The Benefits of Self-Disclosure to DOJ of Alleged FCA Violations: A Look at 3 Recent Settlements with Health Care Providers
This alert was expanded for additional publication by Law360 under the title 3 Healthcare FCA Deals Provide Self-Disclosure Takeaways.
In the past year, the U.S. Department of Justice announced three civil self-disclosure False Claims Act settlements of alleged healthcare fraud violations by companies in Florida and in Texas.
Judging from these settlements, healthcare providers that discover potential FCA violations may benefit substantially from voluntarily disclosing these potential violations directly to the DOJ.
Healthcare providers are generally familiar with the U.S. Department of Health and Human Services' Office of Inspector General Healthcare Fraud Self-Disclosure Protocol, or SDP for short.
HHS OIG has successfully operated the SDP for many years. The SDP provides healthcare providers that obtain reimbursement from federal government healthcare programs, such as Medicare, Medicaid and Tricare, with a process to voluntarily self-report potential healthcare fraud-related violations to HHS OIG, and obtain leniency in the resolution of such claims. They can also obtain a release by HHS OIG for alleged violations of the Civil Monetary Penalties Law. This leniency often includes:
- No corporate integrity agreement for the self-reporting
company; - A favorable calculation of damages, especially for violations of the Anti-Kickback Statute, and overall damages; and
- Even a payment plan.
Resolving potential healthcare fraud claims by the SDP process, however, does not, by itself, permit a self-reporting provider to obtain a release of FCA liabilities. Without a DOJ release of FCA liability, healthcare providers may be vulnerable to subsequent FCA qui tam suits brought by whistleblowers for the same alleged misconduct that a provider self-disclosed to HHS OIG.
Unfortunately, the law is not clear as to whether an SDP disclosure will prevent a whistleblower from filing suit on the same conduct previously disclosed to the government. There are arguments both ways.
Therefore, healthcare providers using the SDP often will voluntarily self-disclose that same conduct directly to the DOJ — usually through a U.S. attorney's office — and affirmatively ask the DOJ to resolve any FCA liability.
DOJ Guidelines on FCA Self-Disclosures
In the last four years, the DOJ has published "Guidelines for Taking Disclosure, Cooperation, and Remediation into Account in False Claims Act Matters."[1] The guidelines acknowledge that the DOJ has "a strong interest in incentivizing companies and individuals that discover false claims to voluntarily disclose them to the Government."
The guidelines provide that entities and individuals who make "proactive, timely, and voluntary self-disclosure to the Department about misconduct will receive credit during the resolution of a FCA case."
The DOJ also extends that credit to those who "cooperate with an ongoing investigation," as well as those who have "taken appropriate remedial actions in responses to the FCA violation."
The credit refers to the DOJ's discretion to reduce the penalties or damages-multiples sought for a potential FCA violation. Ordinarily, along with trebled damages, FCA penalties presently range from $13,946 to $27,894 per claim and represent an enormous exposure in almost every FCA case.
The DOJ's guidelines provide that the maximum credit a party may receive cannot exceed "full compensation for the losses caused by the defendant's misconduct," i.e., restitution, along with lost interest, costs of investigation and, in appropriate cases, the relator's share.
The DOJ's guidelines spell out various factors that bear on valuing disclosure and cooperation credit, such as:
- The timeliness and voluntariness of the assistance;
- The truthfulness, completeness and reliability of any information or testimony provided;
- The nature and extent of the assistance; and
- The significance and usefulness of the cooperation to the government.
The DOJ will also consider whether an entity has "taken appropriate remedial actions in responses to the FCA violation" and the "nature and effectiveness of [an entity's] compliance program."
Self-Disclosure Settlements
The three recent self-disclosure settlements were:
- Baptist Health System Inc., a network of affiliated hospitals and healthcare providers, in May for alleged violations of the AKS;
- Lee Moffitt Cancer Center and Research Institute Hospital in January for alleged violations of the national coverage determination governing routine costs in clinical trials; and
- Oliver Street Dermatology Management LLC in September 2023 for alleged violations of the AKS and the Stark Law.
Along with the DOJ and HHS OIG, the Baptist and Moffitt settlements were with the U.S. Attorney's Office for the Middle District of Florida. The U.S. Attorney's Office for the Northern District of Texas and HHS OIG settled the Oliver Street disclosure.
