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Podcast: COVID-19: Public Disclosure: Data Analytics and DOJ Enforcement in Light of the Pandemic

In this episode of Ropes & Gray’s False Claims Act podcast series, Public Disclosure, litigation partner Kirsten Mayer and her guests consider how the Department of Justice will approach FCA enforcement in light of COVID-19, and the role data and data analytics will play. Kirsten talks with Jim Dowden, head of Ropes & Gray’s white collar practice, as well as Matt Bedan and Neil Goradia of Forensic Risk Alliance. The group explores what data the government is likely to mine, including data outside of the health care space. They also provide insight into what in-house compliance functions should be doing now to mitigate risk (hint: it involves using their own data).

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Podcast: Public Disclosure: Cooperating with DOJ

Time to Listen: 23:58 Practices: False Claims Act, Litigation, Government Enforcement / White Collar Criminal Defense, Health Care

In the third episode of Ropes & Gray’s False Claims Act podcast series, Public Disclosure, litigation partner Kirsten Mayer considers the Department of Justice’s 2019 guidance to companies who face investigation under the False Claims Act. DOJ has encouraged companies to cooperate, self-disclose and remediate compliance issues, but what—if anythingshould a company expect to receive in return? Her guest is Professor Jacob Elberg from Seton Hall Law School, who handled FCA cases for the government for many years in his prior role as an AUSA and Health Care Fraud Chief in the District of New Jersey. The two discuss the DOJ guidance, what DOJ is trying to promote with it, and what the DOJ actually appears to be doing in its FCA settlements, based on Professor Elberg’s recent analysis of civil settlement agreements in his article, “A Path to Data-Driven Health Care Enforcement.” The results may surprise you.

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Kirsten MayerKirsten Mayer: Welcome to Public Disclosure, our podcast series about the False Claims Act. I’m Kirsten Mayer, a litigation partner at Ropes & Gray and your host for today’s episode. The False Claims Act is a whistleblower statue. At its most basic, it prohibits submitting false or fraudulent claims for payment to the government and rewards whistleblowers who come forward with evidence of fraud. But while the FCA rewards whistleblowers, the government gets first crack at investigating and litigating claims of fraud. To facilitate these investigations, the Department of Justice has urged defendants to cooperate. In return, DOJ has said it will take cooperation into account in evaluating the case and in any final resolution. This is a serious offer that raises serious questions. What does it mean to cooperate? What behavior is the Department of Justice trying to promote? What is DOJ giving defendants in return, if anything? In today’s episode, we welcome Professor Jacob Elberg from Seton Hall Law School to help answer those questions. Professor Elberg has been faculty at Seton Hall since 2019. Prior to that, he served for 11 years as an Assistant U.S. Attorney at the U.S. Attorney’s Office for the District of New Jersey, including for five years as Chief of the Office’s Health Care Fraud & Government Fraud Unit. He is also the author of the article, “A Path to Data-Driven Health Care Enforcement,” reporting the results of his research that we will be discussing here today.

For many years, the Department of Justice has offered guidance on what it expects from defendants under criminal investigation – including what kinds of corporate conduct DOJ wants to promote and will take into account when exercising its discretion to charge or otherwise resolve a case. As a prosecutor, Professor Elberg applied this guidance for over a decade to his cases.

Jacob ElbergJacob Elberg: From a DOJ perspective, going back to the “Holder Memo” in 1999, and the “Principles of Federal Prosecution of Business Organizations” (the “Filip Memo”), there's been guidance even beyond the sentencing guidelines about what impact on the criminal side Department of Justice would take into account, corporate entities having engaged in those compliant behaviors. When I say "compliant behaviors," I'm referring to four things: self-disclosure of misconduct, cooperating with government investigations, having in place a preexisting compliance program, and then the remedial measure of making changes and fixing a compliance program once there's an understanding of wrongdoing having taken place. On the civil side, though, until recently, there really hasn't been anything and it's left folks to wonder about what's going on there, and about what they could expect in terms of benefits for engaging in those behaviors because there really was just nothing.

Kirsten Mayer: Because civil FCA cases often have parallel criminal investigations, those of us on the defense side have used DOJ’s criminal guidance for many years as a framework for discussions about credit for compliant behaviors in civil cases, but DOJ’s criminal guidance leaves a number of questions unanswered. Last year, DOJ took a step towards filling that gap.

Jacob Elberg: In 2019, the Department of Justice, for the first time, issued a memorandum that said, "Yes, DOJ does give benefits in False Claims Act cases for cooperation, for self-disclosure, and gave some indication of what things are beneficial, what things are going to help in that analysis.” It's a really different type of memo than what folks see on the criminal side – it’s much more open-ended. It's still much more of a sense of "there will be benefits," and they say "benefits" in terms of the False Claims Act multiplier, but still not any real detail as to what those benefits look like, what kind of numbers, what kind of deductions the multiplier would entail.

