1. Executive Individual Accountability: Uncle Sam is Looking at YOU
Sean O’D. Bosack, JD
Thomas N. Shorter, JD, FACHE
Godfrey & Kahn, S.C.
HFMA– WI Chapter (Winter Conference)
Wilderness Lodge, Wisconsin Dells, WI
Friday, January 27, 2017

2. Federal Government Focus on Individual Accountability
Yates Memorandum
Responsible Corporate Officer Doctrine
(“Parks Doctrine”)
HHS – OIG Adaptation
How do current trends affect health care providers and their executives?

3. What is the Yates Memorandum?
September 2015 memo to U.S. DOJ attorneys from Deputy AG Sally Yates.
Subject: “Individual Accountability for Corporate Wrongdoing”
Partly a response to criticism that prosecutors did not do enough to hold individuals responsible for the financial crisis.
Requires enhanced focus on pursuing civil and criminal cases against individuals.
Every few years, the US DOJ issues a major policy announcement for how it investigates and prosecutes cases
They usually come in the form of a memo from the Deputy Attorney General of the United States to all federal prosecutors across the country
In the last 15 years or so, there have been 5 such announcements
Holder memo (1999)
Thompson memo (2003)
McNulty memo (2006)
Filip memo (2008)
Now we have, in September: the Yates memo
Past criticism
In the summer of 2013, when the government announced criminal insider trading charges against the hedge fund SAC,, the Wall Street Journal ran an editorial with the headline: “Can a criminal enterprise be run by someone who isn’t a criminal?” WSJ was reacting to decision not to prosecute SAC’s namesake, founder, sole owner and CEO, Steven A. Cohen
Credit for cooperation
What does it mean to get “credit” for cooperation?
“Cooperation credit” is basically the coin-of-the-realm to avoid indictment if you are a corporation
Affects whether company charged in the first place: “Mitigating factor” under DOJ policy “Principles of Federal Prosecution of Business Organizations” (USAM titled “The Value of Cooperation”)
If company is charged, affects penalty at sentencing: Cooperation results in reduction of “culpability score” used to calculate fine (USSG 8C2.5(g))
Only applies to US DOJ, but will be interesting to see how this policy morphs into the approach of other agencies, like the SEC

4. Yates Memo - Key Point # 1
#1 - Companies must provide “all relevant facts” about specific individuals involved in corporate misconduct to receive any cooperation credit.
This is an “all or nothing” proposition.
If a company “declines to learn” facts about culpable individuals, or learns information and does not provide it to the government, the company will not receive any credit for cooperating.
Intended to push companies to conduct thorough and proactive investigations.
Compliance with subpoena isn’t enough
On September 22, in remarks at a conference, AAG Leslie Caldwell (head of the Criminal Division) specifically said that the Yates memo was intended to press companies under investigation to give more that just “compliance with a subpoena” but to provide the government with all the facts—”what happened, who did it, who knew, who participated, who said what”
Really views companies as “junior G men”
Individuals at conference raised concerns about foreign data privacy laws in some jurisdictions and she was sympathetic, but was clear that this cannot be used as a convenient excuse.

5. Yates Memo - Key Point # 2
#2 - Both criminal and civil corporate investigations should focus on individuals from the inception of the investigation.
To be eligible for cooperation, the company must identify all individuals involved in or responsible for the misconduct at issue, regardless of position, status or seniority.
Ostrich Instruction
Applies to driver accepting $20,000 to drive a car from Tijuana to San Diego
Responsible Corporate Officer Doctrine
In certain areas—including the environmental sector—there are strict liability crimes that do not require the prosecutor to prove intent
RCO doctrine allows prosecutor to charge individuals
So-called “Park liability” upheld as constitutional
- United States v. Park, 421 U.S. 658, 670 (1975)
Doctrine holds “criminally accountable the persons whose failure to exercise the authority and supervisory responsibility reposed in them by the business organization resulted in the violation” (Park, 421 U.S. at 671)
Seems at odds with fundamental notions of our criminal justice system
John Park was the president and CEO of Acme Supermarkets
Criminal case under Federal Food Drug and Cosmetic Act for rodent infested warehouse
Except Park worked in Philadelphia and the warehouse was in Baltimore
He had been assured by the warehouse manager that the problem was being addressed
Nonetheless, Park was convicted
Not limited to people who are “officers”
Frankly, the state of the law is a mess: extent to which it can be applied beyond strict liability offenses is unsettled
Cases seem to agree, however, that delegation is not a defense

