On Nov. 29, 2018, Deputy Attorney General Rod J. Rosenstein announced several amendments to policies on individual accountability set forth in the 2015 Yates Memo. As a result, companies facing FCA actions—especially defendants in health care cases—should consider following three strategy tips.
Establish Clear Benchmarks for Cooperation
Sections 4-3.100 and 9-28.700 of the Justice Manual establish new conditions for earning cooperation credit. Credit is now available on a sliding scale. Companies that timely identify all individuals substantially involved in or responsible for wrongdoing earn “maximum credit.” And companies that meaningfully assist the government without satisfying this standard can earn “some credit,” at least if they identify misconduct by senior management and board members.
When Rosenstein announced this cooperation policy, he noted that FCA defendants can now earn credit even if they are “unwilling to stipulate about which non-managerial employees are culpable” or are “eager to resolve the case without conducting a costly investigation to identify every individual” involved. But the promise of “some credit” is ambiguous, especially in light of then-Acting Associate Attorney General Jesse Panuccio’s observation this June that the Department of Justice has “tremendous enforcement discretion” in structuring settlements. And the requirement of “meaningful assistance” also provides little insight into prosecutors’ expectations.
FCA defendants in the health care space have additional incentives to clarify the expectations for cooperation credit. Health care defendants can often be fined by the Department of Health and Human Services Office of Inspector General as well as the DOJ, and the DOJ considers cooperation as a factor in evaluating whether multiple penalties would serve the interest of justice under an “anti-piling-on policy” announced earlier in 2018.
Defendants should engage with prosecutors throughout an investigation to ensure a shared understanding of cooperation. In order to earn credit without wasting resources on an over-broad investigation, a defendant should learn who prosecutors consider senior management, what they will consider substantial involvement, and how prosecutors expect the investigation to be conducted.
As Rosenstein said, “Companies that want to cooperate in exchange for credit are encouraged to have full and frank discussions with prosecutors about how to gather the relevant facts.”
Defendants should also seek a concrete understanding of the rewards for cooperation. How much will prosecutors discount the FCA’s damages multiplier and per-claim penalties for various levels of cooperation? And will the DOJ recommend a corporate integrity agreement to HHS-OIG?
Companies that raise these issues at the outset can avoid costly and prolonged disputes over whether they cooperated and whether the credit is commensurate with that cooperation.
Advocate for Individual Releases
Section 4-3.100 of the Justice Manual relaxes the requirements for obtaining corporate settlements that release individual employees from liability. Under the Yates Memo, such releases required “extraordinary circumstances” and personal, written approval by the relevant Assistant Attorney General or U.S. Attorney.
Now, prosecutors may provide releases with written “supervisory approval” after documenting grounds for determining that individual action is “not necessary or warranted.”
Under the Yates Memo, many corporate settlements were partial resolutions that allowed ongoing individual enforcement actions. For example, the DOJ pursued civil charges against two former Hospice Plus executives after entering a $12.2 million settlement of kickback-related FCA claims with the company in April 2017. It also pursued charges against Tuomey Healthcare System’s former CEO after entering a $72.4 million corporate FCA settlement in October 2015. Such enforcements delayed full closure and increased negative publicity.
Under the new policy, resolutions can provide more closure. Companies can more easily negotiate releases for senior officials who are likely to face enforcement actions and to be indemnified.
Emphasize That the Juice Is Not Worth the Squeeze
Litigation costs have fresh relevance to DOJ decision-making after Rosenstein’s announcement that the DOJ’s “primary goal” in civil enforcement will now be “to recover money,” whereas, before, deterrence and recovery were “equal” goals. So prosecutors now have more discretion to decline or even dismiss cases when the “time [spent] pursuing civil litigation … is unlikely to yield any benefit; not while other worthy cases are competing for [the DOJ’s] attention.”
That principle applies to individual prosecutions, where civil prosecutors will “once again [be] permitted to consider an individual’s ability to pay” when deciding whether to bring suit.
The DOJ’s prior focus on deterrence prompted enforcement actions against lower-level employees, such as two project managers who each paid $15,000 in May 2017 to settle allegations related to a larger FCA investigation of eClinicalWorks. But going forward, the DOJ may be less likely to conclude that the juice from pursuing such low-level employees is worth the squeeze.
Given these developments, defendants should emphasize the low recovery potential in appropriate cases. In addition to challenging the merits, low recovery potential provides another (perhaps cheaper) avenue for defeating FCA actions.
William S.W. Chang, a trial lawyer and former white collar federal prosecutor, is a partner in Crowell & Moring’s Healthcare and White Collar & Regulatory Enforcement groups.
Spencer Churchill is a Washington, D.C., associate in Crowell & Moring’s White Collar & Regulatory Enforcement group.