital parking garage and free valet parking for the physician tenants and their patients, as well as certain benefits related to the tax-exempt classification of the building. The brief ruling affirms the magistrate judge’s determination that the whistleblower failed to present sufficient evidence to establish either the existence of an improper financial relationship under the Stark Law or the requisite remuneration intended to induce referrals under the Anti-Kickback Statute.

The alleged violation under both the Anti-Kickback Statute and the Stark Law centered on the whistleblower’s argument that the lease agreements conferred a financial benefit on physician tenants – primarily, because they were not required to reimburse BayCare for garage or valet parking that was available to the tenants, their staff and their patients.  However, the whistleblower presented no evidence to show that the parking was provided for free or based on the physician tenants’ referrals.  To the contrary, BayCare presented evidence stating that the garage parking benefits (and their related costs) were factored into the leases and corresponding rental payments for each tenant.  Further, BayCare presented evidence to support that the valet services were not provided to, or used by, the physician tenants or their staff, but were offered only to patients and visitors to “protect their health and safety.”

In light of the evidence presented by BayCare, and the failure of the whistleblower to present any evidence that contradicted or otherwise undermined BayCare’s position, the magistrate judge found that: (i) no direct or indirect compensation arrangement existed between BayCare and the physician tenants that would implicate the Stark Law, and (ii) BayCare did not intend for the parking benefits to induce the physician tenants’ referrals in violation of the Anti-Kickback Statute.

Continue Reading New Ruling on Hospital-Physician Real Estate/Leasing Compliance

A recent settlement demonstrates the importance of compliant structuring of lending arrangements in the health care industry. The failure to consider health care fraud and abuse risks in connection with lending arrangements can lead to extremely costly consequences.

On April 27, 2017, the Department of Justice (“DOJ”) announced that it reached an $18 Million settlement with a hospital operated by Indiana University Health and a federally qualified health center (“FQHC”) operated by HealthNet. United States et al. ex rel. Robinson v. Indiana University Health, Inc. et al., Case No. 1:13-cv-2009-TWP-MJD (S.D. Ind.).  As alleged by Judith Robinson, the qui tam relator (“Relator”), from May 1, 2013 through Aug. 30, 2016, Indiana University Health provided HealthNet with an interest free line of credit, which consistently exceeded $10 million.  It was further alleged that HealthNet was not expected to repay a substantial portion of the loan and that the transaction was intended to induce HealthNet to refer its OB/GYN patients to Indiana University.

While neither Indiana University Health nor HealthNet have made any admissions of wrongdoing, each will pay approximately $5.1 million to the United States and $3.9 million to the State of Indiana. According to the DOJ and the Relator, the alleged conduct violated the Federal Anti-Kickback Statute and the Federal False Claims Act.

For more details on the underlying arrangement and practical takeaways . . .

Continue Reading Avoiding Fraud and Abuse in Health Care Lending Arrangements

Both the Department of Justice and the Department of Health and Human Services Inspector General have long urged (and in many cases, mandated through settlements that include Corporate Integrity Agreements and through court judgments) that health care organizations have “top-down” compliance programs with vigorous board of directors implementation and oversight. Governmental reach only increased with the publication by DoJ of the so-called Yates Memorandum, which focused government enforcers on potential individual liability for corporate management and directors in fraud cases. Thus, if it isn’t the case already, compliance officers should assure that senior management and directors are aware of their oversight responsibilities and the possible consequences if they are found not to have fulfilled them.

The OIG’s views regarding board oversight and accountability are discussed in white papers issued by the OIG and also the American Health Lawyers Association. See: “An Integrated Approach to Corporate Compliance: A Resource for Health Care Organization Boards of Directors“; “Corporate Responsibility and Corporate Compliance: A Resource for Health Care Boards of Directors“; and “Practical Guidance for Health Care Governing Boards on Compliance Oversight.”

