With the first year of the Biden administration heading into fall, the white-collar defense bar, corporations, and business executives are still eagerly awaiting authoritative policy guidance from the Department of Justice on how it will approach corporate enforcement under Attorney General Merrick Garland.
So far, DOJ has not issued any major policy memoranda, but much of the department’s senior leadership—including the deputy attorney general and head of the Criminal Division—has cleared the Senate confirmation process, and it’s likely that indications of the department’s enforcement priorities and initiatives will be forthcoming.
Below are several key enforcement issues we believe DOJ’s new leadership will likely emphasize to further the administration’s enforcement policies.
Standards for Cooperation Credit Under Monaco Memo
The department’s 2015 Memorandum on Individual Accountability for Corporate Wrongdoing, issued by former Deputy Attorney General Sally Yates, significantly ramped up the requirements companies must satisfy to secure cooperation credit.
The Yates Memo mandated that corporations “must provide to the Department all relevant facts about the individuals involved in corporate misconduct” to qualify for any cooperation credit. Subsequent policy guidance from Trump administration Deputy Attorney General Rod Rosenstein relaxed this all-or-nothing approach, giving federal prosecutors greater discretion and allowing companies the opportunity to obtain partial credit if they “meaningfully assisted in the government’s investigation” and identified individuals who were “substantially involved in or responsible for the criminal conduct.”
Whether Deputy Attorney General Lisa Monaco will return to a more restrictive approach to the award of cooperation credit in a policy memorandum bearing her name remains to be seen, but in related areas, such as the 2020 guidance on effective corporate compliance programs, federal prosecutors are holding companies to ever more demanding standards.
At least in the context of False Claims Act enforcement, however, there may be reasons for optimism. The recent announcement of an FCA resolution between the DOJ’s Commercial Litigation Branch and an Ohio health system reportedly involved only a single-damages multiplier—a favorable outcome given the department’s ability to seek treble damages under the statute.
The case may be a harbinger of future settlements for companies that self-disclose and offer robust cooperation that satisfies the requirements set forth in the department’s guidance on FCA matters.
Increased Enforcement Focus on Private Equity
The DOJ and other federal regulators and enforcement agencies—like FinCEN and the SEC, for example—have signaled that private equity firms and their portfolio companies will come under increased scrutiny, particularly when the firm invests in a company in a highly regulated industry, such as the health-care sector, and has knowledge of, or takes an active role in, the misconduct of a portfolio company.
Until recently, the DOJ had rarely intervened in FCA actions against private equity firms. This changed in 2018 when the department filed a complaint in intervention against compounding pharmacy Patient Care America (PCA) and its private equity owner, Riordan, Lewis & Haden Inc. (RLH), in United States ex rel. Medrano v. Diabetic Care Rx LLC d/b/a Patient Care America. In Medrano, the DOJ alleged that PCA paid kickbacks to three marketing firms to target TRICARE beneficiaries for medically unnecessary prescriptions.
In another FCA case involving private equity, the department adopted an aggressive theory of FCA liability that targeted private equity investors who had not assumed active managerial roles in the portfolio company’s conduct.
The confluence of private equity’s expansion into the health sector and the impending wave of Covid-19-related enforcement mean that prioritization of private equity firms as FCA defendants will only intensify. Expect DOJ to double down on its position that when making investments in portfolio companies, private equity firms will be expected to know that the companies are subject to certain fraud and abuse laws and act accordingly.
Continued Enforcement Activity in Health Care
After two years dominated by a global pandemic, DOJ has focused heavily on criminal and civil enforcement in the health-care industry. In FY 2020, DOJ opened over 1,000 new criminal investigations into health-care fraud, in addition to nearly 1,100 new civil health-care fraud investigations.
The new criminal investigations represented nearly a 10% increase since 2019, while the number of civil investigations held steady. In total, prosecutors brought charges in 412 matters against nearly 700 defendants, many of which are attributable to investigations initiated by one of DOJ’s health-care fraud strike forces nationwide.
In addition to criminal actions, the federal government recovered more than $2.2 billion from FCA cases during fiscal year 2020. Health-care cases comprised an unusually high 83% of total recoveries. In the first of half of 2021, FCA resolutions in the health-care and life sciences industries have already exceeded $200 million and, consistent with recent trends, these matters made up the largest share of overall recoveries of any industry.
DOJ has identified several key health-care areas as ongoing priorities, including opioid fraud and abuse, the use of Covid-19 relief funds, elder abuse at long-term care facilities, telehealth-related fraud, electronic health records misuse, and cybersecurity relating to payment claims. Many of these priorities stem from fraud either identified during or resulting from the Covid-19 pandemic.
The government has also doled out an unprecedented amount of pandemic relief funding in the past year: the CARES Act, the Paycheck Protection Program, and other Covid-19-related stimulus programs have pumped over $5 trillion into the U.S. economy to help individuals and companies adversely affected by the pandemic.
Against this backdrop, the DOJ has diverted significant resources to prioritize the investigation and prosecution of criminal conduct related to the pandemic. Moreover, the pandemic exposed existing fraud in the health-care industry and further expanded health-care into the technology sector.
DOJ’s stated enforcement goals, combined with recent indictments, suggest DOJ is likely to continue to prioritize health-care fraud prosecutions and investigations in coming years.
This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.
David Rybicki served as deputy assistant attorney general in the Department of Justice, Criminal Division, from 2017-2020. He previously served as counselor to the attorney general and as an assistant U.S. Attorney in Washington, D.C. He is a partner in K&L Gates’ Investigations, Enforcement, and White Collar Practice Group.
Robert J. Higdon Jr. served as a federal prosecutor for nearly 30 years in North Carolina and with the Department of Justice’s Public Integrity Section. From 2017-2021 he was U.S. Attorney for the Eastern District of North Carolina. He is a partner in K&L Gates’ Investigations, Enforcement, and White Collar Practice Group.
Nancy Iheanacho is an associate in the Investigations, Enforcement, and White Collar Practice Group. Her global practice focuses on government investigations and enforcement actions, internal investigations, white collar defense, and congressional investigations.