HEALTH CARE FRAUD & CORRUPTION

Table of Contents

INTRODUCTION.....................................................................................................................................................................................2
HEALTH CARE FRAUD ENFORCEMENT....................................................................................................................................................2
LICENSING...............................................................................................................................................................................................3
FALSE CLAIMS ACT..............................................................................................................................................................................5
INTRODUCTION........................................................................................................................................................................................5
ELEMENTS...............................................................................................................................................................................................5
ENFORCEMENT........................................................................................................................................................................................7
ANTI-KICKBACK STATUTE................................................................................................................................................................8
INTRODUCTION........................................................................................................................................................................................8
ELEMENTS...............................................................................................................................................................................................8
SAFE HARBORS........................................................................................................................................................................................9
ENFORCEMENT......................................................................................................................................................................................10
STARK LAW...........................................................................................................................................................................................10
INTRODUCTION......................................................................................................................................................................................10
ELEMENTS.............................................................................................................................................................................................10
EXCEPTIONS..........................................................................................................................................................................................11
ENFORCEMENT......................................................................................................................................................................................12
AKS/STARK LAW COMPARISON CHART...............................................................................................................................................12
FOREIGN CORRUPT PRACTICES ACT..........................................................................................................................................13
GENERAL PRINCIPLES............................................................................................................................................................................13
ELEMENTS.............................................................................................................................................................................................13
FOOD, DRUG, AND COSMETICS ACT.............................................................................................................................................14
GENERAL VIOLATION PROVISIONS........................................................................................................................................................14
OFF-LABEL MARKETING.......................................................................................................................................................................14
CORPORATE RESOLUTIONS............................................................................................................................................................16
CRIMINAL RESOLUTIONS.......................................................................................................................................................................16
CIVIL RESOLUTIONS..............................................................................................................................................................................17
INTERNAL INVESTIGATIONS..................................................................................................................................................................17
PROSECUTION OF INDIVIDUALS....................................................................................................................................................18
GENERAL PRINCIPLES............................................................................................................................................................................18
EXCLUSIONS.........................................................................................................................................................................................19
MANDATORY EXCLUSIONS....................................................................................................................................................................19
PERMISSIVE EXCLUSIONS......................................................................................................................................................................19
TAX-EXEMPT ORGANIZATIONS.....................................................................................................................................................20
FEDERAL TAX-EXEMPTION UNDER § 501(C)(3)...................................................................................................................................20
JOINT VENTURES BETWEEN TAX-EXEMPT AND FOR-PROFIT ORGANIZATIONS...................................................................................22
INUREMENT, PRIVATE BENEFIT, EXCESS BENEFIT TRANSACTIONS......................................................................................................22
CORPORATE GOVERNANCE............................................................................................................................................................23
FIDUCIARY DUTIES................................................................................................................................................................................23
CONVERSIONS, ASSET SALES, AND MERGERS......................................................................................................................................24
 Introduction
Health Care Fraud Enforcement
1. Authorities
a. US Dep’t of Justice (DOJ)
i. Mission: enforce the law and defend the interests of the US
ii. US Attorneys and AUSAs
iii. Each USAO appoints a criminal health care fraud coordinator and a Civil Health Care Fraud Coordinator
1. Coordinates efforts of the criminal and civil AUSAs, the FBI, OIG, and private insurers
b. US Dep’t Health and Human Services (DHHS)
i. Mission: dedicated to protecting and promoting the health of Americans and providing essential human
services, which includes administering the Medicare and Medicaid programs and ensuring drug and
medical device safety
i. Office of Inspector General (OIG)
1. Conducts investigations into CMS fraud and abuse allegations with DOJ
2. Authority to impose administrative sanctions, such as exclusion from participation in federal
health care programs and civil monetary penalties against Medicare and Medicaid providers
ii. Centers of Medicare and Medicaid (CMS)
1. Does NOT have authority to prosecute violation, but CAN recoup administrative overpayments
2. Mission: ensure that correct payments are made to legitimate providers for covered, appropriate,
and reasonable services provided to individuals who are eligible to receive benefits under the
CMS programs
iii. Food & Drug Administration (FDA)
1. Mission: ensuring the safety, efficacy, and security of human drugs and medical devices; regulates
promotion of products
c. US Securities and Exchange Commission (SEC)
i. Mission: protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation
d. State Agencies
i. Medicaid Fraud Control Units (MFCUs)
1. DC + every state – ND
2. Mission: investigate and prosecute fraud and patient abuse and neglect by Medicaid providers
3. Funded through fed gov’t
ii. State Medicaid Agencies
1. Each state is required to maintain a Medicaid Management Information System (MMIS), which is
a claims payment and information retrieval system
iii. Medicaid Inspectors General
1. Not all states have
iv. Consumer Fraud Units
v. Licensing Boards
2. Penalties
a. Criminal and civil liability for health care fraud
i. Deferred Prosecution agreements
ii. Corporate integrity agreements
b. Include FCA, FDCA, AKS, FCPA, CSA, Exclusion Statutes, and Civil Monetary Penalties
c. Laws apply both to entities and individuals
d. People v. Guiamelon (Cal. 2012)
i. Facts: D is a physician convicted under § 650 for paying illegal fees to persons who referred patients
qualified for federal and state programs to her practice. D was approached my marketers who claimed they
could bring her patients. She subsequently engaged marketers to bring patients to her, by either driving
them to her office or directing them there. Contends that this statute is preempted by the federal AKS under
doctrine of implied conflict and obstacle preemption
i. Holding: Not preempted
1. Conflict preemption is not applicable because the federal AKS supplements rather than supplants
the remedy under § 650
2. Obstacle preemption is not established because the purpose of § 650 is not consistent with the
purpose underlying the federal AKS.
3. Investigative Tools
a. Subpoenas
b. Civil Investigative Demand (CID)
c. Undercover Operations
d. Executing warrants/raids
e. Wiretapping
 CIVIL CRIMINAL
Grand jury subpoenas for documents and testimony -- X
HIPAA subpoena for health care records -- X
OIG subpoenas X X
Civil Investigative Demands X --
Undercover operations X X
Executing warrants -- X
Wiretapping -- X
4. U.S. v. Stringer (2008)
b. Facts: Ds maintained a company called FLIR systems which sells infrared and heat-sensing cameras for military
and industrial use. USAO and SEC decided that USAO would not bring an indictment against the Ds immediately
and instead the SEC would continue the investigation and interview the Ds. Each D complied with the SEC
subpoena and appeared at the deposition. The three were eventually charged in 2003 with securities, mail, and wire
fraud. Ds filed to dismiss and suppress the privileged statements that were made. District court held that the gov’t
violated Ds 5A due process rights by using trickery and deceit to conceal the criminal investigation from them, and
conducting a criminal investigation under the auspices of a civil investigation.
a. Holding: parallel proceedings are OK as long as not in bad faith, no trickery and deceit, and cannot affirmatively
mislead
i. SCOTUS has held that the gov’t may conduct parallel civil and criminal investigations without violating
the DPC so long as it does not act in bad faith
1. Kordel: dicta: gov’t may be acting in bad faith if brings a civil action solely for the purpose of
obtaining evidence in a criminal prosecution
ii. OR if they use trickery and deceit
1. to the extent that the individual defendants may have been led through trickery or deceit to turn
over documentary or physical evidence in their possession or to use their official authority to turn
over evidence in the possession of the corporation, the defendants could state a claim under the 5A
iii. Must not "affirmatively mislead" the subject of parallel civil and criminal investigations "into believing that
the investigation is exclusively civil in nature and will not lead to criminal charges."
1. Here, SEC did advise defendants of the possibility of criminal prosecution. The SEC engaged in
no tricks to deceive defendants into believing that the investigation was exclusively civil in nature.

