1 Volume Eleven Number Seven Published Monthly Meet Stephen J. Sugrue, Chief Compliance Officer and Counsel Orange Regional Medical Center, Middletown, NY 14 HCCA s Upcoming 2009 Conferences Learn more on 10 Register now at Feature Focus: Medicare s new mandatory reporting requirements for liability insurers 20 Earn CEU Credit see 34 Zone Program Integrity Contractors coming to a provider near you 36
2 COMPLIANCE Health care providers and whistleblowers: Basics on protections and investigations of misconduct By James W. Michalski and William Pannier Editor s note: James W. Michalski is Senior Counsel and William M. Pannier is an Associate in the Los Angeles offices of Holland & Knight. Mr. Michalski may be reached by telephone at 213/ or by at Mr. Pannier may be reached by telephone at 213/ or by at Health care continues to draw the attention of the Department of Justice (DOJ). Since Congress strengthened the False Claims Act (FCA) in 1986 (31 U.S.C ), efforts to root out fraud against governmentfunded programs have resulted in recoveries totaling more than $21 billion, and, in recent years, much of that has come from the health care industry. 1 Company-enacted compliance and ethics programs have become vital tools to help health care facilities and health care providers do things right. Training, internal controls, and other safeguards often prevent misconduct from happening in the first place, conduct such as off-label drug marketing, kickbacks to induce drug or device purchases, fraudulent charging and billing practices (e.g., failing to pay rebates, inaccurate coding, and other mischarging), as well as submitting claims for services that were not provided or were not medically necessary. And when an issue does arise, the compliance program enables organizations to investigate and correct problems internally, before they are reported to the government, and, when appropriate, to disclose violations to the government and negotiate a favorable settlement. Beyond a company s compliance and ethics program, the federal False Claims Act and its state counterparts give private citizens ( relators ) an incentive to uncover fraud and file suit on behalf of the government against those who have falsely or fraudulently claimed government funds. Proposals to amend the civil FCA, currently making their way through Congress, will expand the scope of liability under the FCA, eliminate a number of currently existing defenses, and significantly increase the resources of the DOJ and other enforcement agencies available to pursue FCA claims. If the suit is successful, the relator may recover up to 30% of the proceeds. In fiscal year 2008, relators in federal cases were awarded nearly $200 million. 2 Although employees are encouraged by compliance and ethics programs and applicable law to report perceived improprieties and many of them do retaliation or reprisal may still be a very real concern for many with information about potential violations. Whistleblower protections Federal. Health care industry employees are protected from being disciplined for the good faith reporting of any potential violation of state or federal law. Under the Deficit Reduction Act of 2005 (DRA), detailed information must be provided to health care industry employees about the False Claims Act and state laws pertaining to civil and criminal penalties for false claims and false statements. They must also be advised about substantial protections for whistleblowers. The DRA also directs that these protections be detailed in the company s written policies and employee handbook. In addition, company policies and the FCA itself provide protections for whistleblowers. An employee who is discharged, demoted, suspended, threatened, harassed, or discriminated against for initiating a false claim action, participating in an investigation, or providing testimony is entitled to any relief necessary to make that employee whole, including reinstatement, 200% of his or her back pay plus interest, and compensation for any special damages caused by the discrimination, including litigation costs and reasonable attorneys fees. 3 And to the extent American Recovery and Reinvestment Act of 2009 funds are involved, a whistleblower is also entitled to protection under that statute. Retaliation against a whistleblower is a serious threat to the integrity of a compliance program. It is therefore essential that whistleblower protections are respected by all employees, from high-level managers and supervisors to the rank-and-file. State. State FCAs likewise protect whistleblowers. For example, California s False Claims Act, 4 prohibits an employer from interfering with an employee s disclosure of information in connection with a false claims suit or to a government or law enforcement agency. Moreover, the employer cannot discharge, demote, suspend, threaten, harass, or mistreat an employee for making a disclosure to a government or law enforcement agency or in furtherance of a false claims action. And California s False Claims Act entitles an employee who is wrongly treated to the relief afforded under the federal False Claims Act, described above. Many other states now have similar provisions, and more are being enacted all the time.
