On January 27, Deputy Associate Attorney General Stephen Cox delivered keynote remarks on the False Claims Act (FCA) at the 2020 Advanced Forum on False Claims and Qui Tam Enforcement. Mr. Cox’s remarks described the Department of Justice’s (“DOJ”) ongoing enforcement efforts and priorities, as well as outlined DOJ’s regulatory reform agenda and some of its more recent policies. Mr. Cox’s remarks provide valuable insight for anyone operating in healthcare or other regulated industries.
Summary of 2019 Enforcement Efforts and Related Regulatory Reforms
Mr. Cox emphasized the FCA’s ongoing role as one of DOJ’s most important tools to fight healthcare fraud. As we previously reported, DOJ recovered over $3 billion in FCA settlements and judgments in FY 2019, of which $2.6 billion came from suits involving the health care industry. Acknowledging the significant exposure that the FCA creates for regulated industries, and that the FCA is not intended to be “a vehicle for punishing garden-variety breaches of contract or regulatory violations,” Mr. Cox at the same time shared that DOJ has “looked for ways to reduce unnecessary costs and burdens on regulated entities,” and outlined the ways that DOJ has sought to meet this objective.
“Granston” Dismissals of Qui Tam Suits
Mr. Cox pointed to the increased use of 31 U.S.C. §3730(c)(2)(A) dismissals in 2019, in accordance with the guidelines set forth in the January 2018 “Granston Memo.” In the two years since the publication of the Granston Memo, DOJ has moved to dismiss about 45-50 cases. Mr. Cox said that, of the thirty cases that have been decided, dismissal was granted in all but one; DOJ is appealing the one denial.
Mr. Cox stressed the rigorous process DOJ follows in deciding whether to pursue a dismissal on Granston factors, emphasizing that in each case the department “investigated the matter, evaluated the facts, the law, and the claims asserted, and carefully concluded that the various downsides outweighed any potential benefit of allowing the case to proceed.” Mr. Cox said DOJ’s continued exercise of its Granston authority would “remain judicious,” but that DOJ would use this tool more consistently to preserve government resources and curb whistleblower overreach.
Another area of reform Mr. Cox identified was “rulemaking by guidance,” referring to the practice of government agencies issuing guidance documents in the form of letters, online bulletins, newsletters and FAQs in ways that expand the law, and thus effectively result in new rulemaking. Through the 2017 “Sessions Memo” and the 2018 “Brand Memo,” DOJ announced that it would not use its enforcement authority to, as Mr. Cox put it, “convert other agencies’ sub-regulatory guidance into rules that have the force or effect of law.” Specific to the healthcare industry, Mr. Cox also pointed to the recent “Cleary-Jenny Memo” issued in November 2019, in which “HHS recognized meaningful limitations on the use of guidance documents in CMS’s administrative enforcement actions based on the Allina decision and pre-existing principles.”
In emphasizing that “guidance is not law,” Mr. Cox was careful to point out that guidance documents can still be used for other purposes, such as to show a defendant’s scienter, or to show the agency’s views on materiality. A guidance document may also be relevant to establishing falsity if, for example, a party and the government expressly agree that compliance with a specified guidance document is required and the party does not comply.
Agency Coordination to Avoid “Piling On”
Mr. Cox reiterated DOJ’s commitment to coordination by enforcement components both within DOJ and in other agencies in order to appropriately apportion penalties and fines and avoid “piling on” penalties from multiple law enforcement and regulatory agencies for the same conduct. Mr. Cox pointed to the 2019 Memorandum of Understanding (MOU) between DOJ and the U.S. Department of Housing and Urban Development (HUD) to illustrate the piling on policy. The MOU requires, in relevant part, that DOJ will confer with HUD during the “investigative, litigation, and settlement phases of the matter to obtain HUD’s views,” including on whether HUD supports dismissal of an FCA action and whether HUD views any alleged violations as “material.” Mr. Cox noted that, while DOJ does not anticipate the need for additional MOUs, DOJ codified the core principles of the HUD MOU into the Justice Manual (see Section 4‑4.110), and that the principles apply to all agencies.
Lastly, Mr. Cox also highlighted DOJ’s Guidelines for Taking Disclosure, Cooperation, and Remediation Into Account In False Claims Act Matters (“Guidelines”), announced last May. The Guidelines incentivize voluntary corporate self-disclosures, cooperation with government investigations, and proactive remediation of identified problems, primarily by offering a significant reduction in FCA penalties and damages.
Of significant importance to the healthcare industry, Mr. Cox also noted that DOJ is willing to take into account “the nature and effectiveness of a company’s compliance system in making the determination of whether the False Claims Act is the appropriate remedy.” For example, because scienter is a key element of the FCA, a robust and effective compliance program could demonstrate the lack of scienter required to establish an FCA violation. Mr. Cox said that “good corporate citizens that effectively police themselves should not be subjected to unnecessary enforcement costs,” and hoped that “companies will recognize that this new reform is a significant incentive to invest in compliance.”
Previewing DOJ’s focus for 2020, Mr. Cox confirmed that regulatory reform and FCA enforcement will remain top priorities. This includes continued prioritization of healthcare fraud enforcement generally, and opioid-related cases in particular. Mr. Cox also announced DOJ is close to resolving a significant FCA investigation which will demonstrate DOJ’s commitment to awarding significant cooperation credit to companies who follow its Guidelines.
Finally, Mr. Cox also revealed DOJ is carefully evaluating the role that third-party litigation financing plays in qui tam actions. He acknowledged DOJ has little insight into the extent to which third-parties are funding the qui tam cases that DOJ is currently investigation, litigating, or monitoring. He suggested that DOJ is considering whether the United States has any interests in third-party qui tam litigation financing and whether it is worth seeking disclosure of such arrangements.
Norton Rose Fulbright professionals are available to advise on the implications of DOJ enforcement priorities for individuals and organizations operating in the healthcare industry.