New Guidelines Reward Voluntary Self-Disclosure of FCA Violations and Cooperation with DOJ
V&E Government Investigations Update, May 30, 2019
The U.S. Department of Justice (“DOJ”) announced this month its latest initiative to incentivize companies to voluntarily self-disclose potential False Claims Act (“FCA”) violations and to cooperate with DOJ during FCA investigations.1 These new guidelines, which have been incorporated into the U.S. Attorney Manual (recently renamed the Justice Manual), formalize DOJ’s established practice of decreasing FCA penalties sought when a company voluntarily discloses and actively cooperates with DOJ’s investigation into its conduct. Because the FCA imposes treble damages and substantial per-claim penalties, any reduction of penalties could be of significant benefit to a company that finds itself negotiating a settlement under the FCA or subject to an FCA lawsuit.
DOJ’s announcement promises greater structure and transparency with respect to DOJ’s consideration of voluntary self-disclosures when determining the penalties it will seek for an FCA violation. In the past, DOJ has emphasized that cooperation can and will result in lower settlement demands, but DOJ’s expectations and practices to arrive at those amounts often lacked detail and appeared inconsistent from one matter to another. In 2016, then-Acting Associate Attorney General Bill Baer encouraged cooperation and remarked that “the department will use its significant enforcement discretion in FCA matters to recognize that cooperation.”2 Similarly, in 2019, Deputy Associate Attorney General Stephen Cox stated that “the Department is committed to rewarding companies that invest in strong compliance programs and who cooperate with our investigations into wrongdoing” and that “False Claims Act investigations are no exception to the Department’s policy of incentivizing cooperation.”3 Exactly what that cooperation entailed, or the amount of credit that could be expected, was never clear.
Overview of the Guidance
DOJ’s new guidance, incorporated into Section 4-4.112 of the Justice Manual,4 provides helpful insight into the factors DOJ will evaluate when deciding the penalty that should be imposed in an FCA case.
The new guidance emphasizes DOJ’s interest in encouraging entities and individuals to disclose false claims to the Government on their own. The Government benefits from these voluntary disclosures because they allow the Government to “make itself whole from . . . previously unknown false claims and fraud” and to focus its enforcement efforts and to preserve and gather evidence that may otherwise be lost. As such, the new guidance provides that companies that make “proactive, timely, and voluntary” disclosures of FCA-related misconduct to DOJ will be rewarded with a reduction in the penalty imposed. Companies may also be entitled to additional cooperation credit for voluntarily disclosing additional misconduct identified during the company’s investigation into the original misconduct.
Cooperation and Remediation
In addition, the guidance incentivizes companies to maintain an ongoing conversation with DOJ during an FCA investigation to facilitate a full resolution of the investigation. It instructs DOJ to provide credit for the measures that the entity or individual takes to cooperate with the investigation and lists several activities DOJ will consider when evaluating the penalty to be imposed:
- Identifying individuals substantially involved in or responsible for the misconduct;
- Disclosing facts and information, and preserving, collecting, and disclosing relevant documents and information beyond existing business practices or legal requirements;
- Identifying individuals who are aware of relevant information or conduct, including an entity’s operations, policies, and procedures, and making officers and employees available for meetings, interviews, examinations, or depositions;
- Disclosing facts relevant to the Government’s investigation gathered during the entity’s independent investigation (not to include information subject to attorney-client privilege or work product protection), including attributing facts to specific sources rather than a general narrative of facts, and providing timely updates to the Government about the internal investigation;
- Providing facts implicating third parties in potential misconduct; and
- Admitting liability or accepting responsibility for the wrongdoing or relevant conduct, and assisting the Government in determining the amount of, or recovering, the losses caused by the organization’s misconduct.
The guidance, however, makes clear that the measures identified above are not mandatory or a complete list of the steps necessary to qualify for cooperation credit.
Furthermore, the policy instructs DOJ attorneys to consider the remedial actions taken in response to an FCA violation, including whether the company:
- Conducted a thorough analysis on the problem, and has taken steps to address the root of the problem;
- Implemented and/or improved its compliance program to prevent future FCA violations;
- Disciplined and replaced those responsible for the misconduct and those who were responsible for supervision of the area where the misconduct occurred; and
- Recognized the seriousness of its conduct and has implemented measures to identify future risks.
