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False Claims Act Lawsuits Brought By Whistleblowers To Be Reviewed By DOJ's Criminal Division

Federal and State False Claims Acts lawsuits are the primary anti-fraud enforcement tool used by the government in the health care industry. While civil in nature, liability sums assessed in False Claim Act (FCA) lawsuits may feel very punitive to defendants due to the treble damages and civil penalties provisions of the FCA. In FY 2014, the federal government collected $2.3 billion from FCA health care cases.

The overwhelming majority of the sums collected ($2.22 billion) came from FCA qui tam actions. Under the qui tam provisions of the FCA, private parties (whistleblowers) may initiate actions on behalf of the government and the private party, (the "relator") may participate handsomely in any recovery. The number of such whistleblower actions is on the rise. Of the FCA actions filed in FY 2014, 469 of the 500 health care related cases were initiated as qui tam actions by whistleblowers.

In a September 17, 2014, speech given at a "Taxpayers Against Fraud Education Fund Conference," Leslie Caldwell, Assistant Attorney General, announced that the Criminal Division of the Department of Justice ("DOJ") will be "stepping up" its analysis of FCA qui tam cases to look for potential criminal prosecution. Ms. Caldwell characterized DOJ's Criminal Division as having "unique" expertise and "unparalleled" experience in prosecuting financial fraud cases that it will bring to bear on such cases. This increased scrutiny will likely be coordinated with the Medicare Fraud Strike Force, which has been operating since 2007. The Strike Force is a coordinated team of investigators from DOJ, Health and Human Services (HHS) and state and local law enforcement agencies "dedicated to fighting Medicare Fraud."

As of September 2014, DOJ's Criminal Division Fraud Section assigned more than 40 prosecutors to health care fraud cases and the number is growing rapidly since the lifting of a government wide hiring freeze. Ms. Caldwell describes the Fraud Section as "the largest and most prolific unit of criminal prosecutors dedicated solely to health care fraud in the Country."

So-called "parallel" (simultaneous criminal and civil) investigations are not new to the health care industry. Indeed, Ms. Caldwell referred to DOJ's "wealth of experience in successfully bringing parallel investigations." Ms. Caldwell promised the audience that her office would now be "redoubl[ing] [its] efforts to work alongside" qui tam relators and their counsel.

In addition to having to be concerned about ongoing criminal investigations arising out of an FCA qui tam action, defendants in the health care industry must also be aware of simultaneous investigations by federal and state administrative agencies, such as the HHS Office of Inspector General (OIG). Understanding the respective roles and powers of these different enforcement agencies is critical to responding effectively to, and defending, FCA matters.

Thorny legal and practical issues abound in parallel government investigations. For example, while DOJ Civil attorneys and the OIG typically confine their information gathering during the investigation stage of a case to subpoenas, criminal investigative demands and informal interviews, criminal prosecutors may seek information from a target of a criminal investigation and others through grand jury subpoenas, search warrants and wire-tapping. Additionally, criminal prosecutors may freeze assets during the investigation, thereby impeding a defendant's ability to prepare a legal defense.

However, there are important limits on such procedures and on the ability of the Criminal and Civil Divisions of DOJ to share the resulting information. Investigations are supposed to be truly parallel and not improperly intertwined. In United States v. Scrushy, 366 F. Supp. 2d 1134, 1139-40 (N.D. Ala. 2005), a high profile health care fraud case of ten years ago, a federal court rebuked DOJ for mixing a criminal investigation with an allegedly parallel investigation of the same defendant by the Securities Exchange Commission.

Moreover, the government ordinarily must inform defendants and their counsel in FCA matters of the pendency of a criminal investigation if DOJ Civil Division attorneys intend to query the defendants. This allows a defendant to consider asserting Fifth Amendment rights. Yet, the assertion of Fifth Amendment rights, itself, could prove to be problematical in a pending FCA case since adverse inferences may be drawn in the FCA case from a defendant's refusal to testify relying on the Fifth Amendment because of a pending criminal investigation.

Of course, the government also may not leverage a civil settlement of an FCA case with the threat of a criminal prosecution. However, the lure of obtaining relief from the enormous pressure of future or pending criminal charges can cause persons to "cooperate voluntarily" with the government not only in criminal prosecutions but also in related FCA cases.

FCA defendants must carefully consider how they wish to proceed when they are confronted by parallel criminal and civil investigations. Under some circumstances, defendants might ask the government or the court to stay all civil proceedings pending the outcome of any criminal investigation. Yet, in other situations, FCA defendants might choose to go forward with the civil matter, especially if they are confident about the strength of their defense, since a lingering criminal investigation may have a devastating impact on a defendant's reputation. If so, DOJ's civil division might ask the court in the civil FCA case to stay all further proceedings, which is precisely what DOJ is doing in a high profile FCA case our office is currently handling.

Because of circumstances somewhat unique to health care, important constitutional and other legal issues have yet to be decided by the courts with respect to parallel investigations. For example, where the reputations of doctors and other health care providers can be irreparably harmed by the publication of a criminal investigation, due process of the law would seemingly require that FCA defendants be given a prompt opportunity to contest adverse allegations in the FCA matter notwithstanding DOJ's attempt to delay the FCA proceedings while the criminal investigation is proceeding. This is especially so where substantial adverse "collateral consequences" arise due to the investigation. These may include the suspension of a provider's contracts with health care insurers and government payers and even the cancellation of a defendant's banking privileges, which has actually occurred in the current case we are handling, mentioned above.

In sum, the DOJ Criminal Division's recently announced increased involvement in FCA cases triggers important strategy issues regarding the defense of FCA cases and parallel criminal investigations. DOJ's intensified scrutiny necessarily requires the active involvement of defense counsel who are not only experienced in criminal and civil fraud matters, but also are experienced in the complex regulatory matrix of the health care system. Indeed, generally speaking, the more complicated the underlying health care issues, the less likely DOJ's Criminal Division will want to pursue criminal charges.

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