EnforceMintz — Significant 2022 Regulatory and Policy Developments

From an agency guidance and regulatory developments perspective, 2022 was fairly quiet until the latter part of the year. Consistent with past practice, the Office of Inspector General for the Department of Health and Human Services (HHS OIG) issued a number of Advisory Opinions throughout the course of 2022. But DOJ issued four guidance documents between September 2022 and January 2023, all of which related to criminal prosecution of both individuals and corporations and reiterated a theme we have seen from DOJ over the last several years when discussing the resolution of cases: individual accountability, cooperation, and self-disclosure (among others). At tail end the end of December, Centers for Medicare & Medicaid Services (CMS) also issued a new proposed rule setting forth potential amendments to regulations for Medicare Part A - D regarding overpayments. We highlight some key takeaways from these publications below.

In Late 2022 and Early 2023, DOJ Issued Several Memoranda that Revise DOJ’s Approach to Charging, Prosecuting, and Resolving Cases

In a continuation of policy changes published in October 2021, Deputy Attorney General Lisa Monaco announced in September further revisions to Department of Justice (DOJ) corporate criminal enforcement policies (which are set forth in Section 9-28.000 of DOJ’s Justice Manual, (Principles of Federal Prosecution of Business Organizations)) (the Monaco Memo).

Then, on December 16, 2022, United States Attorney General Merrick Garland issued two related memoranda (collectively, the Garland Memos). One addresses General DOJ Policies Regarding Charging, Pleas, and Sentencing, and the other sets forth Additional DOJ Policies Regarding Charging, Pleas, and Sentencing in Drug Cases.

Next, on January 17, 2023, Assistant Attorney General Kenneth Allen Polite Jr. announced important revisions to the Criminal Division’s Corporate Enforcement Policy, which alter how the Criminal Division will evaluate corporate criminal matters (the Corporate Enforcement Policy). The Corporate Enforcement Policy, formerly known as the Foreign Corrupt Practices Act (FCPA) Corporate Enforcement Policy (see Section 9-47.000 of DOJ’s Justice Manual), begins by expanding its scope beyond FCPA cases to all corporate criminal matters handled by DOJ’s Criminal Division.

Our colleagues Eóin Beirne, Edmund Daley, and Nick LaPalme wrote a separate piece that analyzes the Garland Memo and the updated Corporate Enforcement Policy in depth, which you can access here.

Below we highlight a few aspects of the Monaco Memo and the Corporate Enforcement Policy related to individual accountability, self-disclosure, and overall cooperation credit, which are themes emphasized (in both the civil [1] and criminal contexts) by DOJ for the last several years. We also discuss some of the practical risks and considerations related to DOJ’s policies in these areas.

Individual Accountability

Monaco highlighted DOJ’s view that it needs to “do more and move faster” with respect to corporate criminal prosecutions. To that end, DOJ will “require cooperating companies to come forward with important evidence more quickly” and expects that companies will notify prosecutors as soon as they discover “hot documents and evidence,” in addition to following DOJ’s prior guidance that companies must “provide all relevant, non-privileged facts about individual misconduct to receive any cooperation credit.” In DOJ’s view, these steps are essential to allowing DOJ’s investigations to proceed expediently and avoiding the undermining of those investigations through the lapse of statutes of limitation, the dissipation of evidence, and the fading of memories.

However, the expectation that defendants turn over “hot documents and evidence” to prosecutors upon discovery presents potential defendants and their attorneys with a difficult line to walk, putting into direct tension (1) their desire to obtain as much cooperation credit as possible and a favorable outcome with DOJ; and (2) their rights (and obligations) to conduct a full investigation in order to effectively and appropriately defend themselves. Moreover, this requirement ignores the very real possibility that documents and evidence that might appear “hot” upon discovery later turn out not to be so, as further investigation and fact-finding contextualize and provide new meaning to that evidence. Taking the time to review evidence and conduct a thorough investigation does not constitute “undue or intentional delay” or “[g]amesmanship” as DOJ suggests, but instead is an essential step in protecting companies’ and individuals’ legal and constitutional rights and ensuring that individuals who are taking accountability for corporate wrongdoing truly bear responsibility for the misconduct alleged.

