Recent developments may merit a measured briefing to corporate leadership on the potential exposure of health industry officers and directors to financial penalties and other sanctions arising from corporate regulatory violations.
On September 19 and 27, 2016, the Department of Justice announced separate False Claims Act (FCA) settlements that required senior corporate leaders to pay significant financial penalties to resolve allegations that they violated federal law. The September 19 settlement involved allegations that the nursing home operator North American Health Care, Inc. (NAHC) violated the FCA by submitting false claims for medically unnecessary rehabilitation therapy services provided to its skilled nursing home facility residents. NAHC agreed to pay a penalty of $28.5 million, and its board chairman and its senior vice president of reimbursement analysis agreed to pay penalties of $1 million and $500,000, respectively. The September 27 settlement involved the payment of $1 million by the former CEO of Tuomey Healthcare System, to resolve allegations relating to his involvement in what a jury concluded was the health system’s FCA and Stark Law violations. The settlement also included a four year Medicare participation exclusion. In addition, the former CEO waived any rights to indemnification he may have had against the health system.
It is important not to overreact to the impact of these two settlements. However, it is worthwhile to note that they are consistent with the Yates memorandum theme on individual accountability and the application of Yates to civil, as well as criminal matters. The DOJ’s announcements of these settlements leave little doubt that efforts to assert individual accountability will extend to officers and executives who “lead or participate” in what are perceived to be illegal conduct. This perspective was echoed in a September 26 speech by a senior Department of Justice official. Certainly these are not the only FCA-related settlements involving corporate employees. However, they are noteworthy to the extent that they involve very senior leaders and apply significant penalties. Given the continued emphasis on Yates and individual accountability, it is possible that these represent a new wave of FCA settlements that will incorporate material penalties against senior corporate leadership. These are messages that the board and senior executive should hear, in a presentation that balances the likelihood of risk, the significance of the potential penalties and the importance of continued leadership over legal compliance.