Providers face new arsenal of anti-fraud weapons

Attorneys offer tips for responding to new breed of government investigations

The most alarming anti-fraud development facing hospitals is a growing arsenal of weapons wielded by the federal government and state investigators, warns Lou Pichini, a health care attorney with Deloitte & Touche in Philadelphia and former head of the U.S. Attorney’s Office criminal division in Philadelphia.

Pichini says the FBI and other enforcement agencies are increasingly shifting resources from organized crime and public corruption to health care. "That is happening not only with respect to the FBI, but other agencies," asserts Pichini. "It has created a highly regulated arena."

Chief among the new weapons employed by those agencies is the Health Insurance Portability and Accountability Act subpoena power that federal prosecutors now possess on top of their already existing grand jury subpoena power, says Pichini.

Assistant U.S. attorneys can now issue those subpoenas without the use of a grand jury. "That is an additional weapon to conduct these investigations," he explains.

Pichini says the result of the growing emphasis on health care fraud is that civil divisions are no longer the stepchild in U.S. Attorney’s offices. That has led to a new trend called "parallel proceedings" between the two divisions, with the civil division now on equal footing with the criminal division.

"Believe it or not, you have attorneys who are working together, and what they do is double-team you," says Pichini. "They have a civil attorney and a criminal attorney working the same investigation. That way, they get more bang for their buck and they wind up with a greater intensity."

That is not the only growing threat facing health care providers, according to Eugene Tillman of the Washington, DC-based law firm of Reed, Smith, Shaw & McClay. Determining whether to make a voluntary disclosure is another area that carries growing risks, he warns.

"There is a major dispute between the private bar and the government over whether the mere fact of nondisclosure constitutes an independent criminal offense," says Tillman.

Pichini argues that mere knowledge of a criminal offense that is not disclosed does not create an independent violation. But he says he was "mildly shocked" to hear his former colleague, Philadelphia-based assistant U.S. Attorney Jim Sheehan, take the opposite position.

Sheehan argued that, depending on subsequent action on the part of the provider, the non-disclosure may become criminal. "I don’t think that theory has ever been tested, but it is something to be aware of," warns Pichini. "This is territory in which you are really walking on quicksand."

It is easy enough to establish a list of policies and procedures for responding to government investigations, but according to Tillman, things are rarely that simple.

"It tends to sound neat and clean and clinical," he says, "but investigations are anything but predictable, and anything but the type of experience that lends itself to a cookbook approach."

On the other hand, Tillman says there are certain principles that companies can follow, so there are at least some guideposts along that path. According to Tillman, internal discoveries, such as thorough self-audits, often create an inherent tension. "It is important to realize that internal discoveries can lead to government investigations as a result of voluntary disclosures or whistle-blowers." Sometimes those internal discoveries are the result of what Tillman ironically refers to as "post-acquisition due diligence."

"It is not at all unusual that companies that do inadequate due diligence on the front end discover serious issues as integration takes place. Worse yet, government investigations can lead to discoveries that may or may not be the focus of the government’s investigation.

"Be ready, but don’t overreact," cautions Pichini. "If you are prepared for it, you will be able to react with the proper strategy and control you need to maintain your credibility," he says. "That is one of the most important things you can do."

Pichini and Tillman also recommend these steps:

- Maintain control of the sensitive documents you have in your possession and make sure they are properly restricted. "You may have a qui tam relator on your premises, which is almost like having an insider wearing a body recorder," warns Pichini.

- Establish written procedures beforehand because it is difficult, if not impossible, to do so in the context of an investigation. Tillman says employees require guidance, and suggests that guidance should be included in the company’s compliance program and compliance training.

- Evaluate all requests for documents carefully. Tillman advises that counsel should determine the legal basis for a subpoena to determine whether there are appropriate and responsible objections, including that it is too broad in scope or beyond the authority of the agency making the request.