Companies face ever-increasing pressures to implement mechanisms designed to prevent or effectively address employee malfeasance. (We’ve previously addressed the increased prevalence of companies terminating employees who refuse to cooperate with investigations undertaken in response to misconduct. See “Cooperate or Terminate: Second Circuit Protects Companies that Terminate Employees for Failure to Cooperate with Investigations.”) In today’s environment, even companies who appear to be cooperating with investigative and corrective measures still face significant consequences based on employees’ misconduct.
Tenet Healthcare Corporation’s (Tenet) is an example of one such company. Its recent multi-million dollar settlement with the government demonstrates that even companies who institute (and abide by) compliance programs face liability and must pay hefty penalties when employees use deceptive means to circumvent compliance mechanisms. Tenet, along with two of its subsidiaries, agreed to pay the government $513 million dollars to settle civil and criminal liability stemming from a scheme in which Tenet employees defrauded Tenet and the United States by paying kickbacks in exchange for patient referrals.
This recent settlement was not Tenet’s first brush with the law for illegal and fraudulent conduct. As early as 2006, Tenet paid the government $900 million dollars to settle False Claims Act liability arising from alleged fraudulent billing practices and Anti-Kickback Statute violations. This 2006 settlement required Tenet to enter into a Corporate Integrity Agreement (CIA) through which Tenet was obligated to institute new compliance policies and strengthen its existing procedures. The CIA was specifically designed to thwart kickback schemes by ensuring, among other things, that high-level employees affiliated with Tenet: (1) understood their obligations under applicable law; (2) submitted attestations that Tenet was in compliance with applicable law and the CIA; and (3) further certified that these attestations were truthful.
Notwithstanding the robust requirements of the CIA, employees at certain Tenet hospitals (the Hospitals) continued to engage in illegal behavior in violation of the Anti-Kickback Statute. Specifically, certain executives at the Hospitals entered into kickback agreements with Clinica de la Mama (Clinica), a prenatal medical clinic largely serving undocumented and indigent pregnant women. This scheme functioned by Clinica steering its patients to the Hospitals, enabling the Hospitals to illegally recoup significant sums of money through the federal Medicaid program. In exchange, the Hospitals paid Clinica significant sums for encouraging its patients (sometimes through deceptive and false means) to deliver their babies at the Hospitals.
Knowing that such a kickback scheme was clearly illegal, the Hospitals and Clinica entered into pre-textual contracts through which it appeared that the Hospitals were paying Clinica for translation, management, marketing and consulting services. (These services were not the true purpose for the payments; accordingly, such services were never-rendered, substandard, or duplicative of existing services.) Executives at the Hospitals further masked the true purpose of their agreements with Clinica by concealing information from both in-house and outside counsel tasked with reviewing the contracts. Though they were aware that their agreements with Clinica were illicit, executives at the Hospitals certified, under the CIA, that Tenet was in compliance with applicable law and the CIA.
Interestingly, the Department of Justice (DOJ) did not uncover Tenet’s employees’ misconduct. Rather, a whistleblower, an accountant with years of experience in the healthcare industry, alerted the government to the misconduct, receiving approximately $84 million for his trouble (See the two-part article series “If a Whistle Blows In-House, Does it Still Make a Sound?” for more information regarding whistleblowers.)
In connection with the non-prosecution agreement entered into by Tenet and its subsidiaries, two of the Hospitals pled guilty to criminal violations for their conduct and must pay a sum of $145 million for their participation in these kickback schemes. Tenet, though not accused of shirking its duties under the CIA, still must pay $368 million to settle the matter and has been required to hire an independent monitor for, at least, the next three years. Tenet’s compliance with the CIA is, however, likely the reason why it was not required to plead guilty to criminal violations.
The Tenet settlement indicates that companies cannot assume that their implementation of compliance programs and measures will shield them from liability or penalties when employees continue to engage in bad behavior. Even in the absence of any misconduct on the part of companies themselves, it appears that the government is not willing to allow companies to evade any consequences for their employees’ conduct. Accordingly, companies especially sensitive to such concerns should consider employing outside monitors to ensure that they have taken steps that demonstrate they do not condone (or are not complacent about) employee’s deceptive and illegal behavior.
Lastly, it will be interesting to see if the Department of Justice pursues, and to what extent, criminal charges against the identified employees engaged in the illicit behavior. Will the DOJ follow the mandate of the September 2015 Yates memo to go after culpable individuals or merely take the money and run?