Paving the road to corporate compliance

Chartering corporate ethics committee is essential

By Van R. Mayhall Jr.

Breazeale, Sachse & Wilson, LLP

Baton Rouge, LA

In recent years, state and federal governments' commitments to health care spending grew substantially as health costs spiraled upward. As a result, Congress reacted to claims that the federal government was allegedly bilked out of millions of dollars due to unethical or fraudulent schemes in the health care and other industries by adopting legislation to combat such practices, including amendments to the existing Civil False Claims Act (CFCA).

The CFCA was established as an efficient means for government recovery in these cases through both government and private action. The CFCA permits individuals to institute'qui tam' actions on behalf of the government. If privately initiated actions are successful, the individual is entitled to a portion of the recovered funds.

The CFCA and similar laws now permit the federal government and/or private individuals to file claims resulting in judgments against health care providers that may include treble damages, attorneys' fees, court costs, and certain penalties.

Civil penalties can range from $5,000 to $10,000 for each fraudulent claim. Since the principal amendments made to the CFCA in 1986, the'qui tam' litigation has increased 10-fold. Qui tam recoveries have exceeded $1.8 billion since that time, with health care providers involved in about a third of these recoveries.

The Office of Inspector General (OIG) of the Department of Health and Human Services encourages developing a voluntary compliance program as a significant factor in the battle to reduce fraud and waste in federal and state health care programs.

A compliance program is a comprehensive strategy to ensure that an organization systematically complies with applicable laws relating to its business activities, including CFCA. Corporate compliance programs can be beneficial to the health care provider in a number of ways, including avoiding exposure in the first instance, by identifying practices that lend themselves to such claims.

Similarly, compliance programs can have the effect of reducing potential fines and can be a critical consideration if federal sentencing guidelines are an issue. Further, the OIG takes the position that a sincere effort by a health care provider to better comply with federal laws and regulations through an effective compliance program will be a mitigating factor toward reducing a provider's administrative liability under OIG jurisdiction.

The OIG supports reduced penalties for providers when it can be demonstrated that the provider had an effective compliance program in place before a criminal or civil investigation began. In addition to helping to identify and ferret out criminal and unethical conduct and potentially reducing administrative, civil, or criminal sanctions that may face a health care provider if violations occur, corporate compliance programs are touted as providing a more accurate view of employee behaviors.

Compliance programs also help personnel make sound decisions and provide for the efficient dissemination of information relating to both government requirements and changes in government requirements. Compliance programs also establish a structure that encourages employees to report concerns internally rather than externally.

A corporate compliance committee, created pursuant to a corporate compliance program, may be charged with developing an ethics program, a corporate code of ethics, hiring a corporate compliance officer, and implementing minimum standards of conduct.

Many hospitals have taken the added steps of establishing a code of ethics and standards of conduct. These documents help the hospital demonstrate to the community that it doesn't tolerate fraud and takes the matter seriously.

The government encourages high-level involvement by the board of directors and the hospital's senior management and suggests that an effective corporate compliance committee oversee the compliance program. The committee should include individuals with varying perspectives on the organization's business, including the following departments:

· operations;

· finance;

· audit;

· human resources;

· medicine;

· legal;

· employees and managers of key operating units.

High-level involvement from members of the hospital's board of directors, chief executive officer, and other ranking members of management also is encouraged. In practice, however, corporate compliance committees often comprise senior management and relatively few, if any, of the hospital's board members.

The compliance program should consider how to accomplish the systemic funneling of information in these important areas to the hospital's governing body - the board of directors. One possibility is the existing ethics committee established by the board of directors that includes board members as well as members of management. In the past, ethics committees have focused principally on matters dealing with medical ethics and ethics in the delivery of services to patients.

The ethics committees, however, provide a real link directly to the board of directors on ethical matters and should be considered to oversee corporate compliance programs and corporate compliance committees.

In charging an ethics committee with such a responsibility, an ethics committee charter is crucial. (To see what should be included in a charter, see the sample charter inserted in this issue.) The ethics committee will be responsible for overseeing compliance measures that may ultimately have an extremely substantial impact upon the hospital, its finances, and its personnel. The ethics committee charter should be adopted by the board of directors - it will constitute the board's direction to its ethics committee.

The document doesn't have to be complex or long. It should touch upon the organization of the committee and should include a statement of policy both with respect to the functions of the committee and should emphasize the relationship between compliance, ethics matters, and the accomplishment of the mission of the hospital.

The general responsibilities of the ethics committee, along with its authority, should be set forth with some minimum detail. The committee should adopt procedures to make sure that these responsibilities are fulfilled and appropriate information reported to the board of directors.

Normally, an ethics committee would have the authority to investigate matters within the scope of its duties, and would be empowered to retain necessary professionals to assist it. It would oversee corporate, business, and medical ethical compliance activity and monitor compliance with significant laws and regulations affecting ethical considerations.

This would include adherence to the code of business conduct and the standards of conduct adopted by the hospital. The ethics committee should, either periodically as a group or through a representative, meet with the board of directors and render a report on the status of these matters within the hospital.

A properly chartered ethics committee of the board of directors of a health care provider can be invaluable in bridging the final link between corporate compliance committees at the management level and the governing body of the hospital, its board of directors. A properly drafted ethics committee charter is essential for such a committee to attain the level of performance that will be required of it.

[Editor's note: For more information on developing an ethics committee charter, contact Van R. Mayhall, Jr. at Breazeale, Sachse & Wilson, One American Place, 23rd Floor, P.O. Box 3197, Baton Rouge, LA 70821. Telephone: (504) 381-8009. Fax: (504) 387-5397. E-mail:]