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In May 1999, lawyers for Rush Presbyterian-St. Luke’s Medical Center in Chicago voluntarily approached federal prosecutors and told them that the hospital had overbilled the government for Medicaid and Medicare patients. The decision to come forward was a huge step for the hospital in trying to avoid potential civil or criminal charges and the inevitable heavy fines and negative publicity that accompany such charges. The Rush Presbyterian episode also provides a useful case study for corporate lawyers on how companies that are highly regulated by the government can avoid serious liability problems. Rush Presbyterian’s good fortune with a bad situation began with its hiring of Steven W. Ortquist as its director of corporate compliance. He conducted an internal audit without which the company probably would not have discovered its overbilling problem. “The facts speak for themselves,” says Linda A. Wawzenski, deputy chief of the Civil Division at the U.S. attorney’s office in Chicago. “Look at the way they found the problem they reported to the government. They did a baseline audit, department by department, as part of their new compliance program to make sure everyone throughout the whole organization was doing things the right way.” Wawzenski negotiated an $800,000 settlement with Rush Presbyterian in January — at least half the amount that the hospital might have paid if it had not come forward voluntarily, a hospital lawyer says. As a result of this case and others, Max Douglas Brown, the hospital’s general counsel, says, hospitals and their lawyers throughout the Chicago area are beginning to see that “owning up” to the law “rather than trying to circumvent it” can pay big financial windfalls as well as moral victories. In fact, as multimillion-dollar civil and criminal fines against America’s corporations pile up, business and legal ethics experts say, there is an increased nationwide sense of urgency to support both internal compliance efforts and the person increasingly hired to oversee it — an in-house compliance or ethics officer. It helps that many of them are lawyers, such as Rush Presbyterian’s Ortquist, who was hired in January 1999 from Muskegon, Mich.’s Lague, Newman & Irish, which specializes in health care regulatory compliance. FOLLOWING A TREND The Belmont, Mass.-based Ethics Officer Association, founded in 1992 with 12 charter members, now has a corporate membership of 727 people like Ortquist. All new EOA members must vow to adopt a companywide ethics program with teeth; that is, one based on the federal Sentencing Guidelines, with a chief ethics or compliance officer overseeing the effort. Not surprisingly, the industries most involved in compliance efforts — defense contractors and health care and pharmaceutical companies — were arguably most affected by past government crackdowns and sentencing reforms that severely punished cover-ups of corporate wrongdoing while rewarding sincere self-policing efforts. Under the current sentencing guidelines and “due diligence” standards, explains United Technologies Corp.’s vice president of business practices, Patrick J. Gnazzo, a $1 million fine can be reduced to $50,000 if a company can prove it had a bona fide compliance program in place. Similarly, the former corporate lawyer notes, punitive damages in civil whistleblower lawsuits sometimes can be best addressed through Rush Presbyterian-like voluntary disclosures of wrongdoing, accompanied by an existing anti-corruption effort. Even old scandals that threaten the company’s very existence can be turned into a winning proposition, at least in part through the hiring of the right chief ethics officer. One example is Alan Yuspeh, a former Howrey & Simon partner who became HCA-The Healthcare Co.’s senior vice president of ethics, compliance and corporate responsibility in 1997. The company was the target of one of the largest health care fraud investigations in U.S. history. Even though some civil charges are still pending, the bulk of the case was settled recently — for $95 million for the criminal case and $745 million for part of the civil case. “The fact that HCA moved aggressively in the last several years to put together a comprehensive compliance program probably had a beneficial effect in terms of the recent settlement with the Justice Department and was taken into account by the government negotiating team,” says John T. Bentivoglio, a former Justice Department lawyer who helped oversee health care fraud enforcement and now is a partner at Washington, D.C.’s Arnold & Porter. A REPUTATION FOR INTEGRITY An ethics officer’s job is much broader than just keeping company employees from breaking the law, says Gnazzo. “It is nothing short of developing the company’s reputation for doing business with integrity,” he says. The experts say it seems to be working. John R. Phillips, a well-known whistleblowers’ lawyer and name partner at Washington, D.C.’s Phillips & Cohen, explains that many such self-policing programs have proven their worth by dramatically cutting a company’s exposure to huge fines from criminal prosecutions and civil whistleblower suits under the False Claims Act. Gnazzo’s 10-year-old ethics program at United Technologies, one of the nation’s first, arguably presents a good case study. Among other things, the Hartford, Conn.-based government contractor builds aircraft engines as well as air conditioners and employs 147,000 workers in more than 180 countries. Like other defense contractors, recalls Gnazzo, the company had its share of legal disputes with prosecutors during the late 1980s. What particularly hit home, then as now, he says, were the federal Sentencing Guidelines’ seven-part due diligence standards, which were geared to mitigating potential penalties imposed. In the early 1990s, the company adopted a code of ethics based largely on those guidelines. The company also gave Gnazzo an army of 160 enforcers, called “business practice officers,” most of whom are managers around the world who work for Gnazzo part time. In addition, Gnazzo has four full-time staffers to help run his office. United Technologies already had created a worldwide confidential employee communication program that allows its workers to register complaints and report suspected wrongdoing to these and other company agents. Gnazzo says that he now handles more than 99 percent of his ethics investigations in-house because “the more people included in an investigation, the harder it is to keep the information confidential.” He explains that the general counsel’s office is tapped when special legal advice is needed. Staffers in the auditing division are used when needed to sort out financial information. Gnazzo says his company is happy with the results, even though it still gets sued regularly, regardless of its extensive self-policing efforts. Out of 50,000 internal whistleblower-like inquiries logged during his tenure, he says, 44 percent resulted in an investigation and positive change, 38 percent resulted in no change after an investigation of some sort, and 18 percent were mere informational queries. FERRETING OUT WRONGDOING? Of course, the experts warn against mere window dressing. Phillips says he’s disturbed, for instance, by a firm that recently launched a compliance program whose sole goal appears to be to ferret out evidence of wrongdoing — and to “shred it.” Yuspeh is one who thinks it’s important for the ethics officer to have a legal background if complying with complex government regulations is involved. A recent survey shows that nearly one-third of all corporate watchdogs were once practicing lawyers, says Edward Petrie, an attorney and executive director of the Ethics Officer Association. According to Petrie, the typical corporate ethics officer these days is a “respected as well as trusted” insider, one who has been with the company for 15 years or more. He says that most of them report directly to the board of directors, the chief executive officer or a senior vice president. And, as in the case of United Technologies, they will also often work closely with the company’s general counsel or auditors. “This job may sound difficult, but really it can be reduced to the Golden Rule,” says Gnazzo. “Just don’t lie, cheat or steal.”

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