The US Department of Justice has annunciated several enforcement priorities relevant to the healthcare sector: senior care, opioids, cyber security and privacy, and – of particular interest to listeners of “The Corner Series” – private equity investors in the healthcare space.

Michael Podberesky, a former DOJ prosecutor who is now co-chair of McGuireWoods’ False Claims Act Investigations, Litigation and Enforcement team, outlines these priorities in this installment of “The Professor’s Corner,” a special episode where “The Corner Series” host Geoff Cockrell invites experienced practitioners to share insight about nuanced topics. Michael offers an insider’s view of the agency, including how it balances political pressure with its evidentiary burden and how its attorneys triage the large number of complaints they receive. He also observes that his former DOJ colleagues typically have one overriding calculus: “Am I dealing with a bad actor?” For the most part, they are fair and reasonable, he says, adding: “That doesn't mean we’re going to agree, and it doesn’t mean our listeners are going to agree.”

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This podcast was recorded and is being made available by McGuireWoods for informational purposes only. By accessing this podcast, you acknowledge that McGuireWoods makes no warranty, guarantee, or representation as to the accuracy or sufficiency of the information featured in the podcast. The views, information, or opinions expressed during this podcast series are solely those of the individuals involved and do not necessarily reflect those of McGuireWoods. This podcast should not be used as a substitute for competent legal advice from a licensed professional attorney in your state and should not be construed as an offer to make or consider any investment or course of action.

This is The Corner Series, a McGuireWoods series exploring business and legal issues prevalent in today's private equity industry. Tune in with McGuireWoods partner, Geoff Cockrell, as he and specialists share real-world insight to help enhance your knowledge.

Thank you for joining another episode of The Corner Series. I'm your host, Geoff Cockrell, partner at McGuireWoods. Here at The Corner Series, we try to bring together thought leaders and deal makers at the intersection of healthcare and private equity. This installment is an episode that we call our Professor's Corner, and we bring technical expertise, often some of my colleagues, to delve into some more specific and nuanced topics. Today, I'm joined by my partner Michael Podberesky. Michael is the co-chair of our False Claims Act investigation and litigation team. And Michael deals with the DOJ and litigation that is related to False Claims Act and other federal acts that relate to healthcare. Michael, if you could give a little bit of your background and what brought you to McGuireWoods and then we'll jump into some discussion of what some of the hotter areas of enforcement are and some more specific questions.

Thank you, Geoff, and thank you for having me. I have been in McGuireWoods for three and a half years, as Geoff said, co-chair of our False Claims Act team. Being a False Claims Act practitioner, I spend about 70% of my time in the healthcare enforcement space, the other 30% mainly in aerospace and defense procurement cases. I joined McGuireWoods from Department of Justice Civil Fraud Section here in DC. That's a group of about 130 lawyers who exclusively prosecute False Claims Act cases. I was there for five and a half years. Prior to that, I spent about seven and a half years at another large international law firm where I was a general commercial litigator, dabbled in white collar there, and law was a second career for me. Before going to law school, I flew surveillance planes in the Navy.

Michael, the DOJ is pretty transparent on what some of their priorities are and some of those priorities connect specifically to healthcare enforcement. What has the DOJ indicated are their current priorities and how do those priorities intersect with how they actually behave?

Sure. So DOJ issues an annual press release usually in late January or early February where they announce their recovery under the False Claims Act from the prior calendar year. And in that press release, they'll highlight some larger or more significant settlements and verdicts, and they'll also talk about anywhere from three to six areas of priority and focus. It's also not unusual for once or twice a year, a senior leader of the Department of Justice will give a speech to, for example, a bar association, where in that speech they will also announce a new initiative or new areas of focus. Recently, four areas of focus particularly relevant to our audience here are senior care, and that's generally defined broadly. Anything from hospice, home healthcare, nursing homes, rehabilitation facilities. That has been a area of focus. Number two would be opioids and anything ancillary to opioids. The opioid epidemic does not seem to be on the front page as much, particularly after COVID, but it's still killing 100,000 people a year.

