Good afternoon. Thank you to the Federal Bar Association for inviting me to speak. The issues addressed by this conference are important. The Civil Division at the Department of Justice takes seriously its responsibility to protect taxpayer dollars, and for that reason we applaud opportunities like this conference for interested parties to discuss the False Claims Act, which remains the Government’s primary civil tool for redressing the knowing misuse of federal funds. I am going to share with you a few thoughts about the Department’s current efforts to enforce this important law in hopes it contributes to the important dialogue taking place at this conference.
Fiscal Year 2019 Highlights
Enforcement of the False Claims Act has been a consistent priority for the Department since it was substantially amended in 1986. And it remains a top priority today. During the past fiscal year, the Department recovered over $3 billion under the False Claims Act. This brings the Department’s total recoveries since 1986 to more than $62 billion. Of this amount, nearly $45 billion has been collected in qui tam cases filed by whistleblowers.
Of the more than $3 billion recovered last year alone, more than $2.6 billion came from suits involving the health care industry -- marking the tenth consecutive year in which the Department’s civil health care fraud settlements and judgments have exceeded $2 billion. These recoveries spanned the full range of health care providers, including drug and medical device manufacturers, managed care providers, hospitals, pharmacies, hospices, laboratories, and physicians.
Not only was the overall amount of the government’s False Claims Act recoveries last year noteworthy, but so was the number of matters in which we made those recoveries. Last year, the Department obtained 213 separate settlements and judgments, which is the seventh straight year that the number of recoveries has exceeded 200.
The Department’s False Claims Act recoveries, however, do not capture the full breadth of the Department’s enforcement efforts. In fiscal year 2019, the Civil Division opened 782 new False Claims Act matters. A significant number of these matters -- 636 -- were filed by whistleblowers, whose cases continue to play a significant role in ferreting out fraud against taxpayer funded programs. Even so, nearly a quarter of the new matters opened by the Department during the last fiscal year were originated based on sources other than qui tam filings, such as agency referrals, our own data analysis, or leads developed through separate investigations. We will continue to utilize ALL available tools, including but not limited to whistleblower actions, to identify those who seek to undermine the integrity of federal programs and contracts.
The Department was not only busy investigating False Claims Act cases last year, but litigating the cases as well. While a civil settlement is oftentimes the most cost effective way for parties to resolve a matter, some disputes require litigation and I can assure you that the Department will not flinch from a fight. We have an excellent trial record and we will devote the resources necessary to ensure that the interests of taxpayers are fully protected.
Areas of Focus
Having generally reviewed the scope of our activities and recoveries over the past year, I am going to briefly preview some of our enforcement priorities for the upcoming year. As reflected by our False Claims Act recoveries, health care-related matters remain the largest component of our work. The Department’s health care fraud enforcement efforts not only recover money for federal health care programs, such as Medicare, Medicaid, and TRICARE, but they also help deter fraud schemes that put patients at risk and increase overall health care costs. There are three related areas in which we intend to focus our resources and where, as a result, we expect to see an increasing number of cases in the coming year.
First, the Department is investigating and litigating a growing number of matters related to Medicare Part C, which is Medicare’s managed care program. As many of you undoubtedly know, Medicare beneficiaries can opt out of traditional Medicare (Parts A & B) and receive their benefits through private health plans, known as Medicare Advantage Organizations (or MAOs). In 2019, one third of all Medicare beneficiaries – approximately 22 million beneficiaries – enrolled in a Medicare Advantage plan. And in 2018, CMS paid more than $233 billion to MAOs. Medicare Part C is not immune from fraud, of course, and we have found through our work a number of ways in which plans and providers have sought to take advantage of the program.
Unlike Medicare Parts A and B, where Medicare pays for each patient admission or service, under Medicare Part C CMS pays a capitated amount for each patient. That amount is risk-adjusted based on a patient’s demographic information and health status. Our investigations have found that, in order to inflate Medicare payments, certain plans or providers have engaged in various schemes to manipulate the risk adjustment process.
For example, a managed care provider paid $270M to resolve allegations that it (among other things) failed to alert Part C plans to diagnosis codes that its auditors determined were unsupported, provided coding guidance to its physicians that resulted in unsupported diagnoses, and improperly submitted acute care diagnoses based on non-acute encounters with primary care physicians.
