Rx for Fraud

Rxfor Fraud The Feds Get Personal

BY THOMAS E. ZENO AND KIMBERLY J. DONOVAN

he federal government opened a new front in its war against health care fraud by proposing to ban THoward Solomon from participating in all federal health care programs simply because he was a long-time corporate chairman. Solomon, 83 years old and the chief executive officer of Forest Laboratories since 1977, pre- sided over the company’s transformation from a maker of vitamins into a $4 billion global pharmaceutical company. Solomon was not convicted of a health care fraud offense. He was not charged with a health care fraud offense. In fact, Solomon had not even been notified by the government that he was a target of the proposed ban. Rather, the government waited to announce the ban until after a wholly-owned subsidiary of Forest Laboratories entered guilty pleas related to marketing its medications.

Published in Criminal Justice, Volume 26, Number 4, Winter 2012. © 2012 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

CJwi12_web.indd 4 12/20/11 9:31 AM As part of the pleas, Forest Laboratories paid the gov- substantial settlements resulting from prosecutions pur- ernment $313 million and agreed to a corporate integrity suant to the off-label marketing statute. In one of the agreement (a sort of corporate probation). touted settlements, Allergan Inc. and Allergan USA Inc. The government wanted to make it personal. The (Allergan) agreed to pay $600 million and enter into a government wanted to use its administrative authority to global criminal, civil, and administrative settlement for exclude Solomon despite the fact that he had no individu- off-label marketing of the drug Botox. As part of this al involvement in the criminal conduct of the subsidiary. settlement, Allergan agreed to a comprehensive five- This article will explore how and why the government got year CIA with the OIG. Among other things, the CIA to this point and what you can do to protect your execu- required that Allergan post information on its website tive and corporate clients from exclusion. In addition, such as honoraria and travel provided to doctors, and for Fraud this article will identify the hidden dangers that may be that Allergan have certain executives annually certify lurking behind a civil investigative demand and how you compliance of their departments with the requirements can address them. Finally, this article will emphasize the of federal health care programs. The CIA also provided importance of an effective corporate compliance pro- that Allergan could be excluded from federal health care gram in identifying, limiting, and resolving health care programs for a material breach of the CIA. fraud problems that your clients may face. These settlements highlight the OIG’s effort to change corporate culture by negotiating CIAs with companies Moving Beyond Corporate Integrity Agreements seeking to resolve health care fraud investigations. Un- In its battle against health care fraud, the government der the terms of a CIA, the OIG requires the company wants to force corporations to take compliance more se- to adopt a compliance and ethics program designed to riously. The prosecution of fraud in the pharmaceutical discover existing fraudulent conduct and to prevent fu- industry is a notable example of this effort. The govern- ture fraudulent conduct. Although CIAs have been hailed ment has garnered an impressive array of convictions as a way to change corporate culture, there is a lingering and monetary settlements in the past few years by em- concern that executives view CIAs as merely a cost of do- ploying 21 U.S.C. § 331, the off-label marketing statute ing business and do not take the detection and prevention that prohibits promoting medications for a use not ap- of fraud seriously. Even an investigation that results in a proved by the United States Food and Drug Administra- corporate guilty plea to a felony may not be considered tion (FDA). For instance, in 2009, the government con- a significant deterrent in preventing future fraud because cluded its investigation of Pfizer Inc. and its subsidiary the company cannot go to jail. It merely pays a fine. Pharmacia & Upjohn Company Inc. with the largest Both Inspector General Daniel R. Levinson and health care fraud settlement in history—a total of $2.3 Lewis Morris, chief counsel to the inspector general, billion in criminal fines and civil penalties for intention- expressed this concern to Congress on March 2, 2011, ally marketing the drugs Bextra, Geodon, Zyvox, and when they testified that settlements in the billions of Lyrica for off-label uses. Pharmacia & Upjohn Company dollars are not a sufficient deterrent to change corpo- Inc. agreed to plead guilty to a felony. The company also rate culture and that large companies rarely are excluded agreed to an expansive corporate integrity agreement from federal and state health care programs because of (CIA) with the Office of the Inspector General (OIG) the potential negative impact on patient care. As a result, of the Department of Health and Human Services. The the OIG intends to exclude corporate executives from CIA required the company to implement procedures and federal health care programs by using the delegated ad- reviews designed to detect and avoid similar conduct. ministrative authority of 42 U.S.C. § 1320a-7 “under a In its Semi-Annual Report to Congress covering the pe- broader range of circumstances.” Levinson and Morris riod October 2010 through March 2011, the OIG reported explained that the OIG wants:

THOMAS E. ZENO, a former Assistant US Attorney (AUSA) for to attempt to alter the cost-benefit calculus of the the District of Columbia, is now of counsel with Squire Sanders. corporate executives who run these companies. By He was an AUSA for more than 25 years, including eight years excluding the individuals who are responsible for as the criminal health care fraud coordinator. Based in the the fraud, either directly or because of their posi- firm’s Washington, D.C., office, he can be reached at Thomas. tions of responsibility in the company that engaged [email protected] or (202) 626-6213. KIMBERLY J. DONOVAN is in fraud, we can influence corporate behavior with- a senior associate in the Miami office of Squire Sanders. She has out putting patient access to care at risk. experience representing health care entities in a variety of complex litigation matters. Contact her at [email protected] or (Testimony of Daniel R. Levinson, Inspector Gen., be- (305) 577-7000. fore U.S. Senate Comm. on Fin. Hearing on Prevent-

CJwi12_web.indd 5 12/20/11 9:31 AM ing Health Care Fraud: New Tools and Approaches to sanitary conditions in a Baltimore warehouse. At trial, Combat Old Challenges 7 (Mar. 2, 2011), http://tinyurl. the government proved that Park was the president and com/4fuabkq; Testimony of Lewis Morris, Chief Coun- chief executive officer of the company. Park delegated sel to Inspector Gen., before Subcomm. on Oversight of “normal operating duties,” including sanitation, but re- U.S. House Comm. on Ways & Means Hearing on Im- tained responsibility for “the big, broad, principles of proving Efforts to Combat Health Care Fraud 6 (Mar. 2, the operation of the company” and seeing that all of the 2011), http://tinyurl.com/79dwjez.) parts of the company “work together.” As the only defense witness, Park testified that, although all of Acme’s Permissive Exclusion of Corporate Executives employees were, in a sense, under his general direction, Under the Park Doctrine certain employees were responsible for sanitation. After According to its Semi-Annual Report to Congress, the receiving the second FDA letter, Park conferred with the OIG excluded 883 individuals and organizations during vice president for legal affairs, who informed him that the period October 2010 through March 2011. Many of the Baltimore division vice president “was investigating these individuals were subject to “mandatory exclusion” the situation immediately and would be taking corrective because they were convicted of a felony. (42 U.S.C. § action and would be preparing a summary of the cor- 1320a-7(a).) rective action to reply to the letter.” Park testified that In addition to mandatory exclusion, the statute pro- he believed he could not have done anything more. Park vides 16 reasons that the OIG can exercise its discretion was convicted and fined $250. Id.( at 660–64.) to impose “permissive exclusion” for a number of years, The Supreme Court upheld Park’s convictions stating which are described in 42 U.S.C. § 1320a-7(b)(1) through that, in the area of food, drugs, and cosmetics: (b)(16). This article will discuss the OIG’s reliance upon paragraph (b)(1), which was used as the basis to exclude [t]he requirements of foresight and vigilance im- executives of the Purdue Frederick Company, and para- posed on responsible corporate agents are beyond graph (b)(15), which was used as the basis to propose question demanding, and perhaps onerous, but the exclusion of Howard Solomon of Forest Pharma- they are no more stringent than the public has a ceuticals. The OIG’s expanded use of these subsections right to expect of those who voluntarily assume is based on the doctrine established in United States v. positions of authority in business enterprises Park, 421 U.S. 658, 667–76 (1975). whose services and products affect the health and In Park, the US Supreme Court upheld the conviction well-being of the public that supports them. of an executive who had “responsibility and authority (Id. at 672.) either to prevent in the first instance, or promptly to correct” a violation of certain provisions in the Food, Drug, This precedent, establishing what amounts to strict and Cosmetic Act, regardless of whether the executive liability for “responsible corporate officers,” has grown intended to cause the violation or even was aware of it. substantially during the past 40 years. Defendant Park was the chief executive officer of Acme Markets Inc., a national retail food chain with Purdue Executives Excluded for approximately 874 retail outlets, 16 general warehouses, Misdemeanor Fraud and 36,000 employees. The government charged Acme Because of the dire consequences they face today, mod- and Park with five counts of holding food in the com- ern corporate executives, such as those of Purdue Fred- pany warehouse in Baltimore that became adulterated erick Company (Purdue), can only marvel with envy when it was contaminated by rodents. Acme pled guilty, at the $250 sentence imposed upon Park. Purdue pled but Park went to trial. guilty to an off-label marketing felony because of mis- The FDA had notified Park, who worked in Acme’s representations made to health care providers that the Philadelphia headquarters, that there were unsanitary drug Oxycontin was less addictive and less likely to be conditions in Acme’s Philadelphia warehouse. The FDA abused than other pain medications. As a result of the subsequently informed Park that there were also un- felony conviction, the company paid what was, at the time, one of the largest settlements by any pharmaceutical company: a total of $600 million in criminal fines and civil monetary sanctions. OIG Exclusions In addition to the company’s guilty plea, the government demanded that three of the company’s ex- The OIG tracks and publicizes exclusions in an online ecutives—the president and CEO, the executive vice database at http://exclusions.oig.hhs.gov. president of medical and scientific affairs and former

