Recently, Womble Bond Dickinson held its First Annual Health Care Fraud Symposium, a webinar designed to discuss critical healthcare fraud topics. WBD Partner Joe Whitley moderated a discussion with WBD attorneys Luke Cass, Lee Van Voorhis, Rhett DeHart, Brett Switzer and Michael Clark. This article is taken from that conversation.

Fraud is an ongoing compliance and enforcement challenge in virtually every sector, and healthcare is no exception. Even conservative estimates place the annual toll of U.S. healthcare fraud at nearly $100 billion—or three percent of the nation’s $3.6 trillion yearly healthcare expenditure. Other sources believe the U.S. could lose as much as $300 billion to healthcare fraud each year.

Recognizing this threat, the U.S. Department of Justice has made healthcare fraud a point of emphasis. Every U.S. Attorney’s office has a healthcare fraud coordinator and healthcare fraud investigations team. At the DOJ’s Main Office, federal officials have established a Healthcare Fraud Unit consisting of 70 prosecutors and “strike force” teams strategically located around the country. The strike forces bring together analytical and investigative resources of different agencies, such as the FBI, HHS, OIG, CMS, DEA, and state and local law enforcement partners. 

“They cover a lot of ground with a massive allocation of resources, showing how serious health care fraud is as a nationwide problem and how much priority it's being accorded by the department,” Cass said.

This approach has been successful to a large degree. In 2021, for example, DOJ efforts led to the conviction of 200 individuals whose alleged fraud totaled $1.75 billion. In 2022, Healthcare Fraud Unit initiated 38 criminal trials—up from 13 the previous year.

Top DOJ Priorities in Healthcare Fraud Enforcement

Healthcare fraud encompasses a wide range of offense and enforcement areas, and Cass said the DOJ is casting a wide net to cover as many of these areas as possible.

For example, in 2022 alone, the Healthcare Fraud Unit prosecuted a $1 billion billing fraud scheme at a rural hospital, a COVID-19 relief fraud scheme involving a Silicon Valley tech company, and a $438 million telemedicine and genetic testing fraud case.

“I think we're going to see vigorous enforcement and investigation in those areas, starting with genetic testing schemes,” Cass said.  

Telehealth is another key current enforcement area, and the DOJ has launched the Telehealth Fraud Initiative. In 2022, the Telehealth Fraud Initiative charged 36 defendants in 13 districts for over $1.2 billion in fraud losses.

“We'll continue to see aggressive enforcement as to opioids, and corporate criminal enforcement is obviously a high priority,” Cass said.

The DOJ's elder fraud initial initiative will focus on malfeasance by skilled nursing facilities, as well as the Sober Homes Initiative, which deals with improper billing and kickbacks related to rehab facilities and programs. Since its inception, the Sober Homes Initiative has charged 28 individuals with over $1 billion in false billings for fraudulent tests and treatments for vulnerable patients seeking treatment. 

Finally, the DOJ has launched a new Business Email Compromise Initiative. This initiative focuses on fraudsters sending emails from accounts resembling those of real healthcare providers. This scheme targes health insurers seeking to divert reimbursement funds.

Looking ahead, Cass said data analytics has been a key tool for the Healthcare Fraud Unit and will continue to be vital in federal investigation and enforcement efforts. 

Cass said the unit’s Data Analytics Team “has really pioneered the field, and it's now being copied by everyone from commodities fraud to prosecutors to sanctions prosecutors.” The team completed nearly 2,600 requests in 2022, leading to 309 investigative referrals.

Antitrust Enforcement in Healthcare

Federal officials also recently updated guidance related to healthcare antitrust enforcement, repealing longstanding guidelines, some of which had been in place for 30 years.

One particularly important revision involves removing safe harbor guidance for a number of activities, such as hospital mergers, hospital joint ventures for the purchase of expensive equipment, provider participation in certain information exchanges, joint purchasing by healthcare providers and physician network joint ventures. Now, instead of the DOJ offering safe harbors for these activities, the Antitrust Division will evaluate them on a case-by-case basis, Van Voorhis said.

“This has caused a lot of consternation and fair enough. It was very nice to have clear guidance and safe harbors,” he said. “My advice is don't panic, but it is wise to understand the change and to prepare for the new approach.”

