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Under Investigation Part I

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UNDER INVESTIGATION PART I: HOW IS THE GOVERNMENT INVESTIGATING ME OR MY BUSINESS?

In this Article which is Part I in the “Under Investigation” series, we will discuss some of the investigative tools which are available to the government in the course of a criminal (or civil) investigation targeting businesses operating in regulated industries such as health care, securities, banking, mining, transportation, logistics, insurance, aviation, and telecommunications.

 

Subpoenas and Other Things Demanding Documents and Appearances

The Government can send subpoenas to the financial institution where the company under investigation maintains business and/or personal accounts demanding that those institutions produce financial account information. They can send subpoenas to the company under investigation demanding production of documents or they can send the subpoena to a specific person demanding that she testify before a grand jury. Frequently though, the recipient of that subpoena can produce the requested documents by a specific date to avoid having to appear for testimony.

In anti-trust, consumer protection (banking), and health care fraud investigations, the Government can also send something called a civil investigative demand requiring a company or a person to produce documents, submit sworn answers to written questions, or in some cases, appear for testimony before a federal prosecutor.

In investigations related to violations of federal tax laws, the IRS frequently uses summonses demanding the production and/or appearance of the taxpayer. Sometimes those summonses will be issued by a special agent or “IRS-CI” and demand an appearance before that special agent to answer questions about specific tax years and/or tax returns. That is an unequivocal “tip off” that the investigation is criminal.

In investigations related to violations of federal securities laws, the SEC may send a subpoena to produce documents and/or appear for sworn testimony based on a formal order of investigation authorizing SEC enforcement attorneys to demand production of documents and testimony.

“Interviews”

Beyond these written demands for paper or people, the Government conducts “interviews” with employees, former employees, competitors, etc. Anyone approached by a government agent for an “interview” should politely decline the interview until they have had an opportunity to talk to an experienced government investigations attorney. Interviewers are trained, highly educated, and generally familiar with the particular industry they are investigating. Diving right into an interview without counsel – even if you have nothing to hide or have gained a reputation for being persuasive – is, at best, a very bad choice, and, at worst, the equivalent of gift-wrapping a roadmap to an indictment.

Informants

The Government can also embed an informant, whistle-blower, or “cooperator” at your business to unearth information they believe will corroborate their theory of what happened and who did what and when. The informant will likely be wired with audio and video recording equipment and has the ability to record what people are doing or saying in real time. The informant can also work for law enforcement at a distance by making controlled calls or emails or communicating via text message. All of these surreptitious investigative techniques are designed for one purpose: to gather more possible evidence of guilt.

The informant might also do things he should not do. He might go “rogue” and begin his own investigation and have a momentary identity crises believing that he is 007 on a top secret mission. Or, he might attempt to actively upload or download proprietary information from company servers without the company’s authorization or consent.

Data Mining

Data mining is a commonly used investigative tool in health care fraud investigations. Indeed, very recently, Attorney General Jeff Sessions announced that a new, specialized Opioid Fraud Unit would rely heavily on data mining to detect and prosecute fraud. Further, both specialized investigative units (SIUs) working for private health care plans and private government contractors known as Zone Program Integrity Contractors (ZPICs) responsible for auditing specific Medicare providers, depending on their geographic region, rely on and employ data mining to investigate health care fraud and abuse.

Search Warrants

The Government can also apply for and obtain search warrants which give government agents the authority to enter a business and search for documents, computers, hard drives, cell phones, thumb-drives, and any other electronic data or communications within the scope of the search warrant. Search warrants should be more of a last resort for the agency responsible for the investigation but they are increasingly common tools employed by law enforcement in investigations involving highly regulated industries and they are nerve-wrecking. It is important that employees know their rights prior to any search. Government agents are on the premises to conduct a search and to “interview” people. But, the warrant only authorizes a search, not a full blown interrogation. So while being cooperative might expedite a search. Cooperation should never include volunteering for an interview without an experienced government investigations lawyer at your side.

Given these seemingly unlimited resources, it is incumbent upon professionals and employees operating in regulated industries to consult with an experienced government investigations attorney when they are confronted with a government investigation.

