Over the past decade, efforts to enforce health care fraud regulations have been bolstered significantly with increased government funding and a dramatic increase in whistleblower claims filed under the False Claims Act’s qui tam provisions. The majority of FCA civil litigation in 2014, approximately 70 percent, resulted from these whistleblower claims and the substantial majority originated from current and former employees of the defendant company.
The dramatic and mounting risks of FCA litigation posed by a company’s own employees highlight the need for companies and their counsel to take proactive measures in developing strong compliance processes and mitigating employee risk. This article will highlight and discuss several creative considerations for those dealing with departing employees, including an employee’s release of proceeds from future FCA claims along with affirmative declarations they are not aware of fraudulent activities within the company. This article will also discuss the benefits and relatively limited case law regarding these considerations.
Overview of False Claims Act Trends
The False Claims Act is the government’s primary fraud enforcement and prevention tool and it has taken on a growing importance in recent years. The expansion of FCA litigation has been caused by several developments. First, statutory amendments through the Fraud Enforcement and Recovery Act of 2009 and the Patient Protection and Affordable Care Act of 2010 expanded the scope and reach of the FCA and served to encourage litigation. These amendments were the first substantive amendments to the FCA in more than 20 years.
Second, the government has steadily increased its budgetary allocation for financial fraud enforcement. In fiscal year 2015, the government requested $681.5 million in funding for this purpose.[1] The government is allocating these funds to the conduct of investigations, with an emphasis in enforcing the criminal aspects of the FCA, and to intervening in an increasing number of civil FCA cases. The government’s increased efforts and emphasis in connection with the FCA has yielded significant financial recoveries. In FY 2012, the government recovered a then high $4.9 billion in settlements and judgments in cases involving allegations of fraud against the government.[2] In FY 2013 that number declined to $3.8 billion[3], but then increased to a record $5.69 billion in recoveries in FY 2014.[4]
Third, the expansion of FCA litigation is linked with the dramatic increase in the number of qui tam cases that are being filed by relators (whistleblowers). In 2008, there were 379 qui tam lawsuits that were filed nationwide and that number grew to over 700 in 2014. These qui tam lawsuits comprise the substantial majority of the civil FCA litigation that takes place. Significantly, the most common group of whistleblowers is employees and former employees. For example, among qui tam cases that were unsealed over the past year, approximately 70 percent of the cases were brought by employees or former employees. Moreover, in its 2014 Global Fraud Study, the Association of Certified Fraud Examiners found 42.2 percent of occupational fraud was initially detected by tips during the year 2014, and 49 percent of tips came from employees. Accordingly, employees and ex-employees are playing an increasingly important role in fraud enforcement and in FCA activity.[5]
Mechanisms for Minimizing Risk Associated With Employees and Former Employees
In light of the growth in FCA litigation and the volume of cases brought by current or former employees, a prevention strategy should be focused on minimizing risk associated with these parties. Compliance plans, internal investigations and effective exit interviews and questionnaires together make up a useful strategy to prevent and inhibit future FCA litigation.
Compliance Plans
The importance of a robust, active and functional compliance plan cannot be overstated. A robust compliance plan is thorough in presenting the company’s approach to compliance issues without being overly verbose. An active compliance plan is a living and breathing system, updated at least annually to take into account both new developments in law and changes on the ground at the company for which it is developed. An active plan is also one that establishes a top-down culture of compliance: Senior management should be involved in the development and blessing of the plan.
A functional compliance plan has a clear and straightforward process for concerns to be raised internally and includes anti-retaliation provisions. A functional plan should have a way for such concerns to be evaluated so they are addressed on a regular basis, even if that means a written record stating, for example, that no compliance concerns were reported in a certain quarter. Best practices include a sign-off from each employee that he or she has read and acknowledges the company’s compliance plan and understands the process for reporting possible violations.
Internal Investigations
If a compliance plan is robust, active and functional, it’s likely it will identify a certain number of complaints. A company should have a system in place to review and investigate each complaint. Some companies set up a committee to review all complaints on a quarterly basis and designate one person to systematically investigate each. The compliance committee’s notes, any investigation and the outcome should all be fully documented.
Exit Interviews and Questionnaires
Effective exit interviews and questionnaires can be an important component in preventing and hindering future FCA litigation. Employees leaving a company may be more candid about compliance concerns in addition to providing other valuable feedback. It is important to make these individuals feel comfortable revealing not only specific fraudulent activity, if identified, but also general disquiet about the company’s compliance culture. While interviewing each exiting employee might be a daunting human resources task, such interviews may not only help to avoid future issues, but they can also assist in advancing an active compliance plan by identifying risks to the company.
If in-person interviews are not possible, questionnaires can be a good alternative, however written documentation should always accompany these actions. Interviews and questionnaires should be tailored to the company’s business and unique concerns. Of course, if a departing employee raises a compliance concern, the company should commence a thorough, documented investigation.
At the end of the exit process, employees should be asked to sign and date a written declaration acknowledging they have fully disclosed any information they may have related to a company’s potential inappropriate conduct. Such declarations may induce a former employee to be more forthcoming and may certainly impair their credibility as a witness if additional information is disclosed in the future. An example of language included in such a declaration is the following:
I __________________ (print name), former _________________ (print title) met with ________________________ (print compliance officer or HR representative) as part of Company X’s exit interview and questionnaire process. I was given an opportunity to share and discuss any legal, ethical, regulatory or other compliance related issues. I have made Company X aware of any of the above-said issues, or any other concerns I may have with Company X.
