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Federal Virus Aid Ignored Business Misconduct, Watchdog Says (1)

Sept. 8, 2020, 7:21 PMUpdated: Sept. 8, 2020, 10:37 PM

Nearly $150 billion in federal funds aimed at Covid-19 economic stimulus went to businesses with a prior history of corporate misconduct such as employment law violations and faulty or fraudulent health-care billing, according to a government watchdog’s new report.

Good Jobs First, a policy group that monitors government-funded business incentives and argues for stronger accountability, researched more than 1 million businesses and nonprofits that received federal grants or loans through 20 programs under the Coronavirus Aid, Relief, and Economic Security Act.

The group found 43,000 of these had previously paid penalties or civil settlements related to a range of misconduct including wage-and-hour infractions, workplace safety violations, employment discrimination, environmental violations, and Medicare or Medicaid fraud—including 70 companies previously involved in cases where criminal charges were brought, according to the report.

The 43,000 businesses and nonprofits accounted for $57 billion of grants and $91 billion of loans disbursed through the CARES Act, according to the report.

Health-care companies with prior violations accounted for the largest category amount of prior penalties in the report, which noted significant previous penalties for Sutter Health ($656 million), Tenet Healthcare ($648 million) and Walgreens Boots Alliance ($585 million).

The Provider Relief Fund, which directed payments to hospitals and other health-care providers, was the third largest of the CARES Act programs that Good Jobs First tracked for its report, behind the Paycheck Protection Program and the Medicare Accelerated and Advance Payment Program.

The report also called out major airlines—American Airlines, Delta Air Lines, Southwest Airlines, and United Airlines—that received CARES Act money and also have paid tens of millions each in penalties related to safety violations, employment discrimination, or price-fixing allegations.

“The passage of the CARES ACT provided much needed relief and liquidity support to Southwest and the airline industry. It has saved jobs and has served as an important backstop,” said Chris Mainz, spokesman for Southwest.

CARES Act grants also helped hospitals “maintain our ability to serve public health needs and deliver uninterrupted medical care to patients at all times,” and are used only for recovery and assistance related to Covid-19, said Tenet Healthcare spokeswoman Lesley Bogdanow. “This support has offset some, but not all, of the adverse impact on our business.”

Bogdanow and Mainz each declined to discuss the penalties cited in the report. None of the other companies immediately responded to requests for comment on it.

The data suggest Congress should have included tougher eligibility rules and/or stronger accountability measures to ensure recipients of CARES Act money don’t misuse the funds or continue workplace abuses, the report’s authors Philip Mattera and Mellissa Chang wrote.

“It appears that little screening was done by federal agencies before awarding grants and loans, partly because there were no strict eligibility requirements written into the CARES Act. In some programs such as the Provider Relief Fund, the money was apportioned by formula rather than choosing some recipients over others,” Chang and Mattera wrote.

The authors acknowledged “the gravity of the economic situation during the pandemic” arguably might have made it more important to pay out relief funds quickly than to impose tough eligibility standards. Nevertheless, they contended the government should have done more to ensure federal money wasn’t being misused or going to bad corporate actors.

“While widespread exclusion may not be feasible, there are two categories of recipients whose records of misconduct should not be ignored,” the authors wrote. “The first consists of those companies and non-profits which were accused of defrauding the federal government and which paid civil penalties (usually through a settlement) for False Claims Act violations. The other category consists of those involved in cases that were serious enough to be brought with criminal charges.”

(Updated to add comment from Tenet Healthcare)

To contact the reporter on this story: Chris Marr in Atlanta at cmarr@bloomberglaw.com

To contact the editors responsible for this story: Karl Hardy at khardy@bloomberglaw.com; Andrew Harris at aharris@bloomberglaw.com