HEALTHCARE FRAUD DEFENSE JOURNAL
The Department of Justice Criminal Division Fraud Section has quietly created a new privilege team. This is a departure from the traditional practice of using so-called “taint teams” – assigned agents and prosecutors not involved in the investigation — to review materials that may have been subject to a privilege. While it is unknown why the privilege team was formed, it is likely a consequence of a series of judicial opinions wherein the DOJ has been criticized for its handling of privileged materials, including in United States v. Philip Esformes, where the Court found that the government’s taint protocol had serious deficiencies. A designated privilege review team may have benefits for the defense. It certainly will benefit the Government and potentially help it to avoid further criticism from the courts as to its handling of privileged materials.
Traditionally, the DOJ used taint teams to review potentially privileged materials. These taint teams were made up of agents and prosecutors not working on the underlying investigation. The taint teams were usually assigned to review materials seized or obtained that likely contained privileged materials, such as materials from corporations, law offices, and/or email servers. The prosecutors handling the underlying matter were tasked with instructing the taint teams, who in turn were supposed to isolate the privileged material for discussions with counsel representing the privilege holder and potential litigation related to the privilege. The remaining materials were then turned over to the Government.
Defense attorneys have always been opposed to the use of taint teams. Because the relationship between prosecutors handling the underlying case and taint team is so closely connected, it provides good cause to believe the sanctity of the privilege would not be respected. Moreover, the close relationship between the prosecutors and taint teams often led the teams to make very narrow privilege decisions.
In recent years, the DOJ Fraud Section has come under increasing scrutiny in high profile cases for its handling of privileged materials. Particularly, in United States v. Esformes, agents seized materials from a lawyer’s office during the execution of a search warrant. U.S. v. Esformes, Case No. 16-20549-CR, 2018 WL 5919517 (S.D. Fla. Nov. 13, 2018). Despite being warned that agents were searching a lawyer’s office, agents proceeded in the search without the use of a taint team. Case agents – not taint agents – placed some privileged materials in taint boxes. However, hundreds of documents marked privileged and confidential were turned over to the prosecution team. The Court declined to dismiss the case, but ruled that the prosecution team’s “execution of their duties was often sloppy, careless, clumsy, ineffective, and clouded by their stubborn refusal to be sufficiently sensitive to issues impacting the attorney client privilege.”
United States v. Esformes is not the only case wherein the Government’s handling of privileged materials has been criticized. When the Government raided the law offices of Michael Cohen – President Trump’s longtime personal attorney and “fixer” – pursuant to the investigation of Russian interference in the 2016 election, the Parties litigated whether a taint team could review the seized records and devices. In the end, the Government agreed to appoint a special master to review the materials seized for privilege.
Now, the use of a dedicated privilege review team will possibly create more experience in spotting privileged materials that may have been missed in the past by taint teams. Additionally, a dedicated team might not be as worried about deadlines on other cases and can focus on a thorough review. However, the dedicated team works still for the Government and will likely have close relationships with prosecutors handling underlying cases. As such, defense attorneys should remain vigilant. If you believe the Government has seized privileged materials, notify the Government immediately and object. This notice should be memorialized in writing. Defense counsel should also identify what materials are privileged, assert the privilege, and demand to review the documents before any single document is turned over to case agents or prosecutors. If prosecutors do not respond, seek relief from the court.
A blow to the attorney-client communications privilege and a warning to accountants and lawyers engaging in asset protection and estate planning.
The Fifth Circuit Court of Appeals has upheld an order enforcing an Internal Revenue Service summons directed at a law firm. (Attorney-Client Privilege) The case is styled as Taylor Lohmeyer Law Firm PLLC v. the United States, No. 19-50506 (5th Cir. 2020).
The case involves a law firm that provides tax and estate planning services to its clients. In October 2018, the IRS served a John Doe summons on the firm asking for, among other things, information regarding the identity of firm clients that used its services to create and maintain foreign bank accounts. The firm filed a petition in federal court to quash the summons, asserting–among other things that the documents were protected by the attorney-client privilege. The firm claimed that despite the general rule that a lawyer’s clients’ identities are not covered by the privilege, an exception to the general rule applies when “a client’s identity is protected by the attorney-client privilege if its disclosure would result in the disclosure of confidential communication.” The District Court dismissed the petition and supported the enforcement of the summons.
The firm appealed. The Fifth Circuit upheld the District Court’s enforcement of the subpoena, reasoning that the disclosure of the identities of the clients would inform the IRS that the clients participated in one of the numerous transactions described in the summons to the firm. The Fifth Circuit further found that of the identities of clients would not reveal confidential advice received from the attorneys and was therefore not protected by the attorney-client privilege.
