Yates Is Gone But Her Memo Remains

Pursuing False Claims Act (FCA) and Anti-Kickback Statute (AKS) prosecutions is just one of the things the US Department of Justice does to crack down on corporate wrongdoing. But while the enterprise is centuries old, on Sept. 9, 2015 the DOJ initiated a major change in tactics when then Deputy Attorney General Sally Quillian Yates issued a memo calling on prosecutors to focus not just on the corporation but the individuals responsible for its transgressions. Given its liability ramifications, your executives are no doubt fully aware of the Yates Memo. But they may be unsure of what to make of it, especially now that a new Attorney General has been confirmed.

So a briefing from you shedding light on the topic is bound to be most welcome. While nobody knows for sure what's going to happen, here are a few things you can tell your executives about the Yates Memo and what its future may hold.

The 3 Key Changes in Prosecution Policy
First, remind your executives that the Yates Memo is an internal DOJ document instructing prosecutors how to enforce federal anti-fraud laws like the FCA and AKS against corporations. The Memo is best known for its emphasis on holding individuals accountable for corporate wrongdoing. But your briefing should touch on its practical effect by summarizing the three important ways the Memo changes DOJ enforcement policy to implement that objective:

1. Labs would no longer qualify for leniency based on cooperating with law enforcement unless they furnish "all relevant facts relating to the individuals responsible for the misconduct." (Translation: If a lab wants a break, it has to throw responsible execs/directors/managers under the bus.)

2. Absent "extraordinary circumstances," DOJ settlements with corporations would no longer release the individuals responsible for the transgression from liability. (Translation: Lab execs/directors/managers must fend for themselves and can't piggyback on the lab's settlement agreement.)

3. The DOJ will sue individuals for money damages regardless of their ability to pay. (Translation: Being broke and uninsured will not get lab execs/directors/managers off the hook.)

(For more about these changes and their practical implications for labs being investigated, see GCA, Dec. 2, 2015.)

How the Yates Memo Is Affecting Healthcare Prosecutions
As in many organizations, disconnects between a policy's promulgation and its actual implementation are not all that uncommon within the DOJ. So while the Yates Memo instantly captured attention when it first came out in September 2015, it also raised questions—first and foremost of which is whether the DOJ would actually follow it.

Roughly 17 months later, you can assure your executives that the answer to that question is a clear and resounding yes. Exhibit A: the DOJ's discernible pattern of bringing fraud cases against not just healthcare organizations but their individual execs/directors/managers. Here are three recent examples:

Tenet: In October 2016, Tenet Healthcare Corporation and two of its hospitals agreed to pay $513 million to settle claims of paying bribes and kickbacks in exchange for patient referrals. Under previous policy, the settlement would have likely released not just Tenet but the individuals involved. But the DOJ stayed true to the Yates Memo and on Jan. 24 indicted Tenet's former senior vice president of operations for his alleged role in the $400 million scheme, claiming that he caused the bribes and kickbacks to be paid and actively concealed the scheme by falsifying financial records and circumventing internal accounting controls.

NAHC: In September 2016, the board chairman and a senior vice president of North American Health Care (NAHC) paid $1 million and $500,000, respectively, to settle claims they had a role in the skilled nursing company's alleged billing of medically unnecessary rehabilitation services provided to residents. A week later, NAHC concluded its own separate $30 million settlement with the DOJ. Consistent with Yates Memo principles, the settlements covered only the parties involved and expressly excluded any other individuals from the release of liability, thus leaving the door open for further prosecutions.

Tuomey: In October 2015, Tuomey Healthcare System agreed to shell out $72.4 million to settle claims of paying part-time specialists for referrals of hospital patients and falsely billing Medicare $39 million. But in accordance with Yates Memo policy, the settlement did not release the South Carolina system's individual executives. One of those executives was former CEO Ralph "Jay" Cox III, whom the DOJ claimed was the driving force behind the "sweetheart deals," undertaken despite attorneys' warnings, designed to keep physicians from referring outpatients to a new freestanding surgery center. In September 2016, Cox agreed to pay $1 million and accept a four-year ban to settle charges stemming from his personal involvement in the scheme.

The DOJ has also been faithful to the Yates Memo mandate of pressuring healthcare organizations into playing ball with the government by turning on their execs/directors/managers in exchange for leniency. The clearest evidence for this is the growing prevalence of inserting into settlement agreements a "cooperation clause" requiring the settling healthcare organization to:

• Fully cooperate with investigations into the allegations covered in the settlement, including into "individuals and entities" that the settlement does not release from liability;

• Make "former directors, officers and employees available for interviews and testimony"; and

• Furnish nonprivileged documents to the government concerning the conduct covered in the settlement.

According to Bloomberg BNA, in 2016, 46% of FCA settlements included a cooperation clause; by comparison, cooperation clauses appeared in only 17% to 32% of FCA settlements made between 2008 and 2015.

What Happens Next?
The last part of your briefing might address the future of the Yates Memo. Start with a disclaimer. Nobody can predict the future; but quickly add that based on what we know so far, which admittedly is not a lot, it looks like the Yates Memo is going to be around for at least a little while longer.

Acknowledge that internal federal government policies are always subject to change, especially when a new president takes office.

However, the early indications are that the DOJ will continue to follow Yates Memo policy, at least for the time being. Acknowledge that the evidence is speculative but present it nevertheless:

• New Attorney General Jeff Sessions is a former prosecutor with a track record of aggressively pursuing corporations and white collar crime. As Washington D.C. attorney John F. Wood predicts in a Nov. 30, 2016 article for Inside Counsel "[C]orporate America should not expect a weakening of corporate criminal prosecutions."

• During his confirmation hearings, Sessions said he intended to increase FCA enforcement and continue the current emphasis on charging individuals tied to corporate wrongdoing. "[S]ometimes, it seems to me," Sessions testified, "that the corporate officers who caused the problem should be subjected to more severe punishment than the stockholders of the company who didn't know anything about it."

• Last but not least, as Yates noted in one of her last speeches, holding individuals accountable for corporate wrongdoing is not based on political party or ideology. It is a core principle of criminal justice that continues regardless of which party is in power. Moreover, in its short existence, the policy has proven both potent and effective in bringing corporate wrongdoers to justice.

Takeaway: There are three key points your executives should take away from your briefing:

1. The Yates Memo is a game changer in the sense that it pits labs against their own executives;

2. The Yates Memo is very real and has made a discernible difference in federal fraud enforcement;

3. The DOJ is likely to continue following the Yates Memo policies even long after their author has left the scene.