One type of scheme, in particular, that we have uncovered has been the attempt by certain MAOs to manipulate the risk-adjustment process by auditing – or hiring others to audit – patient medical records to identify additional codes that would increase their Medicare reimbursement. In the process of conducting these audits, the MAOs have uncovered unsupported diagnosis codes that were improperly submitted to Medicare. Rather than deleting these diagnosis codes at the same time they submitted the additional codes, however, they simply ignored the unsupported diagnosis codes. This attempt by MAOs to knowingly game the system – by identifying codes that benefit them but ignoring erroneous codes that do not – is contrary to the fundamental principle that those who deal with the government must turn square corners, and is the type of knowing abuse of taxpayer funded programs that the False Claims Act was designed to curtail.
A second area that is a focus for our False Claims Act enforcement efforts is fraud pertaining to electronic health records. Providers increasingly rely on electronic health records to provide vital and unbiased information to improve treatment outcomes for patients. No one can deny the appeal of, and need for, moving toward a more streamlined and portable system of record keeping. However, while electronic software is intended to reduce errors and improve the delivery of care, the transition to a digital format has introduced the potential for new types of errors, as well as new opportunities for fraud and abuse.
Just last month, the government resolved an investigation that demonstrated how electronic health records systems can subvert physician decision-making. A health information technology developer agreed to pay over $118 million to resolve civil allegations that it accepted kickbacks from an opioid manufacturer and other drug companies in exchange for implementing clinical decision support alerts in its software that were designed to increase prescriptions for the drug companies’ products. In particular, we alleged that in exchange for “sponsorship” payments from pharmaceutical companies, this entity allowed the companies to influence the development and implementation of the clinical decision support alerts. Such company involvement included selecting the guidelines used to develop the alerts, setting the criteria that would determine when a healthcare provider received an alert, and in some cases, even drafting the language used in the alert itself. Critically, the alerts that entity agreed to implement did not always reflect accepted medical standards. In discussions with pharmaceutical companies, the entity touted the anticipated financial benefit to the pharmaceutical companies from increased sales of pharmaceutical products that would result from the alerts.
At the same time this technology developer executed the civil settlement, it also entered into a deferred prosecution agreement with the local U.S. Attorney’s Office. Under that agreement, it paid an additional $26 million to resolve criminal liability based on its solicitation and receipt of kickbacks from a major opioid company to arrange for an increase in prescriptions of extended release opioids by healthcare providers who used its software.
In 2019, the Civil Division also resolved several other False Claims Act matters involving the misuse of electronic health records software. For example, a pathology laboratory company paid $63.5 million to resolve allegations that it paid kickbacks to referring physicians in the form of subsidies for electronic health records systems and free or discounted technology consulting services. Likewise, another Electronic Health Records software vendor paid over $57 million to resolve allegations that it misrepresented the capabilities of its software and provided unlawful remuneration to users to induce them to recommend its product to prospective new customers. Given the critical and growing role that electronic health records play in our health care system today, we expect to see more of these cases in the future and they will remain a high priority for the Civil Division.
The third area to mention is our nursing home cases. While the Medicare Part C and electronic health records cases underscore the Department’s willingness and ability to pursue cases that potentially involve complex health care delivery mechanisms and highly technical issues, the Department’s emphasis on nursing homes stems from the basic principle that there is no better use of our resources than to protect some of our most vulnerable citizens. Nursing home residents are frequently unable to voice medical needs and may lack effective advocates, such as family members or other caregivers, to speak up when they receive poor, non-existent, or unnecessary care.
Sadly, there are far too many examples where nursing home residents are at the center of fraud schemes we encounter. Just last week, for example, a nursing home conglomerate and several corporate officers agreed to pay over $15 million to resolve allegations certain facilities billed for medically unnecessary rehabilitation therapy services that were influenced by financial considerations rather than by resident needs.