Key Takeaways From These Settlements
1. Resolving a self-disclosure with the DOJ and HHS OIG from initial filing till settlement took years.
Baptist and Oliver Street reached a resolution in about two years. Moffitt's resolution took 31/2years.
According to the SDP manual, the average SDP settlement takes less than 12 months from acceptance into the SDP.
Healthcare providers should be prepared for a potentially lengthy process when opting for self-disclosure to the DOJ and HHS OIG. However, the extended time frame may be worthwhile given the potential benefits.
2. The disputed conduct at issue took place over several years.
The disputed conduct took place between 2016-2022 for Baptist, 2014-2020 for Moffitt, and 2013-2018 for Oliver Street.
Long-term compliance issues can accumulate significant risk. It is crucial for healthcare providers to maintain continuous and proactive compliance monitoring to identify and address issues promptly.
3. DOJ self-disclosure settlements appear to be much larger than typical SDP settlements.
Moffitt, Oliver Street and Baptist settled for $19.5 million, $8.9 million and $1.5 million respectively. A review of recent SDP settlements with HHS OIG reflects most settlements were well below $1 million.
The difference in settlement amounts between SDP-only settlements and settlements with the DOJ and HHS OIG likely reflects the degree of possible FCA exposure. Parties with the greater FCA exposure will seek a release of claims from both the DOJ and HHS OIG, and will not be satisfied with a release solely from the SDP.
Also, in the SDP, HHS OIG alerts prospective SDP applicants that the DOJ may elect to participate in any SDP settlement.
4. The DOJ used the same favorable formula to calculate damages as HHS OIG uses for SDP resolutions.
The DOJ calculated the overall damage amount — restitution and damages — for the self-disclosure settlements using the same minimum-multiplier formula that the SDP recommends, 1.5 times the restitution.
As the FCA imposes treble damages and ruinous per-claim penalties, this is a significant benefit. Explicitly identifying 66.66% of the settlement as restitution permits the settling parties to deduct restitution on federal taxes.
The use of a favorable multiplier in calculating damages can provide substantial financial relief to self-disclosing parties. This underscores the importance of negotiating the terms of settlement carefully.
5. The self-disclosure settlements explicitly credited the companies for self-disclosing and cooperating with the DOJ.
The settlements generally describe the types and extent of each party's cooperation with the DOJ and steps toward remediation. The press release by the U.S. Attorney's Office for the Northern District of Texas went so far as to "applaud this company for self-reporting."
6. Keeping with the DOJ's recent practice in FCA matters, the self-disclosure settlements avoided elaborate language affirming settlements, as seen in typical commercial settlements.
Instead, each agreement provided that "[t]his settlement agreement is neither an admission of liability by [the company] nor a concession by the United States ... that [its] claims are not well founded."
Therefore, settling parties who seek to include expansive denials as to their FCA liability or more elaborate descriptions of their cooperation with the DOJ in their self-disclosure settlement agreements will likely be sorely disappointed. The DOJ avoids deviating from its approved form settlement language wherever possible.
7. There may be requirements to admit certain facts in settlement agreements.
Somewhat worrisome for self-disclosing parties, the Oliver Street settlement contained an admission of fact about documents and contemporaneous communications, though not liability, which alluded to conduct that may violate the AKS.
Even in self-disclosure settlements, there may be requirements to admit certain facts. Providers should be prepared for this possibility and work to manage the implications.
Conclusion
The overarching lesson from these settlements is that corporate compliance programs work. Such programs appear to have prompted each of these providers to investigate the alleged misconduct, self-disclose it to the DOJ and HHS OIG, and remediate it. As a result, each of these parties obtained a significant benefit.
Effective compliance programs not only help in identifying and addressing potential violations, but they also play a crucial role in mitigating risks and securing more favorable outcomes in the event of self-disclosure.
What makes for an effective compliance program in the healthcare setting is beyond the scope of this article, but HHS OIG[2]and the DOJ[3] provide significant online guidance of the best compliance program practices.
Please contact A. Brian Albritton, Raquel Ramirez Jefferson or any member of the Phelps Health Care or White Collar Defense and Investigations teams if you have questions or need advice or guidance.
[1] Justice Manual § 4-4.112.
[2] HHS OIG, General Compliance Program Guidance, https://oig.hhs.gov/compliance/general-compliance-program-guidance/.
[3] DOJ Criminal Division, Evaluation of Corporate Compliance Programs, March 2023, https://www.justice.gov/criminal/criminal-fraud/page/file/937501/dl.