INTRODUCTION

In this second installment of the Healthcare Enforcement Quarterly Roundup for 2019, we cover several topics that have persisted over the past few years and identify new issues that will shape the scope of enforcement efforts for the remainder of this year and beyond. In this Quarterly Roundup, we discuss DOJ’s guidance on compliance programs and cooperation credit, new US Department of Health and Human Services (HHS) rules and enforcement activity on provider religious/conscience opt-out rights, enforcement activity against home health agencies and telemedicine providers, continued federal action to combat the opioid crisis, and resolution of ambiguity in the False Claims Act (FCA) statute of limitations.

In addition to continuing to join us for each Quarterly Roundup, we encourage you to sign up to receive updates from our FCA Update blog, where we regularly discuss important FCA decisions and settlements, along with commentary on regulatory guidance from the US Department of Justice (DOJ), the HHS Office of the Inspector General (OIG), the Centers for Medicare and Medicaid Services (CMS) and other agencies. 

DOJ Guidance On Compliance Programs & Cooperation Credit

In recent months, the US Department of Justice (DOJ) has issued new guidance on two distinct topics: how to evaluate corporate compliance programs[1], and how to award “cooperation credit” to defendants that co-operate during a False Claims Act (FCA) investigation.[2]

Corporate Compliance Programs

Under the Justice Manual, federal prosecutors should consider “the adequacy and effectiveness of [a] corporation’s compliance program” when investigating, determining whether to bring charges and negotiating plea deals with corporations.[3] Prosecutors should also consider the corporation’s remedial efforts “to implement an adequate and effective corporate compliance program or to improve an existing one.”[4] Even for purposes of calculating the appropriate criminal fine, the US Sentencing Guidelines recommend consideration of whether the corporation had an effective compliance program in place at the time of the misconduct. [5]

On April 30, 2019, DOJ’s Criminal Division released a guidance document for prosecutors entitled “The Evaluation of Corporate Compliance Programs.”[6] This guidance updates a previous version issued by the Criminal Division’s Fraud Section in February 2017. With this new guidance, DOJ intends to better align its corporate compliance guidance with other DOJ guidance and provide a factor-driven path for prosecutors to analyze a company’s compliance program. [7]

Under the new guidance, when analyzing a corporation’s compliance program, a prosecutor should ask three questions: Is the corporation’s compliance program well designed? Is it implemented effectively? And, does it work in practice? Within these questions, the guidance suggests 12 factors that prosecutors should evaluate when considering how to answer the fundamental questions.

1. Is the Corporation’s Compliance Program Well Designed?

• Risk Assessment: DOJ considers whether the program is properly designed to detect specific misconduct and how the company’s compliance program has been tailored based on the company’s risk assessment.

• Policies and Procedures: DOJ considers the design, comprehensiveness and accessibility of company policies, as well as effective operational integration and company over-sight of important compliance gatekeepers.

• Training and Communications: DOJ considers whether appropriate risk-based training has taken place, what guidance is available to employees, and whether senior management has effectively communicated the company’s position on misconduct.

• Confidential Reporting Structure and Investigations Process: DOJ considers the effectiveness of the company’s reporting system and whether the scope of, response to, and tracking of company investigations ensures accountability.

• Third-Party Management: DOJ considers whether the company applied risk-based due diligence to its third-party partners, including agents, consultants and distributors. This due diligence may include ensuring that appropriate controls, monitoring and consequences are in place for third parties.
  Mergers and Acquisitions: DOJ considers whether the company conducted comprehensive due diligence of any acquisition targets.

2. Is the Corporation’s Compliance Program Being Implemented Effectively?

• Commitment by Senior and Middle Management: DOJ considers whether senior leaders encourage compliance and whether the board of directors and external auditors have sufficient oversight authority.

• Autonomy and Resources: DOJ considers whether those in charge of the company’s compliance program act with adequate authority. DOJ considers where within the company the compliance function is housed, the experience of the compliance team, whether the program has adequate funding and whether the compliance team has sufficient autonomy.

• Incentives and Disciplinary Measures: DOJ considers whether a company establishes sufficient incentives for compliance and disincentives for non-compliance. DOJ also considers whether human resources is involved in the disciplinary process and whether disciplinary actions are applied consistently.

3. Does the Corporation’s Compliance Program Work in Practice?

• Continuous Improvement, Periodic Testing and Review: DOJ evaluates whether the compliance program evolves and improves, considering the frequency and effectiveness of internal audits, whether the compliance program has been control tested, and whether the company has facilitated a culture of compliance.

• Investigation of Misconduct: DOJ considers whether the company timely and thoroughly investigates allegations of misconduct and whether qualified personnel conduct those investigations.

• Analysis and Remediation of Any Underlying Misconduct: DOJ assesses the effectiveness of the company’s response to findings of misconduct, including whether a root cause analysis is performed or prior weakness identified, what changes are made to reduce risk of a similar event in the future, and what disciplinary actions the company takes in response to misconduct.

PRACTICE NOTE: Corporate compliance teams should review this new guidance and, where appropriate, consider implementing appropriate changes to company policy to ensure that adequate controls are in place and to minimize the risk of future criminal liability.

Cooperation Credit

On the heels of announcing new guidance regarding corporate compliance, DOJ’s Civil Division announced new formal guidance on awarding “cooperation credit” on May 7, 2019.[8] This guidance is also in the Justice Manual and applies when an entity or individual voluntarily discloses conduct that could serve as the basis for an FCA investigation. In describing the new guidance, Assistant Attorney General Jody Hunt explained that “False Claims Act defendants may merit a more favorable resolution by providing meaningful assistance to the Department of Justice—from voluntary disclosure, which is the most valuable form of cooperation, to various other efforts, including the sharing of information gleaned from an internal investigation and taking remedial steps through new or improved compliance programs.”[9]

Under the guidelines, an entity or individual may be awarded cooperation credit for (1) voluntarily disclosing misconduct unknown to the government, (2) cooperating in an ongoing investigation or (3) undertaking remedial measures in response to a violation. Under the first category, an entity or individual will be awarded cooperation credit during an investigation if it makes a “proactive, timely, and voluntary self-disclosure.”[10]

An individual or entity may earn cooperation credit under the second category if it cooperates with the government during an investigation. Specifically, the guidelines articulate 10 examples of cooperation that could receive credit, including:

• “Identifying individuals substantially involved in or responsible for the misconduct”

• “Disclosing relevant facts and identifying opportunities for the government to obtain evidence relevant to the government’s investigation that is not in the possession of the entity or individual or not otherwise known to the government”

• “Preserving, collecting, and disclosing relevant documents and information relating to their provenance beyond existing business practices or legal requirements”

The guidelines make clear that these are illustrative only; none of the examples articulated in the Justice Manual are mandatory to receive cooperation credit, nor is the list all-inclusive of potential conduct that could result in cooperation credit.

