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In spite of the increasing number of civil health care investigations and settlements, there is still limited guidance for practitioners to use in planning an effective negotiating strategy — a disadvantage for the lawyer representing a targeted company. This article attempts to fill that void by outlining a basic methodology for approaching negotiations of a civil health care fraud investigation and assisting the practitioner in planning a negotiation strategy. A number of factors are outlined within the Department of Health and Human Services Office of Inspector General (OIG), “Criteria for Implementing Permissive Exclusion Authority Under � 1128 (b)(7) of the Social Security Act.” (Nonbinding guidelines, 62 Fed. Reg. 67392, Dec. 24, 1997; initial proposal at 62 Fed. Reg. 55410, Oct. 27, 1997). These are enumerated below. CIRCUMSTANCES OF MISCONDUCT/ SERIOUSNESS OF OFFENSE � Was there “criminal” conduct? � Egregiousness of offending behavior � Pervasiveness and magnitude of violations � Defendants’ culpability/knowledge (whether defendant knew, or should have known, of violation) � Level of sophistication regarding offending behavior (i.e., concealment/difficult to detect) � Amount of “ill-gotten gains” from violations � Any harm to patients (mental or physical) � Any financial harm to Medicare or other programs � Extent of financial loss, if any � Percentage error rates (e.g., denials) � Isolated incident vs. continuous pattern of violations � Duration of violations � Prior regulatory compliance record � Past “denial” records � Past regulatory audits � Prior guidance from intermediary on issues at stake � Defendants’ involvement in misconduct (active vs. passive) � Awareness of misconduct while occurring � Defendant’s role in the misconduct DEFENDANT’S RESPONSE TO ALLEGATIONS OF UNLAWFUL CONDUCT � Defendant’s response to any actual or potential legal violations or harm to the programs or their beneficiaries. Was the response appropriate and credible? � Defendant’s cooperation with investigators and prosecutors, and timely response to lawful requests for documents and the provision of evidence regarding the involvement of other individuals in a particular scheme, thereby demonstrating trustworthiness. � Defendant’s agreement to make full restitution to the federal and/or state health care programs, thereby demonstrating present responsibility and willingness to conform to applicable laws, regulations and program requirements. � Defendant’s agreement to pay all civil and administrative fines, penalties and assessments resulting from the improper activity. � Defendant’s steps to undo the questionable conduct or mitigate the ill effects of the misconduct, e.g., appropriate disciplinary action against the individuals responsible for the activity that constitutes cause for exclusion, or other corrective action. � Defendant’s acknowledgment of its wrongdoing and its commitment to change its behavior, thereby demonstrating future trustworthiness. LIKELIHOOD THAT OFFENSE OR SOME SIMILAR ABUSE WILL OCCUR AGAIN � The misconduct was the result of a unique circumstance not likely to recur. There is minimal risk of repeat conduct. � Prior and subsequent conduct have been exemplary (not improper). � Prior measures were taken to ensure compliance with the law (however, the company did not have an effective compliance plan in place when the activities that constitute cause for exclusion occurred). � Defendant has agreed to implement adequate compliance to ensure compliance with the law, including institution of a corporate integrity plan. However: � Defendant did not make any efforts to contact the OIG, HCFA or its contractors to determine whether its conduct complied with the law and applicable program requirements. No contacts were documented. � Defendant did not bring the activity in question to the attention of the appropriate government officials prior to any government action. No voluntary disclosure regarding the alleged wrongful conduct. � While defendant did have some internal standards of conduct and internal control systems in place at the time of the wrongful activity, these will not be viewed as “effective.” No corporate compliance program was in place, but defendant did have certain auditing and QA/QC procedures in place, and did engage in regular training of staff regarding proper documentation and Medicare compliance. FINANCIAL RESPONSIBILITY If the defendant is an entity and is permitted to continue program participation, is that defendant able to operate without a real threat of bankruptcy and without a real threat to its ability to provide quality health care items or services? HIGHLIGHT SPECIFIC REMEDIAL MEASURES IMPLEMENTED BY COMPANY One area where counsel can advance negotiation efforts relates to remedial measures and/or corporate compliance efforts. If possible, counsel should point out any and all of the following measures to demonstrate how the company is a “good corporate citizen.” In other words, counsel should emphasize that the mere presence of such efforts is inconsistent with a “bad actor”: � Company’s willingness to sign a corporate integrity