Licensing
5. The law regulated health care professionals in a wide variety of ways:
a. Enforces standard of car through malpractice suits
b. Policies relationships between professional and institutional providers AND
c. Enforces contractual provisions that permit insurers to refuse payment for poor quality or unproven treatments
6. Self-regulation of the profession
a. Licensing boards implement and enforce applicable statutes
b. Dominated by members of the licensed profession
c. Rationale: health care quality; lack of information available to consumers to make their own risk-benefit balance in
choosing providers as well as the limited capacity of patients to evaluate the information that is available
7. Discipline
a. Licensing boards are required to show that an agency’s factual findings following a hearing are based on reliable,
probative, and substantial evidence
b. In re Williams (1991)
i. Facts: D prescribed Biphetamine for 50 patients as part of a weight control treatment regimen. Ohio State
Medical Board promulgated a regulation which prohibited the use of that drug for purposes of weight
control. D ceased prescribing upon becoming aware of the rule. The board charged D with violating the
rule; crux of charge was that D had departed from accepted standards of care by using these drugs as long-
term tx. D presented expert testimony which showed that there is conflicting evidence and schools of
thoughts on long term use of stimulants for weight loss. D was found guilty
ii. Holding:
1. A reviewing court is bound to uphold the agency’s order if it is supported by reliable, probative,
and substantial evidence and is in the accordance with law.
2. Arlen: physician was disciplined because writing rx for controlled substances to a person who was
known for redistributing the drugs to others in violation of a statute. There, we held that the board
is not required to present expert testimony
3. The board cannot, however, convert its own disagreement with an expert’s opinion into
affirmative evidence of a contrary proposition where the issue is one on which medical experts are
divided and there is no statute or rule governing the situation.
a. There is insufficient evidence to support the charges against D.
 c.Hoover v. Agency for Health Care Administration (1996)
i. Facts: D’s license was restricted by the state for (1) inappropriately and excessively prescribed various
controlled substances and (2) provided care of those patients that fell below the level of care, skill, and
treatment which is recognized by a reasonably prudent similar physician as being acceptable under similar
conditions and circumstances. Agency presented two experts; neither had examined any of the patients or
their medical records. Sole basis of the opinion was from computer printouts from the pharmacies fill hx
ii. Holding: There were independent findings of fact (from federal guidelines) that buttressed the hearing
officers finding that the doctor’s prescribing practices were not excessive
8. Standard of Care regulation
a. Prescribing practices is based on state law, but also regulated by the FDA and DEA
i. FDA has authority to approve and monitor the safety of drugs and devices
1. Once it is approved, then the FDA does not have the authority to restrict physicians in their
prescribing of the drug for particular purposes
ii. DEA more directly regulates prescribing practices through its authority under the CSA
1. Doctors must have a permit issued by the DEA to prescribe drugs on Schedules II-V
b. Complementary and Alternative Medicine (CAM)
i. State licensure boards become involved in CAM in three ways:
1. Licensed doctors may utilize CAM therapies, integrating them within conventional medicine
2. Licensure boards may take action against the unlicensed CAM practitioners for violating the
state’s prohibition against the unlicensed practice of a licensed health care profession
3. Where CAM providers are licensed, they will be subject to restrictions on their scope of practice
ii. In re Guess (1990)
1. Facts: Dr. Guess is a licensed physician practicing family medicine. He regularly administers
homeopathic medical treatments. The Board charged Guess with unprofessional conduct. A
hearing was held and the evidence consisted of testimony by several physicians that said
homeopathy was not an acceptable and prevailing system of medical practice. After the hearing,
the Board revoked his license
2. Holding:
a. The legislative intent was to prohibit any practice departing from acceptable and
prevailing medical standards without regard to whether the particular practice itself could
be shown to endanger the public
b. The board’s findings leading to its decision were based upon competent, material and
substantial evidence regarding what constitutes acceptable and prevailing standards of
medical practice in NC
c. Ds evidence of use of homeopathy outside of NC simply was not relevant to the issue
before the board
9. Unlicensed Providers/Scope of Practice
a. States often require different types of licensure:
i. Full state license AND/OR
ii. Certifications
b. Licensed non-physician health care providers cannot legally practice medicine, but practices that fall within their
own licensure are not considered the practice of medicine
i. Scope of practice regulation focuses on boundary setting between professions and attempts to separate
medicine from nursing from other disciplines
c. Sermchief v. Gonzales (1993)
i. Facts: Plaintiff-appellants ask the court to declare that the practices of the Agency nurses are authorized
under the nursing law and that such practices do not constitute the unauthorized practice of medicine. The
Agency consists of duly licensed nurses and physicians; the services provided by the nurses include
physical examinations, lap testing, cultures, blood serology, and counseling.
ii. Holding:
1. Under the statute a nurse may be permitted to assume responsibilities not considered to be within
the field of profession nursing so long as those responsibilities are consistent with her or his
specialized education, judgment, and skill based on knowledge and application of principles
2. Here, the acts of the nurses clearly fall within this legislative standard. All acts were performed
pursuant to standing orders and protocols approved by physicians
d. EXAM TIP: when thinking about scope of practice, also think about following the money
i. Does the insurance agreement require that a physician actually perform the procedure?
ii. What did the physician/practice bill for? Because even if the licensing issue is OK under law, the
money/billing may not be under other applicable statutes
 False Claims Act
Introduction
10. Mission: protect gov’t from being overcharges or sold shoddy goods or services
11. 31 U.S.C. § 3729(a)(1) prohibits:
a. (A) Knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval
b. (B) Knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or
fraudulent claim
c. (C) Conspires to commit a violation of this section
d. (G) Knowingly makes, uses, or causes to be made or used, a false record or statement material to an obligation to
pay or transmit money or property to the Government, or knowingly conceals or knowingly and improperly avoids
or decreases an obligation to pay or transmit money or property to the government
i. AKA “reverse false claims” act