CJwi12_web.indd 6 12/20/11 9:31 AM executive vice president of worldwide research and de- Government Seeks Public’s Aid to velopment, and the executive vice president and chief Fight Fraud legal officer—plead guilty to misdemeanor off-label marketing as “responsible corporate officers” under the Park The government is recruiting individual citizens to help doctrine. These executives agreed to the plea, but none of detect and report health care fraud. Some of its current the executives admitted to personal knowledge of the mis- tactics include: conduct. Under the Park doctrine, no criminal intent was • Interstate billboards to raise awareness about health required for the conviction and none was admitted by the care fraud and encourage beneficiaries to report fraud. executives. The executives pled guilty solely because their • “Senior Medicare Patrol,” a well-organized group positions made them ultimately responsible for prevent- of volunteers, many of whom are senior citizens, ing the misbranding or promptly correcting it. charged with educating beneficiaries on how to de- Four months after the three executives were sentenced, tect and report health care fraud. the OIG informed them of its intent to exclude them from • A website—www.stopmedicarefraud.gov—that pro- participating in any capacity in any federal health care vides citizens and media with current information program, pursuant to 42 U.S.C. § 1320a-7(b)(1). The per- on health care fraud and several easy methods to missive exclusion authorized by paragraph (b)(1) allows report suspected Medicare fraud, including a toll- the OIG to exclude an individual convicted of a “misde- free number, an email address, a link on the website, meanor relating to fraud, theft, embezzlement, breach of a fax number, and a mailing address, along with a fiduciary responsibility, or other financial misconduct.” short training video on the website demonstrating Recognizing that their established careers in the health a fraudster trying to get a beneficiary’s Medicare care industry were at stake, the executives opposed exclusion information. vigorously. The OIG considered the submissions of the executives, but decided to exclude them for 20 years. The executives pursued administrative appeals, which upheld the OIG’s decision but reduced the exclusion term to 12 years. on the way, however. The government was laying the The executives appealed to the US District Court for groundwork to use 42 U.S.C. § 1320a-7(b)(15) to exclude the District of Columbia, arguing that exclusion is not executives and officers even if they had not pled guilty. permitted where the convictions are based solely on their In their congressional testimony in March 2011, In- positions within the company rather than on their per- spector General Levinson and Chief Counsel Morris sonal conduct. (See Friedman v. Sebelius, 755 F. Supp. emphasized the OIG’s discretion to exclude corporate 2d 98 (D.D.C. 2010).) The district court rejected their ar- officers responsible for corporate misconduct pursuant gument because the executives were properly convicted to paragraph (b)(15). The OIG has relied upon this para- under the Park doctrine as responsible corporate officers graph only approximately 30 times since 1996, mostly for failing to prevent or correct the fraud of off-label against individuals who controlled small businesses. marketing. The district court found that personal knowl- Both men testified that the OIG intended to expand the edge of the false marketing was not required. Using the application of paragraph (b)(15) to exclude “executives substantial evidence standard of review, the district court of large complex organizations like a drug or device upheld the permissive exclusion because the convictions manufacturer.” (Testimony of Lewis Morris, supra, at 6; were related to the fraud detailed in the statement of the see Testimony of Daniel R. Levinson, supra, at 7.) offense adopted at the time of the guilty pleas. As of the Paragraph (b)(15) applies to two categories of indi- submission of this article for publication, the decision viduals: (i) owners who knew or should have known of of the district court is pending appeal to the District of the corporate misconduct and (ii) officers, managers, di- Columbia Circuit Court of Appeals. (See Friedman v. rectors, or administrators who have managerial or oper- Sebelius, No. 11-5028 (D.C. Cir. filed Feb. 8, 2011).) ational control or who have a direct or indirect role in the day-to-day operations of the entity. (See also 42 C.F.R. OIG’s Preparation to Exclude Executives Based § 1001.1051.) As to the second category, there is no re- on Their Positions quirement that the officers or managing employees with The Purdue executives probably felt whipsawed. They operational control knew or should have known about agreed to plead guilty to a misdemeanor as responsible the corporate misconduct, which is consistent with the corporate executives pursuant to the Park doctrine, not Park doctrine. knowing that the government would use its permissive The OIG will consider the following factors when de- discretion pursuant to paragraph (b)(1) to exclude them ciding whether to exclude officers or managing employees from working in the health care industry. More was with operational control:

CJwi12_web.indd 7 12/20/11 9:31 AM • circumstances of the misconduct and seriousness of • information about the company, including any previ- the offense, including the nature and scope of the ous sanctions or convictions by any federal or state misconduct and any related misconduct; whether government; and the size and corporate structure of high-level management was involved in the miscon- the company. duct; the sanctions imposed on the entity; whether (Guidance for Implementing Permissive Exclusion Au- individuals were potentially harmed by the miscon- thority under Section 1128(b)(15) of the Social Security duct; whether federal programs incurred financial Act, Off. Inspector Gen. (Oct. 19, 2010), http://tinyurl. losses; whether this is an isolated incident or pattern com/3mgep8t.) of wrongdoing; and whether the entity is a repeat offender; Proposed Exclusion of Solomon • individual’s role in the company, including the indi- Less than two months after the congressional testimony vidual’s current and former positions with the com- of Inspector General Levinson and Chief Counsel Morris, pany; the individual’s current managerial authority; the OIG used paragraph (b)(15) to propose to exclude and whether the misconduct was within the individ- Solomon. The potential significance of the attempt to ual’s chain of command; exclude Solomon from federal health care programs pur- • individual’s actions in response to the misconduct, in- suant to this paragraph is difficult to overstate. Unlike cluding any remedial or mitigating steps taken by the the executives in the Friedman case who had admitted individual; whether these steps occurred before or after to misdemeanor criminal conduct pursuant to the Park the individual suspected an investigation; whether it was doctrine, Solomon had not admitted to any criminal in- impossible to prevent the misconduct; whether the indi- tent or failures. The Wall Street Journal reported that the vidual exercised “extraordinary care” but still could not attempt was “raising alarms in that industry and beyond prevent the misconduct; and whether the individual co- about a potential expansion of federal involvement in operated with investigators and prosecutors; and the business world.” (Alicia Mundy, U.S. Effort to Re- move Drug CEO Jolts Firms, Wall St. J., Apr. 26, 2011, http://tinyurl.com/63p58de.) The case against Forest Pharmaceuticals was a text- book example of the government’s antifraud efforts in MFCUs Prosecute Providers the pharmaceutical industry. The terms of the settlement revealed that the government had used an array The states and the District of Columbia also actively of weapons in its arsenal, beginning with qui tam re- fight health care fraud. Throughout the country, Med- lators and ending with a CIA. Forest Pharmaceuti- icaid Fraud Control Units (MFCUs) concentrate ex- cals pled guilty to two misdemeanors: one for illegal clusively on prosecuting providers who defraud the promotion of Celexa for use in children and one for Medicaid program in their jurisdictions. Comprised of illegal distribution of Levothroid because it was an attorneys, investigators, and auditors, MFCUs generally unapproved drug. The company also pled guilty to a are organized under the direction of the state attorney felony for lying to the FDA during a regulatory inspec- general or the state Office of the Inspector General. tion when managers reported that a portable humidi- Because of their effectiveness, MFCUs have been fier had not been used to control humidity during the authorized to investigate fraud in any federal health manufacturing process. Forest Pharmaceuticals paid care program if their investigation is primarily related a total of $313 million to resolve the criminal fine, to Medicaid. MFCUs, which operate under administra- civil violations of the False Claims Act, and forfeiture tive oversight of the OIG, often team up with federal claims. The qui tam relators were paid approximately investigators and prosecutors. As the large settlements $14 million of the settlement proceeds, with the federal in the pharmaceutical industry demonstrate, close coor- government and the states dividing the remainder of dination between the federal government and MFCUs the money. The OIG required that Forest Pharmaceu- is necessary in order to reach a global settlement resolv- ticals sign a five-year CIA mandating an outside expert ing fraud claims against Medicare and Medicaid. For in- to monitor compliance and various other elements of stance, in the Pfizer settlement, the state Medicaid share a vigorous compliance program. (Press Release, Dep’t of the civil settlement was $330 million. Justice, Drug Maker Forest Pleads Guilty (Sept. 15, MFCUs coordinate their activities on a national scale 2010), http://tinyurl.com/ctceppr.) through the National Association of Medicaid Fraud The OIG wanted more. Accordingly, following the Control Units (NAMFCU). Learn more at http://www. sentencing of Forest Pharmaceuticals, the OIG notified namfcu.net. Solomon of its intent to exclude him from federal health

