New DOJ Whistleblower Program Greatly Increases Risk
October 1, 2024
EXECUTIVE SUMMARY
The U.S. Department of Justice is implementing a new whistleblower program that focuses on healthcare. Whistleblowers could receive up to $50 million.
- The program extends whistleblower actions to private payer insurance.
- There is a 120-day period to benefit from self-reporting.
- Review and improve compliance programs now.
By Greg Freeman
A new whistleblower program from the U.S. Department of Justice (DOJ) will create more risks for healthcare organizations in areas not previously susceptible to whistleblower reports. The best defense is a thorough system that allows concerned employees to report possible fraud and prompts a meaningful response.
DOJ’s Corporate Whistleblower Awards Pilot Program is intended to uncover and prosecute corporate crime. Whistleblowers may receive up to 30% of the first $100 million in net proceeds forfeited, and up to 5% of any net proceeds forfeited between $100 million and $500 million, the DOJ reports.
That means whistleblowers may be motivated by a reward of up to $50 million.
The information related by the whistleblower must related to one of four specified categories, including “ healthcare fraud schemes involving private insurance plans.”
The DOJ notes that companies that voluntarily self-report within 120 days of receiving an internal whistleblower report may be eligible for a presumption of a declination under the Criminal Division’s Corporate Enforcement and Voluntary Self-Disclosure Policy. (More information on the program and DOJ guidance is available online at https://bit.ly/4g7UK8H.)
The new program significantly changes the risk scenario for healthcare organizations, says Justin M. Lugar, JD, of counsel with the Woods Rogers law firm in Roanoke, VA. Lugar previously was DOJ’s Civil Health Care Fraud Coordinator.
“I think it is a bit of a game changer because now there is an incentive to individuals who believe they have information about wrongdoing related not just to government-funded programs like Medicare, Medicaid, and TRICARE, but they can monetize information that they have about potential fraud relating to private healthcare payers,” he says. “Previously, you would be limited under the False Claims Act to just damages related to public payers, so this widens the net. For whistleblowers, the information that one might possess within a healthcare organization that is able to be monetized has now changed. That increases the risk for healthcare organizations,”
However, the program specifies that anyone with dirty hands (someone who participated in any meaningful way in the fraud) cannot be awarded funds as a whistleblower, Lugar notes. That is different from every other whistleblower program, he says.
Organizations that previously did not worry about whistleblowers because they accepted only private insurance now will be at risk under this program, Lugar says.
The advent of this new program is a good reason to do a self-assessment of a healthcare organization’s compliance program, Lugar suggests. Assess compliance policies and consider developing a specific game plan for how to respond to internal allegations of fraud, he says.
“[The] DOJ is trying to incentivize companies to have strong compliance programs and strong internal reporting controls so that they can then self-disclose bad conduct that they learn about in a timely manner,” Lugar says. “But there’s a tension here, because there’s not necessarily a requirement in this whistleblower program that requires an employee or a whistleblower to go through the company’s compliance department first.
“An employee might be incentivized to go straight to DOJ, bypass their compliance department and whatever controls the company’s already set up, and go straight to DOJ before they even give the company a chance to address it.”
That means that a healthcare organization can have a robust compliance program and hotline for responding to reports and the whistleblower bypasses all thatwith the hope of earning millions of dollars, Lugar says. But even with such a big incentive, employees usually still try to report their concerns internally first, he says.
“Nine times out of 10, my experience has been that whistleblowers give a company dozens of opportunities to address potential bad conduct or concerns about fraud, and usually the ones that eventually get to the department are ones where the individual feels like the company is ignoring them or is minimizing the supposed conduct,” Lugar says.
In some cases, the whistleblower does not have all the information needed to understand that no fraud is occurring, he says, but employers often do not communicate that well and leave employees feeling like their report was dismissed.
“Now that we have this policy coming out and you have a bit of a period to adjust to it, it will be good to start crafting policies and procedures to be able to address these situations so that you don’t spend the first 30 days of your 120 trying to figure out what the problem is and what to do with it,” Lugar says.
Window to Self-Report
The 120-day self-reporting system is an important part of the DOJ program, says Joe D. Whitley, JD, partner with the Womble Bond Dickinson law firm in Atlanta. The program reflects the department’s change of mind about corporate behavior, he says, showing that they would rather pursue individuals in most circumstances for criminal conduct than they would corporate entities.
“There’s an opportunity here to preempt that by encouraging whistleblowers to come in voluntarily as opposed to going the false claims route, which doesn’t really have some of the disclosure aspects that this new pilot program has,” he says. “Once this person comes in and reports to you as a corporate entity, you have 120 days to report yourself. That creates an opportunity for the company during that 120 days to conduct its own investigation and rectify the misconduct, if there is any misconduct, and that might provide the company with a presumption for a declination of any criminal prosecution. That is a definite positive outcome.”
The whistleblower program could have the unintended effect of scaring some providers away from working with private insurers, says Paul D. Werner, JD, attorney with the Buttaci Leardi Werner law firm in Princeton, NJ. Some already avoided federal payers because of the risk of fraud charges.
“A lot of people have stayed away from federal dollars specifically because they couldn’t stomach the risk of something like that happening, especially in an environment that we see now where there is government-sanctioned bounty hunting with companies that exist solely for the purpose of surreptitiously sneaking around and finding claims that they can try to file under the False Claims Act,” he says. “Now there is this extra layer of liability even for those who have taken steps to affirmatively try to insulate themselves from that. The biggest concern is, what kind of chilling effect does this have on a on a provider’s willingness to engage with insurance companies at all?”