In considering the value of a voluntary disclosure (category 1) or cooperation during an ongoing investigation (category 2), prosecutors are to consider four factors: “(1) the timeliness and voluntariness of the assistance; (2) the truthfulness, completeness, and reliability of any information or testimony provided; (3) the nature and extent of the assistance; and (4) the significance and usefulness of the cooperation to the government.”[11]

Under the third category—undertaking remedial measures in response to a violation—an individual or entity may receive cooperation credit for appropriate remedial actions in response to an FCA violation. These actions could include remediating the root cause of the conduct, implementing or improving a compliance program, or removing those responsible for the misconduct.[12] The guidance provides that the maximum credit an individual or entity may receive may not result in the government receiving less than “full compensation for the losses caused by the defendant’s misconduct.”[13]

PRACTICE NOTE: The recent guidance provides insight into DOJ’s approach to cooperation credit and may be used by defense counsel in negotiating cooperation credit in an FCA investigation. The guidance does not alter the highly discretionary nature of cooperation credit, however. Application of the guidance will depend heavily on the facts of the matter and the DOJ prosecutor assigned to a case.

New HHS Rule And Enforcement Focus On Provider Religious/Conscience Opt-Out Rights

In May 2019, the US Department of Health and Human Services (HHS) Office for Civil Rights (OCR) issued the final rule “Protecting Statutory Conscience Rights in Health Care,” which reflects efforts by OCR’s new Conscience and Religious Freedom Division (CRFD). CRFD launched in January 2018 for the stated purpose of pursuing federal enforcement of existing laws concerning religious freedom and “conscience rights.” Its efforts are intended (according to OCR) to provide protections to healthcare providers who would refuse to participate in certain healthcare services, typically those related to reproductive health (e.g., abortion and sterilization), based on religious or similar objections.[14] HHS’s 2018 Annual Report shorthanded CRFD’s purpose as “[c]ontinuing to protect conscience and life in healthcare settings.”[15]

Historically, OCR’s mission had been twofold: (1) focused on protecting more traditional civil rights in the healthcare context, including those related to age, disability, race and gender, under Title VII, the Americans with Disabilities Act, and other federal statutes, and (2) supporting health information privacy by enforcing and otherwise administering the Health Insurance Portability and Accountability Act (HIPAA). Since 2008, OCR’s Civil Rights Division has also had varying degrees of involvement in HHS’s limited enforcement of certain conscience and religious freedom provisions related to federal healthcare spending and programs, coordinating the handling and resolution of the extremely small number of complaints HHS received (an average of just one or two filed each year from 2008 until November 2016).[16] However, the new CRFD seeks to expand the OCR mission to include the claimed right to abstain from any involvement in the provision of certain healthcare services, principally abortion, for a much larger group of healthcare workers, and recent requests for congressional funding have made this new direction clear.

The number of complaints concerning conscience issues has jumped since November 2016, rising from a baseline of 10 complaints filed in the previous eight years, to 34 complaints filed between November 2016 and January 2018, to 343 received in FY2018.[17] We have seen some evidence that this is due, at least in part, to freedom of religion/conscience and other religious legal advocacy organizations facilitating individual healthcare workers raising such complaints to a newly friendly OCR.

This new partnership is reflected by the current director of OCR, Roger Severino, whom President Trump appointed to lead the agency in March 2017. Before joining OCR, Director Severino was the director of the DeVos Center for Religion and Civil Society at The Heritage Foundation, and previously served as the chief operations officer and legal counsel for the Becket Fund for Religious Liberty. CRFD and other leadership posts at OCR have similarly been staffed primarily by individuals newly joining OCR (often as contractors, rather than permanent civil service hires) from faith-based (predominantly Christian) advocacy organizational backgrounds. Many came to the work of OCR with strong political views and backgrounds in advocating against abortion rights, mandated family planning coverage by health plans, and similar issues related to healthcare provision and health insurance coverage.

While there has been a jump in the number of conscience and religious freedom complaints reported since Director Severino took over and CRFD was launched, such complaints continue to comprise only a tiny fraction of the total complaints received by OCR across all of its subject areas, which HHS has estimated at 8,433 complaints annually for the CRFD and Civil Rights Divisions combined (more than 90% of which come from the Civil Rights Division), and 25,299 annually for the Health Information Privacy Division. [18] Despite this disproportionately low volume of conscience complaints, HHS has greatly increased its budget requests for the CRFD, requesting an additional $1.071 million to hire six new full-time employees, while cutting $7.1 million from the budget of the Operations and Resource Division, which provides primary enforcement for civil and health information privacy rights. [19]

In accordance with this focus, in May 2019, HHS issued the new final rule “Protecting Statutory Conscience Rights,” pursuant to which it purports to enforce the conscience rights of healthcare sector workers under the provisions of approximately 30 federal statutes. The rule asserts that healthcare workers—not just care providers, but also schedulers, other clerical staff, custodians, etc.—have a basically unqualified right to refuse to participate in healthcare services to which they have individual religious or moral objections, regardless of patient safety or other concerns.[20] HHS filed a notice of this proposed rulemaking in January 2018, after which it received more than 242,000 comments.[21] These comments included serious concerns expressed by the American Medical Association, the American Hospital Association, numerous other medical professional societies, and several state attorneys general that the proposed rule would reduce access to reproductive and other healthcare services by prioritizing provider opt-out rights over patient access rights. [22]