Elements
12. Falsity
a. Generally
i. If you look at any payment for health care, you will probably find some falsity. So we have to draw the
line. But where?
ii. Two-part falsity test
1. Claim does not simply ask for payment, but makes specific representations about goods/services
provided
2. D’s failure to disclose noncompliance makes representations which is a misleading half-truths
b. Conditions of payments OR conditions of participation
i. Payments: if you fail to do something, you won’t be paid
ii. Participation: if you fail to do something, we may not let you participate as a provider anymore (i.e.,
HIPAA training, FWA training, etc.)
c. Failure to perform services
d. Medical Necessity
i. Objective Falsity: based on objectively verifiable fact OR
ii. Subjective Falsity: proven based on an expert’s subjective clinical opinion
iii. Circuit split on objective vs. subjective requirement
iv. U.S. v. AseraCare
1. Holding: FCA requires proof of an objective falsehood. allowing a mere difference of opinion
among physicians alone to prove falsity would totally eradicate the clinical judgment required of
the certifying physicians.
e. AKS, Stark Law, FCPA, and FDCA violations and being Excluded can also be the basis for falsity
13. Causation
a. Actions of the D actually caused the false claim
b. Not always listed as an element, but all circuits consider causation
14. Materiality AND
a. If the gov’t had known of the falsity at the time of billing and wouldn’t have paid, then it is material
i. Very fact specific analysis (See Escobar n.6)
ii. Factors to consider:
1. Whether the gov’t has or has not paid the types of claims in the past
2. Express designation of condition for payment
3. Evidence D knows the government consistently refuses to pay certain claims
4. Evidence D knows that government consistently does pay a claim despite noncompliance with a
provision
iii. NOT limited to the express conditions of payment, but doesn’t include mere technical violations
b. Universal Health Services v. Escobar (2016)
i. Facts: For 5 years, Rivera, a teenage Medicaid beneficiary, received counseling services where 5 medical
professionals treated her, and she later died. It was revealed that only 1 out of the 5 treating the young girl
were properly licensed. In billing, they billed for services not rendered and made misrepresentations about
their qualifications and licensing status
i. Holding:
1. By submitting claims for payment using payment codes that correspond to specific counseling
services, D represented that it had provided said services. Moreover, staff members made further
representations in submitting for reimbursement using NPIs corresponding to specific job titles.
By doing so, D claims constituted misrepresentations
2. We hold that this theory can be a basis for liability, at least where two conditions are satisfied:
 a. The claim does not merely request payment, but also make specific representations about
the goods or services provided; AND
b. The D’s failure to disclose noncompliance with material statutory, regulatory, or
contractual requirements makes those representations misleading.
3. But not every undisclosed violation of an express condition of payment automatically triggers
liability
a. The misrepresentation must be material to the gov’ts payment decision in order to be
actionable
b. The FCA defines material to mean having a natural tendency to influence, or be capable
of influencing, the payment or receipt of money or property
15. Scienter/Knowledge
a.
Presents the most challenges, where most investigations die
b.
“Knowledge” or “Knowingly” is defined in 31 U.S.C. § 3729(b)(1):
i.  actual knowledge of the truth/falsity OR
ii.  deliberate ignorance of the truth/falsity OR
iii.  reckless disregard of the truth/falsity
c. The statute, thus, requires NO PROOF of specific intent to defraud
d. United States v. Krizek (D.D.C. 1994)
ii. Facts: gov’t brings FCA action against the Krizeks alleging false billing for Medicare and Medicaid
patients. Gov’t alleges that Krizek up-coded the bills for a large percentage of his patients by submitting
bills coded for a service with a higher level of reimbursement than what was provided and that he
performed services that should not have been performed at all, as they were not medically necessary.
i. Holding: FCA Liability in part (billing irregularities)
1. Medical Necessity
a. Gov’t witness did not examine or interview any of the patients or speak with other
doctors of nurses. Unable to prove that Krizek rendered services that were not medically
necessary
2. Improper billing
a. Ds admit that it was not always face to face time, but also amount spent on discussions,
prescriptions, reviewing, etc. and that they reasonably believed were reimbursable under
the code
b. The CPT codes do not require face to face interaction. The language describing the code
is ambiguous. Thus, D did not submit false claims under the billing code.
3. Billing irregularities
a. Basic method of billing at their practice was to determine which patients D had seen, then
assume what had taken place was a 50 minute psychotherapy session, unless told that the
visit was shorter. Biller (his wife) admitted that she never made an effort to determine
how much time was spent exactly.
b. The court finds that D’s presumption of at least a 45 minute session is improper. Mrs.
Krizek made no effort to establish how much time Dr spent on a particular matter and
simply presumed the time. There is no justification for making that assumption.
Additionally, D failed to supervise his agents in submitting these claims
c. This fits the knowing definition of the FCA in that the defendants acted with reckless
disregard as to the truth or falsity of the submissions
e. United States v. Krizek (Ct of App 1997)
iii. Facts: Ds assert that DDC applied the FCA by permitting an aggravated form of gross negligence to satisfy
scienter requirement
i. Holding: Affirmed
1. We agree that the best reading of the Act defines reckless disregard as an extension of gross
negligence. Moreover, the statute explicitly states that specific intent is not required—it is logical
to conclude that reckless disregard is not a lesser form of intent, but an extreme version of
ordinary negligence
2. Here, the Ds acted with reckless disregard. Krizek failed utterly to review bills submitted on his
behalf and Mrs. Krizek made no effort to establish how much time he spent with patients
16. Government money involved
a. Private insurance DOES NOT COUNT
i. However, can have conduct that is so bad that it is still criminal fraud
1. But…higher burden of proof = beyond a reasonable doubt AND
2. Scienter requirement is deliberate intent to defraud (higher than FCA)

