White Collar Defense Update

This is the second installment of our four part series about notable recent decisions under the False Claims Act. This week's featured decision is United States ex rel. Glenda Martin v. Life Care Centers of America, Inc., 2012 WL 6084626 (E.D. Tenn., Nov. 15, 2012).

This case deals with the extent to which matters under the FCA should remain under seal, both during the pendency of the Government's pre-intervention investigation and thereafter. The specific issues presented were: whether the court should grant the Government's request to maintain several documents under seal after the Government intervened in an action; and whether a local newspaper should be entitled to intervene to oppose the requested seal. The District Court allowed the newspaper to intervene and denied the Government's request to maintain certain documents under seal. While the case involves narrow issues, the District Court's excoriation of the Government for what it believed to be its abuse of the sealing provisions of the FCA is priceless.

This case was filed in October 2008. The Government sought several extensions of the seal. On January 13, 2011, the Court granted the Government's request for an indefinite extension of time in which the Government could make its intervention determination, and it ordered that the case be administratively closed. In support of that request, the Government had filed a status report indicating that it was involved in a "nationwide investigation" of the defendant, that it "continues to devote significant time and resources to this investigation," that its investigation had already involved over 150 witnesses nationwide, that it intended to serve additional subpoenas, that it had made a "lengthy and detailed presentation" to the defendant, and that the defendant had requested time to consider the information presented.

In March 2012, the Government transferred a second qui tam case raising the same issues to the Eastern District of Tennessee and sought to consolidate the two cases. At a status conference held on consolidation request, the Government objected to a reporter's presence and asked that the courtroom be sealed. The Court then asked the parties to brief whether all pleadings in the case should remain sealed and whether the Court should close the courtroom for all future proceedings in the case.

Continue reading "Notable Recent Decisions Under the False Claims Act--Part 2" »

Each week for the next four weeks, we will provide a summary of a notable recent decision under the False Claims Act. The first in this series is United States v. Kernan Hospital, 2012 WL 5879133 (D.Md., Nov. 20, 2012). Read the decision here: United States v. Kernan Hospital Memorandum Opinion.pdf

This case involves a motion to set aside a civil investigative demand ("CID") issued by the United States Attorney's Office for the District of Maryland, seeking documents from Kernan Hospital. The Government had already filed a False Claims Act suit against Kernan Hospital but the District Court dismissed it without prejudice pursuant to F.R.C.P. 9(b). After dismissal, the Government issued its CID. The District Court set aside the CID, holding that the False Claims Act expressly limits the Government's use of CID's to the period "before commencing a civil proceeding."

The Government alleged that Kernan devised a scheme to increase its Medicare, Medicaid, and Tri-Care reimbursement by systematically "upcoding" secondary diagnoses concerning malnutrition. Before filing its complaint against Kernan, the Government investigated the matter for three years. Specifically, pre-complaint proceedings included the issuance of an Office of Inspector General subpoena, the production by Kernan of 100 specifically identified medical records (15,686 pages of materials), the production by Kernan of the coding summary sheets corresponding to the 100 medical records, Kernan's production of an additional 3,000 pages of documents, the issuance of a September 7, 2011 CID seeking deposition testimony from Kernan's Director of Health Information Management, followed by her testimony two weeks later. The Government filed its FCA complaint in October 2011. The District Court dismissed the complaint under Rule 9(b) and, on August 23, 2012, the Government issued yet another CID on Kernan seeking many of the same documents that it had already sought and obtained.

Continue reading "Notable Recent Decisions Under the False Claims Act" »

The Health Information Technology for Economic and Clinical Health (HITECH) Act requires the Department of Health and Human Services (HHS) to provide for periodic audits to ensure that covered entities and business associates are complying with the HIPAA privacy and security rules and the HITECH Act's breach notification standards. To implement this mandate, the HHS Office for Civil Rights (OCR) piloted a program to conduct 115 audits of covered entities to assess privacy and security compliance. Audits conducted under OCR's pilot program began in November 2011 and ended in December 2012.

As part of the audit pilot program, OCR established an audit protocol that contains the requirements assessed during OCR's performance audits. The entire audit protocol is organized around modules, representing separate elements of privacy, security, and breach notification. (The protocol is available for public review at: http://www.hhs.gov/ocr/privacy/hipaa/enforcement/audit/protocol.html.) For example, with respect to the HITECH Act's breach notification standards, auditors checked, among other things, whether:

• a process exists for notifying individuals within the required time period of a breach of unsecured protected health information (PHI);
• if any breaches occurred, that individuals were notified within 60 days;
• if there is a standard template or form letter for breach notification; and
• if any breaches occurred, the notification to the individuals included the required elements set forth at 45 C.F.R. § 164.404(c).

In other words, the protocol provides a useful checklist for providers to ensure that they are complying with the HIPAA privacy and security rules and the HITECH Act's breach notification standards.