Directors are not only subject to government actions, but to private ones as well. For example, several months ago, a pension system shareholder in Tenet Healthcare Corp. filed a derivative suit claiming that Tenet’s board members shirked their fiduciary duties by not stopping a kickback scheme that led to a $513 million False Claims Act settlement.  The City of Warren Police and Fire Retirement System is seeking to impose a constructive trust on all salaries, bonuses, fees and insider sales proceeds paid to eight of Tenet’s fourteen board members, along with damages for alleged corporate waste and gross mismanagement of the company. It’s also seeking uncapped punitive damages for what it says was Tenet’s act of securing the execution of documents by deception and the misapplication of fiduciary property.  The Michigan-based pension system says Tenet and its board breached their fiduciary duties by failing to adopt internal policies and controls to detect, deter and prevent illegal kickbacks and bribes. And the board participated in efforts to conceal or disguise those wrongs from Tenet’s shareholders, it said.

Cases like this, both private and public (in the wake of the Yates memorandum), likely will proliferate. Indeed, notwithstanding the transition to a new Presidential administration that many hoped would lessen the intensity of its enforcement actions, the current leaders of the DoJ and various U.S. Attorneys’ offices as well as the OIG have signaled their intention to keep the pressure on.

A significant compliance resource of value to health care organizations’ boards recently was issued by the Baldrige Performance Excellence Program of The National Institute of Standards and Technology. The Baldrige Excellence Framework for health care organizations which sets out seven criteria for performance excellence and the means for success. A copy of the document is available for purchase here.

Frequently, parties in both civil and criminal cases where fraud or corporate misconduct is being alleged attempt to defend themselves by arguing that they lacked unlawful intent because they relied upon the advice of counsel. Such an assertion instantly raises two fundamental questions:  1) what advice did the party’s attorney actually give?;  and 2) what facts and circumstances did the party disclose, or fail to disclose, in order to obtain that opinion?  It is well understood that raising an advice of counsel defense consequently waives attorney/client privilege.  Moreover, because a limited waiver of the privilege is rarely recognized, the door likely will open to an examination of any relevant communication between the party and the attorney, even beyond the area that encompasses the particular alleged advice of counsel at issue. But what about the so-called “attorney work product” doctrine?  While attorney/client privilege protects confidential communications between clients and their lawyers related to seeking or obtaining legal advice, attorney work product is protected because it includes, among other things, the sense impressions, analyses and strategies prepared and recorded by and for the attorneys themselves in anticipation of litigation or other adversarial engagements. To what extent, if any, does assertion of advice of counsel expose the attorney’s work product to discovery?

An interesting and cautionary analysis of that question was provided recently by the United States District Court for the District of South Carolina, where the defendants in a False Claims Act lawsuit who asserted an advice of counsel defense were ordered to hand over to government prosecutors all attorney communications related to an alleged Medicare kickback scheme. United States ex reI. Lutz v. Berkeley Heartlab, Inc., 2017 BL 111755, D.S.C., No. 9:14-cv-230, April 5, 2017).

While the court did not explain its thinking in great depth, particularly with regard to the facts of the case itself, one suggests that it still reached a respectable decision. The court readily acknowledged that there is a difference between attorney/client privilege and the work product doctrine (though I note, in some contexts like that presented in Upjohn Co. v. United States, 449 U.S. 383 (1981) concerning corporate internal investigations, the difference can be immaterial) but it went on to hold that, in the case at bar, work-product protection was waived.  As noted, it is unexceptionable that, when a party relies upon an advice of counsel defense, attorney/client privilege necessarily is waived.  After all, one of the determinative issues – what advice did the attorneys actually give – necessarily depends upon getting past the privilege, which is not absolute in any event. The Lutz court recognized that the same rationale logically applies to any work-product materials that actually were shared with the client as part of the advice process. Thus, there is little exception to be taken with the court’s extension of the waiver to such materials. Accordingly, the point of controversy comes down to whether work product protection is to be held waived as to materials prepared by the lawyers that never were shared with the client.  Here, the court recognizes that there is competing authority on the subject