Enforcement
17. Enforcement agencies: DOJ, OIG/OCIG, CMS (exclusions)
 18. Reporting requirements
a. ACA requires that overpayments be returned within 60-days once identified (see Kane v. Healthfirst (2015) below)
b. Providers are responsible for investigating and identifying overpayments over 6 years
19. Damages
a. Civil Penalties
i. Fine of $11–21K per claim
ii. + 3x amount of what gov’t sustains
b. Criminal Penalties
i. Felony if can prove knowingly and willfully
ii. Yates memo: outlined changes in the enforcement policy to increase the focus on individual participants in
corporate criminal and civil fraud in 2015
c. Statistical Sampling
i. In large scale fraud and abuse cases the number of potential claims can be tens of thousands
ii. Thus, we often use statistical sampling to prove liability based on a sample of the larger universe of
potential claims
1. Districts who have barred: Mass, TX, and SC
2. Districts who allow: TN, KY
20. Qui Tam Actions
a. All qui tams are FCA litigation, but not all FCA litigation are qui tams
i. 80% of FCA cases originate as qui tams
b. Private individual whistleblowers (AKA relators) can seek to enforce the FCA through a qui tam action
i. A private individual shall not bring an action in which there has been public disclosure of the allegations or
transactions
1. UNLESS: the relator is an original source, either
a. Disclosed the information to the gov’t before it became public OR
b. Has knowledge that is independent of and materially adds to the publicly disclosed
allegations or transactions
i. Relator has independent information if the disclosure and the allegations are not
substantially similar
c. ACA public disclosure includes: congressional, GAO, or other federal report, hearing,
audit, or investigation
ii. Once filed, the gov’t has 60 days to intervene (while the complaint is under seal)
1. These investigations are under seal for years and years, thus, the 60 days gets tolled
2. After they investigate, the gov’t can decide
a. Intervention:
i. Settle case OR
ii. Litigate
iii. If gov’t proceeds with action  private person continues as a party and receives
15–25% of award + attorney fees
b. Declination:
i. Can allow relator to go forward OR
ii. Tell the court for it to be dropped
iii. If gov’t does not proceed  private person receives between 25–30% of award
+ attorney fees
c. Statute of limitations
i. Private parties  6 years
ii. Gov’t  10 years
iii. From date of violation (date provider allegedly submitted the false claim)

