The national opioid epidemic is almost unprecedented in every conceivable way—its catastrophic death toll, its broad effect on a wide swath of this country’s population, its rapid escalation (which is alleged to have been influenced by corporate bottom-line thinking and misconduct), and the law enforcement mobilization of resources to combat it, to name a few. This unprecedented phenomenon has also provided an insight into an increasingly common hazard in the healthcare industry—criminal liability for corporations and executives. Traditionally, corporate healthcare conduct was addressed in civil contexts via regulatory/administrative actions or false claims act litigation. While these tools remain a vibrant arrow in the government’s quiver, criminal investigations have begun to take center-stage.
Last week’s announcement of the criminal prosecution of Rochester Drug Cooperative (RDC), its former CEO, and its former chief compliance officer represents an important development of which everyone in the healthcare industry must be aware.
The Criminal Charges Against Rochester Drug Cooperative (RDC)
The U.S. Attorney’s Office for the Southern District of New York (currently portrayed in Showtime’s Billions) charged RDC and two of its former executives for conspiring to distribute oxycodone and fentanyl, two of the most addictive opioids on the market. They were also charged with conspiring to defraud the United States by failing to report suspicious narcotics orders to the Drug Enforcement Administration (DEA). Of greatest importance to healthcare industry professionals, the government accused the defendants of:
- Failing to address red flags identified by its compliance department, which ultimately led to larger amounts of opioids being sold to questionable purchasers, often-times in cash.
- Paying kickbacks (called “patronage dividends”) to some of its pharmacy customers which incentivized these pharmacies to increase the volume of their opioid orders.
RDC entered into a Deferred Prosecution Agreement where it agreed to cooperate with the government, accepted responsibility for its actions, and agreed to forfeit $20 million. RDC’s former chief of compliance pled guilty to the charges in an agreement reached before the public announcement. RDC’s former CEO was indicted and his case is pending.
Increased Criminal Prosecutions. With regard to investigations of corporate healthcare practices, historically, the DOJ conducted parallel investigations by its criminal and civil sections with companies usually facing civil penalties under the False Claims Act. However, law enforcement is increasingly using criminal investigations (and the incredibly powerful grand jury process) to address this conduct. Law enforcement’s robust response to the opioid epidemic, and the RDC criminal charges in particular, are emblematic of this new enforcement atmosphere.
Not Limited to Opioids. Additionally, the increased aggressiveness of federal law enforcement will not be limited to opioid investigations. We have already seen a greater number of anti-kickback prosecutions (including the innovative use of the Travel Act to address businesses that try to stay out of government healthcare programs) as well as government criminal investigations of private insurance matters that are increasingly resulting in criminal indictments.
The Federal Anti-Kickback Statute Not Limited to Federal Programs Anymore. On October 24, 2018, Congress enacted the SUPPORT Act, which was a sweeping bipartisan effort to address the opioid epidemic. One provision in the Act effectively expanded the Federal Anti-Kickback Statute to criminalize remuneration schemes affecting recovery homes, clinical treatment facilities, or laboratories regardless of whether a federal payor program or a private insurance program was impacted. Moreover, the statutory language is not limited to the context of opioids. Thus, any problematic payments concerning labs, recovery homes, or clinical treatment centers may now be investigated criminally. We expect to see government investigators use this statute aggressively.
Increased Use of Asset Forfeiture and Collections Efforts. U.S. Attorney’s Offices around the country are reinforcing their Financial Litigation and Asset Forfeiture Units by adding more personnel and resources to target assets. To harness these resources, the DOJ promotes coordination between criminal prosecutors and its asset forfeiture and financial litigation units to seize property and freeze assets early and to collect fines and civil judgments. The deployment of these tools leave little room for protection of assets when a subject of an investigation is ill-prepared to address these measures and to fight against them.
Robust Government Healthcare Enforcement Resources. Since unveiling the Medicare Strike Forces (HEAT teams) almost 10 years ago, the DOJ has increased criminal investigations of the healthcare industry dramatically—and promises to increase it even more. As healthcare prosecutions bring money into the DOJ, the DOJ is able to deploy additional teams of investigators and prosecutors. Add to that the increased resources from state attorneys general, the DEA’s increased resources to address drug diversion, and the recent creation of the DOJ’s Prescription Interdiction and Litigation (PIL) Task Force. Thus, we see a government enforcement environment flush with personnel and resources.
In an industry burdened with complex restrictions, which necessarily result in complex business relationships, the chances that the government will misunderstand a transaction or business model are real. While the RDC criminal charges were a surprise to many in the healthcare industry, the enforcement environment has clearly been heading in that direction. The need for solid regulatory counsel, white collar defense strategies, and preventative measures ahead of a criminal investigation is even more critical in this new era of corporate criminal prosecution.
 The charged offenses in the RDC case carry serious criminal penalties typically pursued for drug traffickers or “pill mill” doctors. The controlled substance charges, alone, trigger sentences of up to 20 years for the distribution of oxycodone, and between 10 years and life in prison for the distribution of fentanyl.
Jay Dewald is a trial lawyer and former federal prosecutor. His practice is focused on white collar criminal defense, crisis management, regulatory enforcement, and internal investigations. Jay has extensive experience leading federal grand jury investigations. During his time with the U.S. Department of Justice, he developed significant capabilities in the areas of healthcare fraud, securities fraud, organized crime, money laundering, and corruption. Jay was selected as the district’s Criminal Healthcare Fraud Coordinator in 2010. Jay also served as a member of the U.S. Attorney’s Office’s Organized Crime and Drug Enforcement Task Force (OCDETF). Since 2018, Jay has been recognized by Chambers USA: America’s Leading Lawyers for Business for Litigation: White-Collar Crime & Government Investigations – Texas. He has also been listed among D Magazine‘s “Best Lawyers in Dallas” since 2017.
Erica Benites Giese is an attorney in the white collar section of Jackson Walker’s San Antonio office and a former Chief of the Financial Litigation Unit of the United States Attorney’s Office for the Western District of Texas. Erica represents clients in white collar investigation and litigation matters, advising on matters such as bank regulatory compliance, defense and trial preparation, and internal investigations. Erica has extensive first-chair trial experience as well as civil and criminal litigation experience. A Certified Fraud Examiner, Erica is equipped to handle qui tam complaints and investigations, healthcare fraud investigations, government contract fraud inquiries, and bank and wire fraud investigations with a comprehensive understanding of the current laws and statutes. Erica is also regularly involved in the development of anti- corruption policies and training, calling upon her experience with the Department of Justice to tailor regulatory compliance policies for a variety of clients.
The opinions expressed are those of the authors and do not necessarily reflect the views of the firm, its clients, or any of its or their respective affiliates. This article is for informational purposes only and does not constitute legal advice.