The final rule significantly expands OCR’s enforcement authority by adding 23 statutes to the three covered by the rule it replaces. As noted, the new rule allows all healthcare employees who object to a particular healthcare service on a religious or conscience basis to refuse to participate in the provision of that service in any way, including abortion, sterilization, and assisted suicide. [23] The rule provides workers with the absolute right of refusal, extending protections far beyond Title VII’s requirement that employers provide reasonable accommodations that do not impose undue hardship on the employer.[24] Under the new rule, an accommodation is only deemed reasonable if it is voluntarily accepted as such by the employee who has opted out of participation, regardless of the potential hardship any such accommodation might impose on institutions providing healthcare services or on patients who need such services.[25]

The rule also provides several new or expanded definitions that could have significant operational impacts on providers if the rule ultimately takes effect. These include a new definition for “discriminate” that would prohibit an employer from inquiring of a prospective job candidate whether the candidate holds any religious or conscience-based objections to performing required job functions, as well as a definition of “assist in the performance” that would include to

take an action that has a specific, reasonable, and articulable connection to furthering a procedure or a part of a health service program or research activity undertaken by or with another person or entity. This may include counseling, referral, training, or otherwise making arrangements for the procedure or a part of a health service program or research activity, depending on whether aid is provided by such actions.[26]

As such, the new rule would extend protections far beyond direct care providers to those serving in ancillary support roles such as clerical, janitorial, transportation, and sterile processing.

To illustrate, should the rule go into effect, a small local hospital would be forced to hire for an open surgical scheduler position without discriminating or inquiring about whether any given candidate would have a religious or conscience-based objection to scheduling abortion, sterilization, or gender reassignment procedures. Once a scheduler was hired, that hospital would also be required by the rule to accommodate the scheduler’s absolute right to opt out of scheduling any such procedures, leading the hospital to either stop providing those procedures altogether or to hire enough redundant coverage for that position to find at least one other person who volunteers to schedule such procedures.

Penalties for a failure to comply with the rule’s strict and extensive provisions include, at the sole discretion of OCR, the denial, withholding, or termination of federal financial assistance or healthcare funds from the provider, of either current or potential new grants—ostensibly including Medicare, Medicaid and other government insurance programs.[27] Furthermore, because the rule newly requires that recipients of federal funds affirmatively certify their compliance with the rule’s provisions and with all applicable federal conscience and anti-discrimination laws,[28] the rule may provide an opening for those seeking additional opportunities to exploit the use of the False Claims Act.[29]

On the same day that the final rule was issued, 23 states and municipalities in the Southern District of New York filed a lawsuit seeking to permanently enjoin and vacate the rule in its entirety.[30] The City and County of San Francisco and the Mayor and City Council of Baltimore also filed similar suits.[31] The final rule’s effective date has been postponed by stipulated court order until November 22, 2019, to allow the federal courts in New York and California to adjudicate the various legal challenges before them as to the rule’s legality.

All entities that directly or indirectly receive funding streams administered by HHS—including Medicare and Medicaid reimbursement—should keep a close eye on how the litigation progresses. To the extent it is not barred this fall by federal courts, the enforcement of this new rule clearly is a priority for the administration, Secretary of HHS Alex Azar, and Director Severino. Investigations already are underway under the auspices of the conscience statutes themselves while the final rule’s fate is being litigated.

PRACTICE NOTE: Unless a federal court blocks or further delays it, the “Protecting Statutory Conscience Rights in Health Care” final rule will take effect on November 22, 2019, and immediately will require all entities that receive federal funds flowing through HHS to afford unprecedented opt-out rights and protections to all staff members with articulable connections to the provision of medical care with which they morally disagree. All such entities should keep a close eye on the pending litigation and prepare contingency plans to comply with the extensive new requirements or to defend existing practices in the face of new regulatory scrutiny.

Increased Enforcement Against Home Health Agencies

With the recent rise in medical services provided outside of a doctor’s office, there has been a surge of FCA enforcement actions against home health agencies (HHAs). HHAs are public or private agencies or organizations that are primarily engaged in providing skilled nursing services and other therapeutic services to patients in their residence.[32] The last several years have seen an increase in the provision of these services, with 11,869 Medicare certified HHAs and more than five million beneficiaries served in the United States in 2018.[33] This increase may be the result of the growth of the United States’ elderly population,[34] as older persons are projected to outnumber children for the first time in US history by 2030.[35] Thus, along with the rise in the elderly population and home healthcare comes increased oversight of HHAs.

OIG Pushes for More Oversight and Funding

OIG recently addressed the rapid growth in HHAs by issuing a report discussing, in part, the specific issues arising out of HHAs and seeking additional funding to investigate HHA cases. In late July 2019, the OIG released a report entitled “Solutions to Reduce Fraud, Waste, and Abuse in HHS Programs: OIG’s Top Recommendations.”[36] Within the report, the OIG made several recommendations relating to home health and hospice services, including implementation of the statutory mandate requiring surety bonds for HHAs that enroll in Medicare. According to the report, the implementation of surety bonds for HHAs would have led to the recovery of at least $39 million in uncollected overpayments between 2007 and 2011. Additionally, with respect to hospice providers, the OIG recommended that the Centers for Medicare and Medicaid Services seek statutory authority to establish additional remedies in order to address poor performance.

Further, in March 2019, the OIG sought an additional $10 million in its 2020 budget in order to deal with fraud in home- and community-based services.[37] The OIG specifically requested funding in order to expand capabilities to surveil home health, hospice, personal care and other home-based services, and reserved at least $4.5 million of the budget for “boots on the ground” in order to open more investigations. The budget request notes that the increased funding is necessary in order to combat what OIG sees as growing fraud in the home health industry, estimating that in 2017 there were $808 million in improper payments to home health providers. The 2020 budget request seeks three times more funding than last year, with a budget increase of only $3 million sought between 2018 and 2019, and serves as an acknowledgment by the OIG that HHAs will be under increased scrutiny.