In September 2019, a pharmaceutical company agreed to pay $95.9 million to resolve allegations that it paid kickbacks and engaged in false and misleading marketing of its drug to induce providers in long term care facilities, including nursing homes, to prescribe it for behaviors commonly associated with dementia patients, which was not an approved use. Over-medicating nursing homes residents is a well-documented problem, which can lead to a host of issues, including unnecessary side effects and over-sedation of patients.
Particularly disturbing was our settlement last year with a nursing home operator, its majority owner and CEO, as well as its former director of operations, who collectively agreed to pay more than $18 million in allowed claims to resolve a False Claims Act lawsuit brought by the United States and a state for billing the Medicare and Medicaid programs for grossly substandard nursing home services. During our investigation, we found that certain of the nursing facilities failed to administer medications as prescribed; failed to provide standard infection control, which led to infections; failed to provide wound care as ordered; failed to take prophylactic measures to prevent pressure ulcers, such as turning and repositioning; used unnecessary physical restraints on residents; and failed to meet basic nutrition and hygiene requirements of residents.
In this day and age, with all the technological marvels and medical advances at our fingertips, depriving Medicare and Medicaid beneficiaries of basic care is simply barbaric. And so, while some may view these cases as insignificant from a financial loss perspective, they are very significant from a human decency perspective. And for that reason, let me take this as an opportunity to put on notice those who seek to line their pockets at the expense of elderly Medicare and Medicaid patients by providing them with unnecessary or substandard care: we will spare no expense in identifying and pursuing such misconduct and will hold those responsible accountable. This is a top Department priority and the Civil Division’s Elder Justice Initiative is spearheading an effort to identify, investigate and pursue many of the nation’s worst nursing homes. The Department already has initiated a number of matters as part of this initiative and will continue to aggressively pursue these cases. You might expect to hear more about this effort in the days ahead.
Finally, I am going to take a moment to update you on how we expect to implement some of the key policies that relate to our False Claims Act enforcement efforts. In particular, I am going to focus on the Civil Division’s policies relating to the dismissal of qui tam actions and to the award of cooperation credit.
Turning first to the so-called Granston Memo, which sets forth guidance on how the Department will use its statutory dismissal authority. As you are undoubtedly aware, the False Claims Act provides the United States with the discretion to dismiss qui tam actions that it determines do not advance the Act’s goal of redressing fraud. The Granston Memo, and the corresponding Justice Manual provision implementing this memo, identify the factors that the Department will consider, after investigating the applicable law and facts, in evaluating whether a qui tam action should be dismissed.
A surprising amount of ink has been spilled on this topic even though such dismissals comprise a small fraction of the total number of qui tam actions filed. Since January 2018, the Department has filed motions invoking its discretionary dismissal authority in approximately 45 cases. While that is certainly a greater number than we had filed historically, it is important to note that there were well over 1,200 qui tam actions filed during that same period of time. Viewed in that appropriate context, and given that the courts have almost unanimously granted our requests to dismiss, I think it is fair to say that we are exercising, and will continue to exercise, our dismissal authority judiciously. But in the limited instances where we determine that a relator’s continued pursuit of a qui tam case would not advance the goal of preventing fraud or would undermine other important governmental interests, we will seek dismissal of that action.
Let me add several additional observations about the use of our dismissal authority. First, while the potential burden that a case may impose on the government is a factor that we may consider in deciding whether to seek dismissal, we will not dismiss an otherwise potentially meritorious case solely because it will require the government to expend resources. Accordingly, defendants should not expect that they will convince the government to seek dismissal by pursuing inordinate or excessive discovery from the government in declined cases. The government has other appropriate tools for responding to such discovery tactics.
Second, as I mentioned, in determining whether to dismiss an action the government will evaluate the merits of the action and its impact on other important governmental interests. In undertaking this evaluation, the government will consider the same types of factors it would consider in determining whether to pursue its own action, including whether the claims are rooted in binding legal obligations such as statutes, regulations, or contracts.
Third, the government’s evaluation of whether to dismiss a qui tam action is not a static one. The government will continue to evaluate throughout the course of an action whether dismissal may be appropriate. If new facts emerge during the course of the litigation that alter the government’s assessment of whether the case remains in the government’s best interests, the government may reassess its initial decision to allow the case to proceed. Accordingly, both relators and defendants should be aware that the government’s dismissal decision in cases may be a fluid one and adjust their expectations accordingly.
