As reported in the Q1 Quarterly Roundup, the Trump Administration’s DOJ has issued a series of guidance memoranda in an effort to shift enforcement priorities under the FCA. In June 2018, Acting Associate Attorney General Jesse Panuccio spoke at the American Bar Association’s 12th National Institute on the Civil False Claims Act and
Qui Tam Enforcement. Mr. Panuccio’s speech reaffirmed several of DOJ’s FCA enforcement priorities.[1]
Qui Tam Dismissals
To begin, Mr. Panuccio reaffirmed the principles outlined in the January 2018 “Granston Memorandum,” authored by Michael Granston, director of the Civil Division’s Fraud Section, that the United States should consider exercising its dismissal authority over cases that “lack merit or are otherwise contrary to the interests of justice.” The Granston Memorandum outlines several factors that prosecutors should consider in determining whether to exercise DOJ’s statutory authority to dismiss qui tam matters under 31 USC § 3730(c)(2)(A), chief among them curtailing meritless claims.[2]
While Mr. Panuccio recognized “the risks that relators may take in coming forward to expose fraudulent conduct,”
he nonetheless emphasized that the United States should consider exercising its prosecutorial discretion when presented with a “frivolous case[].”While it remains to be seen whether DOJ will take a more proactive approach to dismissing meritless qui tam cases, Mr. Panuccio’s comments serve as a reminder to the defense bar to consider appealing to prosecutors to exercise their statutory authority to dismiss weak qui tam claims pursuant to 31 USC § 3730(c)(2)(A).
Sub-Regulatory Guidance
Mr. Panuccio reiterated the attorney general’s November 2017 announcement that DOJ would no longer issue guidance documents “that have the effect of adopting new regulatory requirements or amending the law.”[3] The so-called “Sessions Memorandum” prevents DOJ from “evading required rulemaking processes by using guidance memos to create de facto regulations.”[4] The general principles outlined in the Sessions Memorandum were applied more broadly in the January 2018 “Brand Memorandum,” issued by then-Associate Attorney General Rachel Brand. The Brand Memorandum notes that “[DOJ] litigators may not use noncompliance with guidance documents as a basis for proving violations of applicable laws in [affirmative civil action] cases.” While agency guidance is not law and does not have the force or effect of a statute or regulation, relators have often pointed to alleged failure to comply with agency guidance as the basis for FCA claims.
Reinforcing the message of the Sessions and Brand memoranda, Mr. Panuccio further explained that guidance documents should not be used to substantiate any claims of legal violations to ensure “rule of law, fair notice, and due process.” He also noted that “[w]e hope other agencies will follow this example,” suggesting that the use of subregulatory guidance by other agencies would be inconsistent with “rule of law, fair notice, and due process.” Mr. Panuccio’s comments represent the latest evolution in the shift that began with the Sessions Memorandum and continued with the Brand Memorandum.
Piling On
Mr. Panuccio spoke about DOJ’s new policy relating to “piling on,” i.e., when multiple law enforcement or regulatory agencies impose penalties on a single entity for the same conduct. He recognized “that repeated and unwarranted punishment for the same conduct has the potential to undermine the spirit of fair play and the rule of law.” As a result, DOJ has announced a policy “designed to avoid piling on by promoting coordination within the Department and with other regulators to apportion penalties and fines where appropriate, to ensure that defendants are subject to the appropriate, not just the highest, level of punishment that is available.”
Individual Liability
Mr. Panuccio also emphasized DOJ’s continued enforcement efforts against individual defendants. Specifically, Mr. Panuccio stated, “[w]e want to create incentives for companies to help us identify the individuals responsible for wrongdoing, because we remain steadfast in our resolve to hold such individuals accountable.”
In recent months, the United States has secured several settlements with individuals for alleged wrongdoing under the FCA. For example, in April 2018, the District of Connecticut reached a $650,000 settlement with World Health Clinicians, Inc.; its CEO; and a physician for alleged violations of federal and state False Claims Acts by billing Medicare for physical therapy services when massage therapy was provided to patients.[5] In May 2018, three physicians separately agreed to pay a total of $700,000 to settle FCA allegations that they received improper payments for providing referrals to a drug-testing laboratory in violation of the Stark Law and the Anti-Kickback Statute (AKS).[6] And in July 2018, a psychologist in Connecticut agreed to a $126,000 settlement for allegedly billing for Medicaid services that were not provided.[7] This settlement is part of DOJ’s larger effort to investigate behavioral health providers.
