On April 8, 2021, the U.S. Department of Justice (“DOJ”) announced the first charges brought in connection with alleged fraud on the Accelerated and Advance Payment Program, administered by the Centers for Medicare & Medicaid Services (“CMS”). According to the indictment, Francis Joseph, M.D., a Colorado physician, has been charged with misappropriating nearly $300,000 from three different COVID-19 relief programs: the Accelerated and Advance Payment Program, the Provider Relief Fund, and the Paycheck Protection Program.
Accelerated and Advance Payment Program
The Accelerated and Advance Payment Program is intended to provide emergency funds by way of expedited payments to health care providers and suppliers when there is a disruption in claims submission or claims processing. While CMS has historically utilized this program to provide targeted relief in response to national emergencies or natural disasters affecting certain portions of the country, the program was expanded in March 2020 to apply to a broader group of Medicare Part A providers and Part B suppliers nationwide due to the financial impact of COVID-19.
According to the indictment, Dr. Joseph allegedly submitted an Advance Payment Request Form for a medical practice of which he had relinquished control, and then transferred approximately $92,000 from the medical practice’s operating account to a personal bank account (approximately $87,000 of that amount was paid by the Medicare Administrative Contractor as an advance payment the previous day).
Provider Relief Fund
The Provider Relief Fund is a $178 billion measure appropriated under the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act that offers aid to providers who were financially impacted by COVID-19 and treatment and other assistance to individuals suffering from COVID-19.
The indictment marks the second time that DOJ has brought charges related to misuse of Provider Relief Fund distributions (DOJ announced the first charges in February 2021 against a home health provider). According to the indictment, Dr. Joseph’s former medical practice met the criteria for a Provider Relief Fund distribution of $31,782, but Dr. Joseph allegedly transferred those funds from the medical practice’s operating account to a personal bank account.
On March 26, 2021, the U.S. Department of Justice (“DOJ”) reported on the agency’s heightened criminal and civil enforcement activities in connection with COVID-19-related fraud. As of that date, DOJ had publicly charged 474 defendants with criminal offenses in connection with COVID-19-related schemes across 56 federal districts to recover more than $569 million in U.S. government funds.
The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act is a federal law, enacted on March 29, 2020, designed to provide emergency financial assistance to the millions of Americans who are suffering the economic effects caused by the COVID-19 pandemic. The CARES Act provides relief through a number of different programs, including the Paycheck Protection Program (“PPP”), Economic Injury Disaster Loans (“EIDL”), the Provider Relief Fund, and Unemployment Insurance (“UI”). With the promulgation of these programs, DOJ has ramped up efforts in identifying and investigating fraud to protect the integrity of the $2.2 trillion in taxpayer funds appropriated under the CARES Act.
Criminal Enforcement Activities
The majority of fraud cases brought by DOJ have originated in the Criminal Division’s Fraud Section, accounting for at least 120 defendants charged with PPP fraud. The PPP allows qualifying small businesses and other organizations to receive loans with a maturity of two years and an interest rate of 1 percent. PPP loan proceeds must be used by businesses for payroll costs, interest on mortgages, rent, and utilities. Most of these defendants are facing charges for allegedly misappropriating loan payments for prohibited purposes, such as luxury purchases, while another significant portion are charged in connection with allegedly inflating payroll expenses in order to obtain larger PPP loans.
DOJ also announced that it has seized over $580 million in fraudulent application proceeds in connection with the EIDL program, which is designed to provide loans to small businesses and agricultural and nonprofit entities. DOJ’s primary concerns with respect to this program have related to fraudulent applications for EIDL advances and loans on behalf of shell or nonexistent businesses.
In response to a rise in UI fraud schemes, DOJ has established the National Unemployment Insurance Fraud Task Force to investigate domestic and international organized crime groups targeting unemployment funds through the use of identity theft. Since the start of the pandemic, over 140 defendants have been publicly charged with federal offenses related to UI fraud.
The Department of Justice (DOJ) announced on January 12, 2021, the first civil settlement to resolve allegations of fraud against the Paycheck Protection Program (PPP) of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. SlideBelts Inc. and its president and CEO, Brigham Taylor, have agreed to pay the United States a combined $100,000 in damages and penalties for alleged violations of the False Claims Act (FCA) and the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA).
The CARES Act was enacted in March 2020 to provide emergency financial assistance to individuals and businesses affected by the COVID-19 pandemic. The CARES Act established the PPP, which provided $349 billion in forgivable loans to small businesses in order to assist in job retention and business expenses. Since March 2020, Congress has authorized an additional $585 billion in PPP spending to be distributed under the Small Business Administration (SBA).
SlideBelts operates as an online retail company, and filed a petition for relief under Chapter 11 of the Bankruptcy Code in August 2019. Between April and June of 2020, while its petition was pending in the U.S. Bankruptcy Court for the Eastern District of California, SlideBelts and Taylor allegedly made false statements to federally insured financial institutions that the company was not involved in bankruptcy proceedings in order to influence the institutions to grant, and for SBA to guarantee, a PPP loan. SlideBelts received a loan for $350,000 based off of these purported false claims, which SlideBelts repaid in full to the PPP.
The government was able to recover damages and civil penalties from SlideBelts under the FCA for submitting alleged fraudulent claims for payment to the government and under the FIRREA for violations of federal criminal statutes that affect federally insured banks. This settlement is the end result of the first, but not the last, of many civil investigations and, ultimately, litigations relative to the CARES Act in the coming months and years under the FCA. In fact, during a June address to the Chamber of Commerce, Principal Deputy Attorney General Ethan Davis stated, “Going forward, the Civil Division will make it a priority to use the False Claims Act to combat fraud in the Paycheck Protection Program.”