Finally, some defendants have argued that the False Claims Act precludes relators as a matter of law from pursuing declined claims if the government has partially intervened in or settled a qui tam action. We disagree with this position. We do not believe Congress intended to require the Government’s intervention and settlement decisions to be an all or nothing proposition. Not only would such a reading of the False Claims Act run contrary to the interests of taxpayers, but it is hard to see how it is in the overall interests of defendants. In our view, the mechanism that Congress provided to the Government for terminating a relator’s lawful right to pursue declined claims is through the use of its discretionary dismissal authority. We believe this reading of the False Claims Act better conforms with the Act’s statutory framework and strikes the appropriate balance between Congress’ objectives of permitting relators to proceed on behalf of the government, while still affording the Attorney General the ability to dismiss cases, in whole or in part, that do not advance the public interest.
And now let me turn to the Department’s policy of granting cooperation credit in False Claims Act cases. In May of last year, I announced a cooperation policy in such cases that builds on other Department policies designed to incentivize corporate self-policing, cooperation, and compliance. Under this policy, corporate defendants can earn credit — and a reduction in penalties and damages — by voluntarily disclosing misconduct, cooperating with our investigations, and taking remedial measures.
Within these three broad categories of cooperation, the policy identifies a range of actions that may qualify for cooperation. For example, a defendant may voluntarily disclose the wrongdoing that sparks an initial government investigation, or the defendant may voluntarily disclose additional wrongdoing outside the scope of pre-existing investigation. In terms of cooperating with an ongoing investigation, the defendants’ assistance can range from making witnesses or documents available to assisting in the determination of the government’s losses or accepting responsibility. And eligible remedial measures may include conducting a root cause analysis, replacing culpable officers, or improving a corporate compliance program.
On that last note, let me emphasize that when it comes to assessing a company’s remedial measures for potential cooperation credit, we will expect a defendant to do more than just point to an existing corporate compliance program. As part of our False Claims Act investigations, we regularly look at whether the company had a robust compliance program and culture of compliance that might indicate that the defendant lacked the requisite scienter. But if we determine that a defendant violated the False Claims Act, to earn cooperation credit at the settlement stage of a case we will expect a defendant to voluntarily undertake meaningful enhancements to whatever compliance program it already had in place in order to prevent another occurrence of the misconduct giving rise to the settlement.
Under the new policy, a company that engages in meaningful cooperation can expect tangible and significant benefits. Typically, these benefits will include a reduction in the multiple damages or penalties requested. For a company that provides maximum cooperation, a defendant may receive credit in the form of a resolution close to single damages, for example, plus any lost interest, costs of investigation, and, in a qui tam case, the share that must go to the whistleblower. In addition to these monetary discounts, in appropriate cases we may also notify the relevant regulatory agency about the company's cooperation in connection with any administrative proceedings, and may acknowledge the company’s cooperation as part of any public announcement of the resolution.
Earlier, I cited an example of a Part C case that was resolved through payment of an agreed sum by a particular healthcare provider. Let me take this opportunity to also note that in that case the healthcare provider meaningfully cooperated with the government’s investigation and settlement of the case and received a substantial monetary credit as a result.
This health care provider cooperated with the government’s investigation in several ways. For example, during the course of the government’s investigation of certain coding violations, the company voluntarily disclosed other problematic coding practices that were outside the scope of the government’s existing investigation. The government likely would not have discovered these practices (at least for some time) without the company’s voluntary disclosure.
This company also made numerous presentations to the government, including providing key documents and other information that enabled the government to better understand the nature of the voluntary disclosure that it made.
And the company assisted the government by performing an extensive chart review that enabled the government to more quickly and accurately assess the government’s potential damages.
In exchange, the Department agreed to a reduced multiple below that which it would have accepted based on litigation risk alone.
As this example demonstrates, the availability of cooperation credit provides defendants with an incentive to partner with us when problems arise. I am hopeful that we will see many other defendants taking advantage of this opportunity to benefit from doing the right thing.
Thank you for your time today. It has been a pleasure to speak with you about the Department’s False Claims Act work.