By Jacob Elberg
For decades, even as the Department of Justice has pressed for corporate cooperation and self-disclosure, the health care industry and the white-collar defense bar have expressed skepticism regarding the actual impact of engaging in those behaviors. When it comes to the resolution of civil False Claims Act (FCA) cases – the primary tool for government action in response to corporate misconduct in the health care industry, through which the Department of Justice generates more than $2 billion annually – DOJ’s response has been a series of public statements amounting to, “trust us, we reward those things.”
Until now, the health care industry has been without any mechanism to test those assurances.
While the Tax Cuts and Jobs Act’s more controversial provisions are what made it the largest overhaul to the tax code in decades, it is a barely noticed provision that is having the incidental effect of changing how FCA resolutions are negotiated and transforming the discussion about DOJ’s treatment of “compliant behaviors” (cooperating with a government investigation, self-disclosing misconduct to the government, having an effective pre-existing compliance program, and adopting an effective compliance program as a remedial measure).
The False Claims Act Statute provides that a person who violates the FCA, “is liable to the United States Government for a civil penalty [per claim], plus 3 times the amount of damages which the Government sustains because of the act of [the person violating the FCA].”
This leaves a significant range between single damages (which make the government whole) and the maximum recovery available under the statute. And this multiplier range provides a clear opportunity for the government to motivate business organizations to engage in compliant behavior – it is here where DOJ has asked the health care industry and the defense bar to trust that an impact exists.
Until 2018, DOJ needed only announce a settlement figure and leave everyone guessing as to how “tough” the settlement was – even the settling company frequently didn’t know the multiplier DOJ used to resolve the case. That changed, however, with the 2017 passage of the Tax Cuts and Jobs Act.
Section 13306 of the Act made clear that business organizations can deduct only those portions of settlements paid to the government that they can establish were paid as restitution or expended to come into compliance with the law and that the government has an obligation to provide notice to the Internal Revenue Service and to the settling party of the restitution amount contained within civil settlements. In response, DOJ has been including the “restitution” figure in FCA Civil Settlement Agreements (CSAs) since early 2018, from which the multiplier used in each particular case can be calculated.
I have been collecting and reviewing the CSAs between health care business organizations and DOJ, and the initial trends are concerning. For example, the data reveals no consistent benefit for cooperation – those cases where defendants cooperated were frequently not treated more leniently than cases where defendants did not cooperate, or even cases where defendants refused to accept responsibility for the misconduct. As just one recent example, a DOJ press release from February 2019 noted the defendant had voluntarily self-disclosed the misconduct.
The U.S. Attorney in that case went so far as to note that “[the defendant’s] proactive approach in [the] case sets a good example for other providers who might find themselves facing similar issues.”
Yet DOJ required the entity to pay double the value of the false claims – higher than the mean multiplier of 1.75 for settlements over the past year. At least without further information from DOJ, it is difficulty to square that result with DOJ statements such as, “[DOJ is] committed to taking into account the disclosures and other cooperation provided by defendants and to resolve matters for less than the matters would otherwise have settled for based on the applicable law and facts.”
That is not necessarily to say DOJ has not been giving adequate credit for cooperation. It is possible the cooperating defendants, including in that case, would have had to pay more if not for their cooperation and that an impact truly exists. If that is the case, however, lack of transparency makes it impossible to see, providing no guidance to industry and the defense bar of the existence and extent of the supposed benefits.
That mean multiplier of 1.75 itself was, to many, a surprising result. When I published my initial findings along with my methodology on Law360 (and here, for those who don’t subscribe), I heard from current and former DOJ prosecutors, defense attorneys, and in-house counsel whose reactions were as varied as the data. Some thought the standard multiplier was surprisingly low (one U.S. Attorney recently claimed that triple damages are the “typical” liability under the False Claims Act, while my data analysis has found 66 out of 74 CSAs had multipliers at or below double damages), while others found it surprisingly high.
And in what should be of concern to DOJ, a number of defense attorneys said they were not surprised the data fails to reveal an impact for cooperation/self-disclosure, and that it was consistent with their experience and a reason they rarely counsel their clients to voluntarily disclose or cooperate. The data is consistent with their assumptions that the benefits are disproportionately a reward for agreeing to settle rather than for engaging in compliant behaviors.
(Separately, the data also provide reason to be concerned about inconsistent enforcement by U.S. Attorney’s Offices across the country – another long-time complaint of industry and defense counsel.)
With the data now public and the details of each resolution facing potential scrutiny, DOJ’s corporate health care enforcement regime is at a crossroads. No longer left in the dark about the impact (or lack thereof) of compliant behaviors in calculating FCA resolutions, health care companies may be less likely to cooperate with government investigations, and especially to self-disclose misconduct to the government.
Recognizing similar concerns in Foreign Corrupt Practices Act cases, DOJ recently enacted an FCPA Corporate Enforcement Policy with the benefits for engaging in compliant behaviors, particularly cooperation and self-reporting, transparent in each FCPA resolution. The FCPA policy makes the lack of transparency and uniformity in the FCA context even more striking.
Now more than ever, there is a need for an open and consistent DOJ policy for resolving FCA cases. Without one, DOJ risks undercutting its efforts at encouraging compliant behaviors in one of DOJ’s primary enforcement areas.
Jacob T. Elberg is an Associate Professor at Seton Hall Law School, where he teaches in the areas of Health Law, Health Care Fraud and Abuse, Evidence, and Data Analytics. Prior to joining Seton Hall Law School, Professor Elberg served for 11 years as an Assistant U.S. Attorney at the U.S. Attorney’s Office for the District of New Jersey. As Chief of the Office’s Health Care and Government Fraud Unit for five years, Professor Elberg directed all of the Office’s criminal and civil investigations and prosecutions of health care fraud offenses. Professor Elberg received his B.A., cum laude and with honors, from Dartmouth College and his J.D., magna cum laude, from Harvard Law School.