Recent Cases

According to the OIG, between 2013 and 2017, HHA investigations resulted in more than 450 criminal and civil actions and generated $1.3 billion in expected receivables.[38] The OIG additionally estimates that Medicare paid $3.2 billion in improper reimbursements for home health services in 2018.[39] Further, the OIG noted that in 2016 it identified more than 500 HHAs and 4,500 physicians with suspicious practices potentially giving rise to FCA actions.[40]

Given the trends already seen in 2019, it appears that HHA enforcement actions have meaningfully increased. Since the beginning of 2019, there have been at least 22 DOJ announcements concerning HHAs involving almost $200 million in alleged fraud total.[41] Individuals involved in these cases have been sentenced to a total of more than 1,000 months in prison (with sentences ranging from 24 to 188 months) and approximately $74 million in restitution.[42] On January 28, 2019, alone, DOJ announced five separate HHA actions amounting to more than $21 million in fraud.[43]

In addition to increased HHA oversight and investigations, DOJ also appears determined to impose longer sentences and higher monetary restitution than in prior years. In one of the toughest sentences of 2019 thus far, the former director of nursing and administration of two Houston home health companies was sentenced to 10 years in prison and a restitution order of more than $20 million based on allegedly false certifications and falsified patient records.[44] Further, the director allegedly paid patient recruiters to locate Medicare beneficiaries and paid doctors to certify false plans of care. This sentence represents a trend in harsher sentencing, with more than half of the prison terms given in 2019 exceeding five years and several restitution awards exceeding $8 million. [45]

Recruiters and Hospice Care

In addition to concentrating on HHAs, DOJ also appears to have increased its focus on recruiters and hospice providers. Since the beginning of 2019, at least eight patient recruiters have been convicted or pleaded guilty to fraud schemes involving HHAs.[46] Often these recruiters are charged in conjunction with home health company owners and administrators for both the payment and receipt of kickbacks. In these matters, recruiters are often alleged to have referred patients for home health who are not eligible under Medicare, do not need home health services, or were never actually provided services. In May 2019, DOJ announced the sentencing of a Houston recruiter to 188 months in prison and a restitution payment of $12.9 million in connection with a $20 million scheme in which the recruiter paid kickbacks and bribes to both physicians and patients in exchange for the paperwork necessary for five separate HHAs to bill Medicare.[47] This sentence represents the largest recruiting-related sentence and the longest prison term awarded relating to HHA actions thus far this year.

Finally, although hospice providers are not always considered HHAs, there is often an intersection between the two, with the OIG frequently discussing home health and hospice together because of the similar nature of the services provided and the nature of the alleged fraud. With the recent surge in HHA prosecutions and investigations, there has been a similar increase in hospice-related FCA actions.

Since 2018, DOJ has settled several large FCA cases relating to hospice care, including the prominent example of Chemed Corporation, the owner of the largest for-profit hospice services company in the United States. Chemed, Vitas Hospice Services and Vitas Healthcare settled with DOJ in 2017 for $75 million arising out of allegations that the company knowingly submitted hospice claims for patients who were not terminally ill.[48] With the increased scrutiny of HHAs, hospice providers should likewise expect more oversight and investigations in the years ahead.

Nonetheless, hospice providers can take some solace based on the recent dismissal of FCA claims against HCR ManorCare, Inc., and its subsidiaries.[49] On June 26, 2019, the Northern District of Ohio dismissed the FCA claims brought by a former consultant turned relator who alleged that the defendant billed for patients that did not qualify for hospice care and failed to return overpayments. The Northern District dismissed the case with prejudice on the basis that the Rule 9(b) pleading requirements had not been met and the relator failed to plead her claims with particularity.

PRACTICE NOTE: Moving forward, providers practicing in the home health and hospice industry should expect to see more oversight activity, and should stay abreast of compliance issues relating to patient eligibility, use of recruiters, and submission of claims to Medicare and other government programs.

Continued Focus On Telemedicine

During the second quarter of 2019, DOJ continued its focus on enforcement activity in telemedicine. As reported in prior editions of the Quarterly Roundup, telemedicine is an expanding field, causing DOJ to pay particular attention to the industry.

In April 2019, DOJ indicted the owner and operator of 1stCare MD and ProfitsCentric with one count of conspiracy to pay and receive kickbacks.[50] The defendant’s arrest and federal indictment is part of a nationwide law enforcement action, as reported in the Q1 2019 Quarterly Roundup, that targeted 24 defendants involved in alleged extensive healthcare fraud schemes focused on telemedicine and durable medical equipment (DME) marketing. These schemes allegedly resulted in losses amounting to more than $1.2 billion. The indictment alleges that from 2016 to 2019 the defendant defrauded HHS in its administration and oversight of Medicare by conspiring with others by paying and receiving kickbacks and bribes in exchange for doctors’ orders for DME for Medicare beneficiaries. Prosecutors also alleged that the defendants, 1stCare MD and ProfitsCentric, through their network of doctors, generated thousands of doctors’ orders for DME absent a pre-existing doctor-patient relationship and a physical examination, and that the orders were based solely on a short telephone conversation. The indictment alleges that these activities resulted in the submission of approximately $40 million in fraudulent Medicare claims for DME.

Further, in July 2019, DOJ indicted a New York-based anesthesiologist for her alleged role in a $7 million telemedicine conspiracy to fraudulently bill Medicare, Medicare Part D plans and private insurance plans, resulting in more than $3 million in payments on those claims.[51] According to DOJ, the indictment resulted from investigative work by the Criminal Division’s Medicare Fraud Strike Force, a joint initiative of DOJ and HHS. Eastern District of New York prosecutors charged the anesthesiologist with one count of conspiring to commit healthcare fraud by misusing telemedicine channels under agreements with unidentified companies to prescribe DME and drugs to more than 3,000 Medicare beneficiaries. The indictment alleges that, from January 2015 to May 2018, the anesthesiologist and other providers allegedly received kickback payments from unidentified companies for improper telemedicine encounters. The indictment alleges that the anesthesiologist “prescribed and ordered DME and prescription drugs for beneficiaries who were not examined or evaluated by a licensed physician.” The prosecutors alleged that the prescriptions flowing from the alleged telemedicine encounters were for DME and drugs that were neither medically necessary nor the result of genuine physician-patient relationships.

PRACTICE NOTE: Given DOJ’s recent criminal enforcement related to telemedicine, telemedicine companies should closely review their compliance with the federal and state laws that may be implicated through a telemedicine practice. Further, DOJ’s focus on individual accountability is particularly important with respect to telemedicine, given its interest in pursuing criminal actions against physicians.