Anti-Kickback Statute
Introduction
21. The AKS prohibits knowingly and willfully paying/receiving OR offering any remuneration (directly or indirectly, overtly or
covertly) to induce referring, purchasing, or ordering goods, facilities, items, or services paid for by a Federal Health Care
program (42 U.S.C. § 1320a-7b(2))
22. Why is this important?
a. Payments for referrals can lead to overutilization of items and services
b. Increased program costs
c. Inappropriate patient steering
d. Unfair Competition
e. Faith in the system/trust in physicians
 23. Can serve as a basis for FCA liability

Elements
24. Remuneration
a. The transfer of anything of value (e.g., dinners, tickets, cash, trips, medications, etc.)
25. Intent
a. Knowingly AND willfully
i. Knowingly: intent to offer the remuneration
ii. Willfully: intent to violate the law
1. But see § (h): the gov’t has to prove that the what the defendant knew they were doing something
wrong; but the gov’t does not have to prove that the D knew of the law or specific statute
b. United States v. Greber
i. Facts: D is an cardiology osteopathic physician; he is president of Cardio-Med, an organization which he
formed. The company provides physicians with diagnostic services, one of which uses a device worn for 24
hours to record a patient’s cardiac activity. CardioMed Billed Medicare for the monitor service, when
payment was received they forwarded a portion to the referring physicians for an “interpretation fee.” D
contends that compensating a physician for services actually rendered is not a violation.
ii. Holding: even if one purpose of the payment was to induce future referrals, the Medicare statute has been
violated
1. The statute is aimed at the inducement factor. The text refers to “any remuneration.” That includes
not only sums for which no actual service was performed, but also those amount for which some
professional time was expended.
2. Congress sought to make it clear that even if the transaction was not considered to be a kickback
for which no services had been rendered, payment nevertheless violated the Act
26. Inducement
a. Very broad; getting someone to buy something or induce someone else to buy something in exchange for items or
services
b. Remuneration must be paid to induce, but the inducement does not actually have to happen
i. i.e., defense cannot be “this would’ve happened anyways”
27. Federal Health Care Program
a. Defined very broadly
b. Can include: Medicaid, Medicare, ACA exchanges, Veteran’s Health Administration, Tricare, Indian Health
Services

Safe Harbors
28. Safe harbors protect from criminal and civil enforcement certain arrangements between parties that would otherwise
constitute illegal remuneration
29. However, arrangements that do not meet ALL of the requirements of the safe harbor statute are not necessarily illegal:
a. The OIG will evaluate the arrangement on a case-by-case basis (prosecutorial discretion)
b. Intent requirements prohibit liability (i.e., do not possess requisite intent)
30. When evaluating if a particular safe harbor applies, consider:
a. Safe harbor regulations + preamble commentary
b. OIGs Special Fraud Alerts and Advisory Bulletins (guidance documents)
c. OIG Advisory Opinions (guidance documents)
i. Companies often request advice from OIG on whether a situation would implicate AKS liability
31. 28 Safe Harbors (located at page 951 of the book)
a. Space Rental
b. Personal services and management contracts
c. Employees
d. Ambulatory surgical centers
e. Investment interests
f. Sale of practice
g. Practitioner recruitment
h. Investments in group practices
i. Price reductions offered to eligible managed care organizations
j. EHR arrangements and electronic prescribing

Enforcement
32. Enforcement Agencies: DOJ, OIG, CMS (exclusions)
33. Who to prosecute?
a. Can prosecute briber and bribee (because they are referring patients for items/services)
 34. Self-disclosure protocol
a. Benefits:
i. Avoid exclusion with Corporate Integrity Agreement
ii. Toll 60-day rule for overpayments under the FCA
iii. Lower penalties
b. Negatives:
i. Uncertainty of process
ii. Likely the OIG will investigate
iii. Certainty of penalty of at least $50K
35. Damages
a. Civil Penalties
i. Up to $50K per instance + 3x amount kickback
ii. No criminal intent, but intent needed nonetheless (civil standard)
b. Criminal Penalties
i. Fines up to $25K AND/OR
ii. Up to 5 years in prison
iii. BUT, gov’t must show requisite mens rea/criminal intent
c. FCA Liability
36. Exclusion from Medicare and Medicaid
a. If criminally convicted  mandatory exclusion
b. Absent criminal conviction  permissive exclusion (Secretary HHS discretion)
37. NO private cause of action