Antitrust law has not changed, so it’s likely that most behavior that was legal under the safe harbor provisions will remain legal under the DOJ’s case-by-case review.

However, the changes do create additional uncertainty, so he said healthcare companies should consult with legal counsel in advance of joint activities. 

“Also, always make sure to clearly document the pro-competitive benefits—the reasons why you're doing this—because there's nothing that's better evidence to the DOJ or to a court than the company's own internal documents for why they were doing things,” Van Voorhis said.

False Claims Act Issues

The FCA was enacted during the Civil War to punish widespread fraud committed by Union Army contractors, and even today the FCA is often referred to as “Lincoln’s Law.” 

Today, the FCA is primarily used against healthcare providers, to the tune of more than $2 billion in penalties annually. It provides financial incentives for private citizens to file suit for fraud committed upon the federal government. And given the federal government’s recent crackdown on healthcare fraud, it is becoming an increasingly potent compliance tool.

“It’s important to note that the FCA does not punish mere negligence or honest mistake,” DeHart said. But reckless disregard or deliberate ignorance can trigger a violation.

“You can't simply stick your head in the sand to avoid False Claims Act liability, even if you're not certain there was a false claim,” he said.

The penalties for non-compliance are severe.  Under the FCA, any person who knowingly presents a false claim is liable for a civil penalty of between $11,000 and $22,000 per claim—as well as three times the damages sustained by the government. 

“There’s a famous case from my district, the District of South Carolina,” he said. In 2015, following years of litigation, a jury found the hospital liable for $39 million in false claims,  

“I’m sure the jury thought that the hospital would be required to pay $39 million in false claims,” DeHart said. “But unbeknownst to the jury, under the statute, after mandatory trebling and penalties per claim, the ultimate judgment was $247 million.”

In addition, DeHart noted that as a civil penalty, the burden of proof for a FCA claim is far lower than it would be for a criminal charge. Moreover, healthcare providers that find themselves in violation of the federal Anti-Kickback Statute may automatically be deemed a violation of the False Claims Act, creating even more risk for healthcare providers.

The FCA also allows whistleblowers to make a claim, which is then placed under seal while the DOJ investigates—which may take years. DeHart said, the FCA is “the only federal or state statute I’m aware of where you can be sued and you have no idea that you're being sued. It’s just a really unusual statute.”

Grand Jury Subpoenas & How to Navigate Them

Responding to grand jury subpoenas in healthcare fraud investigations is much more challenging than simply collecting documents and turning them over to the government. Healthcare entities must be careful to both protect their interests and comply with their legal obligations, and a thoughtful approach to a subpoena response is key.

“A grand jury subpoena is often the canary in the coal mine,” Switzer said. “It's the first indication of other more serious issues that may warrant a compliance checkup, internal investigation, and other action.”

The grand jury is an investigative body that allows the government to subpoena certain categories of evidence to help with charging decisions. Switzer said that is important because it provides defense attorneys with their first opportunity to interface with prosecutors and influence charging decisions. 

Switzer said the initial contact from the government usually will contain a nondisclosure request. “That is the government asking you not to disclose the existence of the subpoena to anyone or to let them know if you do. The government can typically compel you not to disclose the subpoena, but we usually abide by the request voluntarily,” he said.

“Lastly, someone from the client's organization will be required to affirm that the documents provided were kept in the regular, ordinary course of business,” Switzer said. 

So what is the first thing healthcare companies should do when they receive a grand jury subpoena? 

“The first step that we recommend is counsel needs to reach out to the prosecutor to determine two things: The focus of the government's investigation and the status of your client and the investigation,” Switzer said.

By “status,” he said there are two possibilities—a subject, meaning that the person or entity’s conduct is within the scope of the grand jury’s investigation; and a target, meaning the government believes there is substantial evidence linking the person or entity to the alleged fraud. DOJ’s policy is to advise the grand jury witness of their status.

“It's important to note that you can move within these categories, and the brass ring is always to be named as a witness only,” Switzer said. He also noted that a company can be a target, but an officer or employee of a target company is not automatically a target—and vice-versa. Determining a client’s status is the critical first question that will drive everything the legal team will do. Possible responses include moving to assert privileges, cooperating with the investigation, and conducting a parallel internal investigation.