Federal Enforcement To Combat Opioid Crisis

The federal government continues to expand the type of cases it is bringing to combat the opioid epidemic—and the type of defendants it is naming. In recent months, DOJ has charged two pharmaceutical distributors and their executives in opioid-related actions, including two chief compliance officers. Although cases against opioid manufacturers have occupied much of the public spotlight, these developments are a reminder that opioids and associated legal risks touch every level of the healthcare system.

On April 23, 2019, federal prosecutors in Manhattan charged the New York State-based Rochester Drug Co-Operative, its former CEO and its former chief compliance officer with illegally distributing oxy-codone and fentanyl and conspiring to defraud the US Drug Enforcement Agency (DEA), alleging that at the direction of senior management, the company sold large quantities of the drugs to pharmacies whose sales practices raised red flags with even the company’s own compliance personnel.[52] The DEA also filed a civil lawsuit against the company for its knowing failure to file thousands of “suspicious order reports” with the DEA. According to DOJ, the case marked the first time that a pharmaceutical distributor and its executives had been charged with drug trafficking—but it was not the last.

On July 18, 2019, federal prosecutors in Ohio charged another distributor, Miami-Luken, and two of its executives for similar violations, alleging a conspiracy to distribute controlled substances.[53] The company’s former president and compliance officer were charged, along with two West Virginia pharmacists. Miami-Luken went out of business in 2018. The government alleges that before that happened, the company and the executives distributed powerful prescription pain-killers while “ignor[ing] obvious signs of abuse,” such as by shipping more than 2.3 million oxycodone pills and 2.6 million hydrocodone pills to a pharmacy in a West Virginia town with only 1,394 residents. According to the government, the distribution continued even after the DEA warned the company to ensure that drugs were not being diverted and to report suspicious orders.

At least part of the Rochester Drug Co-Operative case has already been resolved: the government reached a deferred prosecution agreement with RDC, subject to court approval. The company agreed to accept responsibility for its conduct by making admissions and stipulating to the accuracy of an extensive state-ment of facts, pay a $20 million penalty, reform and enhance its Controlled Substances Act compliance program, and submit to supervision by an independent compliance monitor. If the company complies with the terms of the agreement for five years, the charges will be dismissed. In addition, one of the individual defendants has pleaded guilty pursuant to a cooperation agreement. All of the defendants in the Miami-Luken case have pleaded not guilty.

DOJ has recently reached additional opioid-related settlements, most notably a $1.4 billion agreement with Reckitt Benckiser Group plc to resolve civil and criminal allegations related to the marketing of the opioid addiction treatment drug Suboxone, which was sold by the company’s Indivior subsidiary.[54] The government describes the settlement—which includes forfeiture, civil qui tam settlements with the federal government and states, and an administrative resolution with the government—as the largest recovery in a case involving an opioid drug in US history. The case has its roots in, among other things, a qui tam lawsuit filed by a physician concerned about Reckitt’s marketing practices.[55] In addition, Indivior, which Reckitt Benckiser spun off in 2014, was indicted in federal court in Virginia in April 2019, after being accused of engaging in a nationwide scheme to increase Suboxone prescriptions. The two companies are no longer affiliated.

In addition, in June 2019 DOJ announced that opioid manufacturer Insys Therapeutics had agreed to pay a $225 million global settlement to resolve a criminal investigation and civil claims stemming from the company’s payment of kickbacks and other unlawful marketing practices in connection with the marketing of Subsys, an opioid spray.[56] This settlement also involves a deferred prosecution agreement, under which Insys’ operating subsidiary will plead guilty to five counts of mail fraud. The civil aspect of the settlement resolves False Claims Act violations alleged in five qui tam lawsuits.

As noted in the Q3 2018 Quarterly Roundup, the settlement appears to have helped Insys avoid company-ending liability, although the recently released details make clear that DOJ intends to keep Insys on a short leash. The settlement includes a five-year Corporate Integrity Agreement (CIA) and Conditional Exclusion Release with OIG. In a press release about the settlement, the government stated that it opted “not to pursue exclusion of Insys at this time,” citing “the extensive cooperation provided by Insys in the prosecution of culpable individuals and its agreement to enhanced CIA requirements,” and noting that the CIA includes “several novel provisions,” including “enhanced material breach provisions.” However, the government noted that Insys admitted facts that “provide a basis for permissive exclusion” and said it would release its permissive authority to exclude Insys from federal healthcare programs “only after Insys satisfies its obligations under the CIA.” DOJ also charged 15 former Insys officials for their involvement in the same scheme; most recently, in May 2019 five former Insys executives were convicted of racketeering conspiracy in connection with Subsys marketing in federal district court in Boston.

PRACTICE NOTE: All of these cases illustrate how the opioid crisis sits squarely at the nexus of criminal and civil enforcement, with consequences for not just affirmative conduct, but knowing inaction, as the charges against drug distributors and their executives demonstrate. If you see something and don’t say something when there is arguably a legal duty to do so, such as by failing to file suspicious order reports with the DEA in the face of red flags, the recent cases suggest that DOJ could pursue charges. The cases also highlight the absolute importance of an effective and empowered compliance program that has the ear of company leadership if and when issues arise.

Resolution Of FCA Statute Of Limitations Ambiguity

On May 13, 2019, the Supreme Court of the United States unanimously ruled in Cochise Consultancy, Inc. v. U.S. ex rel. Huntthat the “government knowledge” statute of limitations under the federal FCA, 31 USC § 3729, et seq., applies regardless of whether the government intervenes in a case. As a result, in some circumstances, relators will have up to four additional years to file qui tam claims.

The general FCA statute of limitations requires that cases be filed within six years of the alleged violation (31 U.S.C. § 3731(b)(1)) or three years after relevant material facts are known or should have been known by the “official of the United States charged with responsibility to act in the circumstances,” whichever is later, but not more than 10 years after the violation. 31 U.S.C. § 3731(b)(2). In Cochise, the Court resolved the reach of the latter provision.

Summary of Cochise Consultancy, Inc., v. U.S. ex rel. Hunt

In November 2013, qui tam relator Billy Joe Hunt filed a complaint alleging that two defense contractors (collectively, Cochise) defrauded the federal government by submitting false claims for payment related to security services provided in Iraq up until approximately early 2007. Hunt claimed that he revealed Cochise’s allegedly fraudulent scheme during a November 30, 2010, interview with federal officials about his role in an unrelated contracting fraud in Iraq.