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Small Businesses Have a Right to Remain Silent

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Small businesses have a right to remain silent too. In the white collar and government investigations world, it is common for defense attorneys to receive a grand jury subpoena addressed to the corporation, partnership, or corporate entity controlled by the client.  This is a preferred practice of many US Attorney’s Offices because of the collective entity doctrine which, courts have held, prohibits a corporation from invoking a Fifth Amendment privilege against self-incrimination in response to a subpoena since, after all, only people – not artificial entities – can testify against themselves.  Indeed, following the rationale of this doctrine, the corporation has no Fifth Amendment privilege to invoke and therefore the client cannot refuse to produce any corporate documents based on the assertion of that privilege. This is the case even if the corporate documents – or emails – are rife with potentially incriminating material or statements. This practice of sending subpoenas to the corporation to avoid a possible Fifth Amendment defense is also rarely challenged and rarely litigated, but, in certain circumstances, it should be challenged.

Collective Entity Doctrine

Many district courts and some appellate courts have issued decisions championing the collective entity doctrine. See United States v. Roe, 421 F. App’x 881, 884-85 (10th Cir. 2011) (“[T]he district court held the Roes could not assert … personal [Fourth and Fifth Amendment] rights to oppose summonses seeking materials from [their LLC], a collective entity. We take the district court’s view of the matter.”); United States v. Lu, 248 F. App’x 806, 807-08 (9th Cir. 2007) (“[T]he business records of Lu’s [single-member limited liability companies] are not protected by the Fifth Amendment); United States v. Greenleaf, 546 F.2d 123, 128 (5th Cir. 1977) (recognizing the “small family partnership” exception, but concluding that the defendant partnership did not qualify for the exception);  In Re: In The Matter Of The Grand Jury Empaneled on May 9, 2012, Slip Op. No. 15-1264 (3d Cir. May 15, 2015) (finding that the medical practice, identified as “ABC Entity,” could not invoke the Fifth Amendment because it was incorporated as a professional association under New Jersey law even though an individual doctor was the sole proprietor, employee and custodian of ABC Entity’s records).

Yet challenges to grand jury subpoenas are still viable. For example, at least 3 district courts have allowed corporate clients to invoke the Fifth Amendment privilege in response to grand jury subpoenas. See United States v. Slutsky, 352 F. Supp. 1105 (S.D.N.Y. 1972)(two-person family partnership responsible for managing country club resort with gross receipts of more than $4 million and employees was permitted to invoke the Fifth Amendment in response to a subpoena requesting production of business records); see In re Subpoena Duces Tecum, 81 F. Supp. 418, 421 (N.D. Cal. 1948)( granting a small partnership Fifth Amendment rights, stating that “the partnership’s sole purpose was to “conduct the personal business of the partners … [and while] some partnerships, which have a large number of partners … might … take on the habilaments of an association or corporation … certainly this small family partnership [did] not reach such a stature.”); see In re Grand Jury Subpoena Duces Tecum (Doe), 605 F. Supp. 174, 178 (E.D.N.Y. 1985) (permitted a husband-wife partnership to invoke the Fifth Amendment and said “the Bellis Court contemplated that individual owners of the proverbial “Mom and Pop” stores would continue to enjoy the protection of the Fifth Amendment even though they elected to conduct business as a partnership. If the Bellis Court intended to hold that no partners could ever invoke the Fifth Amendment with respect to partnership records it could have easily said so.”).

And the Supreme Court in Bellis v. United States, 417 U.S. 85, 89-90 (1974) held in favor of the collective entity doctrine finding that a three-person partnership possessed no Fifth Amendment right but said “[t]his might be a different case if it involved a small family partnership or if there were some other pre-existing relationship of confidentiality among the partners.” If the high court in Bellis simply wanted to kill any type of Fifth Amendment privilege it could have said so, but it did not.

Takeaways

With this in mind, the success of any such challenge should be case specific. In determining whether to challenge the subpoena, focus on the following:

-How damning are the documents for the client? If, upon review, the documents are not incriminating or potentially incriminating, is it worthwhile to engage in protracted and costly subpoena litigation especially when the case law is unfavorable to the client? After reviewing the documents, only counsel can discern the extent to which the documents might severely harm the client if produced. The fight has to be worthwhile.

–Is the client a small family partnership? The district court decisions finding that a privilege applied to the partnership generally involved small family partnerships which is consistent with the dicta in Bellis. By comparison, the Third Circuit recently held that a sole proprietorship managed by one physician was not entitled to Fifth Amendment protection. Thus, the courts have not established a black and white rule conditioned on the number of partners or members.

