Life Science Compliance Update

September 17, 2015

DOJ Issues New Policy Focused On Individual Accountability For Corporate Crimes


On September 9, the Deputy Attorney General Sally Quilliam Yates issued a memo entitled “Individual Accountability for Corporate Wrongdoing,” to Department of Justice attorneys. On Thursday last week, Yates introduced the new policy at New York University School of Law, and outlined the DOJ’s focus on prosecuting individuals for their roles in corporate misconduct. Much of the press surrounding the DOJ policy focuses on financial crime (see NY Times, Bloomberg, and CNN). However, the announcement is important for the pharmaceutical industry, which has been one of the Justice Department’s favorite targets recently, paying out billions in fines.  

“One of the most effective ways to combat corporate misconduct is by seeking accountability from the individuals who perpetuated the wrongdoing,” wrote Yates. However, she notes that “complex corporate hierarchies” and “enormous volumes of electronic documents” have posed practical challenges to putting individuals in prison. “In modern corporations, where responsibility is often diffuse, it can be extremely difficult to identify the single person or group of people who possessed the knowledge or criminal intent necessary to establish proof beyond a reasonable doubt,” Yates said, noting this is “particularly true of high-level executives, who are often insulated from the day-to-day activity in which the misconduct occurs.” She added:

Without an inside cooperating witness, preferably one identified early enough to wear a wire, investigators are left to reconstruct what happened based on a painstaking review of corporate documents, looking for a smoking gun that most financial criminals are far too savvy to leave behind.  And since virtually all of these corporations operate worldwide, restrictive foreign data privacy laws and a limited ability to compel the testimony of witnesses abroad make it even more challenging to obtain the necessary evidence to bring individuals to justice.

Yates went through six steps designed to combat these challenges. “Some are institutional policy shifts that change the way we investigate, charge and resolve cases,” she explained. “Some address the way that DOJ interacts with the targets of an investigation.”

First, Yates states that DOJ has revised its "Filip Factors" for Federal Prosecution of Business Organizations to require that if a company "wants any credit for cooperation, any credit at all, it must identify all individuals involved in the wrongdoing, regardless of their position, status or seniority in the company and provide all relevant facts about their misconduct." Yates emphasized that this responsibility is "all or nothing. No more picking and choosing what gets disclosed.  No more partial credit for cooperation that doesn’t include information about individuals." 

This is a major shift, Yates said. Before the announcement companies could receive partial cooperation credit for disclosing improper corporate practice, but then "stop short" of naming who was engaged in wrongdoing. Now, if a company wants any credit, "they will need to investigate and identify the responsible parties, then provide all non-privileged evidence implicating those individuals."  This is the same way the DOJ would treat drug dealer, Yates notes. "A corporation should get no special treatment as a cooperator simply because the crimes took place behind a desk."  

Second, Yates addressed changes to how prosecutors should "initiate and develop" investigations.  Under the new policy, she said, the government should focus on individuals "from the start of an investigation," and "once a case is underway, the inquiry into individual misconduct can and should proceed in tandem with the broader corporate investigation." 

Third, criminal and civil attorney handling corporate investigations "should be in routine communication with one another." 

Fourth, Yates' memo states that without "extraordinary circumstances," no corporate resolution will product individuals from criminal or civil liability. 

The fifth point relates to the fourth, stating that corporate cases should not be resolved without a clear plan to resolve related individual cases before the statute of limitations expires. "If a decision is made at the conclusion of the investigation not to bring civil claims or criminal charges against the individuals who committed the misconduct, the reasons for that determination must be memorialized and approved by the United States Attorney or Assistant Attorney General whose office handled the investigation," states the memo. Yates further added that "delays in the corporate case will no longer suffice as a reason to delay pursuit of the individuals involved.”

Sixth and final, Yates is calling on U.S. attorneys to evaluate whether to bring suit against individuals "based on considerations beyond that individual's ability to pay." Her memo states: "In other words, the fact that an individual may not have sufficient resources to satisfy a significant judgment should not control the decision on whether to bring suit." 