The government declined to intervene in the action, and Cochise moved to dismiss the complaint as barred by the statute of limitations. While conceding that his action was time-barred under § 3731(b)(1), Hunt countered that his complaint was timely under § 3731(b)(2). Siding with Cochise, the US District Court for the Northern District of Alabama considered various interpretations of § 3731(b)(2) and ultimately held that Hunt’s claim was time-barred. The District Court rejected Hunt’s claim that the limitation period in non-intervened, qui tam lawsuits runs from when the government learns of the relevant facts. On appeal, however, the US Court of Appeals for the Eleventh Circuit reversed and remanded, finding that the correct interpretation of § 3731(b)(2) is that it also applies in non-intervened actions, and the limitations period begins when the government official responsible for acting—not the relator—knew or should have known the relevant facts.

The Supreme Court granted certiorari because of a split among the circuit courts of appeal on this issue. The Fourth, Fifth and Tenth circuits had previously held that § 3731(b)(2) only applies in cases filed by the government or in which the government intervenes, but the Third and Ninth Circuits held that relators can rely on § 3731(b)(2) to toll the six-year limitations period, which is triggered by the relator’s knowledge of the alleged fraud.

In the Supreme Court’s unanimous opinion, written by Justice Clarence Thomas, the Court considered whether the limitations period in § 3731(b)(2) is available in a relator-initiated suit in which the government has declined to intervene, and if so, whether the relator in such a case should be considered “the official of the United States” whose knowledge triggers § 3731(b)(2)’s three-year limitations period.

The Court held that both government-initiated suits under § 3730(a) and relator-initiated suits under § 3730(b) are “civil action[s] under section 3730,” concluding that the plain text of the statute makes the two limitations periods applicable in both types of suits. In its analysis, the Court explained that Cochise’s reading of the FCA, in which a relator-initiated, non-intervened suit is a “civil action under section 3730” for purposes of subsection (b)(1) of § 3731, but not subsection (b)(2) “is at odds with fundamental rules of statutory interpretation.”

The Court also considered Cochise’s second argument that the relator in a non-intervened suit should be considered “the official of the United States charged with responsibility to act in the circumstances,” meaning that § 3731(b)(2)’s three-year limitations period would start when the relator knew or should have known about the fraud. The Court rejected this argument, stating that the FCA provides no support for reading “the official of the United States” to encompass a private relator.

Implications of Cochise

The Supreme Court’s expansive view of the time that relators have to file a case under the FCA means that more such cases in which the government has declined to intervene will likely survive motions to dismiss that previously may have been granted on limitations grounds, even where the conduct alleged is relatively old.

Also of note, the longer period of time that a relator has to file a claim under Cochise may make an FCA case more difficult to litigate for all parties involved. The passage of more time may make it more difficult for relators to prove their allegations. For example, critical records and other documentation may be destroyed in the normal course pursuant to document retention/destruction policies within the intervening period between the alleged conduct and the filing of the suit. For the same reasons, it may be more difficult—and costly—for the defendant to defend against allegations relating to conduct that happened up to 10 years in the past.