These recent settlements demonstrate DOJ’s continued emphasis on holding individuals accountable for FCA violations.
Value of Cooperation
Mr. Panuccio’s speech also emphasized the value of cooperation for companies facing FCA investigations. He reaffirmed that DOJ will continue to “recognize genuine cooperation of corporate entities accused of wrongdoing in both civil and criminal matters.” He highlighted the tremendous enforcement discretion” DOJ has with respect to structuring settlements but reiterated that a favorable settlement will depend on the “nature of the cooperation,” including assistance in pursing individual wrongdoers. While this is nothing new for qui tam defendants, the value of cooperation and civility during the investigation and settlement discussion cannot be overstated.
Compliance
In addition to cooperation, Mr. Panuccio emphasized the value of compliance and DOJ’s efforts to reward companies that incorporate compliance programs into their “corporate culture.” When something goes wrong in an organization, “the greatest consideration should be given to those companies” that have integrated and robust compliance programs, Mr. Panuccio stated. This, too, is not a surprise but serves as an important reminder that health care providers and companies can and should preemptively prepare for future enforcement activity by ensuring that an effective compliance program is not only in place on paper, but actually followed and monitored by executive leadership and the board/oversight bodies.
Practice Note: As DOJ’s leadership continues to emphasize the enforcement priorities outlined in the Sessions, Granston and Brand memoranda, we are closely monitoring the impact of this guidance in our cases. Particularly in light of the Granston Memorandum, lawyers representing FCA defendants and investigation targets should question frivolous qui tams and advocate for DOJ to dismiss such cases. Likewise, in cases where multiple agencies are “piling on” to a target, lawyers should encourage prosecutors to heed the new policy announced by Mr. Panuccio that encourages inter-agency cooperation. Finally, where relators rely on alleged failure to comply with agency guidance, the principles of the Sessions and Brand memoranda should be utilized at the outset of an investigation to narrow the scope of claims on which the United States may intervene—or perhaps lead to a dismissal of the qui tam altogether.
[1] See Press Release, US Dep’t of Justice, Acting Associate Attorney General Jesse Panuccio Delivers Remarks at the American Bar Association’s 12th National Institute on the Civil False Claims Act and Qui Tam Enforcement (June 14, 2018), https://www.justice.gov/opa/speech/acting-associate-attorney-general-jesse-panuccio-delivers-remarks-american-bar.
[2] The Granston Memorandum outlines a total of seven factors to be considered by prosecutors: (1) curbing meritless qui tams, “either because the legal theory is inherently defective, or the relator’s factual allegations are frivolous”; (2) preventing parasitic or opportunistic qui tam actions, where qui tam cases duplicate pre-existing government investigations and “add no useful information”; (3) preventing interference with agency policies and programs; (4) “avoid[ing] the risk of unfavorable precedent”; (5) safeguarding classified information and national security interests; (6) preserving government resources; and (7) addressing egregious “procedural errors.”
[3] See Press Release, US Dep’t of Justice, Attorney General Jeff Sessions Ends the Department’s Practice of Regulation by Guidance (Nov. 17, 2017), https://www.justice.gov/opa/pr/attorney-general-jeff-sessions-ends-department-s-practice-regulation-guidance.
[5] See Press Release, US Dep’t of Justice, Norwalk Medical Practice, CEO and Physician to Pay $650,830 to Settle False Claims Act Allegations (Apr. 10, 2018), https://www.justice.gov/usao-ct/pr/norwalk-medical-practice-ceo-and-physician-pay-650830-settle-false-claims-act-allegations.
[6] See Press Release, US Dep’t of Justice, Three Physicians Agree to Pay Total of $700,000 to Settle Alleged False Claims Act Violations Arising from Improper Financial Relationship with Drug Testing Laboratory (May 7, 2018), https://www.justice.gov/usao-wdpa/pr/three-physicians-agree-pay-total-700000-settle-alleged-false-claims-act-violations.
[7] See Press Release, US Dep’t of Justice, Waterford Psychologist Pays $126,760 to Settle Allegations under the false Claims Act (July 3, 2018), https://www.justice.gov/usao-ct/pr/waterford-psychologist-pays-126760-settle-allegations-under-false-claims-act.