Werner questions whether, in that scenario, healthcare providers are going to shy away from wanting to be in that marketplace at all. That could be bad for the healthcare industry and even worse for consumers, he says.
Larger Potential Rewards
The DOJ’s whistleblower program is a significant development in the fight against corporate crime, including healthcare fraud, says C.L. Mike Schmidt, JD, with the Schmidt Firm in Dallas.
The size of the potential reward could be a strong motivator for whistleblowers, he says.
“This is a substantial increase compared to previous whistleblower incentives, which were often capped at lower amounts or limited to specific types of fraud, such as those covered under the False Claims Act,” he says. “For healthcare organizations, this program could have a profound impact. This is because it encourages greater transparency and accountability, as employees are now more motivated to report any fraudulent activities. This could lead to an increase in internal investigations and a higher likelihood of whistleblower reports reaching the DOJ.”
The potential financial and reputational damage from a whistleblower case can be significant, so organizations must take preventive measures seriously, he says. To protect themselves, healthcare organizations should implement robust compliance programs that include regular audits, employee training on legal and ethical standards, and clear channels for reporting misconduct internally.
“It’s also very important to foster a culture where employees feel safe to report issues without fear of retaliation. By addressing potential problems internally and promptly, organizations can reduce the likelihood of external whistleblower reports and demonstrate their commitment to ethical practices,” Schmidt says. “This not only helps in preventing fraud but also builds trust within the organization, as employees see that their concerns are taken seriously and addressed appropriately.”
Faster than FCA Case
The primary whistleblower program with precedent is the False Claims Act (FCA), which sets out specific legal procedures a whistleblower must follow to comply with the Act, says Brandon K. Essig, JD, a former assistant U.S. attorney and now partner with the Lightfoot, Franklin & White law firm in Birmingham, AL. The new DOJ program has no corresponding statute, but the DOJ has produced detailed guidance, he says.
“Those guidelines and processes are fine, but I expect this program will work the same way whistleblower cases under the FCA traditionally have,” he says. “That is, potential whistleblowers will mostly work through counsel to make their disclosures.”
Essig says the key difference in this program is that it will work more quickly than a traditional FCA case. Those cases can have very long fuses and include a statutorily imposed seal period for the DOJ to investigate, he says. Also, an FCA case, once it is filed, operates like typically litigated civil cases, which have much longer timelines than a criminal case.
“The investigation phase of a civil case can be lengthy, but it is not unusual to see a criminal case resolved within a year, or sometimes a matter of months, after it is filed,” Essig says. “That accelerated timeline will make this an attractive option, and perhaps a preference, for lawyers who represent whistleblowers.”
The new DOJ program creates a significant incentive for self-policing and reporting of misconduct to the DOJ, Essig says. If the company receives an internal report of fraud and reports that to the DOJ within 120 days, the company can get the benefit of the DOJ’s voluntary self-disclosure program and potentially avoid prosecution or the payment of a whistleblower award under this program.
New Class of Paid Informants
Reducing fraud, waste, and abuse is a worthy endeavor, but the new whistleblower program may have another effect, says Thomas Rea, JD, a former assistant U.S. attorney and partner with the Thompson Coburn law firm in St. Louis.
“I fear this program will be viewed as the government attempting to create a new class of paid informants currently employed by private organizations in an area where the clear, traditional federal jurisdictional hook may be lacking,” he says. “Like with any paid informant or situation where you directly incentivize someone, a reasonable expectation is to see an increase in reporting since that is what is being incentivized.”
Rea says the difficulty for the government is the “garbage in, garbage out” principle, commonly seen in the FCA context. The government has the duty and responsibility to wade through the information it receives to determine whether an allegation is worthy of action, he says, because some absolutely are and many others are not.
“At the end of the day, these are going to be time and resources issues for the government. I will be anxious to see what the cost-benefit analysis on this program looks like in one year, let alone five years,” Rea says. “I hope it is positive.”
“For any organization — especially healthcare providers — beware. You are on notice. You have employees now incentivized by the government to proactively look for other employees who may not be doing their jobs they way they should,” he says. “While the principle of reducing fraud and waste is a good one, I am not sure this is a workplace environment the government should want to proactively create through this ‘award’ program.”
This also is an important reminder to organizations to remain vigilant with your compliance efforts, he says.
“If a whistleblower beats you to the punch and a claim is truly actionable, you are immediately behind the eight ball when responding to it — a place none wants to be, especially when your opponent is the DOJ being aided by a current or former insider,” Rea says.
Sources
- Brandon K. Essig, JD, Partner, Lightfoot, Franklin & White, Birmingham, AL. Telephone: (201) 581-0738. Email: [email protected].
- Justin M. Lugar, JD, Woods Rogers, Roanoke, VA. Telephone: (540) 983-7620. Email: [email protected].
- Thomas Rea, JD, Partner, Thompson Coburn, St. Louis. Telephone: (314) 552-6329. Email: [email protected].
- C.L. Mike Schmidt, JD, Schmidt Firm in Dallas. Telephone: (866) 920-0753.
- Paul D. Werner, JD, Buttaci Leardi & Werner, Princeton, NJ. Telephone: (609)799-5150. Email: [email protected].
- Joe D. Whitley, JD, Partner, Womble Bond Dickinson, Atlanta. Telephone: (404) 888-7350. Email: [email protected].
A new whistleblower program from the U.S. Department of Justice will create more risks for healthcare organizations in areas not previously susceptible to whistleblower reports. The best defense is a thorough system that allows concerned employees to report possible fraud and prompts a meaningful response.
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