As we at Morgan Lewis pride ourselves on excellent client service, we feel it is our duty to provide critical dispatches from the romantic world of healthcare fraud. Specifically, we want to highlight developments in the District of Massachusetts that may make the prospects of an amicable breakup in a federal civil False Claims Act (FCA) case with Boston federal prosecutors more remote.
On May 24, 2023, the US Attorney’s Office for the District of Massachusetts issued a routine press release to announce it had reached an agreement with Massachusetts Eye and Ear to resolve allegations of FCA violations.
The settlement agreement included language that should catch the attention of stakeholders in the healthcare and life sciences industries. Gone is the typical defense-friendly but most often entirely valid qualification that entering into the settlement is “[not] an admission of liability by [defendant], which expressly denies and disputes the allegations set forth in” the FCA complaint, but rather is a logical, rational business decision to “avoid the delay, uncertainty, inconvenience, and expense of protracted litigation.” In its place, Massachusetts Eye and Ear agreed to “admit, acknowledge, and accept responsibility for” certain facts constituting “Covered Conduct” that established the company’s alleged violation of the FCA.
Such factual admissions have become a staple in FCA cases in the District of Massachusetts and were first broadcast by representatives from the US Attorney’s Office at the Boston Bar Association White-Collar Crime Conference in May 2022. In doing so, the District of Massachusetts has become one of at least two jurisdictions—the Southern District of New York being the other—that require defendants to admit to and accept responsibility for a core set of facts that give rise to the allegations in order to resolve FCA matters short of litigation.
FCA cases going back to at least the settlement with Steward Health Care System LLC in June 2022 demonstrate the extent to which the US Attorney’s Office has implemented its new policy and indicate that defendants have been unsuccessful in attempting to negotiate this language out of settlement agreements. Because an FCA no-fault divorce appears no longer available in the District of Massachusetts, moving on from a toxic case will come with some additional baggage for defendants.
As with all breakups, there are two sides to every story. FCA defendants argue that FCA investigations and litigation are tremendously disruptive, expensive, almost always frivolous, and typically drag out for years. Regardless of whether any allegations raised in an FCA complaint or investigation have any merit, defendants often will balance the cost of fully litigating a case versus the burden that litigation places on the organization and will make a resource- and expense-based business decision as to how to proceed. This is especially true for younger companies that may not have the means effectively to engage in full-fledged litigation of unpredictable outcome and duration.
At the end of the day, defendants just want to move on from their relationship with the US Department of Justice and its qui tam relators and get on with their lives without admitting or denying the allegations in the complaint.
On the other hand, the US Attorney’s Office wants commitment despite the breakup. By requiring FCA defendants to admit, acknowledge, and accept responsibility for the alleged core conduct, federal prosecutors believe they are holding defendants accountable and layering on additional pain in exchange for the separation in the hope defendants will make real changes to how they operate and avoid recidivism.
This and other initiatives indicate that the US Department of Justice continues to be frustrated by dealing with repeat players and has seen too many companies resolve FCA cases only to reappear in a new qui tam complaint a short time later.
Pop/rock star Neil Sedaka once famously warned the world in the early 1960s that “breaking up is hard to do,” but it’s even harder in the present-day District of Massachusetts. The requirement to admit certain facts and accept responsibility for them tees up the possibility of significant follow-on litigation and may change the entire decision-making calculus of corporate defendants as to whether to settle FCA cases, particularly those that are questionable on the merits or entirely fanciful.
The US Attorney’s Office brushes aside concerns that third-party plaintiffs will emerge to leverage this development to their advantage in securities, product liability and other actions against a settling FCA defendant by observing that defendants are not being asked to admit to liability, only to take responsibility for underlying facts. But detailed recitations of facts, such as the four full pages in the Steward Health settlement agreement, give the plaintiffs’ bar plenty of valuable material with which to work even prior to engaging in civil discovery and provide a fast track to a successful motion for summary judgment.
Bottom line, defendants will have to admit to and take responsibility for their conduct in order to resolve FCA matters in the District of Massachusetts as part of a non-negotiable term in any FCA settlement agreement. Understanding this requirement at the start of an FCA case is especially critical for stakeholders in the healthcare and life sciences industries given the position of the Boston US Attorney’s Office as one of the preeminent and most prolific and effective offices in the country when it comes to healthcare fraud enforcement. The Office’s seemingly immutable policy only raises the stakes for FCA cases and underscores the need for effective advocacy from the start.
Entities in the healthcare and life sciences industries, particularly the significant number of them that are headquartered or operate in the Commonwealth of Massachusetts, should be prepared to respond expeditiously and strategically to any FCA matter.
If you need assistance regarding your relationship with the government in an FCA case and are seeking a legal separation, contact Morgan Lewis for more information.