CJwi12_web.indd 8 12/20/11 9:31 AM care programs. The OIG wanted to exclude Solomon ficial acted with intent or even negligence, and even as an example of its plan to alter the “cost-benefit cal- if such corporate official did not have any actual culus of corporate executives,” a term used during the knowledge of, or participation in, the specific of- congressional testimony of Inspector General Levinson fense. . . . Misdemeanor prosecutions, particularly and Chief Counsel Morris. Although Solomon had not those against responsible corporate officials, can been charged with, let alone convicted of, any wrong- have a strong deterrent effect on the defendants doing, the OIG relied upon paragraph (b)(15) and the and other regulated entities. In some cases, a mis- Park doctrine to exercise its permissive exclusion author- demeanor conviction of an individual may serve as ity based solely on Solomon’s position as a “responsible the basis for debarment by FDA. . . . Knowledge corporate officer.” When Solomon resolved to fight ex- of and actual participation in the violation are not clusion, the matter seemed poised for a showdown on a prerequisite to a misdemeanor prosecution but the scope of the Park doctrine. are factors that may be relevant when deciding Suddenly, in early August 2011, the OIG dropped the whether to recommend charging a misdemeanor exclusion action against Solomon. The letter to Solo- violation. mon’s counsel gave no indication of what factors influ- (Available at http://tinyurl.com/bp5l7vc.) enced the OIG’s decision. The OIG’s letter merely said: “Based on a review of the information in our file and Defending Your Clients from Exclusion consideration of the information that your attorneys Counsel engaging in settlement negotiations with the provided to us, both in writing and during an in-person government about a health care fraud investigation need meeting, we have decided to close this case. We antici- to be acutely aware of the potential risk of exclusion. pate no further action related to this matter. (Letter Executives should be advised of the option to obtain ad- from Peter Clark, Exclusions Director, OIG, to Howard vice from counsel separate from the company’s counsel. Solomon, Forest Laboratories Inc. (Aug. 5, 2011), http:// Because a corporate guilty plea can potentially lead to tinyurl.com/d3x22q2.) The OIG website, which typically exclusion of uncharged officers and managers, counsel provides a treasure chest of information about activities for the executives and the organization need to evalu- of the OIG, did not provide any information about the ate the impact of a guilty plea. Before an organization closing of the case against Solomon. pleads guilty, all counsel should scrutinize language in Little solace can be taken by corporate officers and the statement of the offense to reduce the quantity as managers from the OIG’s terse letter merely saying that well as the quality of admissions that could be used it has closed the case to exclude Solomon. Because the against an executive in a future administrative proceed- letter does not give any indication that the OIG has ing. Counsel for executives, even those who will not be changed its carefully-evolved policy to exclude respon- charged, should attempt to coordinate with counsel for sible corporate executives, counsel should proceed as if the organization about the scope of admissions in a cor- your client may be the next target of the OIG. In fact, porate plea agreement in order to minimize the potential the government has indicated its intent to continue to that admissions will be used not only at sentencing but exclude corporate executives beyond the pharmaceutical also in an exclusion proceeding. industry. The DOJ and FDA have announced that they Before entering into a guilty plea, nonprosecution will target biologics, biotechnology, and medical devices agreement, or civil settlement, counsel for both the orga- for future enforcement efforts, with executives them- nization and executives should make it standard practice selves in the crosshairs. (John T. Aquino, Prosecutors See to ask the government whether it will pursue permissive Case Shift from Pharma to Devices, Park Doctrine Cases exclusion against anyone or the company. As evidenced Coming, BNA Health L. Resource Center (June 15, by the delayed actions to exclude the Purdue executives 2011), http://tinyurl.com/cld2awm.) and Solomon, a global settlement does not mean your The FDA prepared for this new offense in February client is safe. The request for a decision about exclusion 2011 by strengthening its guidance about whether to rec- should be made before any individual or organization ommend criminal prosecution for violation of FDA stat- pleads guilty. This request should be made even when utes. In section 6-5-3 of its 2011 Regulatory Procedures an investigation is closed without a guilty plea because Manual, the FDA set forth its view of the Park doctrine: the OIG’s authority to seek permissive exclusion does not require a criminal conviction. For example, under 42 The Park Doctrine, as established by Supreme U.S.C. § 1320a-7(b)(7), the OIG can seek permissive ex- Court case law, provides that a responsible corpo- clusion of an individual based on an administrative de- rate official can be held liable for a first time mis- termination by a preponderance of the evidence that an demeanor . . . without proof that the corporate of- individual committed “fraud, kickbacks, or other pro-