Voluntary Self-Disclosure

The Monaco Memo requires that every DOJ component that prosecutes corporate crime have (or implement) a formal, documented program that incentivizes voluntary self-disclosure. And, each self-disclosure program is required to include the following elements: (1) a policy of not seeking a guilty plea when a company has voluntarily self-disclosed, cooperated, and remediated misconduct (absent aggravating factors); and (2) a policy of not requiring an independent compliance monitor if, at the time of resolution, the company has implemented and tested an effective compliance program. DOJ’s goal in imposing these requirements is to provide substantial incentives for self-disclosure by setting out clear expectations for what self-disclosure entails and identifying concrete benefits to such disclosures (e.g., avoiding fines, penalties, and costs as well as reputational harms related to guilty pleas, and reducing the risk of collateral consequences like suspension and debarment).

Consistent with the Monaco Memo’s directive, the Criminal Division’s newly updated Corporate Enforcement Policy also highlights voluntary self-disclosure as a foundational requirement. Specifically, the policy provides that “when a company has voluntarily self-disclosed misconduct to the Criminal Division, fully cooperated, and timely and appropriately remediated, all in accordance with the standards set forth [in the Corporate Enforcement Policy], there will be a presumption that the company will receive a declination absent aggravating circumstances involving the seriousness of the offense or the nature of the offender.”[2]

The Corporate Enforcement Policy goes on to define what it considers to be “Voluntary Self-Disclosure” and notes that DOJ “encourages self-disclosure of potential wrongdoing at the earliest possible time, even when a company has not yet completed an internal investigation, if it chooses to conduct one” and emphasizes that the burden will be on the company to demonstrate the timeliness of its self-disclosure. Much like the requirements related to individual accountability, pushing companies to self-disclose potential misconduct before an internal investigation is completed (or perhaps even in the absence of an internal investigation) for fear of losing the opportunity for a full declination, puts defendants in the precarious position of possibly having to decide between (1) fully investigating and understanding the alleged misconduct before disclosure and losing the opportunity for a full declination; or (2) foregoing a full investigation in the hopes of securing a declination (and that additional facts or information will not be uncovered later in time that would have caused the company to reconsider whether and what it disclosed to DOJ).

Encouraging Companies to Shape Compensation Around Promoting Compliance and Avoiding Improperly Risky Behavior

Another notable feature of the Monaco Memo is that it indicated that when evaluating the strength of a company’s compliance program for purposes of determining the appropriate resolution of an investigation, DOJ will take into account whether compensation arrangements with employees, executives, and directors reward compliance and deter misconduct. For example, DOJ will potentially reward companies that escrow or claw back compensation or otherwise impose financial penalties to deter and address misconduct. DOJ also will favorably view companies that build compensation structures that include metrics or benchmarks tied to compliance-promoting behavior.

These same themes appeared in the Corporate Enforcement Policy, which considers the implementation of an effective compliance program as an important factor in assessing whether a company has engaged in “timely and appropriate remediation” for purposes of determining whether declination (or some other credit in terms of how the investigation is involved) is appropriate.

Looking at the bigger picture, only time will tell if all of the incentives and deterrents DOJ has set forth in its updated guidance will be effective in helping DOJ achieve its goals. While DOJ has historically committed to providing cooperation credit and other incentives to parties hoping to resolve investigations, how those credits and incentives appear within a given resolution typically has not been well-publicized, leaving other defendants to guess whether and how their own cooperation efforts will be rewarded. While the updated Corporate Enforcement Policy certainly adds a degree of potential transparency to the type of credit defendants can expect in return for their efforts to self-disclose, remediate, and cooperate, criminal defendants are and will remain reticent to fully embrace the approach to resolution that DOJ envisions unless and until they see some indication of how the Department is enacting its revised policies.