As the SBA prepares to issue a second round of PPP loans, the DOJ is likely to continue to use the FCA and the FIRREA to pursue entities receiving funds on the theory that those entities intend to exploit for their benefit these federal programs.
Earlier this summer, Ethan P. Davis, Principal Deputy Assistant Attorney General for the Civil Division of the U.S. Department of Justice (DOJ) delivered remarks addressing DOJ’s top priorities for enforcement actions related to COVID-19 and indicating that DOJ plans to “vigorously pursue fraud and other illegal activity.” As discussed below, Davis’s remarks not only highlighted principles that will guide enforcement efforts of the Civil Fraud Section under the False Claims Act (FCA) and of the Consumer Protection Branch (CPB) under the Food, Drug, and Cosmetic Act (FDCA) and the Controlled Substances Act (CSA) in response to the COVID-19 public health emergency (PHE), they also provide an indication of how DOJ might approach enforcement over the next few years.
DOJ'S KEY CONSIDERATIONS & ENFORCEMENT STRATEGY FOR COVID-19
Davis highlighted two key principles that would drive DOJ’s COVID-related enforcement efforts: the energetic use of “every enforcement tool available to prevent wrongdoers from exploiting the COVID-19 crisis” and a respect of the private sector’s critical role in ending the pandemic and restarting the economy. Under that framework, DOJ plans to pursue fraud and other illegal activity under the FCA, which Davis characterizes as “one of the most effective weapons in [DOJ’s] arsenal.”
However, as DOJ pursues FCA cases, it will also seek to affirmatively dismiss qui tam claims that DOJ finds meritless or that interfere with agency policy and programs. DOJ also plans to collect certain information from qui tam relators regarding third-party litigation funders during relator interviews. DOJ’s emphasis on qui tam cases—cases brought under the FCA by relators or whistleblowers—for COVID-related enforcement highlights the impact such matters have on DOJ’s enforcement agenda.
- DOJ will consider dismissing cases that involve regulatory overreach and are not otherwise in the interest of the United States.
Although Davis emphasized that the majority of qui tam cases would be allowed to proceed, in order to “weed out” cases that lack merit or that DOJ believes should not proceed, DOJ will consider dismissing cases that “involve regulatory overreach or are otherwise not in the interest of the United States.” This is consistent with the principles reflected in the 2018 Granston Memo that instructed DOJ attorneys to consider “whether the government’s interests are served” when considering whether cases should proceed and listed considerations for seeking alternative grounds for dismissal of FCA cases. Davis gave examples throughout his speech of actions DOJ might consider dismissing:
- Cases based on immaterial or inadvertent mistakes, such as technical mistakes with paperwork
- Cases based on honest misunderstandings of rules, terms, and conditions
- Cases based on alleged deviations from non-binding guidance documents
- Cases against entities that reasonably attempted to comply with guidance and “in good faith took advantage of the regulatory flexibilities granted by federal agencies in the time of crisis.”
DOJ litigators have been advised to inform relators of the possibility of dismissal. Additionally, qui tam suits based on behaviors temporarily permitted during the COVID-19 pandemic, particularly in circumstances in which agencies exercised discretion to waive or not enforce certain requirements, might
“fail as a matter of law for lack of materiality and knowledge.”
- DOJ will now include a series of questions during relator interviews to identify third-party litigation funders.
During each relator interview, DOJ has instructed line attorneys to ask a series of questions to identify whether the relator or their counsel has a third-party litigation funding agreement, which is an agreement in which a third party—such as a commercial lender or a hedge fund—finances the cost of litigation in return for a portion of recoveries. Under the new policy detailed in Davis’s speech, if a third-party funder is disclosed, DOJ will ask for the following:
- the identity of the third-party litigation funder,
- information regarding whether information of the allegations has been shared with the third party,
- whether the relator or their counsel has a written agreement with the third party, and
- whether the agreement between the relator or their counsel and the third party includes terms that entitles the third-party funder to exercise direct or indirect control over the relator’s litigation or settlement decisions.
Relators must inform DOJ of changes as the case proceeds through the course of litigation. While Davis characterizes these changes as a “purely information-gathering exercise for the purpose of studying the issues,” the questions are in furtherance of DOJ’s ongoing efforts to uncover the potential negative impacts third-party litigation financing may have in qui tam actions.  The questions Davis referenced in his remarks reflect DOJ’s concerns with third-party litigation funding as expressed by Deputy Associate Attorney General Stephen Cox in a January 2020 speech. Davis emphasized that DOJ particularly sought to evaluate the extent to which third-party litigation funders were behind qui tam cases DOJ investigates, litigates, and monitors; the extent of information sharing with third-party funders; and the amount of control third-party funders exercised over the litigation and settlement decisions. While the Litigation Funding Transparency Act of 2019 has remained inactive since its introduction in February 2019 by Senator Grassley and the 2018 proposal by the U.S. Court’s Advisory Committee on Civil Rights’ Multidistrict Litigation Subcommittee to require disclosure of third-party litigation funding remains under consideration, DOJ’s plans to include this line of questioning potentially signals DOJ’s intention to take more concrete and significant steps to address third-party litigation funding in the future.
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