Healthcare Fraud and Abuse: It’s Starting to get Personal- Their Money vs. MY Money

 In Blog, Healthcare

There’s an old saying that goes something like this:  “I don’t mind spending your money, or their money.  But, when it comes to you spending my money, well that is a different thing altogether now.”


In matters of healthcare fraud and abuse, when governmental investigators and insurance companies dig around, make demands for repayments, and assess penalties and fines, this mindset has long been the reaction of the health care industry and its individual owners, executives, entrepreneurs, and even physicians.  That reaction is understandable given the fact that, in many notable cases (including the recent and infamous Halifax and Tuomey cases), the consequences of violating fraud and abuse laws have been borne primarily by organizations, rather than individuals.  No one likes the costs and expenses of defending against fraud and abuse allegations, no one likes making huge repayments or paying fines or settlements, but so long as the money involved is someone else’s money, the unpleasantness is at least tolerable.

Over the past year or so, however, it has become quite clear that the line between “their” money and “my” money (at least for physicians, health care company owners,  executives, entrepreneurs, and others involved in the provision of health care) is about to be blurred, especially if the government and large insurance companies have their way.

Consider the following:

  • In June 2015, the OIG issued a Fraud Alert entitled “Physician Compensation Arrangements May Result in Significant Liability.”  The Fraud Alert begins, “Physicians who enter into compensation arrangements such as medical directorships must ensure that those arrangements reflect fair market value for bona fide services the physicians actually provide.”  Later, addressing compensation “schemes” recently found to have violated fraud and abuse laws, the Fraud Alert provides that physicians can be “an integral part of the scheme and subject to liability.”
  • In September 2015, U.S. Deputy Attorney General Sally Quillan Yates issued a memorandum that quickly became a hot topic of conversation among healthcare attorneys and health care executives, entrepreneurs, and physicians as a result of its notice that the Department of Justice will begin to more aggressively pursue individuals involved in perpetrating health care fraud and abuse.  That memorandum, entitled “Individual Accountability for Corporate Wrongdoing,” has quickly become known as the “Yates Memo.”
  • Insurance companies nationwide have unleashed a flurry of litigation alleging improper payment schemes, overpayments, fraud, etc., and they are seeking to recover from culpable individuals, not merely organizations submitting claims.  Google “Cigna v. Sky Labs” or “State Farm vs. Physiomatrix,” which are just two of many examples.

While the Yates Memo, in particular, should be carefully reviewed by anyone involved in the provision of healthcare services, a close analysis of the memo is beyond the scope of this blog post.  In relevant part, however, the Yates Memo sets forth new guidelines to be followed by Department of Justice attorneys in cases involving fraud and abuse by an organization, including the following that should send shivers down the spines of corporate executives and physician contractors:

  • Both criminal and civil corporate investigations should focus on individuals from the inception of the investigation.
  • Corporate cases should not be resolved without a clear plan to resolve related individual cases.
  • Civil attorneys should consistently focus on individuals as well as the company and evaluate whether to bring suit against an individual based on considerations beyond that individual’s ability to pay.

To boil it down even further:

  • Focus on individuals from the outset
  • Corporate cases should not be resolved without addressing individual responsibility
  • Ability to pay is not determinative

I recently returned from the ABA Health Law Section’s 17th Annual “Emerging Issues in Healthcare Law” conference, at which several sessions addressed the growing trend of personal responsibility and accountability in health care fraud and abuse cases.  For example, an Assistant U.S. Attorney reported that her office would shortly issue press releases regarding settlement agreements in which the settling parties are individuals as well as companies, and that she felt that this would be the norm, not the exception, in the future.

…individuals need to be prepared for the likelihood that they may become personal targets in an investigation involving an organization with which they are associated.

So, what does this mean for individual physicians, owners, executives, and entrepreneurs?  At a minimum, it means that individuals need to be prepared for the likelihood that they may become personal targets in an investigation involving an organization with which they are associated.

What does that preparation involve?  At a minimum, once it becomes clear that a company is in the crosshairs of an investigation, each executive, physician, owner, etc. should ask himself or herself, “Is counsel acting on my behalf or on behalf of the company?”  It is rare that company counsel is able to act on behalf of individuals associated with the company in connection with an investigation.  As such, in many cases individuals associated with the company will need separate and independent counsel.

Importantly for such individuals, most states’ corporate codes and limited liability company acts provide for statutory indemnification of, and advancement of expenses for, officers, directors, employees, and other persons acting on behalf of a company.  What that means is that a company may, and in some cases, must, indemnify and defend its officers, directors, and others acting on its behalf against proceedings brought against such persons in their capacities as representatives, agents, etc. of the company, including in many cases by paying for independent counsel to represent such persons.  Additional protection is often found in corporate bylaws and limited liability company operating agreements, in executive and physician employment agreements, in separate director and officer indemnification agreements, and even in general or professional liability insurance policies.

Given that healthcare fraud and abuse statutes often provide for civil and/or criminal penalties (and imprisonment!), multiple damages and exclusion from federal health care programs, and that the costs of investigating and defending a fraud and abuse case can be staggering, individuals associated with a company under investigation should in many cases ask for independent counsel as soon as possible after the commencement of the investigation, and for the company to cover their attorneys’ fees.  The Yates Memo recommends that prosecutors focus on culpable individuals from the beginning of the investigation, and that settlements should not be entered into without resolving individual responsibility, so timely participation of independent counsel in the investigation and resolution process is key.  In short, individuals failing to seek independent counsel at an early stage of investigation are acting at their own peril, and putting their own money at risk.

Photo credit: kkojang via

Recommended Posts

Leave a Comment

Bird NestNew Partnership Audit Rules from SRVH Law in Nashville TN