Potential Uses and Construction of Releases
Taking exit interviews, questionnaires and written declarations a step further, some companies are asking departing employees to sign written releases whereby the employee releases all potential claims, including recovery under future FCA claims, against the employer. Such release agreements become complicated in the context of qui tam claims because such litigation is brought on behalf of the government and it is the government who is entitled to the majority of any recovery. Accordingly, employers need to act carefully to ensure that the release is enforceable.
One approach may be for the employer to include contractual language that is narrowly tailored to release an employee’s right to any portion of a recovery in any lawsuit that is brought on behalf of the government. Such a release will not preclude the employee from commencing litigation on behalf of the government and, therefore, does not interfere with the government’s right to deter fraud. However, by releasing the right to share in the recovery in a qui tam lawsuit, the employee may lose a fundamental part of his or her motivation to pursue litigation on behalf of the government. This approach may not deter employees who are acting purely out of animus towards a former employer or those who are genuinely concerned about purported misconduct; however, removing financial incentives from the equation can be helpful in deterring potential whistleblowers.
Additionally, employers may want to consider a broader release that covers the filing of qui tam claims in the future. “There is an emerging agreement within the Courts of Appeals that pre-filing releases bar subsequent qui tam claims if (1) the release can be fairly interpreted to encompass qui tam claims and (2) public policy does not outweigh enforcement of the release.” United States ex rel. Nowak v. Medtronic Inc., 806 F. Supp. 2d 310, 336 (D. Mass. 2011). In Nowak, the court found that a release was valid where it applied to all claims that arose on or before the execution of the settlement and covered all claims relating to Nowak’s employment with the company, including claims of fraud. This release was found to be sufficient to preclude the relator from having standing to pursue a qui tam action.
Similarly, in United States ex rel. Radcliffe v. Purdue Pharma LP, 600 F.3d 319, 326 (4th Cir. 2010), the Fourth Circuit found that a release was valid where it included a release of “all liability for a recovery from claims employee ever had, nor has or might have against the company as of the date of this agreement.” In Purdue Pharma, the Fourth Circuit considered the relator’s argument that the release was contrary to public policy and found that the appropriate analysis turns on “whether the allegations of fraud were sufficiently disclosed to the government, not on whether the government’s investigation was complete.” The Fourth Circuit explained that drawing this line preserves the government interest in rooting out fraud, while simultaneously supporting the private settlement of suits or grievances that contain a release.
The growing volume of FCA litigation creates an increasing need to emphasize compliance and resolve issues promptly upon identification. However, in light of the growing number of claims being brought by former employees, it is also important to consider steps that can be taken to identify and minimize risks that may be posed by departing employees. In addressing such risks, employers should consider the inclusion of a release of an employee’s right to share in a recovery as that can limit incentives of a putative whistleblower. Moreover, while an employee may challenge the enforceability of a release that includes qui tam actions, in light of the developing case law, employers should also consider including a broad release of all claims that the employee may have against the employer.
Conclusions
A significant volume of qui tam complaints are being filed annually and a substantial proportion of such complaints are filed by current or former employees. Employers must act carefully and diligently to minimize the risks associated with current and departing employees. This risk management should include internal compliance policies and training, conducting internal investigations into alleged wrongdoing, and the completion of thorough exit interviews including questions and analysis of an employee’s potential concerns. Perhaps most importantly, each of these activities should be well-documented and memorialized including relevant declarations and releases signed by the employee. Proactive steps should be taken to address these risks and limit the company’s exposure to FCA whistleblower claims.
This article was co-authored by:
Chris Haney is a director in Duff & Phelps’ Washington, D.C., office. He specializes in forensic accounting, statistical analysis and investigations of health care regulatory disputes, and was a member of the FBI’s Forensic Accounting Unit.
Sarah Sager is an attorney at Axiom Law in Chicao specializing in commercial contracts and health care regulatory matters.
[1] “Financial Fraud Law Enforcement.” FY 2015 Budget Fact Sheets. US Department of Justice, n.d. http://www.justice.gov/sites/default/files/jmd/legacy/2013/09/30/fin-fraud.pdf. Last visited Aug. 14, 2015.
[2] Office of Public Affairs. Department of Justice. JUSTICE DEPARTMENT RECOVERS NEARLY $5 BILLIONIN FALSE CLAIMS ACT CASES IN FISCAL YEAR 2012. Justice News. The United States Department of Justice, 04 Dec. 2012. http://www.justice.gov/opa/pr/justice-department-recovers-nearly-5-billion-false-claims-act-cases-fiscal-year-2012. Last visited Aug. 14, 2015.
[3] Office of Public Affairs. Department of Justice. JUSTICE DEPARTMENT RECOVERS $3.8 BILLION FROM FALSE CLAIMS ACT CASES IN FISCAL YEAR 2013. Justice News. The United States Department of Justice, 20 Dec. 2013. http://www.justice.gov/opa/pr/justice-department-recovers-38-billion-false-claims-act-cases-fiscal-year-2013. Last visited Aug. 14, 2015.
[4] Office of Public Affairs. Department of Justice. JUSTICE DEPARTMENT RECOVERS NEARLY $6 BILLION FROM FALSE CLAIMS ACT CASES IN FISCAL YEAR 2014. Justice News. The United States Department of Justice, 20 Nov. 2014. http://www.justice.gov/opa/pr/justice-department-recovers-nearly-6-billion-false-claims-act-cases-fiscal-year-2014. Last visited Aug. 14, 2015.
[5] “2014 Report to the Nations on Occupational Fraud and Abuse”. Copyright 2014 by the Association of Certified Fraud Examiners, Inc.
