With surges once again causing PPE shortages during the COVID-19 pandemic, shouldn’t the DOJ be focused on large-scale fraud instead of low-hanging fruit? When there are bad actors out there depriving health care workers of essential supplies, why is the DOJ targeting small businesses that are just doing their part to help? If the DOJ really wants to protect the nation’s PPE supply, then why isn’t it devoting its resources to cases that would have the biggest impact? 

When the COVID-19 pandemic began to strengthen its grip on the United States, there was a rush on personal protective equipment (PPE). Health care providers across the country were in desperate need of masks, gloves, and other basic supplies. President Trump invoked the Defense Product Act to help increase the supply of PPE to health care providers and other front-line workers, and public health officials urged everyone not to hoard essential PPE—or even to buy more than they needed for their own short-term supply. 

Inevitably, the PPE supply shortage led to fraud. The U.S. Department of Justice (DOJ) quickly – and very publicly – pursued cases against individuals and companies suspected of either (i) hoarding PPE, or (ii) selling “PPE” that did not actually meet the requisite standards. There were also cases of individuals and companies securing lucrative contracts collecting up-front payments with no intention (or capability) of delivering. State attorney general offices banded together to signal their intent to prosecute as well; and, while there was no applicable hoarding-specific statute at the federal level, Attorney General Barr made clear that the federal government had plenty of prosecutorial tools at its disposal. 

Fast-forward almost a year, and the run on PPE has subsided. Supply and demand have largely equalized—although the more-recent developments with spikes and new variants have raised concerns about the availability of PPE, vacant hospital beds, and other essentials for the stability of our nation’s health care system once again. It seems that the DOJ’s and state attorney generals’ original offensive may have been largely effective in deterring PPE fraud, and news of hoarding and other unlawful practices has been relatively scant as a result. 

But, while PPE fraud may not be making headlines, the DOJ is still aggressively fighting PPE fraud behind the scenes—perhaps too aggressively. 

What are the DOJ’s Priorities When it Comes to Investigating and Prosecuting PPE Fraud? 

Our firm was recently retained by a business owner who had been contacted by the DOJ. The allegations? PPE fraud. The DOJ assigned seven agents to the case, and our client is facing federal fines, federal prison time, and irreparable damage to his business’s reputation. 

So, what was the scope of the alleged fraud? Millions of dollars? Tens of millions? 

Our client’s records showed, and our investigation confirmed, that the business had made just $1,000 selling PPE over the prior year. 

Needless to say, our client’s initial concern turned to outrage. Frankly, we were outraged as well. The DOJ had assigned seven agents and spent untold amounts of money investigating a case which, at most, involved the fraudulent sale of $1,000 in PPE. That equates to somewhere in the range of 700 N95 masks or 30 boxes of medical-grade latex gloves, depending on where you buy them. The DOJ might as well have sent seven agents to knock on the door of a teenager suspected of sharing his marijuana stash with his friends. 

To be clear, PPE fraud is a serious offense, and it needs to be handled accordingly. This is true now more than ever. But, the federal government also needs to use its resources wisely, and it needs to make logical decisions about how and when it pursues targets. Our client did nothing wrong. But, even if this wasn’t the case, is such an over-the-top, scorched-earth approach warranted? What will the DOJ accomplish if it tries to investigate every business that sells $1,000 worth of PPE? What real bad actors will go unpunished – and continue to unnecessarily strain the PPE supply chain during the pandemic – until the DOJ finally has the personnel and resources available to look into high-impact cases? 

Why is the DOJ Targeting Small Businesses and Health Care Providers During the COVID-19 Crisis?

This client’s case is far from the only example. Since the start of the pandemic, our firm has represented numerous clients faced with similar scenarios. The scope of any possible allegations is minimal, yet these small businesses and health care providers are being forced to respond to extremely burdensome demands and fight to avoid business or practice-threatening penalties—and all while trying to serve their customers or patients in a time of crisis. 