3 Specific whistleblower protections for health care Health care workers also enjoy unique protections in many states when they blow the whistle about patient care and safety issues. As a matter of public policy, states such as California extend whistleblower protections in order to protect patients and assist those accreditation and government entities charged with ensuring that health care is safe and effective. 5 Thus, a health care worker is not to be treated differently for reporting a problem, refusing to violate the law, or participating in an investigation or government proceeding. Consequences of reprisal. A person who intentionally engages in acts of reprisal, retaliation, threats, coercion, or similar acts against a person who has made a protected disclosure may be subject to discipline, civil liability, and criminal penalties. 6 And, of course, a whistleblower who is wrongly treated may also file a complaint or grievance against his or her employer. Practical tips regarding investigations What follows are some fundamental issues to consider when learning of a whistleblower complaint and the decision to launch an internal investigation has been made. Note that not every claim of misconduct warrants a formal internal investigation, but any alleged matters that involve potential civil, criminal, or regulatory penalties certainly should be investigated and a full determination of the merits of the claim made. The same can be said even in the absence of potential penalties where significant harm to the employer s reputation or brand is at stake. Obviously, the more significant the potential consequences, the more important an appropriate internal investigation becomes. In close cases, or when in doubt, it is better to conduct an investigation rather than leave the factual underpinnings of a claimed malfeasance unexplored. If the allegations could expose the organization to a serious risk of civil or criminal penalties, substantial damage to its reputation, or its right to continued participation in government health care programs, investigations should be undertaken by outside counsel with the protection of the attorney-client privilege. What follows are only some basic points, as a more thorough discussion is beyond the scope of this article. n Taking both internal and external complaints seriously The employer s attitude toward, and investigation of, a whistleblower claim can be as critical as the underlying merits of the report itself. Whistleblower claims may arise either internally or externally. Internal whistleblower claims are raised by employees who report to their supervisor or higher management, by identification during an auditing process, or often through anonymous hotline calls. External whistleblower claims generally arise from unhappy current or former employees and involve allegations of misconduct directly to government regulatory bodies or criminal authorities. External complaints can sometimes occur as a precursor to, or in the in the course of, a lawsuit by the individual against the company. Employers are cautioned that even where a whistleblower claim is internally reported, the employer must take the matter seriously, because failure to treat it appropriately can quickly result in a report to a governmental entity or law enforcement authority. n Whistleblowers must be protected from retaliation As a threshold point, the employer should recognize that when the whistleblower is a current employee, under all circumstances, he or she must be protected from any form of retaliation at any time. A critical immediate element of any employer s response is to ensure that its management understands that any current employee who acts as a whistleblower must be protected from any form of retaliation. As a general rule, the relevant statutes that are designed to protect against fraud and abuse also provide whistleblowers protections against retaliation in any form. Also, the common law of most states allows for a claim of wrongful termination, demotion, or other adverse employment action when such action is taken in retaliation against a whistleblower for reporting malfeasance. Retaliation against an employee making a good faith claim will provide grounds for an employment law lawsuit by the employee even if the investigation reveals that the alleged and reported misconduct did not actually occur. Only where an employee is proved to have knowingly made a bad faith or false claim may he or she be subject to discipline or termination. n Following the facts where they lead The internal investigation should be prepared to follow the facts where they lead, even if that means expanding the scope of the investigation. Taking the matter seriously, whether internally or externally reported, means conducting a prompt internal investigation that will, at a minimum, identify: o whether the particular misconduct alleged did occur, o who in the organization was involved, o who in the organization knew of the misconduct, o what steps were taken, if any, to prevent the misconduct, o whether the conduct involved intentional or reckless misconduct, and o whether any director, officer or managing agent of the organization personally engaged in the misconduct, condoned it, or ratified it. Continued on 28 27