6. Yates Memo - Key Point # 3
#3 - Criminal and civil prosecutors should be “in routine communication with one another” about the liability of individual wrongdoers.
Reinforces perils of parallel proceedings.
Never assume any request for information from the government is benign.

7. Yates Memo - Key Point # 4
#4 - An agreed resolution with the government will not protect individuals from liability “absent extraordinary circumstances.”

8. Yates Memo - Key Point # 5
#5 - Prosecutors cannot resolve cases against companies without having a “clear plan” to resolve cases against culpable individuals, or a written explanation to their superiors why individual charges will not be pursued.

9. Yates Memo - Key Point # 6
#6 - Civil attorneys for DOJ also should focus on cases against individuals, and make decisions regarding which cases to bring based on factors beyond an individual’s ability to pay.
Memo includes specific reference to the False Claims Act.
False Claims Act is a vehicle often used to pursue health care providers.
For next slide:
So those are the points of the memo. Several issues come to mind . . .

10. Yates Memo – Key Takeaways
Cooperation is “all or nothing”— companies cannot receive cooperation credit without identifying culpable individuals and divulging all relevant facts.
The guidance may result in de facto erosion of the attorney-client privilege.
The guidance may create complications for entities seeking to resolve corporate allegations while insulating individuals from liability.
Board members and executives must remain attuned to corporate activities.
Interplay between the Yates memo and the Filip memo
Filip memo
DOJ must not ask that companies waiver the attorney-client privilege as a condition of cooperation: “[W]hile a corporation remains free to convey non-factual or "core" attorney-client communications or work product—if and only if the corporation voluntarily chooses to do so—prosecutors should not ask for such waivers and are directed not to do so.” (USAM )
Also made clear that payment of attorney fees on behalf of individuals will not count against the company: “In evaluating cooperation, prosecutors should not take into account whether a corporation is advancing or reimbursing attorneys' fees or providing counsel to employees, officers, or directors under investigation or indictment. Likewise, prosecutors may not request that a corporation refrain from taking such action. “ (USAM )
Reaction to the Stein case, where court dismissed indictments against 13 former KPMG partners and employees, finding that the government had deprived them of their 6th Amendment right to counsel by directing KPMG not to pay their attorney fees

11. Recent DOJ Actions - Healthcare
On October 29, 2015, pharmaceutical company Warner Chilcott agreed to plead guilty to healthcare fraud and pay $125 million to resolve criminal and civil liability arising from the illegal promotion of several pharmaceuticals.
Prosecutors simultaneously unsealed a criminal indictment (dated October 28, 2015) charging former president, W. Carl Reichel, for involvement in the company’s kickback scheme.
Reichel was the fourth Warner Chilcott employee to be charged; the other three individuals were relatively low-level district managers.
Reichel’s indictment demonstrated the early impact of the Yates Memo on individual executives in the healthcare sector.
Main settlement to resolve allegations that Warner Chilcott:
Paid kickbacks to physicians in exchange for prescribing Warner Chilcott drugs;
Submitted fraudulent prior authorization requests to government payors; and
Made unsubstantiated claims about the superiority of its drugs.
According to the indictment, Reichel oversaw the company’s “medical education program,” which amounted to encouraging sales representatives to take healthcare providers out for expensive, largely social dinners devoid of educational content.
While Reichel is the fourth Warner Chilcott employee to be charged, the other three individuals were relatively low-level district managers. Given the senior position that Reichel held, the indictment of Reichel may be evidence of the Yates Memo at work, especially in light of Yates’ comments to the New York Times that DOJ was “not going to be accepting a company’s cooperation when they just offer up the vice president in charge.”

