Justice Department scrutinizing individual execs' role in fraud

Health Diagnostic Laboratory, along with another lab, paid nearly $50 million to the government this year to settle allegations that it improperly paid doctors for referrals.

But for the company's former leader, the story was just beginning.

After the settlement, the government accused former Health Diagnostic Laboratories CEO Latonya Mallory and others of violating the False Claims Act and anti-kickback statute.

A memo distributed Sept. 9 shows the government may be getting serious about pursuing healthcare executives tangled in fraud allegations.

U.S. Deputy Attorney General Sally Quillian Yates said companies must now disclose “all relevant facts relating to the individuals responsible for the misconduct” in order to qualify for “cooperation credit”—less severe penalties in exchange for cooperating with the Justice Department.

Yates called the new requirement “a substantial shift from our prior practice,” in a speech.

Experts say the move could help the government in its perpetual fight against healthcare fraud.

“If they do follow the new guidelines, it could very well be a sea change in the way healthcare companies conduct their business, and how healthcare companies ramp up their internal compliance,” said Marc Raspanti, a partner at Pietragallo Gordon Alfano Bosick & Raspanti, who represents whistle-blowers and is a former government prosecutor. He noted, however, that this isn't the first time the government has said it would go after individuals.

Raspanti said Congress has chided the Justice Department for years, saying that the billions of dollars in settlements haven't deterred healthcare fraud. Individual liability, he said, has been the missing piece.

“Now, if there's a chance you may be on the hook personally for liability, whether it be civil or criminal or both ... if I were an executive in a company, I'd be more conscientious,” Raspanti said.

Several obstacles previously have blocked the government from pursuing more individuals in healthcare fraud cases, said Patrick Burns, co-director of the Taxpayers Against Fraud Education Fund, a not-for-profit partly funded by whistle-blowers, and the law firms that represent them.

For example, to prove a civil case, the government must show that a preponderance of the evidence points toward guilt. In a criminal case, it must prove its allegations beyond a reasonable doubt.

Burns added that there's also a cultural bias in the justice system against sending wealthy, highly educated individuals, such as those running healthcare companies, to prison.

“Well-to-do folks who went to great schools, those people don't go to jail,” Burns said. “They go to country clubs. People who listen to country music, people who work for hourly wages, we send those people to jail.”

Only a few corporate heads have faced punishment over healthcare fraud, Burns said, despite thousands of such cases.

In 2012, a federal appeals court ruled that three executives at Pharma Purdue, formerly known as Purdue Frederick, could be excluded from doing business with the federal government after they pleaded guilty to failing to prevent the company's fraudulent marketing of the pain medication OxyContin.

But Roy Snell, CEO of the Health Care Compliance Association, says the healthcare industry has already been working at compliance.

He said healthcare companies have employed compliance officers and directors for years to focus on education, auditing and investigations.

The Health Care Compliance Association has about 10,000 members, while its sister Society of Corporate Compliance and Ethics, which serves other industries, has about 5,000 members, Snell said.

“When the enforcement community comes into healthcare, they're going to see a more robust effort,” Snell said.

Others, such as Gabriel Imperato, a managing partner at Broad and Cassel who represents healthcare companies, say the DOJ's warning may cause healthcare companies to further emphasize compliance.

“It's going to make the ability of (a company) to get credit for cooperation a little bit more exacting, and it's going to cause companies a little more angst and turmoil in trying to work their way through some of these investigations,” Imperato said.

Burns called the DOJ's memo an important conversation starter, but added that he would like to see those found guilty of healthcare fraud banned from working with federal healthcare programs.

“From the sales force all the way up to the CEO of the company, they're incentivized to do the fraud, because the pain when they're caught is shouldered by the people who own the stock,” Burns said.

More exclusions would get industry leaders' attention, Burns said.

“If you bring the pain, you bring the change,” Burns said. “But the pain has to be personal.”