Stark Law
Introduction
38. The “Ethics in Patient Referrals Act” (AKA Stark Law or Physician Self-Referral Law) is aimed to protect patients and
resources of federal health care programs from conflicts of interest that arise when a physician stands to gain financially from
referring patients to entities with which the physician has a financial relationship
39. Stark Law prohibits:
a. Physicians referring Medicare/Medicaid patients for Designated Health Services (DHS) to an entity that the
physician (or immediate family member) has a financial relationship
b. DHS entity from submitting claims to Medicare/Medicaid for those services

Elements
40. Intent Requirement
a. Generally, NO INTENT REQUIREMENT
i. Thus, any amounts billed in violation of the Stark Law constitute an overpayment
ii. Overpayment = cost of entire claim because without self-referral, THIS CLAIM WOULD NOT EXIST
iii. CANNOT serve as basis for FCA liability because no intent
b. However, imposition of civil and administrative penalties does have a scienter requirement
i. Any person who knowingly bills or fails to make a refund in violation of Stark Law is subject to fines (see
Enforcement below)
1.  actual knowledge OR
2.  deliberate ignorance of the truth/falsity OR
3.  reckless disregard of the truth/falsity
ii. CAN serve as basis for FCA liability because intent is here now
41. Designated Health Services
a. 42 C.F.R. 411.351(1) defines Designated Health Services as:
i. Clinical laboratory services.
ii. Physical therapy, occupational therapy, and outpatient speech-language pathology services.
iii. Radiology and certain other imaging services.
iv. Radiation therapy services and supplies.
v. Durable medical equipment and supplies.
vi. Parenteral and enteral nutrients, equipment, and supplies.
vii. Prosthetics, orthotics, and prosthetic devices and supplies.
viii. Home health services.
ix. Outpatient prescription drugs.
x. Inpatient and outpatient hospital services.
42. Financial relationship between the parties
a. Is there a financial relationship?
 i. If NO  then analysis is DONE
ii. Is it an ownership or compensation arrangement?
iii. Is it direct or indirect?
1. Indirect relationship exists when:
a. There is an unbroken chain of financial relationships between a referring physician and
DHS entity
b. The referring physician receives aggregate compensation that varies with or takes into
account the volume or value of referrals or other business generated by the referring
physician AND
c. The DHS entity knows or is recklessly indifferent to the fact that the physician’s
aggregate compensation varies in this way
2. Direct relationship: remuneration passes between referring physician and entity furnishing DHS
without any intervening persons or entities
b. If yes, does the arrangement meet all of the requirements of an applicable exception? (CFR 411.355-357)

Exceptions
43. Because Stark Law is a strict liability offense, then ALL ELEMENTS of the exception become mandatory (contrary to AKS)
44. Three kinds of exceptions:
a. Those applicable to ownership or investment financial relationships
b. Those applicable to compensation arrangements AND
a. Exceptions that apply to all financial arrangements
45. Common themes
a. Physician compensation cannot vary with or take into account the volume or value of referrals between the parties
b. Compensation be Fair Market Value and commercially reasonable
i. Fair Market Value: value in an arm’s length transaction, consistent with general market value
46. Stark Law Exceptions (page 975)
a. Rental office space
b. Rental of equipment
c. Bona fide employment relationships
d. Personal service arrangements
e. Fair Market Value compensation
f. Indirect compensation arrangements

47. United States ex rel Drakeford v. Tuomey (2015)

a. Facts: Most doctors who worked at Tuomey were not employed by the hospital. Tuomey was losing revenue, as physicians
who previously performed outpatient surgery at Tuomey began doing so in their own offices. To stop this loss, Tuomey
decided to enter into part-time employment contracts with the physicians. Under the contracts, the physicians’ salaries were
adjusted from year to year based on the amount the physician collected. The bulk of the physicians’ compensation was
earned through a productivity bonus, which paid the physicians 80 percent of their collections for the year. Dr. Drakeford
refused to enter into the contract, believing that it violated the Stark Law’s prohibition on particular methods of physician
compensation. Drakeford later brought suit against Tuomey, arguing that the Stark Law violation meant that Tuomey had
knowingly submitted false claims for payment to Medicare
b. Holding:
i. Stark Law prohibits a physician from making a referral to an entity, such as a hospital, with which he or she
has a financial relationship, for the furnishing of designated health services. If the physician makes the
referral, the hospital may not submit a bill for reimbursement to Medicare
ii. Tuomey argues that the contracts on their face do not implicate Stark Law because it is not based on
volume of referrals, it is based on professional services
1. The jury need not only look at the contracts on their face. Instead, they can take into account how
the contracts operated when actually implemented. Because here, when professional services go
up, then the fee goes up because they agreed to do all surgery’s at the hospital
2. Indirect financial relationship because Tuomey set up a staffing affiliate for the doctors (but
doesn’t really change the analysis)
iii. Knowingly requirement
1. Knowingly under the FCA means that the person has actual knowledge of the information, acts in
deliberate ignorance of the truth or falsity, OR acts in reckless disregard of the truth or falsity.
2. McAnaney’s testimony is alone sufficient to sweep aside that Tuomey does not meet the scienter
requirement. McAnaney warned Tuomey that the contracts raised several red flags under federal
law. Tuomey’s inaction in the face of these warnings gave the jury sufficient information to reach
their conclusion
 3.Good faith and reliance on counsel: consultation with a lawyer confers no automatic immunity
from the legal consequences of conscious fraud.
iv. Damages
1. If a physician has a financial relationship with a hospital, then the Stark Law prohibits the
physician from making any referral to that hospital. Plainly then, inpatient services constitute a
prohibited referral for the furnishing of DHS. Thus, the calculation is correct