CJwi12_web.indd 9 12/20/11 9:31 AM The HEAT Is On

Many recent health care fraud investigations and pros- Facing losses estimated from $75 to $250 billion a ecutions are connected to HEAT (Health Care Fraud year, the government is significantly increasing fund- Prevention and Enforcement Action Team), the heavily ing to stop health care fraud in government programs. publicized joint task force that coordinates interagency For every dollar the government spends on programs to exchange of information, identifies trends in health care control health care fraud and abuse, it receives an aver- fraud, and strategizes on how to prevent and prosecute age return on its investment of $6.80. In its Semi-Annual health care fraud and abuse. Medicare Strike Force Teams Report to Congress covering the period October 2010 (strike forces) are the combined effort of the OIG, FBI, through March 2011, the OIG said it anticipated receiv- DOJ prosecutors, and state and local law enforcement. ing $3.2 billion in recoveries arising from 349 criminal Strike forces target fraud claims submitted for particular and 197 civil actions that were concluded during the pe- medical equipment, drugs, or services that have unusu- riod. In the FY 2012 proposed budget, the president pro- ally high billing patterns in a particular city. Operating posed a $270 million increase for health care fraud and in Miami, Baton Rouge, Brooklyn, Detroit, Houston, abuse control. (See, Testimony of Lewis Morris, Chief Los Angeles, Tampa, Dallas, and Chicago, strike force Counsel, OIG & Peter Budetti, Deputy Adm’r & Dir. investigations have resulted in charges against more than Program Integrity, Ctrs. Medicare & Medicaid Servs., 1,000 individuals alleged to have drained more than $2.4 before Subcomm. on Fed. Fin. Mgmt., Gov’t Info., billion from Medicare. Consisting of a core group of Fed. Servs & Int’l Sec. Hearing on Harnessing Technol- agents and AUSAs trained and specifically assigned to ogy and Innovation to Cut Waste and Curb Fraud in health care fraud investigations and prosecutions, strike Federal Health Programs (July 12, 2011), http://tinyurl. forces cut in half the average time from the start of an com/65nlc9t.) investigation to prosecution. —Thomas Zeno & Kimberly Donovan

hibited activities” such as knowingly contracting with an concessions. The OIG may limit the number of individu- excluded person. als or the types of positions that might be considered Counsel should argue that a timely decision about ex- for permissive exclusion. At a minimum, the OIG should clusion is a matter of due process because the parties be asked to agree to render its decision about exclusions need to evaluate the true impact of a proposed agree- within a certain period of time so that the organization ment with the government. Although the OIG almost and the individuals can plan their futures accordingly. certainly will resist the request for an advance decision The topic of exclusion should be discussed early so about exclusion by claiming that it cannot exercise its that the client clearly understands the implications of a discretion until after the resolution of criminal and civil guilty plea in a health care fraud investigation. Although matters, this is not correct. When the OIG is ready to exclusion might be considered a collateral consequence settle an investigation and accept the terms of a CIA, the of conviction, it can result in the devastating loss of OIG must know enough about the investigation to make livelihood for an individual. In order to defuse possible other important decisions. collateral proceedings, counsel should put on the record Further, the case of Michael Dinkel is precedent that during a guilty plea that exclusion has been discussed the OIG will make a decision about exclusion before with your client. Although the exclusion discussion may accepting a settlement. Dinkel was excluded under 42 not be necessary under Federal Rule of Criminal Proce- U.S.C. § 1320a-7(b)(7) without a criminal conviction. dure 11, possible elimination of a person’s ability to earn As noted in the OIG press release, “Prior to the civil a living would seem to be as worthy of mention as some settlement, OIG notified Dinkel that OIG intended to other warnings given to defendants, such as being unable exclude him.” (Press Release, OIG, Law Judge Upholds to own a firearm, being unable to vote, or being subject HHS OIG’s Exclusion of Owner of Orlando, Florida, to deportation. Diagnostic Imaging Services Company (July 21, 2011), http://tinyurl.com/cd4m5qu.) Civil Investigative Demands Counsel should demand that the OIG do the same In addition to exclusions, counsel should be aware of in every case. If the OIG remains indecisive, it may be the potential implication of a civil investigative demand possible for counsel for an organization to gain other (CID). Despite its name, the issuance of a “civil” investi-

