Law360 (August 25, 2020, 8:13 PM EDT) -- General counsel are missing golden opportunities for False Claims Act leniency, nursing homes should expect tough but fair investigations into their COVID-19 responses, and U.S. Department of Justice dismissals of FCA cases are triggering "alarmist" and "misguided" reactions, a top DOJ official who just rejoined BigLaw told Law360.
As the Civil Division's chief, Hunt oversaw a vast docket of FCA litigation, developed leniency guidance for cooperative targets of FCA probes and helped supervise an escalating crackdown on "grossly substandard care" at nursing homes, where the novel coronavirus has killed tens of thousands of Americans.
This interview has been edited for length and clarity.
Attorneys expect strong anti-fraud scrutiny of pandemic relief funds and billing for COVID-19 care. But I've heard some say the expectation is overblown. What's your view?
To be sure, federal agencies and DOJ are going to take a serious look at whether pandemic relief funds were used properly. And DOJ leadership issued guidance that makes criminal prosecutions and civil enforcement of COVID-related fraud a key priority.
But it's hard to predict whether that's going to translate into a greater percentage of enforcement actions, because it all depends on what the government finds in its investigations. If companies and individuals are adhering to government requirements, they're not going to have anything to worry about.
I do think the health and life sciences sectors will get a lot of scrutiny because so much of the relief efforts have been targeted there. And even outside [of those sectors], the government is going to ensure that people didn't make false certifications to get some benefit. At the same time, the government is likely to be sensitive to the fact that they don't want to chill legitimate use of pandemic-related assistance. So I don't think they're going to pursue minor, technical violations or simple paperwork errors.
You were very involved in the DOJ's work on substandard care at nursing homes. What should we expect from the DOJ in light of the large COVID-19 death toll at nursing homes?
This is a very good question, because you've rightly noted that even pre-pandemic, the nursing home industry was a priority for DOJ. The focus on elder fraud started in the beginning of this administration under Attorney General [Jeff] Sessions, and it has continued under Attorney General [William] Barr, and the National Nursing Home Initiative was announced right before the pandemic.
So the fact that the pandemic has hit the nursing home industry really hard just places it all the more under the microscope. DOJ is devoting a lot of resources to ensuring that the nursing home residents are given medically necessary and appropriate care.
But I think DOJ will be mindful that nursing homes should not be held to account for COVID-related outbreaks or problems if they can demonstrate that, in these extraordinary and unprecedented times, they were following federal guidelines. If they followed guidelines and acted in good faith to stop the spread of the virus at their facility, I think DOJ is going to take that into account.
And I anticipate that DOJ will focus on nursing homes with a history of problems that may have been exacerbated by the crisis, rather than on nursing homes that had no history of providing substandard care and were just suddenly overwhelmed by the unexpected crisis and did everything they could to follow guidelines and to apply proper procedures.
You don't expect the DOJ to purposely investigate homes with heavy COVID-19 death tolls?
I think most of the attention would likely be focused initially on homes that already had problems with care they were providing. And yes, if a nursing home was just in blatant disregard of federal guidelines and there was a severe outbreak and they weren't doing things to care for their patients, they could face enforcement actions.
But it's really hard to see that DOJ would come down hard on nursing homes that did their best to follow guidelines and apply appropriate medical standards.
Outside of the pandemic, if I'm a general counsel at a large health care provider, what should I know about the FCA priorities of the DOJ and the plaintiffs bar?
So, [one issue is] electronic health records fraud. Obviously, electronic software is of growing importance to the health care industry because of the efficiencies it permits. But efficiencies through software also create new opportunities for fraud. So it would behoove general counsels to ensure they're using appropriate software and generating accurate records. They should invest in regular and periodic audits to ensure that the software they're using isn't tainted by any improper incentives.
And this also goes to Medicare Part C [also known as Medicare Advantage] because Part C payments are based on capitation rates that are based on data. And there can be easy manipulation of payment codes, and there's a lot of room for fraud.
When you conduct an audit, and you find errors that were not to your benefit, you have to clean up those billing codes — you can't just upcode to your benefit and ignore codes that are to your detriment. If you turn a blind eye to errors that are causing a greater payout from the government, you're going to find yourself in trouble.
So, general counsels need to ensure that auditors are doing a complete review. And general counsels need to be prepared to accept the bad with the good that comes from the audit and fix any of the problems that they find.
That makes sense; we've definitely been seeing some significant cases involving health software and Medicare Advantage. Anything else for health care general counsel?
So, this dovetails into another thing that general counsels should be focused on, and that's DOJ's policy on cooperation and compliance. I issued guidelines on that in 2019. And those guidelines really offer transparency into the way DOJ views full cooperation and compliance.
I think a lot of general counsels think of those guidelines only as cooperation credit, so they look at them only after DOJ's initiated an investigation and is at the stage of negotiating the amount of damages to resolve a matter. But because DOJ places a premium on cooperation and compliance, general counsel should be forward-leaning.
They should be proactive and create robust compliance programs now, and then they can later use that to argue that they shouldn't be liable in the first place. It's not just with respect to a damages figure. If a company has a robust compliance program, it also gives them an opportunity to argue that they shouldn't be liable, because their robust compliance steps demonstrate that they had no intent to commit fraud.