Enforcement
48. Enforcement Agencies: DOJ, OIG, CMS (exclusions)
49. Strict Liability
a. Any amounts billed constitute an overpayment
b. Overpayment must be refunded to the gov’t within 60 days of being identified, whether or not the improper billing
was known or intentional
c. If you do not pay it back within the 60 days, then it becomes a “reverse false claim”
50. Civil and Administrative Penalties
a. Only apply if gov’t can prove intent (i.e., knowingly)
b. Fines up to $15K per item billed + 3x amount billed
c. Can serve as basis for FCA liability
51. NO CRIMINAL LIABILITY

AKS/Stark Law Comparison Chart

AKS STARK LAW
Referrals From anyone From physicians only
Items/Services Any items or services DHS only:
(i) Clinical laboratory services.
(ii) Physical therapy, occupational therapy, and
outpatient speech-language pathology services.
(iii) Radiology and certain other imaging services.
(iv) Radiation therapy services and supplies.
(v) Durable medical equipment and supplies.
(vi) Parenteral and enteral nutrients, equipment,
and supplies.
(vii) Prosthetics, orthotics, and prosthetic devices
and supplies.
(viii) Home health services.
(ix) Outpatient prescription drugs.
(x) Inpatient and outpatient hospital services.
Intent Knowing and willful Strict liability for standard overpayment (i.e., cost
of claim)
Intent (knowing) for civil monetary penalties
Penalties Criminal (up to 25K + 5 year prison) Refund obligation for overpayment
Civil monetary penalties (50K/violation + up to FCA liability
3x amount of kickback) Civil monetary penalties (15K for each service +
FCA Liability up to 3x amount each claim)
Program exclusion NO CRIMINAL PENALTIES
Exceptions Voluntary Safe Harbors Mandatory exceptions
Health Care Programs All federal programs Medicare/Medicaid

Foreign Corrupt Practices Act

General Principles
52. Congress enacted the FCPA in 1977 in response to revelations of widespread bribery of foreign officials
53. Two types of provisions in the FCPA
a. Anti-Bribery Provisions
i. Prohibit domestic concerns, issuers, and certain persons from making corrupt payments to foreign officials
to obtain or retain business
b. Accounting Provisions
i. Require issuers to make and keep accurate books and records to devise and maintain an adequate system of
internal accounting
ii. Do not apply to private companies
54. Enforcement Authorities
 a. DOJ and SEC
b. SEC whistleblowers can file anonymously and stay anonymous (different from FCA qui tams)

Elements
55. A domestic concern, issuer, AND/OR certain persons
a. Domestic concern:
i. Any individual, their officers, directors, employees, agents, or shareholders, who is a citizen, national, or
resident of the US, or any business entity that has a principal place of business in the US
b. Issuer:
i. Listed on the national securities exchange in the US OR company’s stock trades in the over-the-counter
market in the US and is required to file SEC reports
ii. Also includes their officers, directors, employees, agents, or shareholders
c. Certain persons:
i. Entities, other than issuers and domestic concerns, acting while in the territory of the US
56. Offers, promises, or gives a payment or something of value
a. Defined broadly: includes cash payments, non-cash gifts, or other benefits
57. To a foreign official
a. Defined broadly: employee or agents of a foreign government
b. United States v. Esquenazi (2014)
i. Facts: All 3 co-owned a telecommunications corp that purchased phone time from foreign vendors and
resold the minutes to customers in the US. One of their main foreign vendors was Teleco (a Haiti company
that had strong ties to the Haitian gov’t). The gov’t pretty much considered Teleco it’s entity. But in 1996,
a law was passed in Haiti that privatized many public institutions, including Teleco in 2009-2010. The 3
plaintiffs contacted Teleco to contract with them, and by 2001 they owed Teleco over 400K; plaintiff then
called director and asked him to amortize or make a deal for side payment. They agreed to a side payment,
which included the making of sham companies to funnel the deal through. After trial, the then President of
Haiti announced in a declaration that Teleco has never been and is not currently a public entity.
i. Holding: We find no error in the jury instructions that Teleco may have been a gov’t instrumentality. It was
reasonable for a jury to conclude so under the instruction
1. A foreign official is any officer or employee of a foreign gov’t or any department, agency, or
instrumentality thereof. But what is an instrumentality?
2. An instrumentality under the FCPA is an entity controlled by the gov’t of a foreign country that
performs a function the controlling gov’t treats as its own.
a. To decide if the gov’t controls, look at these factors:
i. Whether gov’t has a majority interest
ii. Gov’ts ability to hire and fire principals
iii. Extent to which the entity’s profits go directly to the gov’t
b. To decide if an entity performs a fxn the gov’t treats as its own, consider:
i. Whether the entity has a monopoly over the fxn
ii. The gov’t subsidizes the costs associated with the entity providing services
iii. The entity provides services to the public at large
iv. Public and gov’t generally perceive that entity to be performing a gov’t fxn
58. For a corrupt purpose
a. “Business Purpose Test”: applies only to payments intended to induce or influence a foreign official to use his or her
position in order to assist in obtaining or retaining business for or with or directing business to any person
b. Intent or desire to wrongfully influence the recipient
c. To improperly influence the foreign official in order to obtain, retain, or direct business or to secure any improper
business advantage