These revised policies are effective immediately, states Yates, though "the public won’t see the impact of these steps over night. In the coming weeks and months, DOJ will be providing additional training and guidance to prosecutors to help them take full advantage of these policy shifts.  On September 16, for example, the agency hosted a training conference in Washington D.C. based on this new policy. 

Yates concluded with some cautious optimism about the DOJ's new enforcement policy:

We make these changes recognizing the challenges that they may present.  Some corporations may decide, for example, that the benefits of consideration for cooperation with DOJ are not worth the costs of coughing up the high-level executives who perpetrated the misconduct.  Less corporate cooperation could mean fewer settlements and potentially smaller overall recoveries by the government.  In addition, individuals facing long prison terms or large civil penalties may be more inclined to roll the dice before a jury and consequently, we could see fewer guilty pleas.   

Only time will tell.  But if that’s what happens, so be it.  Our mission here is not to recover the largest amount of money from the greatest number of corporations; our job is to seek accountability from those who break our laws and victimize our citizens.  It’s the only way to truly deter corporate wrongdoing. 


August 11, 2015

District Court Rules on Reporting Overpayments and False Claims Act Liability


A number of important healthcare decisions have come out of the Southern District of New York over the last week. Yesterday, we wrote about the Amarin case, where the court held that a firm may promote truthful and non-misleading off-label information about a drug under the First Amendment. Last week, the court also handed down an important False Claims Act decision related to overpayments from Medicare and Medicaid. The Affordable Care Act provides that any person who has received an overpayment from the government and knowingly fails to report and return it within 60 days after the date on which it was identified has violated the False Claims Act. However, the ACA does not define what it means to “identify a false claim. Last week, the New York District Court was the first court to attempt to do so, and agreed with the government that the 60 day period begins when a “provider is put on notice of a potential overpayment, rather than the moment when an overpayment is conclusively ascertained.”

Read the opinion here

In Kane v. Healthfirst Inc., et al. and United States v. Continuum Health Partners Inc., et al., Mr. Kane, blew the whistle on his former employer, Continuum Health Partners Inc., after he allegedly provided his managers with an emailed spreadsheet of over 900 potential Medicare and Medicaid overpayments caused by a software glitch. He was fired soon after, and the company failed to return all of the overpayments due within 60 days; they instead spread payments out over several years.  

Both the Department of Justice and the State of New York intervened, arguing that by “intentionally or recklessly” failing to take necessary steps to timely identify claims affected by the software glitch or timely reimburse the government for the overbilling, the defendants violated the False Claims Act and its New York corollary.

In their motion to dismiss the government’s complaint, the defendants argued that Kane’s email was notice only of potential violations and was not sufficient to trigger the 60-day time. The court disagreed. “Permitting a healthcare provider that requests and receives an analysis showing over 900 likely overpayments to escape FCA liability by simply ignoring the analysis altogether and putting its head in the sand would subvert Congress’s intent," states the opinion. 

Despite this conclusion, the court did recognize the challenge imposed by the 60-day limit:

 “Under the definition of “identified” proposed by the Government, an overpayment would technically qualify as an “obligation” even where a provider receives an email like Kane’s, struggles to conduct an internal audit, and reports its efforts to the Government within the sixty-day window, but has yet to isolate and return all overpayments sixty-one days after being put on notice of potential overpayments.”

The court went on to say that “while such claims might qualify as 'obligations,' the mere existence of an 'obligation' does not establish a violation of the FCA." In this context, "it is only when an obligation is knowingly concealed or knowingly and improperly avoided or decreased that a provider has violated the FCA." The court added "[t]herefore, prosecutorial discretion would counsel against the institution of enforcement actions aimed at well-intentioned healthcare providers working with reasonable haste to address erroneous overpayments. Such actions would be inconsistent with the spirit of the law and would be unlikely to succeed.” 



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