This ruling can have serious implications in criminal investigations and the powers of law enforcement. It further forces attorneys to make the uncomfortable choice between protecting clients’ identities and not revealing the information or facing contempt.
Yesterday, the Department of Health and Human Services (“HHS”) announced that the CARES Act has procured $100 billion in funding for health care providers. Some of the money will be allocated to providers treating uninsured patients for COVID-19 at Medicare rates. The rest of the funding is divided into four categories: (1) general allocation; (2) targeted allocation; (3) rural allocation; and (4) tribal allocation.
At the media briefing to announce the procurement of funds, HHS Secretary Alex Azar promised that the allocation of funds will be closely monitored and that there would be “significant anti-fraud and auditing work by HHS.” He also stated that the “terms and conditions of receiving these allocations include measures to help prevent fraud and misuse of the funds.” Key requirements include certifications that payments will only be used for medical expenses or lost income attributable to COVID-19, which triggered the widespread cancellation of non-emergency surgeries that are lucrative sources of hospital revenue. Recipients must also limit expenses for out-of-network coronavirus patients to in-network rates.
The terms and conditions tied to receipt of the funds can be found here. These terms and conditions are not final.
Pandemic Response Accountability Committee
The CARES Act also creates the Pandemic Response Accountability Committee that will be tasked with performing oversight of CARES Act funds. The members of the Committee include:
- the Inspectors General of the Departments of Defense, Education, Health and Human Services, Homeland Security, Justice, Labor, and the Treasury;
- the Inspector General of the Small Business Administration;
- the Treasury Inspector General for Tax Administration; and
- any other Inspector General, designated by the chairperson from any agency that expends or obligates covered funds or is involved in the coronavirus response.
Duties of Accountability Committee
The Committee’s specific duties include:
- auditing or reviewing covered funds . . . to determine whether wasteful spending, poor contract or grant management, or other abuses are occurring;
- making referrals for investigation to the Inspector General for the agency that disbursed the covered funds, including random audits to identify fraud; and
- reviewing whether competition requirements applicable to contracts and grants using covered funds have been satisfied.
This makes it clear that doctors and hospitals receiving funds will be under the government’s microscope.
On April 3, 2020 the Office of Inspector General (OIG) issued a Policy Statement to notify health care providers and other parties subject to the Anti-Kickback Statute (AKS) that the OIG will not impose administrative sanctions for potential AKS violations for COVID-19-related arrangements that are covered by some of the Blanket Waivers of the Physician Self-Referral (Stark) Law issued on March 30.
The OIG has decided to exercise its enforcement discretion to enable the health care industry to focus on delivering needed patient care during the COVID-19 emergency. The OIG will not pursue sanctions for certain financial arrangements that implicate the Physician Self-Referral Law and might otherwise implicate the AKS, if such arrangements are covered by one of the first 11 Blanket Waivers described by the Centers for Medicare and Medicaid Services in Section II.B HERE
OIG’s Policy Statement
The OIG’s Policy Statement applies to certain types of remuneration between hospitals and physicians, including below-FMV rental charges for lease of space or equipment, or nonmonetary compensation or incidental medical staff benefits in excess of regulatory limits, but does not apply to all of the types of remuneration covered by the Blanket Waivers. For instance, a hospital may provide free use of medical office space on its campus to allow physicians to provide timely and convenient services to patients who come to the hospital but do not need inpatient care. The OIG is encouraging parties to email the OIG with questions about the potential applicability of administrative sanctions to ‘other’ types of remuneration covered by the Blanket Waivers but not the Policy Statement.
OIG’s Policy Statement applies to conduct occurring on or after April 3, 2020, whereas the Blanket Waivers of the Physician Self-Referral Law were retroactive to March 1, 2020. The OIG Policy Statement and Blanket Waiver will terminate on the same date. However, OIG reserved the right to reconsider the Policy Statement, and terminate or modify it, at any time.
A developer accused of defrauding foreign investors in an alleged EB-5 visa scheme has filed a motion to dismiss his indictment, or in the alternative, a request for a Kastigar hearing in United States v. Quiros. The defendant is alleging that prosecutors reviewed communications with his counsel.
SEC Investigation by Attorney David Gordon
The developer, Ariel Quiros, was indicted in May 2019. Prior to the indictment, Quiros was represented by attorney David Gordon in response to an SEC investigation. As part of the investigation, an SEC receiver turned over Quiros’s laptop and other materials in his office to prosecutors in the criminal case., The prosecutors hired a third-party vendor to divide the privileged emails from other documents, however, despite these controls, the vendor turned over at least 2,000 emails between Quiros and Gordon.
All parties were well aware that Gordon represented Quiros; in fact, Gordon accompanied Quiros to one interview with the SEC.
Quiros alleges in his motion to dismiss that the government reviewed the privileged emails and relied on them in bringing its indictment against him.
