In September 2016, three corporate officers in two healthcare fraud and abuse cases settled allegations that they were personally liable for violations of federal fraud and abuse laws.  These settlements come one year after Deputy Attorney General of the U.S. Sally Quillian Yates of the U.S. Department of Justice (“DOJ”) issued a memorandum (the “Yates Memo”) that directs Assistant Attorney Generals of the U.S. to fully leverage their resources “to identify culpable individuals at all levels in corporate cases.”  It also instructs Assistant Attorney Generals to give cooperation credit to a corporation under investigation only if the corporation provides all relevant facts about all individuals involved in the corporation’s misconduct.

The Yates Memo explains that “[o]ne of the most effective ways to combat corporate misconduct is by seeking accountability from individuals who perpetrated the wrongdoing” because individual accountability “deters future illegal activity, it incentivizes changes in corporate behavior, it ensures that the proper parties are held responsible for their actions, and it promotes the public’s confidence in our justice system.”

North American Health Center Inc. Board Chairman and Senior Vice President Pay $1.5 Million Settlement.  On September 19, 2016, the DOJ announced that North American Health Care Inc. (“NAHC”), NAHC board chairman John Sorenson, and NAHC senior vice president of reimbursement analysis Margaret Gelvezon agreed to settle jointly allegations that they violated the False Claims Act by submitting false claims for medically unnecessary rehabilitation therapy services for residents of NAHC’s skilled nursing facilities (“SNFs”).  The false billing scheme allegedly occurred at all NAHC SNFs between January 21, 2005, and October 31, 2009, and continued at certain SNFs until December 3, 2011.  While NAHC will pay the federal government $28.5 million as part of the settlement, Chairman Sorenson will personally pay $1 million and Senior Vice President Gelvezon will personally pay $500,000.

Gelvezon allegedly participated in creating an improper scheme to bill for providing higher intensity services than were medically indicated and required by residents of NAHC’s SNFs, who were Medicare and Tricare beneficiaries.  Sorenson allegedly reinforced the scheme at NAHC’s facilities in California and other states.  Notably, more settlements could be forthcoming because the U.S. Government reserved the right to pursue claims against other NAHC individuals.  NAHC also agreed to a five-year corporate integrity agreement with the Department of Health and Human Services (“HHS”).

Former CEO of Tuomey Healthcare System Pays $1 Million Settlement.  On September 27, 2016, the DOJ announced a $1 million settlement with former Chief Executive Officer of Tuomey Healthcare System (“Tuomey”), Ralph Jay Cox III, for his part in allegedly (1) pushing Tuomey to enter into contracts that paid above fair market value for the professional services of 19 physician specialists in exchange for the physicians referring their outpatient procedures to Tuomey, instead of a new, nearby and competing freestanding surgery center; and (2) ignoring and suppressing warnings about these questionable deals from Tuomey’s healthcare counsel.  In addition to the settlement payment, Cox also agreed to refrain for four years from participating in any federal programs, including providing management or administrative services paid for by federal healthcare programs.

Prior to Cox’s settlement, Tuomey reached a $72.4 million settlement with the federal government after a jury delivered a $237.4 million verdict against the hospital for violations of the Stark Law and False Claims Act.  In the settlement agreement with Tuomey, the federal government specifically reserved and did not release any claims it had against individuals involved in the arrangement.  Like NAHC, Tuomey agreed to participate in a five-year corporate integrity agreement with HHS.

Sherman & Howard L.L.C. has prepared this advisory to provide general information on recent legal developments that may be of interest. This advisory does not provide legal advice for any specific situation and does not create an attorney-client relationship between any reader and the Firm.

©2016 Sherman & Howard L.L.C.                                                                                       December 1, 2016