-Can the client’s company meet the Bellis test? In Bellis, the Supreme Court formulated a two prong test to determine when a company might invoke the privilege:

First, does the partnership have a distinct institutional identity? In deciding this question, counsel should examine the structure of the firm, i.e., whether it is merely an informal or temporary agreement, how the firm is regulated by state law, how it holds itself out to third parties, and whether it files a separate income tax return.

Second, does the partner claiming the privilege hold the requested records in a personal or in a representative capacity? As at least one court has recognized, all partnership records are partnership property under state law and therefore most partnerships would fail under this prong of Bellis. So, if the company fits into the first prong, then that might be sufficient to warrant constitutional protection especially if:

-There is a pre-existing relationship of confidentiality between the partners;

-The interests of the company are intertwined with the personal interests of the partners or members, or

-The company is composed of a single director/officer or member as part of an LLC and files a single tax return as a “pass through” entity. See Braswell v. United States, 487 U.S. 99, 118 n.11 (1988) (holding that president of corporation and sole shareholder was not protected by 5th Amendment from grand jury subpoena but leaving “open the question whether the agency rationale supports compelling a custodian to produce corporate records when the custodian is able to establish, by showing for example that he is the sole employee and officer of the corporation, that the jury would inevitably conclude that he produced the records.”

Despite the seeming invincibility of the collective entity doctrine, if the client is a small business or partnership and the requested documents in the grand jury subpoena merit the challenge and the likely costs of litigation, any and all of these arguments should be raised. After all, “[i]t seems clear that the Bellis Court contemplated that individual owners of the proverbial “Mom and Pop” stores would continue to enjoy the protection of the Fifth Amendment even though they elected to conduct business as a partnership.” In re Grand Jury Subpoena Duces Tecum (Doe), 605 F. Supp. at 178

 

 

 

 

 

 

 

 

 

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Sessions Announces Formation of Opioid Fraud Unit

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Formation of Opioid Fraud and Abuse Unit

Opioid fraud and abuse is rampant. Yet, the epidemic demands a collaborative solution fashioned by regulators, medical professionals, professional boards, Congress, U.S. Attorney’s offices, and law enforcement.

As part of these efforts to address the epidemic, Attorney General Jeff Sessions announced the formation of a new Opioid Fraud and Abuse Detection Unit, yesterday to help battle the opioid crisis. As part of the new Unit, prosecutors will be deployed for a 3 year term to specific Districts including:

  1. Middle District of Florida,
  2. Eastern District of Michigan,
  3. Northern District of Alabama,
  4. Eastern District of Tennessee,
  5. District of Nevada,
  6. Eastern District of Kentucky,
  7. District of Maryland,
  8. Western District of Pennsylvania,
  9. Southern District of Ohio,
  10. Eastern District of California,
  11. Middle District of North Carolina, and
  12. Southern District of West Virginia.

Recent Cases

Sessions is not messing around. More and more health care fraud prosecutions and investigations are also targeting health care providers, pharmacies, pharmacists, and sales and marketing professionals related to the prescription, dispensing, or marketing of opioids.

During the 2017 national health care fraud takedown, in Houston, a doctor and clinic owner were accused of a conspiracy to distribute and dispense controlled substances in connection with a purported pain management clinic that is alleged to have been the highest prescribing hydrocodone clinic in Houston, where approximately 60-70 people were seen daily, and were issued medically unnecessary prescriptions for hydrocodone in exchange for approximately $300 cash per visit. In Iowa, 5 individuals in were arrested for distribution of opioids, and in Tennessee, three defendants were charged in a scheme involving fraudulent billings and the distribution of opioids.

In the last year, federal prosecutors in Boston, Miami, and New York obtained indictments against pharmaceutical sales representatives alleging that they received and paid kickbacks in connection with speaker programs promoting Fetanyl sprays (an opioid).

Further, this does not include any of the dozens of compounding pharmacy fraud investigations and prosecutions involving the prescription and dispensing of pain creams containing controlled substances, for example, ketamine.