4 Health care providers and whistleblowers: Basics on protections and investigations of misconduct...continued from 27 Although officers and directors are easily defined, who is a managing agent often depends on each state s case law defining the term. For instance, the California Supreme Court has defined a managing agent as those corporate employees vested with substantial discretionary authority over decisions that ultimately determine corporate policy regarding the matter at issue. 7 Whether any director, officer, or managing agent was involved is important, because this generally exposes the organization to punitive damages or multiple damages. Note also that the scope and course of an investigation is most often a fluid process. The scope of the investigation likely will be expanded or contracted as the investigator works, and the information gathered from witnesses and documents is analyzed. n Gathering information Investigations should begin promptly and be conducted expeditiously to gather all relevant information. Once the decision to conduct an internal investigation is made, threshold procedural decisions should be made immediately, (i.e., who will direct and oversee the investigation, who will conduct the investigative activities, who will be interviewed, and what will determine the order of interviews). Care must be taken to promptly preserve and secure all potentially relevant documents, both hard copy and electronic. Failure to take appropriate care of records can lead to charges of spoliation of evidence and even criminal charges, such as obstruction of justice. Regardless of these logistical aspects of the investigation, investigations should begin as soon as is organizationally possible. As a practical matter, truthful allegations of misconduct generally come only after misconduct has been ongoing for some time. Lost time means the misconduct may continue, and that the consequential damages in losses, fines, or penalties will likewise increase. Most importantly, the employer s immediate response demonstrates it has taken the matter seriously, and that it has made its best efforts to investigate and stop the misconduct promptly. Swift action is powerful evidence of the company s good faith in cooperating to end misconduct, criminal activity, or both. Fast action also strongly suggests the company s internal controls and compliance program are effective, which in turn translates into either reduced civil and criminal penalties or the avoidance of a prosecution or litigation completely. Although it is important that an investigation commence as quickly as possible and be conducted expeditiously, the investigation must not be so rushed as to fail to meet its many purposes. The investigation of any whistleblower claim should, at a minimum, be sufficient to: o uncover all misconduct that may have occurred, o determine if any misconduct is continuing and, if so, how to end it, o identify what appropriate remedial action is warranted, o identify what new safeguards or measures may be necessary to prevent further similar misconduct, and o provide the company with enough factual data to frame responses to any enforcement agencies, litigants, affected customers, and (if necessary) the general public. These purposes generally will mean that the scope and course of an investigation will remain fluid until the facts discovered lead to an appropriate conclusion. Who should conduct the investigation? The identity of the investigator is a function of the seriousness of the allegations, and, typically, counsel should direct the investigation. Turning to the framework of an investigation, the first step will be determining the appropriate investigator. Complaints of minor improprieties or unintentional errors in billing or cost allocations to the government may be adequately handled by the company s Human Resources department or compliance officer. By contrast, any allegations that involve potential criminal liability or serious civil or governmental administrative penalties warrant the involvement of outside counsel. In all such cases, the employer should have its internal legal counsel (if any) or outside counsel lead the investigation. Be aware, however, that some recent cases have concluded that the attorneyclient privilege will not apply to communications to and from inside counsel. Thus, to ensure confidentiality, all serious investigations should be conducted by outside counsel. Counsel will be able to analyze the impact of the information obtained on the governing statutes, which will be fundamental in tailoring the scope and activities of the investigation to best protect the employer s interests. Advantages of engaging outside counsel Numerous issues are involved in an employer s choice to use outside counsel instead of inside counsel. Where practical, engaging outside counsel provides many advantages. First, the employer should note the use of in-house counsel, because the investigator may make the in-house counsel a witness. Even though the in-house counsel is an attorney, if an employer defends an action on the ground that it took reasonable corrective action by investigating the merits of an employee s claims and took appropriate action, this defense puts the investigation s adequacy at issue. Also, the investigating attorney sometimes must waive the attorney-client privilege and work product doctrine, so the investigation s scope and conduct may be examined. This dovetails into a second point, which 28
