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It is a “perfect storm” of corporate governance enforcement. The U.S. Department of Justice has brought a case under the False Claims Act (FCA) against Christi Sulzbach, the former general counsel of Tenet Healthcare Corp., seeking millions of dollars based upon her actions as chief compliance officer. The case offers an enlightening � and frightening � look at the cumulative impact of some important trends in corporate enforcement in the past two decades. The question is whether this is sensible targeting or government overreaching. At the heart of the case is Tenet itself, a poster child for both the pros and cons of the 1990s acquisition fever in health care. Tenet was formed in 1995 by a merger of two other health care giants, NME and AMH. It touted its ability to cut costs and increase revenues. By 1999, it owned and operated some 130 hospitals in 18 states. Sulzbach rode that wave: In 1999, she was promoted to GC; in 2002, the year before she left, her compensation was well more than $1 million. In the early 1990s, Congress passed a series of laws, known as the Stark Law, to prohibit a wide range of “kickback” relationships in health care. (A doctor should refer a patient according to that patient’s needs, not because a referral benefits the doctor financially.) In June 1994, NME paid a then-record $379 million settlement to the government for, among other things, illegally paying for referrals. Sulzbach was NME’s in-house counsel at the time, and she signed the settlement agreement. In 1993-94, North Ridge Medical Center, an NME hospital in Florida, hired 12 doctors. However, they were hired for unreasonably high salaries: some two or three times their prior compensation, far above market value and what their own practices would support. A necessary outgrowth of the corporate governance frenzy during the 1990s was an explosion of “internal investigations” into governance issues. In February 1997, a Tenet executive wrote a memo and then met with Sulzbach, expressing concern that these North Ridge physician contracts were really unlawfully paying for referrals. Sulzbach brought in outside counsel to investigate and, in June 1997, received their report confirming the executive’s fears: The contracts violated the Stark Law. The report was privileged and not disclosed to the government. Another challenge in corporate governance enforcement: Individual cases and penalties are necessarily retrospective, so how do we push companies to do better in the future? The use of corporate integrity agreements grew, imposing as part of the resolution of a case a variety of ongoing programs, procedures and reporting to help guide corporate conduct. NME’s 1994 settlement included one of the earliest. As part of that agreement, Sulzbach, as corporate integrity program director, each year signed a sworn declaration that the company was in compliance with the law. In June 1997, just four days after receiving the report from outside counsel confirming the illegal North Ridge relationships, she signed that declaration. In June 1998, she signed it again. In the 1990s, whistleblower cases became a potent weapon against corporate wrongdoing. In May 1997, about the same time as the outside counsel report, a qui tam case was filed alleging that the North Ridge contracts were illegal kickbacks. Despite knowing that these charges were true, Tenet vehemently denied them. It did not turn over the reports, claiming privilege. Tenet finally settled on the eve of trial in 2004. One of the recent and controversial enforcement trends involves the government pushing companies to waive the attorney-client privilege as to internal investigations and other documents as part of a settlement. Last year, Tenet settled another case with the government involving Medicare fraud, agreeing to pay $920 million. It also agreed to turn over previously withheld documents, including the outside counsel reports. The trend now is to hold in-house counsel accountable for corporate governance. The Sarbanes-Oxley Act and other new laws dramatically increase their roles � and risks. In this case, the government has taken another approach, which should cause all in-house counsel to sit up and take notice. The claim is that, by filing false compliance declarations that hid these illegal physician relationships, Sulzbach caused the government to pay millions of dollars in claims that it should not have, and that she should have to pay that money, plus treble damages and other relief. The government’s use of the FCA against a lawyer who had no involvement in the claims is a stretch. Some of its normal approaches were not available to address these 10-year-old declarations: Filing false declarations is a crime, but these were well outside of the statute of limitations. But the use of the FCA here is the product of the extraordinary progression of developments in this area. Moreover, it puts the emphasis squarely on the money: If she lied to keep her company � and herself � from losing money, a multimillion-dollar penalty will say, in the same language, that that was the wrong choice. The Sulzbach case provides a fascinating insight into the evolution of corporate governance issues. One development has layered on top of another to present a frightening new reality. When Sulzbach was promoted to GC, Tenet’s chief executive officer said she had “a deep understanding of the legal and ethical issues that are so important in health care.” That understanding may prove to be not nearly deep enough. Her case should be a wake-up call for all lawyers � inside and out. Dan Small is a trial partner in the Miami office of Duane Morris. A former federal prosecutor, he wrote the American Bar Association books Preparing Witnesses (2d edition, 2004) and Going To Trial (2d ed. 1999). He is a frequent media commentator.

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