OCR has previously stated that the results of the initial audits will inform how audits will be conducted moving forward from the pilot program. It remains unclear how the initial audits will affect the existing audit protocol and whether OCR will revise the protocol. Until OCR provides notice that it is revising the existing protocol standards, providers would be well-served by continuing to compare their existing policies and procedures against the protocol's standards.

Following the SEC's payment of its first Whistleblower award in the amount of $50,000, the SEC reports that its Whistleblower Program generated a total of 3001 tips through fiscal year 2012. Read the report here: SEC Annual Report on the Dodd-Frank Whistleblower Program 2012.pdf. Big payouts and many more cases are expected. The SEC also reported that whistleblower tips identified over half of all fraud schemes uncovered in public companies, while outsiders, including the SEC, only identified about 5% of such schemes.

As preciously discussed on this blog, the SEC's Whistleblower Program provides regulatory authority for the SEC to pay 10-30% bounties to whistleblowers whose tips lead to a SEC enforcement action with cummulative penalties of over $1,000,000. Fines, disgorgement and interest paid all count toward the $1,000,000 threshold. The determination of the actual percentage and amount of the award is within the discretion of the SEC which is to consider the significance of the tip, the degree of assistance provided and the "programmatic interest " of the SEC in the particular action.

Skeptics continue to voice concerns that some employees will "blow the whistle" only to get the substantial reward rather than pursue internal company procedures to avoid or limit improper conduct. Despite these reasonable concerns, the SEC Whistleblower Program and similar measures are unquestionably the trend in compliance legislation and hold great public appeal. Companies subject to SEC jurisdiction should govern themselves accordingly.

On October 15, 2012, three former Purdue Frederick Company executives filed a Petition for Rehearing En Banc before the U.S. Court of Appeals for the District of Columbia Circuit. (Click here to view a copy of the petition: Petition for Rehearing En Banc.pdf). The petition is the latest chapter in the saga of these three former executives who pled guilty to misdemeanor misbranding under the "responsible corporate officer" doctrine in connection with the plea of Purdue to felony misbranding of the drug OxyContin. The Office of Inspector General ("OIG) for the U.S. Department of Health and Human Services subsequently excluded these individuals from participation in all Federal health care programs under its permissive exclusion authority set forth at 42 U.S.C. § 1320a-7(b)(1) and (3) for 20 years. During their various challenges to their exclusions, the executives have successfully reduced the length of the exclusion from 20 years to 12 years, which is cold comfort since the exclusion effectively ends all of their careers in the health care arena.

In July, a three-judge D.C. Circuit panel held in Friedman v. Sebelius that section 1320a-7(b)(1) authorizes the OIG to exclude from Federal health care programs an individual convicted of a misdemeanor "if the conduct underlying that conviction is factually related to fraud." The specific statutory section at issue in the case is section 1320a-7(b)(1), which provides that the Secretary of HHS may exclude any individual that has been convicted of a criminal offense consisting of a misdemeanor relating to fraud. The specific issue before the D.C. Circuit was whether the phrase "misdemeanor relating to fraud" in section 1320a-7(b)(1) refers to a generic criminal offense or to the facts underlying the particular defendant's conviction.

Continue reading after the jump.

Continue reading "Purdue Executives Continue Battle Against Broad Application of Medicare Exclusion Statute" »

by Matthew M. Maher

Since the Small Business Jobs Act was passed in 2010, there has been a significant increase in both the number and the average size of Small Business Administration (SBA) loans. Yet while the SBA continues to encourage its national and regional lending partners to originate more SBA loans, two recent Advisory Memoranda issued by the SBA's Office of the Inspector General (OIG) make the invitation less palatable, as the SBA is about to apply much higher scrutiny to the underwriting practices of its lending partners. Indeed, the SBA loans is placing its lending partners on notice that, if these loans default, their underwriting decisions will be second-guessed and their ability to recover under the SBA's guarantee is not assured.

Historically, the SBA delegated underwriting decisions to its approved lenders and discouraged its loan specialists from second-guessing the lender's underwriters. In stark contrast, the proposed new policy will require the SBA to perform a "more extensive underwriting and eligibility review" that will factor heavily into whether the SBA will honor its guaranty on the defaulted loan.

The OIG's Advisory Memoranda, dated March 23, 2012 (Report No. 12-11R) and August 16, 2012 (Report No. 12-18), resulted from several audits of the SBA's National Guarantee Processing Center's (NGPC's) review of loan packages for early-defaulted loans of $500,000 or more. The first OIG memorandum concluded that the NGPC's limited, superficial review of lender underwriting was not consistent with statutory and regulatory authority, was contrary to SBA procedures, and had cost the SBA millions in guarantees that should not have been paid. The second OIG memorandum recommended, inter alia, that the NGPC strengthen its review process for high-dollar early-defaulted loans, in particular to verify compliance with SBA's repayment ability requirements.

The bottom line for banks that originate SBA loans is that from now on the SBA will look very closely at - and second guess - their underwriting decisions before honoring its guaranty.