Kirsten Mayer: What is uncertain is not whether DOJ wants to promote cooperation, self-disclosure, remediation and effective compliance, but rather what effect, if any, these things actually have on civil FCA cases.

Jacob Elberg: It’s not hard to find DOJ civil officials talking about those things mattering when it comes to the civil side, but how they're going to impact a potential resolution and what the benefits are is not quite as clear. It's particularly true when it comes to that idea of maintaining an effective preexisting compliance program because on the criminal side, that's right there in the sentencing guidelines: that if you have an effective, preexisting compliance program, that you get a deduction, that the entity will have to pay less money when that criminal case is resolved, for doing that. On the civil side, there's a reference to preexisting compliance programs and there being a benefit, but it's not in terms of reducing the multiplier, necessarily, at least as far as the memo reads. Instead, there's a reference to the potential benefit of the Department of Justice taking it into account when making a determination about whether the intent requirement has been met, and whether the mens rea requirement has been met for under the statute entirely.

Kirsten Mayer: So, the 2019 DOJ False Claims Act Guidance left defendants in a challenging position. Cooperation, self-disclosure, effective compliance – these can affect whether you are liable and whether you will receive credit in the form of a reduced multiplier if you settle with the Department – but what does that mean? As it turns out, in 2017, Congress opened a door that may lead to some answers. The Tax Cuts and Jobs Act of 2017 was not focused on the False Claims Act, but it included a provision that has shed light for the first time on the financial details of False Claims Act settlements.

Jacob Elberg: Here in New Jersey, where I live, there's a lot more focus on the fact that it removed folks' property tax deductions, which is a big deal. But in my house, it's a much bigger deal that the Act also required the Department of Justice, in False Claims Act cases, to express, to actually be explicit, about what portion of that resolution was restitution as opposed to coming from the multiplier. Historically, the Department of Justice just had a total figure (that end resolution figure), the entity is going to pay X, and it was left for everyone in the public to wonder what portion of that was a multiplier. Were they just paying back the money that they got, which they were entitled to? Or were they paying as much as three times what they had that they weren't entitled to, plus penalties on top of that because those are things the Department of Justice is able to get under the statute? Frankly, even defendants often wouldn't necessarily know because the government and the defendant wouldn't necessarily have a meeting of the minds as to how that resolution broke down – they might agree to the total number, but not have an agreement as to how it was calculated. That, though, changed because a provision in the Tax Cuts and Jobs Act requires now the Department of Justice to be explicit about what portion is restitution and what portion is not. That means that there's now data out there – you can look at each resolution and take that restitution number, take the total amount that's paid, and know from that, for the first time, what the multiplier is.

Kirsten Mayer: And that is exactly what Professor Elberg did. 

Jacob Elberg: I took every civil settlement agreement in health care cases that I could find, and I dug in and looked wherever I could to try to find that restitution number – and that's not always easy. One of the things that's interesting in this area still is that the civil settlement agreements frequently don't end up on the docket. They sometimes are not put out there in a way that's easy for the public to find, and then just doing that math.

Kirsten Mayer: I asked him why he took on this project – analyzing this data once it became available. From his perspective, it was about transparency. 

Jacob Elberg: When it comes to health care, the primary means of enforcement is the False Claims Act. Criminal cases obviously get a lot of attention and a lot of discussion, but there are very few criminal cases – and there are, by comparison, a really significant number of False Claims Act cases. So, when you're looking at influencing corporate behavior, when you're looking at deterring bad corporate behavior and encouraging the kind of behaviors that the government wants and that the public wants, the False Claims Act is really where that happens. And so from my perspective as a former prosecutor dealing with these cases on both the criminal side and the civil side, there's a real benefit in having some transparency here and having a greater conversation and a greater discussion about what's going on, and whether what's going on is what should be going on.

Kirsten Mayer: And transparency matters, not only for companies that face DOJ scrutiny, but also for DOJ itself.

Jacob Elberg: From my time in the Department of Justice dealing with civil health care matters, I would deal with my counterparts in various offices around the country. And as I talked to folks, including some of the other folks like myself, that were in offices that dealt with a significant number of False Claims Act cases, it was apparent that not everybody was necessarily on the same page. Not everybody was necessarily on the same page about what the standards were when it came to resolving cases, and what the standards were when it came to benefits in this area. And the same was true in terms of Main Justice, that not everybody in civil frauds was necessarily all on the same page. That doesn't mean anybody had bad intentions or anything like that, but just a lack of guidance and a lack of clarity as to what these sort of resolutions should look like in different circumstances.