agreement and implement a corporate compliance plan; � Appointment of corporate compliance officer; � Increased commitment of resources and/or personnel for compliance; � Improved compliance procedures; � Increased emphasis on compliance training and education; � Timeliness and thoroughness of company’s corrective measures; � No ongoing violations; and � Company’s past efforts to achieve and maintain compliance, correct problems and pay back intermediaries of potential overcharges. To design an effective compliance program, counsel should identify any procedural steps that may have reduced the likelihood of the underlying violations or increased the likelihood of detection if such practices had been in place. The government may be willing to reduce the potential penalties if they are confident that the company has “learned its lesson” and is committed to preventing any further problems. SPECIFIC OPTIONS FOR CRAFTING INITIAL SETTLEMENT OFFER During the negotiations, DOJ may request counsel to put forth an initial settlement offer for the government to evaluate. In response to this request, there are a number of options: � Cry poor, but be prepared to back it up. Under this approach, the company being investigated may want to propose a fixed settlement amount based on the limited ability of the company to pay. This strategy seeks to prevent an unproductive debate about the underlying facts and/or the “multiplier” that should apply to the actual damages involved in the case. While the utility of this approach rests on its simplicity and a bottom-line focus, counsel needs to be prepared to defend both the settlement offer and the financial limitations. If resources are available, it may be advisable to retain an experienced consultant to assist in conducting this financial assessment and documenting the company’s inability to pay more than a set amount. If the company has a well-documented claim that proves an inability to pay more than a certain amount, the government may be persuaded to accept a reasonable settlement amount rather than a token amount that would be available if the company declared bankruptcy. Obviously, the government will request verification and the ability to review financial records. Finally, counsel also needs to recognize the limits and potential drawbacks associated with the strategy of “crying poor.” If the government is persuaded that the company’s financial health is poor, the government may conclude that the company should be excluded from the Medicare program. � Postpone initial offer due to limited information. If the information available to counsel is limited and prevents productive negotiations, another approach is to refrain from providing an initial settlement offer. Rather than simply refusing to put forth a settlement offer, however, counsel may want to demonstrate a good-faith interest in continuing settlement discussions by specifically identifying the particular areas where more information is needed and scheduling a future date to continue the negotiations. For example, as previously noted, counsel may want to request the following information from the government: (1) Specific false claims that DOJ believes occurred; (2) Preliminary findings from DOJ’s investigation; (3) Access to settlements and terms of similar cases; (4) Access to the underlying basis for investigation; (5) Disclosures regarding the existence of a potential qui tam relator or False Claims Act investigation, and if so, access to underlying information (i.e., unsealing affidavit). � Propose a settlement amount based on total revenues received and percentage error. In the event that the targeted company has sufficient assets, where claims relating to an inability to pay are simply not supportable, another approach is to explore the government’s willingness to forgo any penalties or “multipliers” that are added on the actual damages (e.g., two times actual damages). If the government is receptive to this approach, the next step is to propose an initial settlement offer to pay an amount, as restitution, that is as close as possible to these “single” damages. In addition, counsel should explore the government’s willingness to allow the company to set up a repayment plan directly with the intermediary (if applicable) and/or the ability to pay the settlement amount over an extended period. In the event that negotiations completely break down after a settlement impasse, one additional negotiating strategy may be to put DOJ on notice that the company intends to pursue alternative dispute resolution (ADR) pursuant to the “Policy on Use of ADR, and Case Identification Criteria for ADR,” published at 61 Fed. Reg. 36895 (July 15, 1996). If litigation is inevitable, the targeted company may be able to reduce the costs of litigating the case in the context of ADR. Moreover, when faced with that prospect, DOJ may be receptive to reopening negotiations. Peter Crane Anderson is a partner with Shumaker, Loop & Kendrick, LLP, and is a member of the firm’s litigation department in Charlotte, N.C. Previously, he was a federal prosecutor who focused primarily on white-collar matters.

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