And the government is still paying a lot of money for either the opioids themselves or services like urine drug testing or other services related to treatment for people who are on opioids. And they continue to prosecute not just opioid manufacturers, but entities involved in the distribution change from retailers all the way up to manufacturers and everything in between. And to include consultants, there's been large settlements with some consultants who've been providing advice to those entities. The third priority is what DOJ has called the Cyber Security Initiative, where they want to use the False Claims Act to prosecute cyber fraud and related matters. In the healthcare context, that means that some HIPAA and other privacy related cases are getting more scrutiny and instead of being handled as civil matters by the HHS Office of Civil Rights, those are being turned into fraud cases and False Claims Act claims.

And there have been settlements announced under the Cyber Fraud Initiative with healthcare providers. And then finally, there's a focus on private equity investors and their role in the healthcare space. A couple of caveats to the four items I just listed. The first two, senior care and opioids, those have been announced priorities maybe for around a decade running. And so they're not new. They seem to be constant over the last decade or so. The other caveat I would provide your audience is that DOJ often announces these are our priorities for firm enforcement, but so many of the False Claims Act cases, roughly 70% of them are actually brought by whistleblowers. And so the government is often reactive and they can announce they want to be proactive in certain areas, but the plaintiffs bar and potential whistleblowers, they get a say because they bring certain types of cases and DOJ has to investigate those and eventually prosecute some of them. A couple of caveats there.

One question, Michael, given that dynamic, I can appreciate that they are fueled by what comes across their desk. I know that the plaintiffs bar doesn't put out a priorities memo, but looking at where whistleblower activity is, is there any through line for where the plaintiffs bar is from a priorities perspective?

Absolutely. Plaintiffs bar, they want to bring cases where they think the government will be tempted to intervene. That's their goal. Obviously their end goal is a recovery, but sort of the intermediate goal and the best way to get there is to have the government intervene, take over the case and either extract a settlement or litigate the case. And they know that if the government says, "We're particularly focused on these three to six areas," that if they bring a case in one of those three to six areas, there's a better chance the government intervene in those cases. So there is a through line and a connection there.

But if a whistleblower brings a plaintiff's lawyer a case that let's say like a bread and butter kickback case that doesn't fall into one of these priority categories, the plaintiff's lawyer, if it looks like a good case and there's evidence to support the claim and the potential defendant has deep pockets, that plaintiff's lawyer will have plenty of incentive to bring that case. And DOJ is not likely to ignore an obvious violation if they conclude there is an obvious violation. And just to take a step back, procedurally the False Claims Act requires the Attorney General to investigate the allegations in any qui tam complaint that is filed. So DOJ does not have a choice. They have to investigate. How much they investigate and whether they intervene, they have some discretion there, but there is sort of built, baked into the cake some reactiveness there.

The focus or interest in private equity's role is a little more perplexing to me when you're talking about the FTC and Lina Khan and Elizabeth Warren who are articulating the idea that consolidation backed by private equity enables consolidation of market power that can be used in non-competitive ways, I think that that broad brush is largely incorrect from the companies that I've seen, but there certainly could be instances where consolidation can yield true market power that could be abused. I can follow that as a thought process. When you talk about the DOJ, they're looking more for either technical violations or more specifically bad actor violations. And the connection to private equity seems harder for me to piece together. Where does that heat come from from the DOJ's perspective?

So DOJ being part of the government is subject to that same pressure, that same political pressure. That said, I think DOJ tends to be a little more insulated than other agencies. And so while you mentioned Senator Warren and FTC Chair, Lena Kahn, they've both made statements suggesting... my gloss on it is they just don't think private equity should be in the healthcare space, that it's inappropriate. DOJ leadership has not gone that far. They've been more careful and circumspect in their statements, and it's also because they're the ones who have to litigate cases right?

And so Elizabeth Warren can make a statement with a policy preference, but DOJ has to prosecute a case and live with the law as it is. And obviously private equity investors, they have the same corporate protections that any parent company would have, and DOJ would have to prove a case involving a portfolio company or a subsidiary. DOJ, if they want to go after the parent or the private equity investor, they have to pierce that corporate bail and prove there was wrongdoing at that level. So because they have that evidentiary burden, I think they've been a little more careful in their statements, and I've seen it in my own cases, whereas years ago, I would represent a portfolio company, quite frankly before that, maybe prosecute a portfolio company unless there was a good reason to subpoena the parent company or the private equity firm, we didn't do that. Whereas now anecdotally, in my case, I'm seeing the private equity firm subpoenaed earlier in the case and almost as a matter of routine. That said, that does not change DOJ's evidentiary burden.