Quiros also accuses the government of executing a search warrant on his email account without assigning a taint team to review and segregate privileged emails.
Quiros has threatened filing additional motions to suppress evidence.
The District of Vermont’s order on Quiros’s motion will be telling. The government would be well advised to institute taint protocol when reviewing emails to avoid potentially fatal flaws in its prosecutions.
In the highly contested Theranos prosecution, U.S. District Court Judge Davila dismissed three counts from the indictment.
About Theranos Company
Theranos is a health care and life sciences company founded by CEO Elizabeth Holmes. Theranos’ mission was to revolutionize medical laboratory testing through innovative methods of drawing blood, testing blood, and diagnosing patients. Theranos sought to develop a device termed the Theranos Sample Processing Unit, Edison, or minilab that could quickly and accurately analyze blood samples.
The Indictment charges Holmes and her COO Ramesh Balwani with eleven counts alleging that they defrauded doctors, insured patients, and investors about the viability of Theranos’ blood testing technology. The government claims that the promises of the devices were never realized and that the device created “consistently” produced inaccurate and unreliable results. The government further claims that despite these failures, Theranos began a publicity campaign to promote the technology and sold the tests at Walgreens in California and Arizona.
After hearing oral argument on defendants’ motions to dismiss, Judge Davila issued an order directing the government to clarify in a bill of particulars the specific fraudulent representations at issue and to detail who made the misrepresentations to doctors and patients and how they were made. Judge Davila stated that he wanted to avoid the defense team facing surprise at trial. Judge Davila also held that the government had failed to allege how Holmes and Balwani had a “specific intent” to defraud doctors and patients whose insurance paid for the test because the indictment doesn’t specify how those patients and doctors were deprived of money or property. As a result, the judge dismissed one conspiracy count and two wire fraud counts involving insured patients and doctors.
Judge Davila, however, rejected defendants’ argument that they never misrepresented the accuracy and reliability of the blood tests to patients. The judge stated that it was clear from the indictment that patients did not receive the benefit of the bargain.
Even though defendants will face trial on the eight remaining counts, Judge Davila’s order will provide them with better tools to fight. Particularly, the bill of particulars will provide a roadmap of the government’s case and permit Holmes and Balwaini to strategize a defense case.
About Two Telemedicine Companies
Yesterday, prosecutors in New Jersey unsealed an Indictment against a husband and wife owned two telemedicine companies. The Indictment alleges a $56 million fraud. Prosecutors claim that Reinaldo and Jean Wilson orchestrated a national kickback scheme involving unnecessary prescriptions for orthotic braces that were submitted to Medicare for reimbursement.
The Indictment alleges that the Wilsons solicited and received bribes from patient recruiters and pharmacies for patient referrals. Wilsons companies – Advantage Choice Care LLC and Tele Medcare LLC – hired doctors to order the braces.
The Indictment can be found here.
This Indictment comes on the heels of Operation Brace Yourself. That prosecution involved an investigation and prosecution of an alleged $1.2 billion telehealth scheme that involved similar allegations, but charged doctors and business executives of Durable Medical Equipment companies, among others.
If the recent Insys prosecution taught us anything, it is that sometimes it pays to go to trial. The defendants in that case were facing life sentences before trial.
Insys prosecution in 2019
The Insys prosecution started in 2019. The government brought the cases under the Controlled Substance Act and the RICO statute against doctors and corporate executives. The most closely watched case was the one involving the executives of Insys Therapeutics. In that case, the government alleged that seven executives at Insys Therapuetics conspired to violate the RICO statute by paying kickbacks to doctors who heavily prescribed Subsys, a fentanyl spray manufactured by Insys, and by making false statements to insurance companies.
Defendants Went to Trial
Two defendants – Babich and Burlakoff – decided pled guilty and cooperate right before trial. Five defendants went to trial.
After a 10-week trial and nearly four weeks of deliberations, the jury found that the defendants had committed predicate acts of illegal distribution of a controlled substance, honest services fraud, and mail and wire fraud. After trial, the court granted the defendants’ motion for acquittal as to the CSA and honest services fraud predicates, concluding that there was insufficient evidence to prove that the defendants “specifically intended … that healthcare practitioners would prescribe Subsys to patients that did not need it or to otherwise abdicate entirely their role as healthcare providers.
At the sentencing hearing for the cooperators, the Government requested a 20-month sentence for Burlakoff and a 24-month sentence for Babich.
The final sentences ordered by the Court for each defendant are outlined below:
When sentencing the cooperators, Judge Burroughs stated that she worried about sending the message that you can “do the very worst thing and then erase it by cooperating.” She also stated that “I worry about the message that you can be at the top of the criminal food chain, recruit all of these people into the operation, maximize your profits, and then turn around and cooperate against all of those people as if that conduct never happened.”