[1] See Press Release, US Dep’t of Justice, Criminal Division Announces Publication of Guidance on Evaluating Corporate Compliance Programs (Apr. 30, 2019), https://www.justice.gov/opa/pr/criminal-division-announces-publication-guidance-evaluating-corporate-compliance-programs.
[2] See Press Release, US Dep’t of Justice, Department of Justice Issues Guidance on False Claims Act Matters and Updates Justice Manual (May 7, 2019), https://www.justice.gov/opa/pr/department-justice-issues-guidance-false-claims-act-matters-and-updates-justice-manual.
[3] US Dep’t of Justice, Justice Manual, § 9-28.300, https://www.justice.gov/jm/jm-9-28000-principles-federal-prosecution-business-organizations#9-28.300.
[4] Id.
[5] See USSG §§ 8B2.1, 8C2.5(f), and 8C2.8(11), https://www.ussc.gov/sites/default/files/pdf/guidelines-manual/2018/GLMFull.pdf.
[6] See Press Release, US Dep’t of Justice, Criminal Division Announces Publication of Guidance on Evaluating Corporate Compliance Programs (Apr. 30, 2019), https://www.justice.gov/opa/pr/criminal-division-announces-publication-guidance-evaluating-corporate-compliance-programs; US Dep’t of Justice, Criminal Division, Evaluation of Corporate Compliance Programs (Apr. 2019), https://www.justice.gov/criminal-fraud/page/file/937501/download.
[7] US Dep’t of Justice, Criminal Division, Evaluation of Corporate Compliance Programs (Apr. 2019), https://www.justice.gov/criminal-fraud/page/file/937501/download.
[8] See Press Release, US Dep’t of Justice, Department of Justice Issues Guidance on False Claims Act Matters and Updates Justice Manual (May 7, 2019), https://www.justice.gov/opa/pr/department-justice-issues-guidance-false-claims-act-matters-and-updates-justice-manual; and US Dep’t of Justice, Justice Manual, at 4-4.112 – Guidelines for Taking Disclosure, Cooperation, and Remediation Into Account in False Claims Act Matters, https://www.justice.gov/jm/jm-4-4000-commercial-litigation#4-4.112.
[9] See Press Release, US Dep’t of Justice, Department of Justice Issues Guidance on False Claims Act Matters and Updates Justice Manual (May 7, 2019), https://www.justice.gov/opa/pr/department-justice-issues-guidance-false-claims-act-matters-and-updates-justice-manual.
[10] US Dep’t of Justice, Justice Manual, § 4-4.112, https://www.justice.gov/jm/jm-4-4000-commercial-litigation#4-4.112.
[11] Id.
[12] Id.
[13] Id.
[14] See Press Release, OCR, HHS Announces New Conscience and Religious Freedom Division (Jan. 18, 2018) https://www.hhs.gov/about/news/2018/01/18/hhs-ocr-announces-new-conscience-and-religious-freedom-division.html.
[15] HHS, 2018 Annual Report, 6 (noting elsewhere, at page 33, HHS’s new policy that life begins “at conception”).
[16] Protecting Statutory Conscience Rights in Health Care, 84 Fed. Reg. 23,179, 23,245 (May 21, 2019) (to be codified at 45 C.F.R. pt. 88).
[17] Protecting Statutory Conscince Rights in Health Care, 83 Fed. Reg. 3,880, 3,886 (proposed Jan. 26, 2018) (to be codified at 45 C.F.R. pt. 88); Protecting Statutory Conscience Rights in Health Care, 84 Fed. Reg. at 23,245.
[18] See, HHS Agency Information Collection Request, 84 Fed. Reg. 9,082 (Mar. 18, 2019).; see also HHS Fiscal Year 2020 Justification of Estimates for Appropriations Committees, OCR Fiscal Year 2020 Congressional Justification, 11 (https://www.hhs.gov/sites/default/files/fy-2020-cj-compilation.pdf) (CRFD retained 784 complaints during fiscal year 2018).
[19] HHS Fiscal Year 2020 Justification of Estimates for Appropriations Committees, OCR Fiscal Year 2020 Congressional Justification, 7 (https://www.hhs.gov/sites/default/files/fy-2020-cj-compilation.pdf).
[20] Protecting Statutory Conscience Rights in Health Care, 84 Fed. Reg. at 23,246.
[21] Id. at 23,180.
[22] See Letter from James L. Madara, MD, Exec. Vice President, CEO, Am. Med. Ass’n, to Alex M. Azar, Sec’y, HHS (Mar. 27, 2018) (https://searchlf.ama-assn.org/undefined/documentDownload?uri=%2Funstructured%2Fbinary%2Fletter%2FLETTERS%2F2018-3-27-Letter-to-Azar-re-Response-to-Proposed-Rule.pdf); Letter from Thomas P. Nickels, Exec. Vice President, Am. Hosp. Ass’n, to Roger Severino, Dir., OCR (Mar. 26, 2018) (https://www.aha.org/system/files/2018-03/180326-let-protecting-statutory-conscience-rights-in-health-care.pdf); Letter from Att’ys Gen. to HHS (Mar. 27, 2018) (https://ag.ny.gov/sites/default/files/ny_ag_et_al._comment_letter_conscience_rights.pdf).
[23] Protecting Statutory Conscience Rights in Health Care, 84 Fed. Reg. at 23,264-66.
[24] Compare id. at 23,190-91 (stating that under the provisions of this rule, HHS will not “incorporate[e] the additional concept of an ‘undue hardship’ exception for reasonable accommodations under Title VII”), with 42 U.S.C. § 2000e(j) (Title VII allows that an employer may demonstrate, as a defense, that it is “unable to reasonably accommodate to an employee’s or prospective employee’s religious observance or practice without undue hardship.”).
[25] Protecting Statutory Conscience Rights in Health Care, 84 Fed. Reg. at 23,190-91.
[26] Protecting Statutory Conscience Rights in Health Care, 84 Fed. Reg. 23,263-64.
[27] Id. at 23,272.
[28] See id. at 23,269-70.
[29] But see Universal Health Servs., Inc. v. United States, 136 S. Ct. 1989, 2002, 195 L. Ed. 2d 348 (2016) (“a misrepresentation about compliance with a statutory, regulatory, or contractual requirement must be material to the Government’s payment decision in order to be actionable under the False Claims Act”).
[30] State of New York, et al. v . U.S. Dep’t of Health and Human Servs., et al., No. 19-cv-4676-PAE (S.D.N.Y.) (and consolidated cases)
[31] City and County of San Francisco v. Azar, et al., No. C 19-02405 WHA (N.D. Cal.) (and consolidated cases)
[32] See Centers for Medicare & Medicaid Services, Home Health Providers (July 25, 2019), https://www.cms.gov/Medicare/Provider-Enrollment-and-Certification/CertificationandComplianc/HHAs.html.
[33] See Centers for Medicare & Medicaid Services, Home Health Quality Reporting Program (June 6, 2019), https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HomeHealthQualityInits/index.html(stating that “5,125,575 beneficiaries were served through 7,228,721 episodes of care.”).
[34] Tracy L. Mitzner et al., Older Adults’ Needs for Home Health Care and the Potential for Human Factors Interventions, Proc. of the Hum. Factors & Ergonomics Soc’y Ann. Meeting, 718-722 (Oct. 1, 2009), https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4270052/.
[35] See US Census Bureau, Older People Projected to Outnumber Children for First Time in U.S. History (Mar. 13, 2018), https://www.census.gov/newsroom/press-releases/2018/cb18-41-population-projections.html.