As I'm advising private equity funds that are engaged with their portfolio companies, I'm often asked, given that the nature of that focus, what can they do to help present themselves in their role in the best light from a process perspective? And one of the things that I'm often talking to them about it is that when you make a close call, make sure that the record shows the consideration that you made. Be careful how you communicate, that things that you might be saying in private in one sort of thought process context, if you pull that out and look at it in isolation, it could look different or darker. So just being careful about how you do those things. What advice do you give private equity folks as they're trying to navigate this enhanced scrutiny?

Absolutely. Certainly what you said is important to the extent they learn about misconduct or really issues where there's ambiguity. You want to dot your I's and cross the T's, document how you review the process. Are you reviewing it with clinicians? Are you bringing in outside consultants? Are you bringing in counsel? And then document the entire process, all the steps taken, so you have that should someone come knocking down the road. Also, that's sort of ex-post. Ex-anti I would say make sure the private equity firm employees or partners that are sitting on the board or involved with management or operations of the portfolio company have a good education and background in healthcare compliance and enforcement. What you want to avoid is a private equity firm that dabbles in many different spaces and industries, and you have a really good PE firm employee. You have a new portfolio company, or you're going to acquire a new healthcare portfolio company and that individual just doesn't have any experience in the healthcare space, doesn't understand Medicare, Medicaid payment rules.

There are unique aspects in the healthcare space and healthcare enforcement that things that are normal in other industries can get you thrown in jail in the healthcare space. I'm specifically for this example thinking of the anti-kickback statute right? In other industries, for example ours, Geoff, you and I can take someone golfing or take someone out for a nice meal. I don't know. An imagery center cannot take a referring provider out for a weekend golf trip. That would be a violation of the anti-kickback statute possibly.

And anti-kickback statute is a criminal provision, albeit frequently prosecuted using the False Claims Act. So you want to make sure individuals who are sitting on the board understand healthcare, understand federal healthcare program, payment rules, enforcement priorities, all the traps. And for that particular area, they ought to have a deep understanding of this provider is in this particular sub-area. Again, let's say it's radiology, it's an imagery center, that they understand the particular payment scheme there and the particular risks there. So those are two pieces I would advise and I would provide to PE firm employees and partners who are going to be sitting on a board or involved with a portfolio company.

Absolutely, and it doesn't need to necessarily be every person on that board, but you want the expertise in that room when decisions are being made or courses of conduct are being evaluated. You need people in the room that are going to be sensitive to those specific things, and that's of critical importance.

Absolutely. And if I could add one more just because it's topical, DOJ has announced a new safe harbor for mergers and acquisitions where if an acquiring company learns during the due diligence process that the target company has been committing billing errors, the acquiring company, if they inform DOJ and self-disclose within six months of the closing date, and if they remediate within a year of the closing date, the erroneous billings, then DOJ, then they will receive a presumption of a declination, meaning DOJ will not go after the acquiring company for the potential fraud. They may go after the owners of the target company who have since sold their company, but they won't go after the acquiring company. So another reason obviously to do very thorough due diligence, but if you do come across issues, another reason not to sit on those and not remediate them and address them in a very timely manner.

One of the things that comes up and that context is a good one of you discover something in the context of an acquisition. It's one thing if you look at it immediately that yes, that was violative of something and the money that they received is point-blank violation of something they shouldn't have done. More often than not, you find things that are on a grayscale where they might have made a more incrementally more aggressive determination of something. It's not a foregone conclusion that they're wrong, but it feels more aggressive. How do you think about those grayscale questions? Obviously the black and white ones are a lot easier. They might be expensive, but they're easier, but the grayscale ones are hard. How do you think about those questions?

Those are challenging, and I deal with those. You want to have the right people look at those issues. So bring in experience consultants in that specific sub-sector of healthcare, and then you want to bring in regulatory and likely white collar counsel to look at the issue as well. So sometimes both on when I represent the buyer, and sometimes when I represent the seller, sometimes I am brought in, let's say I represent the buyer or the investor or the lender and they say, "The company has been doing X. What do you think about X?" And usually it would be me in conjunction with a regulatory expert sort of assessing that particular issue. From a regulatory angle, it's more like where does this fall on the spectrum? Is there a violation? And as a former prosecutor, my perspective, is there intentional wrongdoing here or is this an honest mistake?