5 is that governmental authorities often view in-house counsel as part of the company s management that allowed the misconduct to occur. Third, use of in-house counsel in conducting or directing an investigation may result in waiver of the attorney-client privilege when the in-house counsel also serves in other roles, such as reporting the results of the investigation to outside third parties, including auditors or governmental entities. Such outside disclosures are not privileged and may act as a waiver of the attorney-client privilege and render discoverable all the investigation materials and files. Several key advantages arise from the involvement of outside counsel. Most important is the ability to maintain the confidentiality of investigative findings through the application of the attorney-client privilege and the attorney work-product doctrine. The former provides confidentiality of communications between the attorney and the client, here the employer and its management. The latter protects the confidentiality of the attorney s written notes, memoranda, and recorded observations. For example, if outside counsel acts as the investigator, his or her impressions of witnesses in interviews and information obtained may be protected from disclosure. Given the greater risks involved in the case of potential criminal or civil penalties, involvement of outside counsel to allow for the operation of the attorney-client privilege and attorney work-product doctrine protections will, in turn, allow company personnel and external witnesses to be more forthcoming in their responses. Even where it is expected that the information discovered by the investigating counsel will be disclosed, having the investigation conducted under privilege allows the company to determine the timing and scope of the disclosure. Current DOJ policy does not require the waiver of attorneyclient privilege in reporting wrongdoing to the government. Finally, where the claimed misconduct involves more serious allegations that expose the company to criminal or governmental penalties, outside counsel serves the valuable role of advising the company on how to deal with governmental agencies and prosecutorial authorities. Outside counsel experienced in negotiating with governmental agents often have credibility with those agencies and can facilitate a more favorable resolution of matters. Notifying employees of their rights and responsibilities Inevitably, some employees will need to know that an investigation is occurring. Who should know and what should these employees be told? As a fundamental rule, the employer should notify only those employees on a need to know basis. This includes only those employees believed to have potentially relevant information or documents (including s). Notice of the investigation and the employees obligations to preserve potentially relevant information should be given in writing, so that the company can document its efforts to preserve potentially relevant information. But, note that written notices may be reproduced and act to confirm rumors that may circulate. Thus, employees who receive the notice should be instructed to maintain it in confidence and not reproduce or forward it to any other person. The content of the notice will depend on the type of investigation. In any case, in the event that law enforcement interviewers will contact employees, employees should be advised of their right to have counsel present during any interview with a government agent. They should be asked to notify their supervisor or the company s counsel if they are contacted and informed that company counsel would be available to accompany them to any interview they choose to provide. They should be told that if they agree to an interview with a government investigator, they have an obligation to be truthful with the interviewers and that providing false information is a crime. Under all circumstances, employees should be admonished that the investigation and its subject matter is something not to be discussed with anyone outside the employer and only with those inside the employer who have a need to know. Status of a current employee whistleblower Regardless of whether the investigation uncovers that misconduct did or did not occur, the whistleblower is to be treated like any other employee. He or she is not immune from the application of performance standards, and he or she may be held accountable for successful completion of his or her job functions in a timely and thorough manner. Be aware that special treatment of the whistleblower may cause other employees to complaint of preferential treatment of the whistleblower. The point is, do not retaliate against any current employee for acting as a whistleblower, but do not treat him or her with kid gloves either. Apply the same performance standards to him or her as before the claim was made nothing more and nothing less. n 1 See Department of Justice release, November 10, Id. 3 See 31 U.S.C. 3230(h) 4 Cal. Gov t Code See Cal. Health and Safety Code See, e.g., Cal. Gov t Code (b) 7 White v. Ultramar, Inc., 21 Cal.4th 563, (1999). 29