A pair of seemingly disconnected directives issued in January to Department of Justice (DOJ) attorneys handling civil False Claims Act (FCA) cases could mark a significant shift in the type and number of cases that the department and whistleblowers prosecute against hospitals, health care providers and other entities that do business with federal health care programs.  

Hospitals and health care providers have long expressed serious concerns that FCA cases brought by DOJ supplanted the role of health care policymakers at CMS and state Medicaid agencies and elevated operational deficiencies once subject to corrective action plans to the level of fraud cases with serious reputational and financial consequences. Worse still, the FCA’s qui tam provisions enabled bounty hunting whistleblowers and their contingent fee lawyers to do the same thing without even consulting the agency regulators tasked with balancing the needs of the government against those of patients and communities.

For decades, those concerns appeared to fall on deaf ears. But the new directives instruct DOJ attorneys to stop using FCA cases to make reimbursement policy and, importantly, to consider in every case whether to dismiss claims of a whistleblower.

The first directive is contained in a memorandum from Associate Attorney General Rachel Brand to attorneys handling FCA and other affirmative civil enforcement cases. It is intended to support the mandate of the new administration’s regulatory reform task force. It prohibits DOJ attorneys from arguing that noncompliance with “agency guidance documents” proves violations of the law. Guidance documents are “any agency statement of general applicability and future effect . . . that is designed to advise parties outside of the Executive Branch about legal rights and obligations.” The new directive “prohibits the Department from using [such] guidance documents to coerce regulated parties into taking any action or refraining from taking any action beyond what is required in terms of the applicable statute or lawful regulation.”  

DOJ “may not use its enforcement authority to effectively convert agency guidance documents into binding rules.” The implications of that prohibition for the choices prosecutors make -- and the arguments defendants make in health care FCA investigations -- cannot be overstated.  

CMS uses manual provisions and other guidance to instruct its contractors how to review the claims and practices of hospitals and other health care providers. Those manual provisions may be rooted in or interpret “applicable statutes” and “lawful regulations,” but they do not themselves meet that standard. While allowing that DOJ could still use evidence that a defendant read a guidance document as evidence that the defendant knew about the rule, or even the statute, the directive recognizes that reading guidance documents to impose rights and obligations that do not appear in a statute or regulation promulgated after notice and comment does not provide fair warning to parties that could be subject to fraud penalties.

As a result, under the new guidance, DOJ attorneys should not allege that a claim was false simply because the surgery it described failed to meet a medical necessity standard printed in a manual provision or local coverage decision. To file suit or intervene in a qui tam under the FCA, more is required of DOJ.

The second directive was issued in a confidential memorandum intended “For Internal Government Use Only,” but was leaked to the press the same week that DOJ issued the first directive. The memorandum focuses on a little used provision of the FCA that affords the attorney general broad discretion to move to dismiss a qui tam after investigating it and declining to intervene.

The AHA has long contended that the department should dismiss qui tams that lack merit rather than allowing unaccountable whistleblowers to impose massive litigation costs on defendants and courts. The second memorandum effectively directs DOJ attorneys handling FCA matters to consider doing just that in every qui tam in which they decline to intervene.

The memorandum lays out seven factors that can justify dismissal, including importantly “Curbing Meritless Qui Tams,” “Preventing Interference with Agency Policies and Programs” and “Controlling Litigation Brought on Behalf of the United States.” The memorandum appears to be driven by multiple factors, including the need to conserve limited government resources and avoid precedent adverse to the government, which more frequently arises in declined cases.  

As a practical matter, the second memorandum creates the opportunity and the basis for defendants under investigation to argue not just for declination of a qui tam, but for dismissal at the key decision point of an investigation. And when the basis for declination is that the qui tam relies on sub-regulatory guidance in violation of the first memorandum, the second memorandum provides a framework to argue that DOJ should move to dismiss the qui tam.

Beyond these practical factors, read together, the memoranda send a clear message of shifting Justice Department priorities. The first says nothing about the enforcement of norms and standards inferred from sub-regulatory guidance documents in administrative actions brought by the agencies e.g., Health and Human Services, which promulgate the guidance. What it says is that DOJ won’t use punitive FCA litigation to enforce those norms or standards.

In other words, the first memorandum stands for the proposition that DOJ will defer to agencies and leave enforcement of the guidance they promulgate to their discretion.  For that deference to be complete and effective, however, DOJ will need to police declined qui tam litigation as well.

And that is where the second memorandum comes in. Rather than moving to dismiss declined qui tams in that one case in a thousand that present unique characteristics, the second memorandum requires DOJ attorneys to evaluate every case for dismissal, and lays out a roadmap for dismissing those that would engage in rule-making through punitive FCA enforcement.

Jonathan Diesenhaus, Partner Hogan Lovells
Melinda Hatton, AHA, General Counsel
Maureen Mudron, AHA, Deputy General Counsel