Enforcement Trends: New DOJ Policy Targeting Weak Whistleblower Cases May Make Life Easier for Labs

It’s not just new laws, regulations or even court cases. Trends in health care fraud enforcement are sometimes driven by changes in prosecution policies, including those that aren’t made public. Such a potential game-changer came out of the Justice Department about a year ago in the form of an internal memo instructing prosecutors to not only decline to participate in but also actively seek dismissal of qui tam whistleblower lawsuits that lack merit. A year later, it appears that the new tough-love whistleblowers policy, aka the Granston Memo, is having an actual impact on enforcement.

Whistleblower Litigation, 101

Most lawsuits never make it to court. The moment of truth comes when the defendant asks the court to dismiss the case. If the motion is granted, it’s generally game-over for the plaintiff. But if the case survives dismissal, the defendant’s risks and incentive to settle go way up, which shifts leverage to the plaintiff.

In the context of False Claims Act (FCA) litigation, there’s another factor affecting this dynamic, namely, the risk/possibility that the DOJ will take over the case on the whistleblower’s behalf. Of course, the DOJ is free to pass on the chance to intervene if it doesn’t like the case. But what often goes overlooked is the rarely used part of the FCA, Section 3170(c)(2)(A), that lets the government actually seek dismissal of the case it doesn’t believe serves its interests.

The Granston Memo

The Granston Memo (after Michael Granston, the DOJ official who authored it), which we only know about because somebody leaked it to the press in January 2018, calls on DOJ prosecutors to use their Sec. 3710(c)(2)(A) power aggressively and lists seven kinds of cases to target, including:

1. Meritless claims that assert an “inherently defective” legal theory or make “frivolous factual allegations”;

2. Parasitic or opportunistic claims that duplicate pre-existing government investigations and add no useful information to that investigation;

3. Cases that pose actual threats to government policies or programs;

4. Cases that interfere with other FCA cases;

5. Cases threatening harm to national security, e.g., actions that may compromise classified information or involve intelligence agency operations;

6. Cases where costs will exceed the gains, including “opportunity costs” of not utilizing resources for higher priority cases with a better chance of recovery; and

7. Claims that may frustrate an investigation.

The Granston Memo also instructs prosecutors to notify whistleblowers when they’re thinking about pursuing a Sec. 3710(c)(2)(A) dismissal. Reasoning: Whistleblowers will be more likely to drop the case once they realize that the DOJ not only isn’t going to intervene on their behalf but also may actually try to get the case thrown out of court.

Impact of the Granston Memo

While the DOJ generates more than its fair share of internal memos, the early returns suggest that the Granston Memo is actually shaping policy. We do know that FCA whistleblower recoveries in the health care segment declined in 2018, from $2.151 billion to $1.945 billion. But year-to-year recoveries were also down from 2016-17, a year before the Granston Memo came into existence.

A much more reliable indicator of the Memo’s influence is that prosecutors are now actually bringing Sec. 3710(c)(2)(A) dismissal claims against whistleblowers, most notably on December 17, 2018, when the DOJ moved to dismiss 11 qui tam actions in seven judicial districts. The cases were brought by the National Healthcare Analysis Group (NHCA), a company that specializes in generating FCA cases, and essentially asserted the same complaints with different defendants, at least in the DOJ’s opinion. In its dismissal claims, the DOJ accuses the NHCA of dishonesty contending that transcripts from the “witness interviews reveals the false pretenses NHCA uses to obtain information.”

Takeaway

Regardless of the ultimate outcome, the DOJ’s move to get the NHCA cases tossed out of court is 100% consistent with the principles outlined in the Granston Memo.  It remains to be seen whether the DOJ will pursue these actions more frequently. But if it does, health care will reap the greatest benefit considering that such a disproportionate number of whistleblower FCA claims target the industry.  A DOJ operating on Granston Memo principles would also strengthen the hand of attorneys defending your lab in a qui tam suit by offering a new strategic option: Making the case to the prosecutor that the case should be dismissed under one or more of the seven Granston Memo factors.

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This article originally appeared in G2 Intelligence, Lab Compliance Advisor, March 2019