Kirsten Mayer: So turning back to Jake’s research – his analysis of almost 90 DOJ FCA settlements in the health care industry. That analysis yielded some interesting and surprising results. First, he looked at the multiplier that DOJ applied to the amount of the government’s loss in those settlement agreements. Under the False Claims Act, if you go to trial and lose, you are liable for the amount the government lost times three, plus civil penalties – a multiplier of 3.0. Jake’s analysis showed that if you settle with DOJ, you should expect your payment to be based on a multiplier that is quite a bit less than what you’d face if you lost at trial.

Jacob Elberg: What I found was that the mean multiplier was 1.78, and the median multiplier was 2.0 – and so that was, I think, surprising to some folks. I published some initial findings when I was midway through this data analysis, and I heard from folks in the Defense Bar and folks from the Department of Justice. And the responses I got were really interesting, including from folks who deal with a lot of these cases because some folks were surprised by how low those numbers were, and some folks were surprised by how high they were. There were folks who just assumed that most defendants were getting lower multipliers and others who assumed that most were getting higher multipliers, which goes back to my comment earlier that it was clear from my conversations with my counterparts in other offices in the Department of Justice that everybody didn't have the same perspective as to how these cases would normally get resolved. 

Kirsten Mayer: I asked why it was significant that the mean, or average multiplier in the DOJ settlements he looked at was 1.78. His answer brought us back to the compliant behaviors— cooperation, self-disclosure, remediation, and effective compliance—the DOJ wants to promote, including through False Claims Act settlements. 

Jacob Elberg: There's a lot that I think you can take just from that, just from the mean multiplier being 1.78. One thing that I think’s important to take away from it is that, when you talk about rewarding compliant behaviors, when you think about rewarding even some things like self-disclosure, that is a huge thing for an entity to decide to do, to go self-disclose, where they haven't been caught, they haven't been accused, there isn't an investigation. For them to actually take that affirmative step of going to the Department of Justice or going to HHS and confessing that they've got a problem, one of the things you see when you look at this data is there's not as much benefit potentially out there as a lot of us might have hoped, and as some may have suspected, and this is something that was addressed in the memo in 2019 from the Department of Justice. You can only go down so far before the company's not even putting all the cookies back in the jar. A lot of these cases take years to resolve. A lot of these cases involve conduct that's years old by the time it comes to light. So if the kind of typical case that's standard is as low as 1.78, or even at 2.0, there's just not that much room to operate – there's not that much room to give those kind of benefits that DOJ has said are important benefits to give.

Kirsten Mayer: Next, we discussed how the multipliers in the settlements he reviewed were distributed within the range of what is possible under the statute. Were the government’s damages always multiplied by the same amount, or did the multiplier vary from settlement to settlement? His results were interesting here as well. You might expect a fairly even distribution ranging from under 1.0 all the way up to 3.0, the multiplier that would be applied after a trial loss. Instead, Jake found something quite different.

Jacob Elberg: So the vast majority of cases were below 2.0. We actually saw, of those 89 civil settlement agreements where you could figure out the multiplier, where I was able to discern it, 88% were at or below double damages – 44 were at double damages, and you're left with very few, just 11, that were above 2.0. So the vast, vast majority of cases resolving either at 2.0 or below 2.0 as a multiplier.

Kirsten Mayer: This was another surprising result.

Jacob Elberg: There are some folks within the Department of Justice, including in some U.S. Attorney's Offices, who have had the view that 2.5, for example, should be the standard resolution and that it should be a rare occurrence for a case to fall below 2.0. And I think there are a number of folks within the Department of Justice and then others who have relied on their statements, who have had the belief that, even if 2.0 might be the standard, that it should only be where there's really something to reward, or if there's an ability-to-pay issue or something else going on, where the resolution would appropriately fall below 2.0. But when you look at the numbers, that's not what we're seeing – we're seeing that being a common occurrence.

Kirsten Mayer: I asked Jake whether he had observed variety among U.S. Attorneys’ Offices and between U.S. Attorneys’ Offices and the Department of Justice around where the multipliers tended to fall.