So, if I voluntarily disclose that I inadvertently engaged in improper billing, but I also had the best compliance program imaginable, the DOJ might be satisfied if I simply pay back money that I shouldn't have received?
I think that's possible. It really turns on the facts in any given case. But yes, if I'm representing a company that was very forward-leaning and took steps designed to prevent fraud, and the government finds something wrong, it just can't help but put the company in a better position to argue that it shouldn't face liability, because it was doing everything it could.
That's interesting. As you say, I feel like many people think of compliance as a way to reduce a damages multiplier, not eliminate it.
That is the principal way it's used. But I'm trying to suggest that people shouldn't view it so narrowly. They should view it as DOJ taking cooperation and compliance very seriously. And therefore they should use that to their advantage to create programs and make the argument that they shouldn't be liable in the first place.
I'm also curious what general counsel in the life sciences world should be watching on the FCA front. Any advice?
I do think in that particular area that general counsel should realize that drug pricing and rebate programs are a really important area of focus. DOJ has put a lot of its attention in the last two years on enforcement of the Anti-Kickback Statute [against] drug and device manufacturers, and I have every reason to believe that they will continue to do that.
A number of cases that DOJ brought in the last few years in this regard [involved] the use of third-party foundations that unlawfully paid patient copays. A third-party foundation can properly be used, of course, but if companies are finding ways to knowingly and impermissibly steer patients disproportionately to their product through those programs, then DOJ is not going to be shy about enforcing the statute.
And so a general counsel should be aware of that and ensure that the people who are administering those third-party foundation programs are fully aware of the government's regulations about how it can properly be done.
There's lots of interest in the so-called Granston memo, which came out in 2018 and directed DOJ lawyers to weed out disfavored FCA cases. Should we expect those dismissals to continue?
I'm really glad you asked that because I've spent a lot of time on this dismissal authority issue and have some strong views about it. Attorneys should expect to see DOJ continue to exercise its dismissal authority.
DOJ dismissed more cases under the False Claims Act in the last two years than in the  years combined before that. But I think perhaps DOJ wasn't exercising its dismissal authority as much as it should have been in those prior years. And there's a good argument to be made that DOJ should be dismissing even more than it currently is.
A lot of what I call the ink spillage about this increased use of the dismissal authority, it's really a bit alarmist. DOJ has been exercising its dismissal authority in a very small percentage of cases [brought by whistleblowers, also known as relators]. While relators bring an enormous benefit to the government through the filing of qui tam actions, it would be incorrect to presume that every single qui tam case has merit. The same is true of any other kind of civil case.
DOJ expends great resources to figure out which cases are meritorious and which ones are not. Why should the government devote resources to cases after it concludes they're lacking in merit? The goal of the False Claims Act is to return monies to the fisc, not drain the fisc. The prudent use of DOJ dismissal authority actually protects limited government resources and prevents bad case law, and that not only benefits the government, it also benefits relators, because a lot of them have meritorious allegations.
And so, for those reasons, there are compelling reasons for DOJ to continue to make judicious use of its dismissal authority.
We've got a growing circuit split on the DOJ's dismissal authority. Might the Supreme Court get involved?
That could happen one day, but I think the timing is really uncertain, because in almost every case in which the government prevails in seeking dismissal, the court finds that the government's motion would have satisfied any of the applicable standards [for dismissal].
And so while there's a circuit split, the significance of the circuit split is diminished, and there's little reason for the Supreme Court to resolve the question, because the DOJ can pretty easily [satisfy] any of the standards.
What do you think of Sen. Chuck Grassley's call for legislation that, as he has put it, "clarifies the ambiguities created by the courts and reins in" the DOJ's dismissals?
Sen. Grassley has been a great champion of the False Claims Act. He deserves enormous appreciation for enhancing the government's ability to recover monies lost to fraud and waste and abuse.
But that said, I don't think there should be legislation on this issue, and here's why. One, where DOJ has exercised its dismissal authority, it's provided a rationale for it. Two, the purpose of the Granston memo was actually to provide greater transparency by identifying the factors DOJ is considering when it looks at whether to seek dismissal.
And so even if people disagree with the reasons that are given for dismissal in any particular case, there's really not a credible basis to say that DOJ is not transparent about it. At a more fundamental level, by their very nature, False Claims Act cases belong to the government. And government attorneys who handle the cases should be accorded a presumption of good faith in carrying out their responsibilities to determine which cases are in the government's best interest to pursue and which aren't.
It's not unlike the criminal side of the house, and the discretion accorded to prosecutors to determine whether to charge an individual. We don't need the legislators or the courts to manage the prosecutorial decision on when a case that belongs to the government should or should not be brought by the executive branch. That's a core and fundamental separation of powers principle.
So, for all of those reasons, I think any effort at legislation to require greater transparency with respect to DOJ's reasons for dismissing a False Claims Act case, or to curtail the government's authority to seek dismissal, would be both unnecessary and misguided.
--Editing by Aaron Pelc.
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