On July 11, 2019, the Antitrust Division of the DOJ (“Division”) announced a new initiative aimed at encouraging robust corporate antitrust compliance programs. The Division’s initiative incentivizes compliance programs by establishing that firms charged criminally for antitrust violations will be given credit in charging and sentencing recommendations if they have effective corporate antitrust compliance programs in place. Further, the Division released guidance on how it will evaluate compliance programs for these purposes.
While the Division has not historically prosecuted antitrust violations in the health care arena criminally, there are currently several ongoing criminal investigations of health care providers. Further, the Division has increased its focus on per se violations, and several of these recent cases could have been prosecuted criminally, but were instead filed as civil actions. Even outside of criminal enforcement, the Division’s new policy and accompanying guidance is useful and instructive for health care providers. It provides a blueprint for providers regarding the Division’s expectations for the elements of an effective compliance program. The new compliance program initiative also provides important guidance and strategies to mitigate civil antitrust liability and risk.
Now that the Division has acknowledged the value of preventative compliance measures and provided specific guidance on what it expects from them, health care providers have an opportunity to ensure their compliance programs are in line with the Division’s expectations in order to mitigate the risk of both criminal and civil liability.
Criminal Antitrust Enforcement in Health Care
Agreements found to be unambiguously harmful (and thus per se violations) under Section 1 of the Sherman Act include: price/wage fixing, bid rigging and market allocation. These violations are punishable by criminal fines of up to $100 million for firms, and up to $1 million and/or ten years in prison for individuals. In addition, even in civil cases, defendants face fines, penalties, attorneys fees awards and treble damages, while incurring substantial defense costs.
Within the health care arena, the Division has not historically prosecuted antitrust violations criminally; however, there have been several recent criminal investigations of health care providers. In a class action filed against two Florida oncology providers, the plaintiffs alleged that the provider had entered into a “gentleman’s agreement” to send each other referrals for medical oncology (provided by one) and radiation oncology (provided by the other) and not to offer those services themselves – i.e., the parties had unlawfully allocated services. As a result, class plaintiffs alleged that they paid more for oncology services than they would have had the providers competed in their overlapping service areas. In a related proceeding, one provider disclosed that the Division was conducting a criminal grand jury investigation relating to the oncology services market in southwest Florida.
Further, there have been at least two recent instances where antitrust actions were brought civilly, but could have been prosecuted criminally. In 2015, the Division sued four Michigan hospital systems for unlawfully allocating territory for marketing purposes. Because market allocation has been deemed a per se violation of the Sherman act, this case could have been brought criminally, but, instead, the action was litigated as a civil matter. Similarly, in 2006, the Division sued a West Virginia Hospital for a similar market allocation arrangement.
In addition, on March 1, 2019, the Division announced that it would approach naked no-poach agreements as per se violations of the antitrust laws, subject to criminal prosecution, and has intervened in private litigation alleging no-poach agreements between competing hospitals. A no-poach agreement is an agreement among industry competitors not to “poach,” or recruit and hire, each other’s employees. The Division states these agreements are “a ‘classic’ horizontal market division,” and thus per se illegal. Health care providers that have entered into these agreements are now at an increased risk of criminal prosecution. In sum, the health care industry is not immune from criminal antitrust scrutiny, and that scrutiny may be increasing.
Elements of an Effective Compliance Program
The Division’s new initiative and guidance provides concrete instruction and incentive to health care providers to create or improve antitrust compliance programs.
The Antitrust Division Manual (“Manual”) has been updated to require Division prosecutors to consider several factors related to compliance programs in its charging and sentencing recommendations. Further, the Division published a guidance document to clarify this new approach. The Manual makes clear that the simple existence of a compliance program is not enough to receive credit. Instead, what must be considered is “whether the program is adequately designed for maximum effectiveness in preventing and detecting wrongdoing by employees.” To determine whether a compliance program meets this standard, Division prosecutors must consider three “fundamental” questions in their evaluation:
- Is the corporation’s compliance program well designed?
- Is the program being applied earnestly and in good faith?
- Does the corporation’s compliance program work?
To help focus these questions, the Division’s new guidance document identifies nine elements of an effective antitrust compliance program. The Manual acknowledges that these elements are not a checklist, and may not be relevant in all cases. That said, a robust compliance program should at least address each element:
- The design and comprehensiveness of the program;
- The culture of compliance within the company;
- Responsibility for, and resources dedicated to, antitrust compliance;
- Antitrust risk assessment techniques;
- Compliance training and communication to employees;
- Monitoring and auditing techniques, including continued review, evaluation and revision of the antitrust compliance program;
- Reporting mechanisms;
- Compliance incentives and discipline; and
- Remediation methods.
The Division’s Manual also considers the practical effectiveness of compliance programs. A compliance program is presumed to be ineffective when certain high-level employees “participated in, condoned, or were willfully ignorant of” conduct violating the antitrust laws. If this presumption applies, the guidance states that it can be rebutted if:
- Individuals with operational responsibility for the compliance program had direct reporting obligations to the governing authority of the company (e.g., an audit committee of the Board of Directors if applicable);
- The compliance program detected the antitrust violation before discovery outside of the company or before such discovery was reasonably likely;
- The company promptly reported the violation to the Antitrust Division; and,
- No individual with operational responsibility for the compliance program “participated in, condoned, or was willfully ignorant” of the antitrust violation.
The Division’s new guidance also directs its prosecutors to consider the entity’s post-violation compliance efforts, applying four factors:
- “Tone at the top” – This inquiry asks whether senior management has taken steps to accept responsibility for the violations and steer the company toward enhanced compliance efforts.
- “Improvements to Pre-Existing Compliance Program” – This inquiry asks whether the company has investigated the problems which caused its existing compliance program to fail, and has addressed those problems.
- “Creation of a Compliance Program” – In the event that the violating company did not have a pre-existing compliance program, this inquiry asks whether one was created, and whether it was designed to be as effective as possible.
- “Disciplinary Procedure” – This inquiry asks whether those who were responsible for the violation were disciplined.
This new initiative is an acknowledgement of the very significant preventative value of corporate compliance efforts to mitigate the risk of both civil and criminal antitrust violations.
- For the first time, the DOJ’s Antitrust Division has promulgated express guidelines for what it will consider to be strong compliance programs.
- A compliance program is more than simply a written policy, and also must include training, internal processes and ongoing monitoring and enforcement.
- The Division will evaluate both the compliance program’s design and its effectiveness in practice, including post-violation conduct.
- The mere fact that a company has a compliance program is not sufficient and the Division will scrutinize and reject subpar programs.
- The Division will evaluate compliance programs on a case-by-case basis and there is no specific checklist of required elements to determine a program’s effectiveness; however, the guidance identifies multiple elements of an effective compliance program.
- Both in this new guidance and prior enforcement actions, the Division has emphasized the important role of antitrust counsel in developing, updating and monitoring the compliance program.
- Companies now have a much stronger incentive to create new compliance programs or bolster existing programs. Indeed, one express element cited by the Division is periodically reviewing and updating the program and compliance materials and providing periodic training to not only lower level employees but also senior management and the Board of Directors.