This is the sixth post in the Dorsey FCANow Blog’s FCA Basics Series covering the fundamentals of the False Claims Act (“FCA”), outlining FCA procedure, and highlighting key facets of FCA practice. Today’s post discusses a few pre-litigation matters: government investigations, compliance and prevention tools, and voluntary self-disclosure of violations.
FCA Investigations
There are a few different ways the government finds out about fraudulent activity. When a qui tam action is filed, the government receives notice and can initiate an investigation. The relator must also provide the government with a written disclosure of material evidence possessed by the relator to expedite the investigation. The government may also initiate an investigation based on whistleblowers who report fraudulent activity to the Department of Justice. In addition, the Department of Justice and other agencies are tasked with monitoring, evaluating, and ensuring proper functioning and accountability of organization interacting with federal funds. Oftentimes, fraud is detected through this agency oversight.
CIDs and Subpoenas
The Department of Justice wields potent pre-trial investigative tools that are not available in other forms of litigation. One such tool is the civil investigative demand (“CID”). CIDs give the government authority to compel witnesses to produce documents, sworn testimony, and answers to interrogatories—all before a compliant is even filed. The scope of discovery with CIDs is also quite broad, and may be served on any person the government believes has information relevant to an FCA investigation. However, CIDs are subject to certain limitations. CIDs can only be issued before the government files a lawsuit or intervenes in qui tam lawsuit, at which point the investigation shifts to traditional civil discovery and the Federal Rules of Civil Procedure apply. Additionally, the government cannot demand information protected by a grand jury subpoena or civil discovery rules. This includes privileged communications, attorney-client privilege, and information that is unduly burdensome to produce. Courts often defer to Department of Justice authority and enforce CIDs so long as they are reasonably relevant to the investigation and follow procedural requirements. Penalties for non-compliance with a valid CID include fines, contempt, and potential criminal prosecution.
Additionally, the Department of Health and Human Services Office of Inspector General can issue subpoenas compelling production of documents or testimony relevant to potential healthcare fraud. While similar to CIDs, OIG subpoenas can be issued at any time and apply to both civil and criminal cases. The government can also issue grand jury subpoenas during criminal investigations and these materials may be shared with attorneys investigating concurrent civil claims.
Navigating pre-suit investigative claims is a crucial step in FCA litigation and can significantly influence the government’s decision to initiate or intervene in an FCA claim.
Compliance
Compliance with federal laws and regulations is the surest way to avoid FCA litigation. Robust compliance programs will help prevent, detect, correct, and mitigate FCA related issues. The following basic steps can go a long way toward protecting against FCA liability.
- Prevention. Preventing conduct that may run afoul of the FCA is the best way to avoid an FCA lawsuit and the possibility of treble damages and per-claim penalties. Robust and specific internal policies and procedures, targeted training for employees, and oversight of third-party vendors or contractors are essential tools for preventing FCA violations.
- Detection. Detection is important because mistakes happen. Internal audits, data detection tools, open communication and risk assessments all assist in detecting FCA-related issues. Detection can help mitigate the damage, prevent future violations, and help remedy FCA violations.
- Correction. Thoroughly investigating any suspected FCA violations and implementing corrective actions to address the root cause of the violation can help prevent future FCA claims and mitigate the consequences of previous violations.
- Reporting. When done prudently, reporting possible FCA violations both internally and externally can protect against liability. Reporting internally alerts legal and compliance teams before a claim is made and helps them kick-start strategic planning. External reporting can also help mitigate the consequences of a possible violation, but comes with risks.
Self-Disclosure
Self-disclosure is simply a voluntary disclosure to the government of a potential FCA violation. Self-disclosure can be a valuable tool to mitigate the potential consequences of an FCA violation for a couple reasons, both legal and strategic. First, the FCA contains provisions that allow for a reduction in damages for voluntary disclosures of a violation of the FCA. However, strict procedural formalities in the FCA must be met and often the potential reductions are negligible or non-existent. Second, the Department of Justice favors voluntary disclosure and takes it into account when evaluating the appropriate resolution of FCA violations. The Department of Justice has issued formal guidance to its attorneys briefing them on how to reward disclosure, cooperation, and remediation. Moreover, the Department of Justice weighs good-faith cooperation heavily when deciding whether to intervene, settle, or prosecute.
Voluntarily self-disclosure may also help prevent the government from seeking serious disciplinary actions like corporate integrity agreements or harsh civil penalties. Corporate integrity agreements are a legally binding contract between healthcare providers and the government, usually as part of a settlement of a fraud claim. Providers agree to certain obligations and in return the government agrees not to seek their exclusion from participation in programs like Medicare and Medicaid. Failing to comply with an corporate integrity agreement can also be the basis for excluding the entity from federal healthcare programs.
Voluntary self-disclosure also carries possible risks. First off, even after a self-disclosure the government is still likely to conduct an investigation. The disclosure also may not benefit the disclosing party. The party disclosing the violation may not comply with FCA disclosure procedure and lose the possible statutory benefits. Even if the disclosure is procedurally perfect, the court may ultimately issue damages that are consistent with the damages that would have been applied absent the disclosure. Moreover, some disclosures may actually harm the disclosing party by providing the government with incriminating evidence while waiving certain defenses. Finally, disclosing privileged information to a third party may risk waiving the privilege. For all these reasons, voluntary self-disclosure must be carefully considered.
Before making a voluntary disclosure, it is important to conduct a thorough investigation of any potential FCA violations. A clear understanding of the issue, its scope, and possible consequences will guide the disclosure and prepare the disclosing party to negotiate a favorable resolution with the government.