Ultimately, the court relies upon a line of cases holding that, when a party asserts an advice of counsel defense, the waiver of the work product protection extends to “uncommunicated work product.”  In the case at bar the court concluded that to rebut the defense, the government was entitled to  discover ” what facts were provided by [Defendants] to [their counsel]; discover what facts [Defendants’ counsel] may have obtained from any other sources other than Defendants; discover the legal research conducted by and considered by [Defendants’ counsel]; discover the opinions that [Defendants’ counsel] gave [Defendants] and discover whether [Defendants] selectively ignored any of the facts and opinions given [them] by [their counsel] in reaching a decision …”   While a defense lawyer would be unlikely to express any agreement with this if he or she were representing a client who was asserting an advice of counsel defense, one recognizes that an experienced judge is logically dealing with the reality of litigating the frequent situation where the client might have given the lawyer incomplete or misleading information about the facts, and the lawyer’s opinion very well would not have been given, or would have been different, if a more complete rendition of what was to be relied on in opining had been made. Indeed, adversaries frequently ask opinion witnesses – both lawyers and acknowledged experts —  that very question:  “If you had known X which had not been revealed to you by your client, your opinion would not have been the same; isn’t  that right.” Attorney notes very well may contain narrative information from client interviews that usefully addresses the issue of what the client actually disclosed when asking for advice.

In sum, while less scholarly and comprehensive than it might have been, the Lutz opinion did appropriately enunciate the issues, distinguish the two doctrines and reached a supportable conclusion.  One could, however, envision a case in which a trial court would be upheld for not ordering disclosed work product materials that had not been shared with the client.  But as Lutz warns:  don’t count on it.  Advice of counsel is a risky defense that must be approached carefully.  Problems are best avoided by attorneys asking searching questions and assuring that all relevant matters have been disclosed before opining.

As discussed previously in this blog, efforts to curb fraud, waste and abuse are generally “bi-partisan.” Given the significant monetary recoveries the Government enjoys through enforcement of the federal False Claims Act (“FCA”), we have predicted that efforts in this arena will continue under a Trump administration. However, this is dependent, in part, on the priorities of the new administration and the resources it devotes in this arena. To this end, the testimony of Attorney General nominee Sessions during his confirmation hearing on January 10th may have given us some insight into how he views the FCA.

Notably, as part of his opening testimony, Attorney General nominee Sessions said:

“Further, this government must improve its ability to protect the United States Treasury from waste, fraud, and abuse. This is a federal responsibility. We cannot afford to lose a single dollar to corruption and you can be sure that if I am confirmed, I will make it a high priority of the Department to root out and prosecute fraud in federal programs and to recover any monies lost due to fraud or false claims.”

During questioning by Senate Judiciary Committee Chairman Charles Grassley (R. IA.), Sessions elaborated on his intent to focus on the FCA. When asked whether he would “pledge to vigorously enforce the False Claims Act and devote adequate resources to investigating and prosecuting False Claims Act cases,” Sessions testified:

“In the qui tam provisions and the part of that, I’m aware of those. I think they are valid and an effective method of rooting out fraud and abuse. I even filed one myself one time as a private lawyer…. It has saved this country lots of money and probably has caused companies to be more cautious because they can have a whistleblower that would blow the whistle on them if they try to do something that’s improper. So, I think it’s been a very healthy thing…”

In addition, after commenting that, in his opinion, some qui tam cases remain under seal for an “awfully long time,” Sessions testified that, if confirmed, he would provide Congress with “regular timely updates on the status of…. False Claims Act cases including statistics as to how many are under seal and the average length of seal time.”

Sessions’ testimony seems to have offered something to those on “both sides” of the FCA. His statements suggest that he recognizes the value of the FCA and its qui tam provisions; indeed, we learned that he even brought a qui tam case when he was in private practice. However, his testimony also reflects concern about unreasonably long seal periods, which are a significant problem for defendants in FCA cases. Extended seal periods plainly provide a unilateral litigation advantage to the Government and qui tam Relators by allowing extensive time to investigate while providing defendants no corresponding opportunity. Instead, extended seal periods often force defendants to be relegated to face aged claims once they are finally able to defend themselves. (Most FCA actions are filed under whistleblower, or qui tam, provisions. According to the Department of Justice, whistleblowers filed 702 qui tam suits in fiscal year 2016—an average of 13.5 new cases every week.) Only time will tell if a Justice Department under Attorney General Sessions will press to expedite consideration of FCA cases and improve the “playing field” in the process.