Amid Health Care Fraud and Abuse Crackdown, Lawyers Call For Reassessment
By Channing Turner | July 14, 2022 11:07 am

When it comes to combating health care fraud and abuse, government investigators wield greater and greater leverage against the companies they investigate, leading to an increase in cases and costly settlements, private-sector legal experts argued Tuesday at a panel discussion hosted by Main Justice.

Prominent health care industry lawyers asserted that a welter of complex and sometimes ambiguous statutes and legal doctrine is making it difficult for companies to comply with the law – particularly with the False Claims Act, one of the government’s major weapons against fraud in Medicare and other public health care programs. But a federal  prosecutor said the increase in cases and settlement figures simply reflects greater enforcement efforts and resources devoted to the health care field.

Chris Wray, former assistant attorney general for the DOJ's Criminal Division, speaks at a Main Justice panel on health care fraud and abuse enforcement.

In 2009, President Barack Obama signed into law the Fraud Enforcement and Recovery Act, or FERA, which sought to strengthen the ability of government and private individuals to bring civil suits for “false or fraudulent claims” involving government entities or money. Under the pre-FERA regime, a false claims action could only proceed if misleading statements had been made directly to a government officer or employee. But FERA expanded the law’s purview to any false claim involving money used on the government’s behalf or to advance a government program or interest – a standard that grants investigators sweeping authority to enforce the statute, panelists said.

Laurence Freedman, a partner at Patton Boggs LLP who formerly served for seven years as an assistant director in the DOJ’s Civil Fraud Section overseeing False Claims Act investigations of the health care industry, said the law’s expansion has led to unintended consequences in enforcement.

“Something is wrong here,” Freedman said. “The goal should not be maximum recovery. I’m not sure we should be bragging about how many millions of dollars we’ve gotten from pharmaceutical companies.”

Freedman argued the law has created a disconnect between enforcement efforts and the goal of encouraging compliance. Investigators are pressured to seek greater and greater settlements instead of helping companies understand the statute’s complexities, which often places an undue burden on legitimate businesses just trying to follow the law.

“The business community thinks that the terms of enforcement are somewhat arbitrary and unfair, and the process is not working,” he said. “I can tell you from a defense perspective – from a business perspective – that this is a terrible place that makes individuals often feel extorted and bullied during proceedings.”

Chris Wray, a partner at King & Spalding LLP and former assistant attorney general for the DOJ’s Criminal Division, said the department’s stepped up enforcement could reflect a changing balance of power since the law’s expansion.

He said enforcement has gone from cases of “low hanging fruit” – those that present clear evidence of fraud – to more nuanced cases, where evidence of kick-backs or false statements isn’t always so clear.

“As you start seeing those cases become more and more subtle, you’re going to see more and more litigation,” Wray said. “[Prosecutors] have gotten better at pursuing these cases. They’ve gotten more aggressive and they’ve gotten more savvy about how the companies operate, what works and where the pressure points are.”

But that’s only half the story, according to Wray. The threat of “debarment” – the Department of Health and Human Services Office of Inspector General’s power to bar companies and individuals found to have committed fraud from doing business with the government – also called exclusion or “the nuclear option” in the industry, has given prosecutors a powerful advantage over companies, he said.

John Pease, assistant U.S. Attorney and chief of health care fraud in the Eastern District of Pennsylvania, said investigators focus on the merits of a case before considering punishments like exclusion. He said a mixture of better techniques, better technology and increased resources has fueled the spike in government civil and criminal investigations that lead to settlement.

“We’ve gotten a lot better at identifying and targeting health care fraud then we were in the past,” Pease said. “The more money the government seems to spend on health care fraud enforcement the more we identify fraud.”

Health care fraud has become a $60 to $80 billion dollar problem every year, Pease said, and that justifies greater attention from the department. As for debarment, he pointed out that the Department of Health and Human Services Inspector General makes decisions regarding exclusion in the health care arena, not federal prosecutors.

“I would quibble with the use of the word ‘threat,’” he said. “However, the exclusion issue is a dominant part of any discussion in a resolution of a health care fraud case … it is part of the analysis.”

Ralph Hall, a University of Minnesota law professor and former deputy general counsel with Guidant Corporation, said even the “threat of the threat” of debarment has kept many public companies from challenging fraud allegations in court for fear of panicking stock holders.

“If you’re a publicly traded company and you are excluded from participation in health care programs, that is essentially the death penalty … because what happens to your stock if you disclose that the government may be pursuing exclusion?” Hall asked. “What this means is many of these legal theories have not really been challenged in court.”

Wray said many companies choose to swallow pricey settlements rather than face such risk, and that has led to unprecedented settlement numbers that only further encourages prosecutors pursue fraud cases.

In a statement submitted to the Senate Judiciary Committee in January, Assistant Attorney General Tony West said theDOJ’s Civil Division, working with the Department of Health and Human Services and U.S. Attorneys offices, has been setting records recently for health care fraud recoveries.

The government recovered nearly $5.4 billion in taxpayer funds under the False Claims Act from health care providers and others in the industry between January 2009 and December 2010 - a two-year record, West said. In addition, the U.S. in the same time period obtained $3 billion in fines, forfeitures, restitution and disgorgement under the Food, Drug, and Cosmetic Act, which targets pharmaceutical companies and their marketing practices.

“At the end of the day a lot of these cases were based on pressure and leverage, [which] comes not from the strength of the case but from the exclusion risk and all the other collateral consequences that are out there,” Wray said.

And Wray said he believes the recent proliferation of expensive settlements – such as the $2.3 billion that Pfizer in 2009 agreed to pay to settle allegations it had illegally marketed the painkiller Bextra – has fostered a mindset among prosecutors that going after medical providers can provide a revenue stream for the government.

“I think whistleblowers … and the government itself on some level are motivated by the breathtaking dollars that are involved in the manufacture of drugs,” he said.

And at some point, the cost of settling will fail to outweigh the risk of going to court, Wray added.

Tuesday’s event, held in the Senate Dirksen Office Building, is the first of three forums on health care fraud and abuse enforcement hosted by Main Justice and sponsored by King & Spalding. The next forum, on October 18, will examine new legal theories and other trends shaping enforcement. The final forum, on November 15, will look at strategies for government-industry cooperation in fostering compliance with the laws.

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