Is this a matter that a prosecutor would want to sink their teeth into? Well, they view this more as a technical error and a footfall and through that process, and it's not easy. I made it sound easy, but it can be challenging, and the buyer and the seller's regulatory attorneys and white collar counsel may not necessarily agree on the risk assessment. But like you said, when there's ambiguity, that's when it becomes very challenging to try and assign a risk profile and a value on that so that you, Geoff, as more of a transactional attorney, can then have an indemnity escrow set up or reduce the sale price to account for that risk.

Does the magnitude of dollars involved inform that from the government perspective? I assume the answer is going to be yes. Meaning if the government's position is going to yield a more material dollar claim, does that inform their desires to pursue things?

Absolutely, Geoff. They want return on investment as much as we do. It just looks different right? They don't have a balance sheet. Attorneys in the government aren't measured by how much profit or loss they bring in, but they're doing their best to bring as much back to the public fisc as they can, and they have more cases, they have more qui tam complaints than they have time to prosecute. So they have to triage, and the government declines to intervene in about 70% of the cases. So they say, "No, thank you," a lot, which means there's room... there's play in the joints, and there's room for attorneys like me to convince them that they should walk away from this case. What it also means is they don't just look at the nature of the conduct. Was it intentional? Was it egregious? They have to look at the potential damages.

So if there's egregious misconduct, but the potential damages are $50,000, they're not going to spend three years and hundreds of manpower hours litigating a case that's going to have a minimal return on investment for the US Treasury. On the other hand, if there's a case where the misconduct is a little more gray area and the defendant has some defenses, but the potential damages are huge, they will do a risk assessment and say, "Well, we have a 50% chance of prevailing here, but it's 50% of tens of millions of dollars. This is worth our time. This is a solid return on investment." That said, Geoff, at a high level, I can tell you anecdotally speaking for myself, but a lot of my colleagues, my former colleagues at DOJ, I think a lot of us have a threshold question we ask ourselves beyond just the risk return assessment I just... calculation I walked you through, which is, am I dealing with bad conduct?

Am I dealing with a bad actor? If there's a lot of money at stake and I have viable arguments, but I'm just not convinced this defendant did anything wrong or didn't do the best they could or weren't operating good faith, I know for me, I would walk away from that case. And part of that is their number one goal is not returning money to the fisc. Their number one goal is to serve the interest of justice. So I and a lot of my former colleagues took that seriously. Anecdotally, now that I'm on the defense side, I can tell you not every prosecutor thinks that way. Some of them are more, "There's going to be a huge return on investment. We're going to prosecute this case."

There are times in dealing with those situations where I had the palpable sense that the folks on the prosecutor's side had a calculus, that they knew that there was a check that we would write just to be done with something, and that willingness to write a material but not crushing check to be done was something that they could also lean into. So I hear you that ultimately being bad is the worst spot to be in, but it can be a mixed bag of who you're dealing with in the government.

Absolutely. There are humans over there as well, and there's a lot of great public servants, and there are some who aren't as great as others, and interestingly enough, sometimes that can ignore to a defendant's benefit if you have a public servant who's overworked and doesn't have enough time to focus on your case. On the other hand, sometimes you can run into someone who is a true believer, would be very comfortable working for Lena Kahn or Elizabeth Warren doesn't believe in for-profit healthcare, and you can run into them, and no matter how strong your arguments are, it doesn't seem to move the needle. Now, in defense of my former colleagues, I think that really is a minority view. I think most of them are fair and reasonable. That doesn't mean we're going to agree, and it doesn't mean our listeners are going to agree.

Michael, I think we'll leave it there. It's always fun to talk to you. Thank you for joining this episode.

Thank you for having me, Geoff.

Thank you for joining us on this installment of The Corner Series. To learn more about today's discussion, please email host Geoff Cockrell at gcockrell@mcguirewoods.com. We look forward to hearing from you. This series was recorded and is being made available by McGuireWoods for informational purposes only. By accessing this series, you acknowledge that McGuireWoods makes no warranty guarantee or representation as to the accuracy or sufficiency of the information featured in this installment. The views, information, or opinions expressed are solely those of the individuals involved and did not necessarily reflect those of McGuireWoods. This series should not be used as a substitute for competent legal advice from a licensed professional attorney in your state and should not be construed as an offer to make or consider any investment or course of action.