CJwi12_web.indd 10 12/20/11 9:31 AM gative demand is not necessarily limited to civil actions, noncommittal as it was in Stringer. However, even a flat and it cannot be treated that way. In light of the deci- denial cannot be taken as the end of the matter because sion in United States v. Stringer, 521 F.3d 1189 (9th Cir. the government civil attorney may make a subsequent, 2008), a CID should be viewed as the spearhead of a and genuinely independent, decision to refer incriminat- secret criminal investigation that may be contemporane- ing information to a criminal attorney at a later time. As ously using undercover techniques such as trash runs, long as this decision is made without deceit, the evidence tape recordings by informants, or even wiretaps. obtained through the CID will be fully admissible in a In Stringer, the Ninth Circuit upheld coordination criminal trial. Thus, the Fifth Amendment implications between a preexisting civil investigation by the Security of a CID should be weighed in the same manner as if the and Exchange Commission (SEC) and a criminal inves- CID were a grand jury subpoena. tigation in the US Attorney’s Office (USAO) in Port- land, Oregon. Often referred to as a parallel proceeding, Compliance Identifies, Limits, and Resolves this coordination is better understood as a concurrent Health Care Fraud or a joint proceeding. The government used the depo- An effective and comprehensive compliance program is sition power of the SEC to require the defendants to the best way to protect a client from a health care fraud testify about alleged false statements being examined by investigation. This is not only because a compliance the SEC that were also under consideration for indict- program has been mandated by the Patient Protection ment by the USAO. To their detriment, the defendants and Affordable Care Act for all Medicare and Medic- were not aware of the criminal investigation when they aid providers and suppliers as a condition of enrollment. were deposed. Because the SEC forms contained boiler- (Pub. L. No. 111-148, § 6401(a)(7)(A), 124 Stat. 119, plate references to the possibility of an indictment and 751 (2010).) A compliance program can, among other no misleading answers were given by SEC attorneys in things, help (1) limit exposure by identifying improper response to defense counsel’s questions about potential payments before the government finds them; (2) reduce criminal consequences, the Ninth Circuit found that the the quality and quantity of qui tam actions; and (3) less- SEC attorneys did not mislead the defendants about en the punishment if there is a criminal violation. whether a criminal investigation also was underway. (Id. Sophisticated data mining increases the need to imple- at 1191–94, 1196–98.) ment compliance programs to detect inaccurate billing CIDs can be used by federal civil attorneys to demand before the government does. The government has ended the production of documents as well as to require a wit- the era of “Pay and Chase” in favor of preventing and ness to testify or to answer interrogatories without hav- detecting fraud so that fraudulent claims are not paid ing to wait for formal discovery. (31 U.S.C. § 3733(a)(1).) in the first place. The Centers for Medicare and Medic- When used in combination with a complaint filed by a qui aid Services (CMS) use predictive modeling technology tam relator, which remains under seal initially for 60 days (similar to the technology used by credit card compa- but often much longer if the government obtains exten- nies) so that they can simultaneously analyze multiple sions, CIDs allow a civil government attorney to operate data sources for a large volume of claims on a national much like a criminal prosecutor in a grand jury investiga- basis. Through algorithms and analytical processes, tion. A civil government attorney can use CIDs to assem- Medicare claims are reviewed for suspicious billing pat- ble evidence before deciding whether to initiate litigation terns and scored with the risk that they are fraudulent. under the False Claims Act, while the person or organi- Claims identified as high-risk receive immediate atten- zation being investigated may not know the investigation tion and additional review by data analysts. exists or can only surmise details about the investigation. CMS will soon have more searchable information be- Prior to March 2010, each CID had to be approved by cause it is in the process of implementing a centralized the attorney general, a requirement that severely limited database that contains claims data from Medicare, Med- the use of CIDs because of the paperwork required to icaid, Veterans Affairs, secretary of defense, disability get approval all the way up the chain from a line assistant insurance benefits, and Indian Health Services. US attorney into the leadership in Department of Justice Both the OIG and DOJ are provided access to the (DOJ). Now, each of the 93 US attorneys has authority central database. The OIG has new authority to obtain to approve the issuance of a CID. Thus, a line AUSA han- additional information directly from providers and ben- dling a civil case has a practical mechanism to conduct civil eficiaries of services or supplies payable by any federal health care fraud investigations secretly and thoroughly. health care program. This authority, combined with data As soon as a CID is received, counsel should contact mining of the central database, will significantly increase the AUSA to ask specifically whether a related criminal the ability of the government to detect fraudulent pay- investigation is underway. The response will likely be ments before they are paid. Once suspect claims are

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With lottery-sized success stories such as the $14 million Because the qui tam concept encourages new infor- paid to the qui tam relators in the Forest Pharmaceuti- mation that the government did not previously have, qui cals case, it is no wonder that qui tam actions have in- tam actions based upon information already in the pub- creased dramatically. Recent legislation has made it even lic domain are generally barred unless the relator is the easier to bring a qui tam action. “original source” of the information. This public disclo- In a qui tam action, a private person (known as a re- sure bar, found at 31 U.S.C. § 3730(e)(4), was recently lator) files a lawsuit under seal on behalf of the govern- and significantly amended, which will most certainly al- ment, alleging a violation of the Federal False Claims low for more qui tam actions. The amendment limited Act. In the context of health care fraud, the relator often the defined sources constituting public disclosure and alleges that a company submitted a false claim to one of expanded the definition of “original source.” For exam- the federal health care programs for payment. The rela- ple, a relator will likely be permitted to bring a qui tam tor notifies the government of the action and the govern- action based upon information discovered from state or ment has a certain amount of time to decide whether to local criminal, civil, or administrative hearings, reports, intervene in the action. If the action is successful, the audits, or investigations, provided the federal govern- relator is entitled to share in any proceeds recovered ment was not a party to the action and the information by the action, including through settlement, which can was not disclosed in the media. range from 15 to 30 percent depending on factors such —Thomas Zeno & Kimberly Donovan as whether the government intervenes.