Why is this the case, especially now? Part of the reason might simply be that it is easier to target these types of cases. If the DOJ receives a tip, it is easier to investigate a small business with limited resources than it is to investigate either a large company with a team of defense lawyers or a scam artist who flies by night. Similarly, with the laws, rules, and regulations that govern our nation’s health care providers, the DOJ and other federal authorities can launch audits and investigations into providers’ billing and procurement records with relative ease. 

Is this justified? Some would argue that it is. If there is low-hanging fruit to be had, then the DOJ should reach until the lowest limbs of the tree are bare. This saves government resources, and the aggregate effect could ultimately be the same as the outcome of targeting fewer (but larger) bad actors. In fact, it might ultimately have a greater effect, as it will have a deterrent effect for other small businesses and health care providers that might otherwise be inclined to dip their toes into small-scale fraud. s

The problem is, this isn’t the case. As demonstrated by the case highlighted above, the DOJ is not judiciously utilizing its resources to execute investigations with pinpoint precision. It assigned seven agents to investigate a small business that sold $1,000 of PPE. When these types of investigations end with no charges being filed, the only outcome is that the government has wasted taxpayer dollars while jeopardizing a legitimate small business in the process. 

In the health care field, it is the same story. Providers are facing intensive audits and investigations based on little, if any, actual data. Typically, at the end of the process, it is clear that the provider did nothing wrong; or, if mistakes were made, they were unintentional, and they accounted for just a minute fraction of the provider’s billings—and account for virtually nothing in terms of Medicare’s or Medicaid’s annual spending. 

It just doesn’t make sense. The DOJ is utilizing extensive resources purportedly in the name of fighting PPE fraud, but to what end? Innocent business owners and health care providers are able to avoid prosecution once the truth prevails, agents and resources are diverted from real cases of large-scale PPE fraud, and all with no reach chance of having a significant impact on the timely delivery of quality PPE. 

What Do Small Businesses and Health Care Providers Need to Do to Avoid Allegations of PPE Fraud?

Given the DOJ’s focus on small-scale cases of suspected PPE fraud, what do small businesses and health care providers need to do in order to protect themselves? Is it possible to avoid facing DOJ scrutiny and the risk of prosecution for allegations of small-scale PPE fraud? 

Ultimately, small businesses that manufacture and supply PPE, and health care providers that order and utilize PPE, just need to do their best to comply with the law. It may not be possible to prevent a DOJ investigation, but it is possible to prevent a DOJ investigation from leading to civil or criminal charges. By remaining compliant—and by documenting their compliance—small businesses and health care providers can put themselves in the best position possible to overcome any allegations of fraud.

“Since the DOJ is aggressively targeting small businesses and health care providers in PPE fraud investigations, these entities need to be prepared to defend themselves effectively. This means not only continuing to comply with the law, but documenting their compliance as well.” – Dr. Nick Oberheiden, Founding Attorney of Oberheiden P.C.

With regard to PPE, there are several areas of compliance that small business owners and health care providers need to address. Of course, compliance obligations vary between the manufacturing, distribution, and health care sectors. In broad terms, some if the major allegations we’ve seen come up in recent DOJ PPE fraud investigations include: 

• Overstocking (or “hoarding”) masks, gloves, and other types of PPE

• Price-gouging health care providers, consumers, and other purchasers 

• Selling “PPE” that does not provide adequate (if any) protection 

• Fraudulently securing PPE supply contracts with no intention of performance  

• Improperly billing Medicare, Medicaid, and other payors for PPE purchases

While the DOJ must assist in ensuring the adequate supply of PPE during the COVID-19 pandemic, it must not do so at all costs, and it must not do so with indiscretion. The DOJ’s PPE fraud investigations should be targeted, and they should focus on cases that have a real, tangible, and measurable impact. Targeting small businesses that sell $1,000 worth of PPE and targeting health care providers that are doing everything they can to protect the public is not the answer. But, not only is it not the answer, it is also doing more harm than good.