HHS OIG Continued to Issue Advisory Opinions to Requestors Seeking Guidance on Proposed Arrangements

As it does every year, HHS OIG issued a number of Advisory Opinions in 2022 setting forth its views as to whether requestors’ proposed arrangements might implicate the federal Anti-Kickback Statute (AKS) and the beneficiary inducements civil monetary penalty provision (Beneficiary Inducements CMP) – and, if so, whether the HHS OIG would take any enforcement action against those arrangements. You can access all 22 of these Advisory Opinions issued in 2022 on the HHS OIG’s website, but we covered certain of them on our blog as well:

Advisory Opinion 22-06: HHS OIG Approves Pharmaceutical Manufacturer’s Offer of Free Genetic Testing

In April, the HSS OIG issued Advisory Opinion (AO) No. 22-06, which concluded that a pharmaceutical manufacturer’s provision of certain free genetic testing and counseling services would not result in the imposition of sanctions under the AKS or Beneficiary Inducements CMP. The OIG’s conclusion was based on its determination that the proposed arrangement was structured such that (1) it would not result in overutilization or inappropriate utilization of services paid for by federal health care programs; (2) providers’ clinical decision-making would not be impacted by sales and marketing efforts and the genetic testing at issue would improve patient safety and quality of care; and (3) additional safeguards would prevent the pharmaceutical manufacturer from marketing the arrangement to providers and patients.

Advisory Opinion 22-07: HHS OIG Approves Physician-Owned Medical Device Company

As we posted back in April, the HHS OIG issued a favorable Advisory Opinion regarding a medical device company in which physicians who order the company’s products hold a majority ownership interest. While the government has long scrutinized physician-owned medical device companies, particularly physician-owned distributors (PODS), in AO No. 22-07, the HHS OIG found that the proposed POD arrangement presented a low risk of fraud and abuse, based on a number of factors. Perhaps the most important factors in the HHS OIG’s decision were that: (1) only a small percentage of the company’s revenues are generated by orders from the physician-owners or an immediate family member; (2) the company takes steps to dilute the physician-owners’ financial incentives to order the company’s products; and (3) the physicians-owners disclose their financial interests in the company to patients, health care facilities, and the public.

Advisory Opinion 22-09: HHS OIG Expresses Concern About Laboratory Specimen Collection Payments to Hospitals

In May, the HHS OIG issued Advisory Opinion No. 22-09 (AO 22-09), which addresses a proposed arrangement in which the operator of a network of laboratories (the Laboratories) would compensate hospitals for certain specimen collection services related to testing performed by the Laboratories. The HHS OIG ultimately concluded that the proposed arrangement posed a risk of fraud and abuse under the AKS because, in part, the Laboratories would pay the hospitals a per-patient-encounter fee that could induce referrals to the Laboratories of federal health care program business, despite compliance safeguards built into the arrangement. We covered AO 22-09 in more detail back in May.

Other Notable Advisory Opinions Issued in 2022 Include

• HHS OIG Approves Online Retailer’s Discount Program (AO No. 22-01, January 2022)

• HHS OIG Issues Another Favorable Advisory Opinion on Treatment-Based Patient Incentives (AO No. 22-04, March 2022)

• HHS OIG Issues Favorable Opinion on Federally Qualified Health Center’s Smartphone Loan Program (AO No. 22-08, April 2022)

CMS Issued a Proposed Rule That Would Amend Existing Regulations for Medicare Parts A-D Regarding the Standard for an Identified Overpayment

On December 27, 2022, CMS published a proposed rule, which, among other things, would amend the existing regulations for Medicare Parts A - D regarding the standard for an identified overpayment to align the definition of “knowingly” set forth in those regulations with the definition of “knowingly” set forth by the FCA.

We covered this proposed rule in depth in a previous blog post and we also cover it here.

As we often do when an agency issues updated guidance or proposed regulatory changes, we will have to wait and see if 2023 provides any clarity into what these proposed changes will actually mean. Given DOJ’s emphasis in both civil and criminal matters on encouraging defendants to self-disclose, require individual accountability, and cooperate in investigations – and rewarding defendants for those efforts through various incentives - we will be keeping a particularly close eye on whether DOJ’s resolutions and settlements demonstrate that DOJ is following its own guidelines in these cases.

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