12. Recent DOJ Actions - Healthcare
Allegations against David Bostwick, founder, owner, and CEO of Bostwick Laboratories, were resolved on January 2016.
These allegations arose in the context of a civil action.
From 2006 to 2011, Bostwick directed his laboratory to bill federal government payors for medically unnecessary tests.
Bostwick allegedly provided incentives to treating physicians in exchange for referrals of patients who would then be subjected to these tests.
In the civil settlement resolving False Claims Act violations, Bostwick agreed to pay over $2.6M plus an additional $1.125M if certain financial contingencies occur within the next five years (total potential payment, $3.725M).
Bostwick Laboratories previously settled the same False Claims Act charges in two separate agreements totaling $6.5M.

13. Responsible Corporate Officer Theory a.k.a. The Park Doctrine
The Park Doctrine is based on a 1975 U.S. Supreme Court case (421 U.S. 658), which provides that:
A responsible corporate official can be held liable for a first-time misdemeanor and possible subsequent felony under the Federal Drug and Cosmetics Act.
There does not have to be proof that the corporate official had any actual knowledge of, or participation in, the specific offense.
The FDCA makes it a criminal misdemeanor to violate the FDCA even if a person had no knowledge of a violation (“strict liability” misdemeanor).

14. Responsible Corporate Officer Theory a.k.a. The Park Doctrine
Factors considered in enforcement include but are not limited to:
Whether the violation involves actual or potential harm to the public;
Whether the violation is obvious;
Whether the violations reflect a pattern of illegal behavior and/or failure to heed prior warnings;
Whether the violation is widespread;
Whether the violation is serious;
The quality of the legal and factual support for the proposed prosecution; and
Whether the proposed prosecution is a prudent use of agency resources.

15. OIG Resurrection of the Responsible Corporate Officer Doctrine
HHS OIG has broad authority of exclusion.
Under the Social Security Act, HHS has the authority to exclude certain individuals and entities who engage in wrongdoing from participating in federal health programs.
Exclusion authority has been amended, broadened and delegated to OIG.
HHS OIG issued guidance on Oct. 20, 2010, on the factors it will consider in deciding whether to exclude the owners or officials of companies from participating in federal government programs such as Medicare and Medicaid.

16. OIG Resurrection of the Responsible Corporate Officer Doctrine
The OIG will consider the following factors in deciding whether to exercise its discretion to exclude an officer or managing employee under the SSA:
The nature and scope of the misconduct;
The individual’s role in the sanctioned entity; and
The individual’s action in response to the entity’s misconduct.
Corporate Integrity Agreements

17. Takeaways for Healthcare Companies
Prosecutors under pressure to pursue civil and criminal cases against corporate officials. In the context of alleged FDCA violations, prosecutors are likely to increasingly resort to the Park Doctrine, under which senior corporate officials can be held liable for their companies’ violations of the FDCA based simply on their status as “responsible corporate officers.”

18. Takeaways for Healthcare Companies
The Yates Memo applies to civil and criminal investigations. If the DOJ begins routinely to seek FCA damages from individuals, FCA cases may change dramatically.
When companies seek to resolve FCA allegations through settlement, other issues—such as the equitable allocation of damages between the company and any responsible employees—will likely arise.
The FCA offers companies an opportunity to pay reduced damages if three elements are met: 1) the company must give investigating officials “all information known” about the violation(s) within 30 days of when such information was “first obtained”; 2) the company must “fully cooperate” with any government investigation into the violations; and 3) at the time the company provides the information, there can be no criminal prosecution, civil action or administrative action already commenced under the FCA, nor can the company have any “actual knowledge of the existence of an investigation into such violation.” The Yates memo greatly expands the nature and amount of information that must be provided to gain the advantages of this provision.

19. Finally
Thoughts on what to expect under
the Trump Administration.

20. Thank You Sean O’D. Bosack, JD 833 East Michigan Street, Suite 1800
Milwaukee, WI 53202
(414) ,
Thomas N. Shorter, JD, FACHE
One East Main Street, Suite 500
Madison WI
(608) ,