Given the ultimate sentences and the likely exposure to a life sentence pre-trial, the Insys case is a good example that it sometimes pays to go to trial.
Big Players Arrested In Drug Recovery Industry
Yesterday, Palm Beach State Attorney Dave Aronberg spoke to a reporter from the Sun Sentinel, announcing that his office will be making arrests in the next 30 to 45 days in the drug recovery industry. These arrests are related to investigations by the Sober Home Task Force, which has been investigating the drug recovery industry since 2016.
The State Attorney further stated that the arrests will target big players such as pharmacies, physicians, and laboratories because all the “low hanging fruit” have been arrested.
The Sun Sentinel article can be found here.
The Sober Home Task Force investigation has been aggressive and far reaching. Worse, the State Attorney has sought to eliminate any defenses available to defendants by filing motions in limine to preclude the advice of counsel defense. The inability to assert an advice of counsel defense in these cases, wherein legal advice was sought and followed for the most part, makes the charges against defendants akin to a strict liability charge. As a result, the State Attorney has been largely successful in obtaining plea agreements from those arrested thus far. However, this might change if the State Attorney does in fact arrest bigger players with more resources to fight these cases through motion practice and trial.
Early Disclosure Of Evidence
Federal Criminal Rule of Procedure 16 provides that a defendant must do disclose to the government any evidence the defendant intends to use in the defendant’s case-in-chief at trial. Recently, prosecutors around the country are interpreting Rule 16 to require an “early” disclosure of discovery from the defense, including disclosure of an intent to proceed with an advice of counsel defense. These demands from the government are being made through motions in limine, in advance of trial. The demands are coupled with a request for sanctions in the form of inability to use evidence that is not disclosed “early”. Interestingly, these demands for early disclosure of defense exhibits and defenses are being made before the government has disclosed its witness and exhibit list. The good news is that some judges are siding with the defense.
United States v. Wilkerson, 388 F.Supp.3d 969, 970-76 (E.D. Tenn. 2019)
For instance, in United States v. Wilkerson, 388 F.Supp.3d 969, 970-76 (E.D. Tenn. 2019) the district court denied the Government’s request to compel defendants to disclose in advance of trial an advice of counsel defense and for sanctions for failure to comply. Wilkerson involved allegations of health care fraud and violations of the Anti-Kickback Statute (AKS) related to certain sales and marketing arrangements involving compounded medications, including pain and wrinkle creams. Wilkerson, (at 971-972.)
Wilkerson not only denied the government’s request, but made clear that the government’s requests violated the United States Constitution:
- The next presumption underlying the Government’s motion is that if Defendants are going to present an advice of counsel defense, that they ought to be required to make up their minds and tell everyone sometime ahead of trial. But other than a seemingly arbitrary, unspecified sentiment about when a proper defense must be formulated, the Court does not know why a criminal defendant must decide what defense (if any) to pursue in advance of trial or risk losing the option altogether.The Defendants here, for example, could wait and decide what defenses to raise once they see what evidence the Government presents at trial. Or perhaps they believe the Government is, in any event, unable to put on a case that will survive a motion for a directed verdict. If that is the case, it would be untenable—and, most likely, unconstitutional—to require Defendants to turn over potential evidence (most of which is currently privileged) to the Government or risk forfeiting a defense. The source of that concept, whatever it might be, is fundamentally foreign to the adversarial system of criminal justice contemplated by the United States Constitution.
Wilkerson, at 975.
There are also decisions in the Southern District of Florida that support the sentiment in Wilkerson:
- United States v. Young, 19-cr-60157, (S.D. Fla. November 21, 2019) (D.E. 96). Honorable Rodolfo Ruiz agreeing with the Court in Wilkerson and denying the Government’s request for early disclosure of the advice of counsel defense.
- United States v. Phillip Esformes, et al., 16-cr-20549-RNS (S.D. Fla. May 24, 2017) (D.E. 366 at 4), Honorable Robert Scola concluded that “the government has not provided neither binding precedent nor persuasive authority for its demand that Defendants be compelled to disclose whether they intend to rely on advice of counsel or good faith defenses at trial or that, absent such disclosure, they be precluded from raising the defenses.”
- United States v. Pisoni, Case No. 19-CR-20399-Gayles (D.E. 108) (S.D. Fla. Dec. 10, 2015) (“The Court will not conduct a pre-trial hearing to determine the admissibility of evidence related to an advice of counsel defense. However, at trial, a defendant must testify or present other evidence of reliance on the advice of counsel before an attorney/expert may testify related to the advice provided to that defendant.”
The bottom line is that the defense is not in a position to determine whether it will even present a defense case, much less assert an advice of counsel defense, until it has an opportunity to evaluate the government’s case.