Document production is another important early step. Switzer said questions to ask include:

• Does the client have the documents in question? 
• Are they stored digitally or in hard copies? 
• Whose possession, custody or control are these documents in? 
• Can a search be conducted without disrupting the operations of the corporate entity? 
• How large is the production request—and will additional outside resources be needed to meet that request?

“All of this helps us establish credibility and rapport with the government, and the most important thing that we do together in tandem is to meticulously document every step of the way,” Switzer said.

He added that the government often is willing to grant an extension if the client is making a good-faith effort to comply. For example, the client may meet their production obligations on a rolling basis, rather than handing everything over at once. They also may be able to get the scope of the production reduced or the period it covers shortened.

Healthcare entities also may challenge a document production request if compliance with the request would be unreasonable or oppressive, or if there is just cause not to respond, a lack of venue or the subpoena is overly broad. 

Switzer said an internal investigation can be an effective tool for a healthcare client under a grand jury investigation. Such an internal audit may reveal wrongdoing within the organization that needs addressing, or it may prompt needed changes in policies and procedures.

“The more a company knows as early as possible, the better the outcome will be,” he said.

DOJ Revises Prosecution & Sentencing Guidelines

Since the late 1970s, federal lawmakers have become more aggressive in how the Department of Justice approaches white-collar criminal prosecution and sentencing. The DOJ’s Justice Manual provides a blueprint for how the government currently evaluates potential prosecutions. Those guidelines include a focus on individual wrongdoing at the beginning of an investigation into corporate wrongdoing.

Clark said, “There are concerns that companies shouldn’t be able to protect the wrongdoers if they’re in high managerial positions by just sacrificing up the company.” Bad actors going unscathed and the company taking a financial hit, which is then passed on to shareholders, isn’t an ideal outcome for the government.

In addition, the prosecutors now are told to look at the continuum of behavior. Has the company had previous infractions? Or is the violation an aberration for an otherwise law-abiding organization? Clark said the 2015 Yates Memo and 2022 Monaco Memo provide considerable insight into the DOJ’s current philosophical approach to white-collar enforcement. 

Clark said the nature and seriousness of the alleged offenses are important, as is the pervasiveness of wrongdoing within the organization. Also, the government will look at willingness to cooperate. “Beauty is in the eye of the beholder and the government has increased its expectations of what it means to be a fully cooperating company that is deserving of leniency.”

The adequacy of compliance programs at the time of the offense also is an important consideration. Clark said one challenge for defense attorneys is to show that even if an offence took place, the compliance program still may have been adequate and appropriate. This is particularly challenging for smaller companies that don’t have the compliance resources of larger corporations.

“It is important to the government that a healthcare entity, when it learns about wrongdoing, makes timely and voluntary disclosure of the known wrongdoing and takes appropriate remedial actions,” he said. Companies need to regularly review their compliance programs and make sure they're adequately monitoring and remediating misconduct. 

Another new consideration is the DOJ’s renewed emphasis on corporate monitors. Corporate monitoring involves an independent expert—paid for by the company—overseeing board and corporate activities. 

“It is a very onerous thing to have a corporate monitor in place, but it looks like we're going to see a lot more of them,” Clark said.

The DOJ also now prefers that companies have a dedicated compliance officer who works independently of the general counsel and reports directly to the board of directors. 

So federal officials have placed an increasingly heavy burden on corporate compliance programs. Clark said the following questions should guide such a program in the current environment:

• Is the compliance program well-designed, with integrated processes and appropriate controls? 
• Is it applied in good faith, with real buy-in from senior and middle management? Are adequate resources devoted to compliance? And does the compliance office have the autonomy to act effectively?
• Does the compliance program include periodic testing, review and improvement? Does it investigate, identify and remediate any misconduct?

Healthcare counsel and compliance officers have plenty on their plate, from responding to grand jury subpoenas to False Claims Act issues to antitrust enforcement and more. The Department of Justice is getting more aggressive in investigating and prosecuting perceived fraud in the healthcare sector. Healthcare providers, hospitals, health systems and other businesses need to take action now to ensure they are best protected should federal investigators come calling.