Moving the HME Industry Forward

General Healthcare

How a Federal Prosecutor Thinks – Part 3 of 3

June 2, 2014

AMARILLO, TX – The DME industry, in its present form, has been around for about 35 years. We are a young industry. The DME industry grew up unregulated. Hardly anybody on Capitol Hill, or in Baltimore, knew what the industry did. It is as if Congress and CMS woke up about seven years ago and declared: “What is this industry and why are we paying it money?” As the government seems to always do, it overreacted.

Now the DME industry is being hit with a “perfect storm” of events: (i) competitive bidding; (ii) stringent documentation requirements; (iii) post-payment audits; and (iv) prepayment reviews. In addition, the U.S. Department of Justice and the Office of Inspector General are becoming much more aggressive in bringing investigations against DME suppliers.

Part 1 of this 3 part series discussed qui tam lawsuits. Part 2 discussed prosecutorial discretion, how to avoid being a target, and signs that you are a target. Part 3 discusses responsive steps, resolution of a civil proceeding, and resolution of a criminal proceeding.

Responsive Steps
When an employee tells the supplier that the employee has been interviewed, it is appropriate for the supplier to ask the employee about what the investigator said. It is appropriate for the supplier to ask the employee for the name and contact information for the interviewing agent. The employee has the right to disclose…..or not to disclose……this information to the supplier.

Let’s say that the DME supplier becomes aware that an employee will be interviewed. The only advice the supplier can tell the employee is to tell the truth. It is appropriate for the supplier to ask the employee to brief the supplier after the interview takes place. The employee has the right to agree….or not agree… the supplier’s request.

The supplier should preserve all documents, e-mails etc. (electronic and hard copy). As a general rule (there are exceptions), the supplier should be transparent with its employees. The supplier can tell the employees about the existence of the investigation, that the supplier has hired an attorney to represent it, and that the supplier will cooperate with the investigation.

The supplier can tell its employees that they may be interviewed and if they are, then simply tell the truth. The supplier can tell the employees that if they feel comfortable in briefing the supplier after the interview, then the supplier would appreciate it. However, the supplier should emphasize that the employees have no obligation to brief the supplier. As soon as the DME supplier finds out of the existence of an investigation, then the supplier should hire an experienced health care attorney.

Assume that the supplier obtains the names and contact information regarding the investigating agents. The attorney should contact the agents and ask for the name and contact information of the AUSA that is supervising the investigation. The attorney should then contact the AUSA, inform the AUSA that the attorney represents the supplier, and start a dialogue with the AUSA. Remember what I said about prosecutorial discretion. The AUSA has much more power than the defense attorney has.

And so here is another take-away: do not anger the AUSA. It is important that the AUSA trust the DME supplier’s attorney. Such trust can prevent a seizure action from occurring (more on this later). Such trust can result in an orderly “rolling” production of documents and information to the AUSA. If the AUSA believes that the supplier, and the supplier’s attorney, are being honest and transparent, then the odds are that the AUSA will be open to a resolution that the supplier can live with.

Seizure Action
The DME supplier should back up its data system off-site. In the event of a seizure action, then the supplier will not be shut down. A seizure action is when the AUSA obtains a Search Warrant from a Federal Magistrate. Normally, the AUSA will ask for a Search Warrant if the AUSA is given information that the supplier may hide or destroy files. The seizure action is intended to “preserve the evidence” so that the DOJ and OIG can look at it.

In a typical seizure action, multiple agents (FBI, OIG, IRS) will enter the premises unannounced and instruct the employees to “move away from their keyboards.“ The agents will take the computers and hard copy documents. If the supplier does not have its documents backed up off-site then the supplier will be essentially shut down. The agents may attempt to talk to the employees. The employees have the right to talk, or not to talk, to the agents.

Normally, the DOJ will, at the supplier’s expense, make copies of everything taken (electronic and hard copy) and give the copies to the supplier. However, this can take several weeks to accomplish. Hence, the importance of having documents backed up off-site. When the agents first walk through the door, the DME supplier should call its health care attorney so that the attorney can give proper guidance. Normally, the attorney will talk to the lead agent. The lead agent will give to the attorney the name and contact information of the supervising AUSA. The attorney can then call the AUSA, arrange to have copies (of the seized documents) made, and start a dialogue.

Resolution of Civil Proceeding
Assume that the AUSA proceeds against the DME supplier civilly. In other words, the AUSA does not want to put anybody in jail. The damages, fines and penalties under the FCA far exceed what the supplier can pay. And so the supplier’s attorney and the AUSA will usually enter into an “ability to pay” settlement in which the supplier will pay as much money as it can without forcing it to close its doors.

Payment of the money will be made to the DOJ. Separate from that, the supplier will likely be required to enter into a Corporate Integrity Agreement with the OIG. This is normally a five year contract between the supplier and the OIG. The CIA will impose a number of requirements on the supplier, including annual reports to the OIG, training employees, and having an Independent Review Organization audit the supplier’s operations on an annual basis.

Resolution of Criminal Proceeding
Assume that the facts, unfortunately, support the AUSA’s allegation that a crime has been committed. The case can go in a number of directions. The wisest course of action is for the supplier to work out a plea. In other words, it is normally not wise to go to trial. The supplier should attempt to work out a plea before there is an indictment. An indictment is a public statement by the government of the “bad things” that the supplier has done. It is hard for the government to be lenient after an indictment is issued.

If a resolution is worked out before an indictment is issued, then it is worked out “pursuant to a criminal Complaint.” This allows the AUSA to have off-the-record discussions with the supplier’s attorney. This, in turn, gives the AUSA substantial flexibility in working out a resolution. A resolution can take a number of paths: (i) plea by the corporation, with no plea by the owner of the corporation; (ii) deferred prosecution plea by the owner (no felony conviction); (iii) felony conviction of the owner with probation; (iv) felony conviction of the owner with home detention; (v) felony conviction of the owner with half-way house; and (vi) felony conviction of the owner in which the federal sentencing guidelines suggest a relatively short prison term (e.g., 11 to 18 months).

The DME supplier never wants to face the prospect of having to deal with the DOJ. The wisest course of action is for the supplier to take those steps, discussed above, that reduce the risk of having to deal with the DOJ.

Jeffrey S. Baird, JD, is Chairman of the Health Care Group at Brown & Fortunato PC, a law firm based in Amarillo, Tex. Bradley W. Howard, JD, is chairman of the Litigation Group at Brown & Fortunato PC. They represent pharmacies, HME companies, and other health care providers throughout the United States. Baird is Board Certified in Health Law by the Texas Board of Legal Specialization. Howard is Board Certified in Labor and Employment Law by the Texas Board of Legal Specialization. Baird can be reached at (806) 345-6320 or Brad Howard can be reached at (806) 345-6310 or