Unit Driven by Data

What is also interesting about the new Unit is that investigations will rely heavily on data:

“I am announcing a new data analytics program – the Opioid Fraud and Abuse Detection Unit. I have created this unit to focus specifically on opioid-related health care fraud using data to identify and prosecute individuals that are contributing to this opioid epidemic. This sort of data analytics team can tell us important information about prescription opioids—like (1) which physicians are writing opioid prescriptions at a rate that far exceeds their peers; (2) how many of a doctor’s patients died within 60 days of an opioid prescription; (3) the average age of the patients receiving these prescriptions; (4) pharmacies that are dispensing disproportionately large amounts of opioids; and (5) regional hot spots for opioid issues.

Indeed, the Government’s use of data mining has become an indispensable part of its effort to combat health care fraud and drug diversion. Data never tells the whole story though. As an example, a patient may have died within 60 days of a prescription for an opioid from Doctor X but that same patient may have procured diverted opioids on the black market and overdosed. Item (4) will also require a geographical comparison of Pharmacy X to other pharmacies in that area. Who decides what is “disproportionate” though? Another metric, which the Unit will likely incorporate, might be the rate of out of state patients procuring prescriptions from Doctor X and/or the rate of out of prescriptions dispensed by Pharmacy X to out of state patients.

Pre-Trial Diversion Eligibility for Addicts Requiring Recovery and Treatment

It would be a step in the right direction if US Attorney’s Offices in these high volume opioid districts also treated addicts found in possession of opioids with a degree of leniency and offered pre-trial diversion programs contingent on completion of drug recovery programs. Such diversion programs are much more common in state courts but in the District of New Hampshire, for example, which is not included on this list, Oxycontin addicts are potentially eligible for pre-trial diversion. If Sessions really wants to take the lead on this issue, there must be a level of compassion afforded to true addicts. Imprisonment is not the answer.

Pharmacies, Clinics, DEA Registrants, Pain Management Physicians, and Sales and Marketing Professionals

If you regularly prescribe, dispense, or promote medications containing opioids – especially in one of the geographic areas listed as a hot spot region –you should be aware of the formation of Sessions’ new Unit and should take steps to reevaluate and reassess internal controls, auditing, and compliance functions.

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Article Published by Health Care Fraud defense attorney Andrew Feldman

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Health Care Fraud defense attorney, Andrew S. Feldman, published an article in the ABA Health Law’s monthly E-Source publication, A Cardiologist’s Recent Acquittal Should Send a Message With Respect to Future Medical Necessity Prosecutions. A link to the article is included here.

 

As reinforced throughout the article, the Government prosecuted a cardiologist for health care fraud related to a cardiologist’s decision to place heart stents in particular patients suffering from coronary heart disease. In such cases, a vigorous Health Care Fraud defense is critical. Indeed, the Government, in general, has increased the quantity and scope of medical necessity prosecutions. Simply put, a medical necessity prosecution is, simply put, a prosecution based on the theory that the service provided by the individual health care provider or physician (e.g. cardiologist, dermatologist, urologist, dentist, or spinal surgeon) was medically unnecessary. Whether or not a service or good is reasonable and necessary dictates whether the Government or a commercial payor will pay the physician’s tab. What the Government is saying is that you submitted your bill but we do not think we should pay because you are asking us to pay for services you say you performed but which we claim are unnecessary.

 

This is nothing new. What is new are prosecutions like the prosecution against Dr. Richard Paulus. A prosecution that, candidly, should have been declined at the investigative phase but instead prosecutors doubled down with a False Claims Act prosecution without a whistleblower on the exact same facts. The centerpiece of the Paulus indictment was that Dr. Paulus had performed cardiac stent procedures which were unnecessary to justify billing for these expensive cardiac procedures. In civil and criminal health care fraud land though, there must be a lie. What was the lie? According to the Government, it was the amount of blockage – the degree to which a heart valve is blocked and cannot circulate blood to the rest of the body – recorded by Dr. Paulus after his interpretation of patient angiograms.  One problem (and there were a few) with that theory in Paulus’ case was that “expert” opinions on the degree and percentage of that blockage were all over the map – 20%, 40%, 70%, 80%. The Government experts also disagreed with one another on this critical issue.  There was no clear financial motive, there was no evidence of destroying or concealing evidence, there was no evidence that Dr. Paulus recorded or directed others to record false patient symptoms to justify any of the cardiac stents. As the district court underscored in the Order entering a judgment of acquittal following trial – the health care fraud statute is “not intended to penalize a person who exercises a health care treatment choice or makes a medical or health care judgment in good faith simply because there is a difference of opinion regarding the form of diagnosis or treatment.” 