identified, CMS may withhold payment on the claims lessen the prospect of them. It can even give an early until they are verified. In the event of a credible fraud warning that a disgruntled employee is likely to become allegation against a particular provider, all payments to a qui tam relator. that provider may be suspended pending investigation. An effective compliance program also provides the Before implementation of new technology, it was dif- option of resolving fraudulent conduct by making a ficult for the government to detect improper billing due self-disclosure to the OIG. The OIG website explains the to the volume and speed at which claims were processed. self-disclosure process and posts examples of advanta- The new technology, coupled with the increased use of geous agreements that organizations have made with electronic claims, means improper payments will be de- the OIG following self-disclosure. Not surprisingly, the tected at a much higher rate. Because CMS is going to OIG requires that self-disclosure result in creation of a stop paying first and ask questions later, providers who compliance program capable of detecting and prevent- submit claims flagged for investigation may be deprived ing such conduct in the future. of anticipated cash flow while the government conducts Because the government continues to obtain convic- its investigation. Even if it is later determined that the tions, no article for Criminal Justice would be complete claim was proper, companies on minimal profit margins without mentioning relevant changes to the United may find themselves cash strapped for potentially long States Sentencing Guidelines Manual. The Sentencing periods of time. (Testimony of Lewis Morris & Peter Commission has been active in the area of health care Budetti, supra, http://tinyurl.com/65nlc9t.) fraud in each of its last two amendment cycles. Qui tam actions are expected to increase because Amendments in 2010 focused on the requirements for the government will continue to encourage them, the an organization to qualify for a three-point reduction in potential rewards are enormous, and recent statutory its culpability score when it has committed an offense changes make it easier to file them. For example, the despite instituting a compliance and ethics program. government is now able to save a qui tam action, even One amendment clarified that an appropriate response though it would have otherwise been dismissed pursu- to the criminal conduct requires “reasonable steps” both ant to the public disclosure bar. (31 U.S.C. § 3730(e)(4) to “respond appropriately to the criminal conduct” and (A).) In order to defend against this trend, companies to prevent “further similar criminal conduct”; this may must ensure that they have a program that provides ef- include, for example, paying restitution to identifiable fective and comprehensive compliance. A compliance victims as a response and hiring an outside professional program will not prevent all qui tam actions, but it can advisor to prevent future misconduct. (U.S. Sentencing

CJwi12_web.indd 12 12/20/11 9:31 AM Guidelines Manual § 8B2.1(b)(7) cmt. n.6.) (8).) Second, loss will be larger because of the broad Another amendment created section 8B2.5(f)(3)(C) as definition of a government health care program that in- a narrow opportunity for an organization to receive the cludes Medicare, Medicaid, and any program funded in three-point reduction even when the “high-level person- whole or in part by federal or state government. (U.S. nel” or “substantial authority personnel,” as described Sentencing Guidelines Manual § 2B1.1 cmt. n.1.) in section 8A1.2 cmt. n.3 participated in the crime. To be Third, the commission created a rebuttable presump- eligible for the exception, the compliance program must tion that the amount of intended loss is the total of have the following safeguards: the fraudulent bills submitted to the government, regardless of the amount actually paid. (U.S. Sentenc- • individuals in the program must report directly to ing Guidelines Manual § 2B1.1 cmt. n.3(F)(viii).) This the organization’s governing authority; an individ- definition, required by statute, places the burden on the ual with “direct reporting obligations” must have defendant to prove a lack of intent to obtain the total “express authority to communicate personally” and of the claims submitted. promptly to the governing authority about potential criminal conduct, and this identified individual must What Counsel Should Do report at least annually about the status of the com- Although exclusion is a hot button topic in discussions pliance and ethics program; of health care fraud, compliance is the fundamental is- • the offense must be detected by the compliance and sue. In the face of increasingly aggressive tactics taken ethics program before outside discovery, including by the government to stop health care fraud, organiza- by the government; tions and individuals run a tremendous risk unless they • the organization must promptly report the offense; are proactive in establishing effective and comprehensive and compliance programs that satisfy the many statutory • no one in the compliance and ethics program can and regulatory guidelines. Counsel can greatly assist cli- participate in, condone, or be willfully ignorant of ents by ensuring that compliance programs are in place the offense. and working. The program should ensure training of the (U.S. Sentencing Guideline Manual § 8C2.5(f)(3)(C) employees on correct practices, internal reviews to en- & cmt. n.11.) sure that improper claims are not submitted to the government and are corrected promptly if they occur, and As an emphasis to the value of an effective compliance encouragement for employees to inform the company and ethics program, amendments effective November 1, of any potential false claim violations. Counsel should 2011, create three changes directed at increasing punish- consult with general counsel of your clients to impress ment. First, a new guideline contains tiered enhancements upon the client the importance of an effective compli- for large losses caused during commission of a federal ance program. Counsel should know every aspect of the health care offense involving a government health care organization’s compliance program and regularly evalu- program. The enhancements are two levels for loss of ate the compliance program. This robust approach to more than $1 million, three levels for loss of more than compliance can prevent problems for your clients in the $7 million, and four levels for loss of more than $20 mil- long run and blunt the damage caused by conduct lead- lion. (U.S. Sentencing Guidelines Manual § 2B1.1(b) ing to a government investigation. n

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