Ordinarily under the FCA, a company is subject to three times the amount of damages incurred by the Government and monetary fines for each false claim. Under DOJ’s new policy, a company can receive a reduction in the multiplier of damages, provided that the penalty is not less than full compensation for the Government’s losses (including damages, lost interest, costs of investigation, and relator share). In other words, the credit may reduce the multiplier somewhere between one-to-three times the Government’s losses, but ordinarily should not reduce the penalties lower than one times the Government’s losses.
As highlighted last week by Deputy Attorney General Claire McCusker Murray, two recent DOJ press releases for the following settlements reflect the type of discount that could be expected.5 Two months ago, DOJ announced a $17 million settlement with Covidien LP to resolve FCA liability for providing free or discounted business development support to physicians to induce purchases of Covidien’s vein ablation products.6 According to DOJ, that penalty resulted from a reduced multiplier of 1.7 times the Government’s ordinary damages. Last October, DOJ announced a $270 million settlement with HealthCare Partners Holdings LLC (also known as DaVita Medical Holdings), which DOJ said resulted from DaVita’s “self-disclosures, and DaVita’s cooperation with the government’s subsequent investigation.”7 Thus it appears that in both cases, the company received a reduction in the maximum potential penalty that was worth millions (or even hundreds of millions) of dollars in exchange for disclosing its alleged misconduct and cooperating with the Government.
There can be, when appropriate, substantial benefit to a company voluntarily disclosing its own potential misconduct and cooperating with the Government’s resulting investigation. Because investigations are themselves often complex, time consuming, and expensive, it is important for a company to carefully consider the potential commercial and legal ramifications associated with the various courses of action that it could take upon learning of a potential violation of the FCA. When to voluntarily disclose potential misconduct during the company’s own investigation and when to cooperate with DOJ, and how to do so, are strategic choices that can greatly alter the ultimate course of the company’s interactions with DOJ. As such, while DOJ’s new guidance provides greater clarity on what DOJ will ultimately expect from the company and how the company could be rewarded, a company identifying a potential violation of the FCA should first consult with experienced legal counsel before availing itself of this new guidance.
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1 U.S. Department of Justice, Department of Justice Issues Guidance on False Claims Act Matters and Updates Justice Manual (May 7, 2019), https://www.justice.gov/usao-ndca/pr/covidien-pay-over-17-million-united-states-allegedly-providing-illegal-remuneration.
2 U.S. Department of Justice, Acting Associate Attorney General Bill Baer Delivers Remarks on Individual Accountability at American Bar Association’s 11th National Institute on Civil False Claims Act and Qui Tam Enforcement (June 9, 2016), https://www.justice.gov/opa/speech/acting-associate-attorney-general-bill-baer-delivers-remarks-individual-accountability.
3 U.S. Department of Justice, Deputy Associate Attorney General Stephen Cox Delivers Remarks at the 2019 Advanced Forum on False Claims and Qui Tam Enforcement (Jan. 28, 2019), https://www.justice.gov/opa/speech/deputy-associate-attorney-general-stephen-cox-delivers-remarks-2019-advanced-forum-false.
4 U.S. Department of Justice, 4-4.112 - Guidelines for Taking Disclosure, Cooperation, and Remediation into Account in False Claims Act Matters (May 2019), https://www.justice.gov/jm/jm-4-4000-commercial-litigation#4-4.112.
5 U.S. Department of Justice, Remarks of Principal Deputy Associate Attorney General Claire McCusker Murray at the Compliance Week Annual Conference (May 20, 2019), https://www.justice.gov/opa/speech/remarks-principal-deputy-associate-attorney-general-claire-mccusker-murray-compliance.
6 U.S. Department of Justice, Covidien To Pay Over $17 Million To The United States For Allegedly Providing Illegal Remuneration In The Form Of Practice And Market Development Support To Physicians (Mar. 11, 2019), https://www.justice.gov/usao-ndca/pr/covidien-pay-over-17-million-united-states-allegedly-providing-illegal-remuneration.
7 U.S. Department of Justice, Medicare Advantage Provider to Pay $270 Million to Settle False Claims Act Liabilities (Oct. 1, 2018), https://www.justice.gov/opa/pr/medicare-advantage-provider-pay-270-million-settle-false-claims-act-liabilities.