Jacob Elberg: One of the things that was interesting to see when it comes to looking at it from a consistency perspective, or from a fairness perspective, is that it does look like there are differences depending on who's resolving the case. The cases where civil fraud was involved, and these are usually going to be cases where a U.S. Attorney's Office is also involved, those cases tended to have a lower multiplier than cases that were handled by individual U.S. Attorney's Offices without Civil Frauds, without the involvement of folks in Washington, and that was to a statistically significant degree. So I calculated the average multiplier, that mean multiplier, for cases where Civil Frauds, the commercial litigation branch, was involved, and then for cases where they weren't, where there were U.S. Attorney's Office only. The difference there, the mean multiplier when U.S. Attorney's Offices only were involved, was 1.86; when Civil Frauds was involved, it was 1.66 – so a difference of 0.2, and that turns out to be statistically significant. So it does look like there's a meaningful difference between those groups, and a meaningful difference when Civil Frauds is involved. It's hard to know what to make of that and why that is, but that does seem to be the case.

Kirsten Mayer: Professor Elberg’s research to this point had triggered more questions than answers. We turned back to the compliant behaviors that started our discussion. Did efforts to reward those behaviors explain the data?

Jacob Elberg: It's really hard to say. Anecdotally, there are certainly a number of cases where it is really tough to square what DOJ has been saying in terms of rewarding compliant behaviors with the multipliers that then resulted. There are individual cases where you see even the Department of Justice talking about compliant behaviors, talking even about self-disclosure and cooperation being substantial, but then ending up with a multiplier that's 2.0. Now that's anecdotal, of course, and it's difficult to know without knowing more facts, whether there's some other reason why that makes sense, and some other reason why that was appropriate. But what is clear when you start looking at the cases as a whole and looking at them each individually is it is very tough to see that benefit taking place – it is very difficult to see that impact now in any kind of across-the-board way.

Kirsten Mayer: This was not the clear answer I had hoped to hear, and it raised the question – what does this mean as a practical matter for companies that face False Claims Act risk?

Jacob Elberg: I think for defendants right now, it provides a real opportunity. I do believe, and from my own work and from everyone that I dealt with, I do believe that the Department of Justice is sincere and really does want to reward these compliant behaviors. And so I think, from a defense perspective, it would be the wrong takeaway to look at this data and say, "This means DOJ isn't valuing these things, so we shouldn't do them." I don't think that's the answer. I think, instead, it's an opportunity for everyone, and particularly for folks in the Defense Bar, to make sure that these conversations are happening and to be really addressing it head-on. I think this data gives an opportunity to defendants to say, "We engaged in this behavior, and we engaged in this behavior with the expectation that you were going to reward it. Now we want to see it. It's time now to resolve the case. And because we have this data, because we can look at this data, we can see what's going on elsewhere and other people are going to see what happens with our case. And so it's important to us, from a perspective of fairness, and it's important to the system as a whole, that our resolution be one where these things are properly taken into account." And in many cases, that's going to be an argument for a lower multiplier.

Kirsten Mayer: As we wrapped up our discussion, I asked Jake whether he sees changes on the horizon at DOJ – whether it’s likely that we will see more transparency, more concrete quantification of how credit should be apportioned in False Claims Act cases. Jake thinks we will.

Jacob Elberg: I think what we're seeing with DOJ, in general, is just a trend towards transparency and a trend towards more specific assurances. And I think what we're just seeing is that the civil side is kind of late to that game and is now starting to catch up. And that type of transparency DOJ has been touting as a way of incentivizing defendants and defense counsel who have been frequently skeptical of what rewards DOJ was going to give them. The False Claims Act was an active, active area for decades, with zero transparency, with zero confirmation from DOJ that there were benefits for engaging in compliant behaviors. So now, with us seeing for the first time in 2019, this memo laying out, without numbers, the benefits for engaging in compliant behaviors, and especially with that coming at the same time that the data is now out there and it now is trackable, it does make it possible for folks to question what's going on, both publicly and individual defendants. I think what we're already seeing is more pushback from defendants, more pushback from defense counsel, wanting to know what the benefits are going to be, and I anticipate that DOJ, in the not-so-distant future, is going to recognize that that's in their interest as well. In the FCPA context, DOJ did it, in part, to try to spur self-disclosures, in the belief that folks were going to be hesitant to self-disclose if they didn't believe there were real benefits, so make that concrete, get folks to self-disclose more. I think we're going to see more of that same type of thinking when it comes to the civil side, and the belief from DOJ that they will get benefits in encouraging these behaviors that they want to encourage.

Kirsten Mayer: Professor Elberg, thank you for joining me today. And thank you to our listeners. For more information about our False Claims Act practice, please visit www.ropesgray.com/falseclaimsact. We'd love to hear from you about our podcast as well – you can email us at publicdisclosurepodcast@ropesgray.com. Upcoming episodes will take on kickbacks, causation and COVID-19. Be sure to tune in – you won’t want to miss it. You can subscribe to our Public Disclosure podcast series wherever you regularly listen to podcasts, including on Apple, Google and Spotify. Thanks again for listening.

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