An Update on Individual Liability in Fraud Cases: It’s Still Personal
In March 2016, Tracy Powell, my colleague in SRVH’s Government Compliance & Investigations Practice, penned a blog on the emerging focus on individual liability in healthcare fraud cases. Tracy observed that, to that point, “the consequences of violating fraud and abuse laws [had] been borne primarily by organizations.” He then highlighted three signals that individual owners, executives, entrepreneurs, and physicians were at increased risk of losing their money, not just their organization’s money: (1) a June 2015 HHS-OIG Fraud Alert concerning physician compensation arrangements, which noted that physicians can be “an integral part of the scheme and subject to liability;” (2) the September 2015 Yates Memo, by then-U.S. Deputy Attorney General (DAG) Sally Yates, which laid out a policy of aggressive pursuit of individuals in fraud investigations; and (3) increased insurance company litigation.
The focus on individuals jolted the healthcare and government contracting communities. The Yates Memo in particular received criticism both inside and outside the Department of Justice (DOJ). The Yates Memo, among other things,
(1) called for a focus on individual liability from the inception of an investigation;
(2) stated that DOJ should not resolve corporate cases without a plan for related individual cases;
(3) restricted cooperation credit to companies who identified all individuals involved in the alleged fraud;
(4) restricted the release of individuals in corporate settlements; and
(5) instructed DOJ attorneys to consider suits against individuals based on considerations beyond their ability to pay.
Many called for a review of this policy. DOJ obliged. On November 29, 2018, then-DAG Rod Rosenstein announced changes. He reaffirmed that “pursuing individuals responsible for wrongdoing will be a top priority in every corporate investigation,” particularly in criminal matters. “Corporate [criminal] cases,” he noted, “often penalize innocent employees and shareholders without effectively punishing the human beings responsible for making corrupt decisions.” But Rosenstein observed that “Civil cases are different. The primary goal of [civil] cases is to recover money . . . . our attorneys need flexibility to accept settlements that remedy the harm and deter future violations, so they can move on to other important cases.”
Rosenstein’s revisions to the Yates Memo policies included,
(1) requiring companies seeking cooperation credit in criminal cases to “identify every individual who was substantially involved in or responsible for the criminal conduct” (emphasis added);
(2) restoring DOJ attorneys’ ability to reward corporate cooperation “that meaningfully assisted the government’s civil investigation, without the need to agree about every employee with potential individual liability;”
(3) baring credit for entities that “conceal misconduct by members of senior management or the board of directors, or otherwise demonstrate a lack of good faith;”
(4) restoring discretion, with supervision, to “negotiate civil releases for individuals who do not warrant additional investigation in corporate civil settlement agreements;” and
(5) permitting consideration of “an individual’s ability to pay in deciding whether to pursue a civil judgment.”
All of this is fascinating, but it leaves two practical questions, (1) how has this played out in practice; and (2) what should potential individual targets do under the current policies?
A review of DOJ and Middle Tennessee settlements over the past year illustrates that prosecutors are using their restored discretion. Most False Claims Act (FCA) corporate settlements do not incorporate individual liability (Diversicare Health Services, Inc., Cookeville Hospital, Tenet Healthcare, Hybrid Tech Holdings, LLC, Resmed Corp.). Prosecutors who have their pound of flesh from a company may not want to invest their limited resources pursuing an ability-to-pay settlement with an employee who has a mortgage, 2.5 kids, and a dog.
But careful. Some recent FCA settlements have included individual defendants (Hillier, Comprehensive Pain Specialists, Smart Pharmacy, Inc., Vanguard Healthcare, LLC). Again, we do not know the rationales. There may have been strong proof or aggravating circumstances. It may have been an effort to increase recoveries. It also may be that the Trial Attorneys and AUSAs on these matters are particularly aggressive.
On the criminal side, there has, if anything, been an uptick in local healthcare and government procurement fraud enforcement. Targeting individuals (not corporations) is standard practice (Crabb, Kestner, Montgomery).
DOJ attorneys again have flexibility in their pursuit of individuals in civil matters, but physician, officer, employee, and entrepreneur dollars remain at risk.
DOJ attorneys again have flexibility in their pursuit of individuals in civil matters, but physician, officer, employee, and entrepreneur dollars remain at risk. What can you do? After all of the machinations at DOJ, Tracy’s prior advice holds true: be prepared. Companies and their agents with questions or concerns should seek legal counsel before an investigation begins. If there is already an investigation, ask yourself, “Is counsel acting on my behalf or on behalf of the company?” Company counsel often cannot fully and fairly represent individuals while having a duty to the company. Find out if your employer will voluntarily indemnify and defend those acting on its behalf and provide them with independent counsel, or if it required by law to do so.
In any event, consider carefully who you choose to represent you. It should be a firm experienced in these matters that knows the tendencies of the civil and criminal prosecutors and agents conducting the investigation. Individuals who fail to seek independent counsel early in an investigation act at their own peril and continue to put their own money at risk.