New Era of Healthcare Fraud Investigations Focuses On Individual Accountability

Fannie Fang
Executive Editor
Loyola University Chicago School of Law, JD 2017


Traditionally, only healthcare corporations were held responsible for healthcare fraud. During an investigation, these corporations were only required to provide contextual information about the underlying factual situation in a fraud investigation. Additionally, healthcare corporations would typically enter into settlement agreements with the government which, in turn, would release corporate executive officers from being held personally accountable. However, that trend is coming to an end as there has been an increasing focus by the government in holding individual employees, and not just the healthcare corporations they work for, responsible for healthcare fraud.

What caused the government to shift its focus?

The idea of individual accountability in healthcare fraud started in September 2015 when the Deputy Attorney General (“DAG”), Sally Yates, released what is now commonly referred to as the “Yates Memo”. This memo sparked an increase in the number of cases where individuals are held accountable by the government not just in the healthcare industry, but in other industries such as the finance and pharmaceuticals. In this memo, there is an outline that addresses the Department of Justice’s (“DOJ”)’s increased focus on individual accountability and the appropriate steps healthcare organizations should take in holding individual employees, in addition to the corporations, responsible for corporate wrongdoings. Yate’s memo outlines six key steps that will guide the DOJ in conducting and evaluating corporate investigations.

This concept of individual accountability is particularly important for healthcare providers as Yates cited the False Claims Act (“FCA”) as an example of the application of the new policy in her memo. The DAG stated that in order to receive credit for cooperating fully under the FCA and triggering its reduced damages provision, an entity will now be required, at a minimum, to reveal all relevant facts about responsible individuals. As a result, healthcare providers who do not disclose all the relevant material facts will be considered uncooperative in the government’s eyes. In addition, the Yates memo has taken away individual protection that comes with a corporate settlement agreement by prohibiting settlement agreements that provide this type of protection. As a result, it is likely that the healthcare corporation and the individual employee will both face penalties at the end of an investigation.

The change in individual accountability standards has made it such that, in fraud investigations, focus has shifted from whether an individual personally benefited from the alleged fraudulent behavior. What matters first and foremost is whether he or she is in any way personally responsible for the alleged fraudulent behavior. In other words, whether that individual had oversight and was, in any way, a part of the driving force behind the behavior in question.

The idea of individual accountability was found in two recent FCA settlements that required corporate executives to make substantial monetary payments to resolve their liability. The first settlement case was between the DOJ and North American Health Care Inc. (“NAHC”) and two individuals, the NAHC’s chairman of the board and its senior vice president. Here, the executives agreed to settle potential FCA liability for a total of $30 million. The second settlement was between the DOJ and the former CEO of Tuomey Healthcare System who, a year after the $72.4 million corporate FCA resolution and two years after his departure from Tuomey as CEO, settled his own personal liability for $1 million. Both settlements sent a clear message – that it is indeed a new era for fraud investigations in healthcare. Now, as these two settlements demonstrate, those protective walls around individual officers have been removed, and they are just as liable for criminal and civil charges as the healthcare entities themselves.

How can executives protect themselves from liability?

With a focus on individual accountability, it is now more important than ever for executive officers to ensure their entities’ corporate compliance programs are operating effectively. This means that they should hire the right personnel (i.e. a compliance officer), specifically individuals who are capable of connecting compliance requirements to relevant preventive and detective internal controls. In addition, there needs to be regular compliance training that is mandatory for all levels of employees, including executive officers. Furthermore, outside counsel may be needed to monitor the consistently evolving regulatory risk so that the compliance officer can create and maintain an information governance system to facilitate timely responses when there are compliances violations.