When the COVID-19 crisis struck in early 2020, the immediate need for mass quantities of personal protective equipment (PPE) resulted in major supply shortages that made headlines across the country. As suppliers scrambled to produce masks, gloves, and other PPE as quickly as possible – and as President Trump issued Executive Orders calling for the prioritization of PPE for healthcare providers and invoking the Defense Production Act – federal authorities also quickly began to identify attempts by individuals and organizations to fraudulently secure contracts for the delivery of PPE to private and public entities.

In the ensuing months, the Federal Bureau of Investigation (FBI), U.S. Department of Justice (DOJ), and other law enforcement agencies pursued numerous cases for PPE fraud. The scale of individuals’ and organizations’ efforts to take advantage of the crisis varied widely, with one individual reportedly attempting to scam $750 million from the federal government. However, even in cases involving much smaller amounts, the risks facing those accused include hundreds or millions of dollars in fines and the potential for years or decades behind bars.

Additionally, while some cases of alleged PPE fraud involve what appear to be brazen attempts to fraudulently secure large government and private procurement contracts with no intention of ever delivering PPE (or even having access to PPE, in many instances), not all cases are so clear-cut. In fact, many legitimate suppliers have faced allegations of PPE fraud, as have healthcare providers and others who are accused of hoarding PPE in violation of state laws and federal Executive Orders.

With cases of COVID-19 infections surging across the United States, healthcare providers and government health officials are once again warning of the risk of PPE shortages. As a result, allegations of PPE fraud are likely to see a resurgence in the coming months as well. For those accused of PPE fraud, executing a strategic defense will be vital, as federal prosecutors are likely to be prepared to quickly pursue charges once they have sufficient evidence to establish probable cause.

FBI and DOJ Warn Healthcare Providers of Risk of PPE Fraud, Send Clear Message to Those Attempting to Defraud Healthcare Providers and Government Agencies

In the midst of the first wave of COVID-19 PPE fraud scams, both the FBI and the DOJ issued public warnings urging healthcare providers to be vigilant when choosing suppliers and ordering PPE. For example, on March 27, 2020, the FBI issued a press release stating, in part:

“The FBI is warning the healthcare industry in particular of an increased potential for fraudulent activity dealing with the purchase of COVID-19-related medical equipment. Based on the current stress on the supply chain, scammers may promise equipment they do not have access to in order to capitalize on the medical community’s urgent needs. The FBI asks the medical community to exercise due diligence and appropriate caution when dealing with any vendors with whom they have never worked and/or of which they’ve never heard, and when relying on unidentified third-party brokers in the supply chain.”

The FBI issued a follow-up advisement on April 13, 2020, shortly after the DOJ announced that it had already been involved in several efforts to stop large-scale PPE fraud scams.

In subsequent announcements discussing specific cases, the DOJ made clear that its prosecutors would be showing little sympathy for those accused of attempting to profit from the pandemic while putting others’ lives at risk. For example, in an April 27, 2020 press release, the DOJ described PPE fraud as, “nothing short of a betrayal of fellow citizens – both those serving on the front lines, and the communities who need those essential workers able to safely serve.” There is nothing to suggest that these sentiments have waned; and, as a result, those accused of PPE fraud in connection with the current COVID-19 surge can expect to face swift prosecution with substantial penalties on the table.

Allegations of PPE Fraud Can Take Many Forms, and They Can Target Suppliers, Healthcare Providers, Fraud Artists, and Others

In terms of the types of activities that can give rise to allegations of PPE fraud, the FBI, DOJ, and other law enforcement agencies have targeted a broad range of offenses during the COVID-19 pandemic. This includes offenses that involve clear attempts to defraud healthcare providers and government entities as well as acts and omissions by legitimate suppliers and healthcare providers—who are often unaware that they are violating the law. Since the start of the pandemic, the DOJ and state prosecutors’ offices have pursued charges based on allegations including:

• Making False Claims about PPE Effectiveness – Some companies have faced prosecution for allegedly making false claims about the effectiveness of their masks and other PPE in preventing the spread of COVID-19. Such claims are extremely dangerous, and companies and their executives can face prosecution for both (i) knowingly making false representations regarding PPE effectiveness, and (ii) making unsubstantiated claims without knowledge of their truth or falsity.
• Selling Non-Protective “PPE” – In addition to making false claims with regard to PPE effectiveness, companies and individuals have also faced prosecution for selling equipment that is not actually protective. Making false claims and fraudulently selling ineffective equipment are two separate offenses, both of which can carry substantial penalties under state and federal law.
• Making False Representations to Secure PPE Supply Contracts – Another form of PPE fraud that can be equally dangerous involves making false representations in order to secure PPE supply contracts. For example, if a comply claims to be able to deliver one million masks despite knowing that it can only deliver 100,000, this can lead to criminal prosecution in addition to civil contract-based liability. The same is true of promising PPE of a certain quality knowing that a lower-quality product will be delivered.
• Hoarding and Price Gouging – In the earliest days of the pandemic’s impacts on U.S. soil, hoarding of PPE (along with toilet paper and other necessities) became a rampant issue. With the recent surge, there is concern that this will happen again. While individuals who stock up for personal use are unlikely to face federal scrutiny, those who seek to deprive the market in order to subsequently price gouge can face criminal prosecution under state price-gouging laws as well as a variety of federal statutes.
• PPE Billing Fraud – On the opposite end of the spectrum, healthcare providers can face the risk of civil or criminal enforcement action if they improperly bill for PPE. This includes improperly billing government benefit programs such as Medicare and Medicaid as well as improperly billing private health insurers. Billing for equipment that is not actually needed, billing for PPE that is not actually purchased or delivered, and billing multiple payors for the same equipment are just a few examples of numerous potential allegations.

Defending Against Allegations of PPE Fraud in FBI, DOJ, and State Law Enforcement Investigations

Regardless of the specific circumstances involved, when faced with allegations of PPE fraud, it is imperative to promptly assemble a strategic defense. This is true whether the allegations have merit or the government’s inquiry is misguided. State and federal prosecutors are aggressively targeting fraudulent attempts to profit from the COVID-19 pandemic, and this is particularly true in cases involving conduct that puts the health and safety of frontline healthcare workers or other individuals in jeopardy.

“PPE fraud was a major focus for state and federal law enforcement in the early months of the pandemic; and, with the latest surge once again straining the U.S. healthcare and supply systems, it is likely that cases of PPE fraud will surge again as well. While many of the allegations we are likely to see heading into 2021 will be legitimate, many healthcare providers and others will face misguided allegations, and avoiding charges will require a prompt and strategic defense.” – Dr. Nick Oberheiden, Founding Attorney of Oberheiden P.C.

While there is no excuse for defrauding healthcare providers, government agencies, insurers, or consumers—under any circumstances but particularly during a global health crisis—not all allegations will justify civil enforcement action or criminal prosecution. In many cases, companies and individuals will have valid defenses available. During times such as these, it is important not to forget that the constitutional protections afforded to U.S. citizens and residents still apply, and that everyone is entitled to a defense under the law.

As discussed above, however, in many cases avoiding prosecution will be a matter of convincing state or federal prosecutors that the conduct in question does not amount to fraud. With authorities on high alert for PPE fraud, law enforcement agencies will be tasked with scrutinizing any and all activities that present possible red flags. There will be many misunderstandings, and there will be just as many – if not more – cases in which unintentional mistakes lead to scrutiny but do not warrant legal action. For the suppliers, healthcare providers, and other businesses and individuals targeted in these cases, promptly engaging experienced defense counsel will be crucial to avoiding unwarranted consequences and getting back to business as usual as quickly as possible.