Investigations Newsletter: Individual Prosecutions Down But Corporate Resolutions Steady for DOJ’s Fraud Section in 2020, with More in the Pipeline

Arent Fox

Headlines that Matter for Companies and Executives in Regulated Industries

Litigation Developments

Individual Prosecutions Down But Corporate Resolutions Steady for DOJ’s Fraud Section in 2020, with More in the Pipeline

The Department of Justice’s (“DOJ”) Fraud Section recently released a year-in-review report that shows the section’s strong performance in 2020, despite challenges caused by the global pandemic. Although individual prosecutions were down approximately 30% from 2019, the number of corporate resolutions remained steady. The report also emphasizes the section’s rapid response to fraud in connection with the Paycheck Protection Program and highlights one of the largest-ever National Health Care Fraud and Prescription Opioid Takedowns.

In 2020, the Fraud Section charged 326 individuals across its three litigation units: the Foreign Corrupt Practices Act (“FCPA”) Unit, the Healthcare Fraud Unit, and the Market Integrity and Major Frauds Unit. The significant drop in prosecutions against individuals was caused, in part, by a drop in prosecutions by the Health Care Fraud Unit, which charged 344 people in 2019 compared to 167 individuals in 2020. A former Deputy Assistant Attorney General who previously oversaw the DOJ’s Criminal Division’s fraud and appellate sections suggested there was limited “bandwidth to actually indict people” because health care prosecutors travel for their work and grand juries were not operating at full capacity in 2020. It appears, however, that the Health Care Fraud Unit has a number of cases in progress. For example, the report indicates that the Health Care Fraud Unit “expects that the COVID-19 working group will continue to generate criminal prosecutions in several areas, including COVID-19 test bundling schemes, securities fraud cases involving health care technology companies, and Health Resources and Services Administration fraud cases.”

Fraud Section prosecutors also entered into 13 corporate resolutions—holding steady with the 15 resolutions entered in 2019—including two of the largest foreign bribery resolutions in the section’s history. In January 2020, Airbus SE, a France-based civilian and military aircraft provider, agreed to pay combined penalties of more than $3.9 billion to resolve foreign bribery charges with authorities in the United States, France, and the United Kingdom. Then, in October 2020, the Goldman Sachs Group, Inc. entered into a Deferred Prosecution Agreement and agreed to pay a criminal penalty and disgorgement of more than $2.9 billion to resolve charges related to FCPA violations in Malaysia for its role in the 1Malaysia Development Bhd., or 1MDB, scandal. This resolution involved the largest FCPA penalty ever.

Finally, the report also stresses the amplified role the Fraud Section continues to play in the development of white-collar criminal enforcement policy. Notably, the section refined and reissued its Resource Guide to the Foreign Corrupt Practices Act and the Criminal Division’s Evaluation of Corporate Compliance Programs guidance in 2020.

The DOJ’s full report is online. Read additional analysis here

CMS Definition of “Reasonable and Necessary” Set to Go Into Effect on March 15, 2021

On January 14, 2021, the Centers for Medicare & Medicaid Services (“CMS”) published a final rule setting forth a definition for determining whether an item or service is “reasonable and necessary” for Medicare coverage purposes.  Medicare has not codified the definition since the program was established in 1965.

A 2019 Executive Order, E.O. 13890, directed the Secretary of the Department of Health and Human Services to “propose regulatory and sub-regulatory changes to the Medicare program to encourage innovation for patients” and “clarify the application of coverage standards.” Consistent with these directives, CMS proposed to codify the term “reasonable and necessary” to provide greater certainty to stakeholders seeking coverage for innovative items and services.

According to the final rule, the definition has three main elements, including that an item or service: (1) be safe and effective; (2) not experimental or investigational; and (3) is appropriate for Medicare patients. For the third factor, CMS proposed that an item or service is “appropriate for Medicare patients” if it is “covered in the commercial insurance market, except where evidence supports that there are clinically relevant differences between Medicare beneficiaries and commercially insured individuals.”

Although the definition aims to provide clarity, CMS nonetheless noted that the impact of the new definition is “hard to quantify” without knowing the specific items and services that would be included in future National Coverage Determinations and Local Coverage Determinations.

The final rule is set to go into effect on March 15, 2021, but a possible review by the new administration could delay the effective date.

The full rule is available at the Federal Register.

DOJ’s “Tepid” and Tardy Motion to Intervene in FCA Case Denied

Last week, the Department of Justice (“DOJ”) was barred from joining a False Claims Act (“FCA”) case after a federal judge determined the government took too long to intervene in the whistleblower’s claims.

The whistleblowers’ original complaint, filed in 2017, alleged that SouthEast Eye Specialists PLLC engaged in a scheme to illegally induce optometrists to refer their patients for surgery. The DOJ declined to intervene in August 2019. In February 2020, however, the government moved to intervene based on newly discovered evidence. A Report and Recommendation from a Magistrate Judge would have permitted the DOJ and the state of Tennessee to intervene in the litigation. The Magistrate reportedly commented that while the False Claims Act does not define “good cause,” courts generally “interpret the standard broadly.” The District Court Judge disagreed and vacated the Magistrate’s Report and Recommendation. 

According to a hearing transcript obtained by Law360, the Judge commented that it appeared that the government “simply expect[s] the court to trust them because they say there is, quote, new and sufficient evidence. This, the court will not do.” Per the transcript, the Judge further remarked that the DOJ made a “tepid submission” with unremarkable witness interviews and fell significantly short of showing new and adequate evidence of kickbacks. The Judge is said to have explained that the government did not come close to establishing the good cause required to intervene. The Judge also reportedly mentioned that the government’s motion came nearly three years after the complaint was first filed and after the court extended the final deadline for intervention six times. 

In a previous filing, the DOJ asked the Judge not to take the “wholly unprecedented” step of excluding it from the early stage of the litigation. The case is U.S. et al. ex rel. Odom et al. v. SouthEast Eye Specialists PLLC et al., case number 3:17-cv-00689, in the U.S. District Court for the Middle District of Tennessee.

Additional coverage of the case and its procedural history is here.

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