[36] See US Dep’t of Health & Human Servs. Office of Inspector General, Solutions to Reduce Fraud, Waste, and Abuse in HHS Programs: OIG’s Top Recommendations (July 2019), https://oig.hhs.gov/reports-and-publications/compendium/files/compendium2019.pdf.
[37] Dep’t of Health & Human Servs. Office of the Inspector General, Justification of Estimates for Appropriations Committees Fiscal Year 2020 (2019), at 40-41, https://oig.hhs.gov/reports-and-publications/archives/budget/files/2020budget.pdf.
[38] Id.
[39] US Dept. of Health & Human Servs. Office of Inspector General, Solutions to Reduce Fraud, Waste, and Abuse in HHS Programs: OIG’s Top Recommendations (July 2019), https://oig.hhs.gov/reports-and-publications/compendium/files/compendium2019.pdf).
[40] See US Dep’t of Health & Human Servs. Office of Inspector General, HHS OIG Data Brief: Nationwide Analysis of Common Characteristics in OIG Home Health Fraud Cases (June 2016), https://oig.hhs.gov/oei/reports/oei-05-16-00031.pdf.
[41] See, e.g., Press Release, US Dep’t of Justice, Co-Owners of Chicago-Area Home Health Agency Plead Guilty to Kickbacks Conspiracy Charges (May 31, 2019), https://www.justice.gov/opa/pr/co-owners-chicago-area-home-health-agency-plead-guilty-kickbacks-conspiracy-charges; and Press Release, US Dep’t of Justice, United States Files False Claims Act Complaint Against Home Health Agency and Two of Its Owners (May 24, 2019), https://www.justice.gov/opa/pr/united-states-files-false-claims-act-complaint-against-home-health-agency-and-two-its-owners; and Press Release, US Dep’t of Justice, Michigan Doctor Pleads Guilty to Role in $2.5 Million Medicare Fraud Scheme (May 20, 2019), https://www.justice.gov/opa/pr/michigan-doctor-pleads-guilty-role-25-million-medicare-fraud-scheme.
[42] See id.
[43] See, e.g., Press Release, US Dep’t of Justice, California Doctor Sentenced to Prison for Role in Medicare Kickback Conspiracy(Jan. 28, 2019), https://www.justice.gov/opa/pr/california-doctor-sentenced-prison-role-medicare-kickback-conspiracy; Press Release, US Dep’t of Justice, Houston Medical Clinic Owner Convicted in $11 Million Medicare Fraud Scheme (Jan. 28, 2019), https://www.justice.gov/opa/pr/houston-medical-clinic-owner-convicted-11-million-medicare-fraud-scheme; Press Release, US Dep’t of Justice, Miami Woman Sentenced to More Than Three Years in Prison for Role in $1.36 Million Medicare Fraud Scheme (Jan. 28, 2019) https://www.justice.gov/opa/pr/miami-woman-sentenced-more-three-years-prison-role-136-million-medicare-fraud-scheme; Press Release, US Dep’t of Justice, Miami Woman Sentenced to Prison for Role in $4.66 Million Medicare Fraud Scheme (Jan. 28, 2019), https://www.justice.gov/opa/pr/miami-woman-sentenced-prison-role-466-million-medicare-fraud-scheme; Press Release, US Dep’t of Justice, Miami Woman Sentenced To Prison For Role In $750,000 Medicare Fraud Scheme (Jan. 28, 2019), https://www.justice.gov/opa/pr/miami-woman-sentenced-prison-role-750000-medicare-fraud-scheme.
[44] See Press Release, US Dep’t of Justice, Former Administrator of Two Houston Home Health Companies Sentenced to Prison in $20 Million Medicare Fraud Scheme (Apr. 4, 2019), https://www.justice.gov/opa/pr/former-administrator-two-houston-home-health-companies-sentenced-prison-20-million-medicare.
[45] See Press Release, US Dep’t of Justice, Houston Patient Recruiter Sentenced to 188 Months in Prison for Role in $20 Million Medicare Fraud Scheme (May 29, 2019), https://www.justice.gov/opa/pr/houston-patient-recruiter-sentenced-188-months-prison-role-20-million-medicare-fraud-scheme; Press Release, US Dep’t of Justice, Michigan Home Health Agency Owner Sentenced to Prison for $8.3 Million Medicare Fraud (Apr. 22, 2019), https://www.justice.gov/opa/pr/michigan-home-health-agency-owner-sentenced-prison-83-million-medicare-fraud; Press Release, US Dep’t of Justice, Florida Home Health Services Company Owner and Co-Conspirator Sentenced to Prison for Role in $8.6 Million Health Care Fraud Scheme (Feb. 27, 2019), https://www.justice.gov/opa/pr/florida-home-health-services-company-owner-and-co-conspirator-sentenced-prison-role-86.
[46] See, e.g., Press Release, US Dep’t of Justice, Patient Recruiter Found Guilty in $1.3 Million Medicare Kickback Scheme (Jul. 30, 2019), https://www.justice.gov/opa/pr/patient-recruiter-found-guilty-13-million-medicare-kickback-scheme.
[47] Press Release, US Dep’t of Justice, Houston Patient Recruiter Sentenced to 188 Months in Prison for Role in $20 Million Medicare Fraud Scheme (May 29, 2019), https://www.justice.gov/opa/pr/houston-patient-recruiter-sentenced-188-months-prison-role-20-million-medicare-fraud-scheme.
[48] See Press Release, US Dep’t of Justice, Chemed Corp. and Vitas Hospice Services Agree to Pay $75 Million to Resolve False Claims Act Allegations Relating to Billing for Ineligible Patients and Inflated Levels of Care (Oct. 30. 2017), https://www.justice.gov/opa/pr/chemed-corp-and-vitas-hospice-services-agree-pay-75-million-resolve-false-claims-act.
[49] See United States v. Heartland Hospice, Inc., No. 3:10-cv-1875, 2019 WL 2611077 (N.D. Ohio Jun. 26, 2019).
[50] See Press Release, US Dep’t of Justice, Owner of Guadalupe County Telemedicine Companies Arrested in National Health Care Fraud Takedown (July, 9 2019), https://www.justice.gov/usao-wdtx/pr/owner-guadalupe-county-telemedicine-companies-arrested-national-health-care-fraud.
[51] See Press Release, US Dep’t of Justice, New York Anesthesiologist Indicted for Alleged Role in Telemedicine Health Care Fraud Conspiracy (July, 9 2019), https://www.justice.gov/opa/pr/new-york-anesthesiologist-indicted-alleged-role-telemedicine-health-care-fraud-conspiracy.
[53] Press Release, US Dep’t of Justice, Pharmaceutical Distributor & Executives, Pharmacists Charged With Unlawfully Distributing Painkillers,
https://www.justice.gov/usao-sdoh/pr/pharmaceutical-distributor-executives-pharmacists-charged-unlawfully-distributing (July 18, 2019). See also U.S. v. Rattini, et al., No. 1:19-cr-00081-SJD (S.D. Ohio).
[54] Press Release, US Dep’t of Justice, Justice Department Obtains $1.4 Billion from Reckitt Benckiser Group in Largest Recovery in a Case Concerning an Opioid Drug in United States History, https://www.hhs.gov/about/news/2018/01/18/hhs-ocr-announces-new-conscience-and-religious-freedom-division.html (July 11, 2019).
[55] See Law360, How a Doc’s FCA Suit Turned Into $1.4B Opioid Deal, by Emily Field, (July 12, 2019).
[56] Press Release, US Dep’t of Justice, Opioid Manufacturer Insys Therapeutics Agrees to Enter $225 Million Global Resolution of Criminal and Civil Investigations, https://www.justice.gov/opa/pr/opioid-manufacturer-insys-therapeutics-agrees-enter-225-million-global-resolution-criminal (June 5, 2019).