 

Hiring a Health Care Fraud defense attorney is an important decision. The Feldman Firm would welcome the opportunity to assist you if you are under investigation for or if you have been accused of a health care fraud offense. 

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Government Continues to Investigate Laboratories for Violations of Anti Kickback Statute

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The Government continues to aggressively investigate whether laboratories have engaged in violations of the anti kickback statute. 

A few weeks ago, the FBI raided Proove Laboratories, a laboratory in Southern California, specializing in genetic testing to determine a patient’s likelihood of becoming addicted to opioids, based on genetic tests and questionnaires. The FBI also raided offices of doctors in Kentucky, Florida, and California whom had enrolled patients in Proove’s genetic testing studiesThe genetic testing was used to determine whether a patient may be predisposed to certain drugs, including opioids. Testing is also designed to identify the best pain medication possible for the patient based on their genome. Proove also claimed that testing was peer-reviewed and resulted in significant relief for a high percentage of its patients.

Reports indicate that the raid of Proove was triggered, in part, by Proove’s patient registry. According to another article, Proove maintained patient engagement representatives on site including at Benefis Pain Management Center in Montana.  Benefis was previously connected to Confirmatrix, a laboratory run by a convicted felon in Georgia, after the FBI raided Confirmatrix. Confirmatrix was receiving urine tests from patients at Benefis and Confirmatrix (prior to its filing for Chapter 11 bankruptcy) was believed to receive the highest Medicare reimbursements per urine test of any lab in the United States.

An internal legal memorandum from Proove’s counsel has also surfaced. The Memorandum discusses why, according to internal counsel, the lab’s compensation arrangement with physicians does not violate the anti kickback statute or implicate any of the concerns from an OIG Special Fraud Alert Bulletin in 2014  discussing the application of the anti kickback statute and the uptick in fraud with respect to patient registries and enrollment in clinical studies.

Several things are significant here:

Advice of Counsel Defense: Proove seems to have set the stage for an advice of counsel defense to any accusation that they violated the anti kickback statute or other health care fraud and abuse laws. Advice of counsel defenses have become increasingly common as a weapon of choice for defense attorneys with clients facing accusations that that violated the anti kickback statute.

Focus on Laboratories: OIG and FBI continue to focus on laboratories, whether the purpose of the testing is to detect cardiovascular disease, accurately prescribe medication (pharmacogenetics), deter relapse through urinalysis testing, or to accurately prescribe pain medications that do not pose a heightened risk of addiction to the patient. The Government is also focusing on relationships and compensation arrangements they believe might run afoul of the anti kickback statute, including, but not limited to, physician relationships with laboratories, relationships between marketers and laboratories, medical directorships with laboratories, and laboratory relationships with substance abuse and drug treatment centers.

Marketing: The Government has continued to increase investigations and prosecutions related to unlawful sales and marketing arrangements. While it is far too premature to predict, the Government may take the position that the “patient engagement representatives” were improperly recruiting patients for expensive laboratory testing in violation of the anti kickback statute and claim that the literature supporting the tests and their efficacy was, at best, questionable. The Government has already taken similar positions in compounding pharmacy investigations and prosecutions related to sales and marketing arrangements. In those cases, Tricare, through its Pharmacy Benefits Manager (PBM), Express Scripts, was reimbursing providers for pain creams, scar creams, and anti-wrinkle creams at “astronomical” rates from 2012 until May of 2015 when Tricare and Express Scripts revamped the pre-screening rules and requirements for submitting claims for compounded medications.

Opioid Epidemic: The opioid epidemic has gained national attention. Florida even has declared it an emergency. Thus, it is reasonably foreseeable that the Government will continue to target laboratories and health care providers that prescribe, dispense, market, manufacture, and distribute opioids.  Similarly, the Government and Florida will continue to ramp up efforts to combat perceived widespread corruption related to the treatment of persons addicted to opioids – whether it be sober homes, substance abuse treatment centers, recover residences, or laboratories.

The jury is still out on whether the Government will adopt a measured approach to the opioid epidemic which balances the needs of patients experiencing real pain and addicts whom, in some cases, might require medication assisted treatment, with the need to combat fraud and abuse and the pharmaceutical diversion which compromises patient safety.

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