Food, Drug, and Cosmetics Act

General Violation Provisions
59. 21 U.S.C. § 333(a)
a. (1) any person who violates a provisions shall be imprisoned for not more than one year or fined not more than
1,000, or both
i. Misdemeanor violation = strict liability
b. (2) any person who commits a violation after a conviction of him under this section has become final, OR commits
such a violations with the intent to defraud or mislead, such person shall be imprisoned for not more than three years
or fined not more than $10,000 or both
i. Felony = intent requirement
 ii. But intent to defraud or mislead: what does that mean? Any intent to violation FDCA? No. You have to
have intent to defraud or mislead.
2. Enforcement Agencies: DOJ

Off-Label Marketing
60. FDA does not regulate the practice of medicine, only the marketing and distribution of products
a. Off-label prescribing = NOT regulated by the FDA
i. BUT think about licensing/board consequence (see In re Williams (1991) and Hoover v. Agency for Health
Care Administration (1996))
b. Off-label marketing = **regulated** by the FDA
i. The FDCA does not prohibit off-label marketing expressly
ii. BUT it has been traditionally enforced through the misbranding provisions
1. 352(f): a drug is misbranded if the labeling fails to bear adequate directions for use
2. Therefore, the marketing itself is evidence of intent, because shipping it in interstate commerce,
you intended it to be used for a purpose that is not on the label and since that use is not on the
label, you therefore violate the misbranding provisions of the FDCA
iii. However, Caronia in 2012 changed this enforcement
61. United States v. Caronia (2nd Cir. 2012)
a. Facts: D appeals a judgment of conviction entered in US favor in EDNY. Caronia was found guilty of conspiracy to
introduce a misbranded drug into interstate commerce. Caronia is a pharma sales rep, whom promoted Xyrem for off
label use. Caronia says that being convicted for speech is against first amendment rights
a. Holding: truthful, non-misleading speech regarding off-label uses does not constitute misbranding
i. FDCA's misbranding provisions could not be construed to criminalize the simple promotion of a drug's off-
label use by pharmaceutical manufacturers and their representatives
ii. However, intent to distribute for off-label uses does fall under misbranding provisions
62. Amarin Pharma v. United States (SDNY 2015)
a. Facts: Amarin manufactures Vascepa, approved for one use, but lawfully and widely prescribed by doctors for
another. Amarin wishes to make truthful statements to doctors relating to Vascepa's off-label use. The specific
statements Amarin seeks to make are derived largely from an FDA-approved study of Vascepa's off-label use, and
from writings by the FDA itself on that subject. However, the FDA, recognizing that Amarin's purpose in making
these statements would be to promote an unapproved use of Vascepa, has threatened to bring misbranding charges
against Amarin if it does so. Amarin claims that the FDA’s threat of misbranding action is chilling it from engaging
in constitutionally protected truthful speech.
b. Holding: under Caronia, the FDA may not bring such an action based on truthful promotional speech alone
i. The Second Circuit held that a manufacturer's speech promoting off-label use is constitutionally protected
commercial speech, and that the First Amendment places limits on a misbranding prosecution to the extent
it is based on the truthful promotion of FDA-approved drugs for off-label use.

Corporate Resolutions
Criminal Resolutions
63. Types of Resolutions
a. Convictions
i. Plea Agreements: formal charges and conviction of a crime in a court proceeding, but favorable conditions
1. Negotiate sentencing guidelines
ii. After trial: may be unfavorable conditions/requirements
b. Deferred Prosecution Agreements (DPA)
i. “Could prosecute, but going to hold off on prosecuting you if you stay out of trouble”
ii. Filing of formal charging document AND agreement filed with the court
1. Similar to probation
2. Often seek admission of guilt (fines and restitution apply usually)
c. Non-Prosecution Agreements (NPA)
i. Formal charges not filed, but on probation
ii. Usually exchanged for certain requirements:
1. Civil resolutions/settlement of restitution
2. Other remedial measures
d. Declination
i. No prosecution at all
e. Independent corporate monitor
i. Often negotiated during criminal resolutions (i.e., in exchange for DPA or NPA)
 ii. Primary responsibility is to assess and monitor a corporation’s compliance with the terms of the agreement
specifically designed to address and reduce the risk of recurrence of the corporations misconduct
1. Independent third-party, NOT an employee or agent of the corporation or the gov’t
iii. Selection of monitor
1. Select a highly qualified and respected person or entity based on suitability for the assignment and
all of the circumstances
2. Avoid potential and actual conflicts of interest AND
3. Otherwise instill public confidence by implementing the steps set forth
f. Even if no criminal resolution takes place, civil liability can still exist
64. Factors to consider when bringing charges against a corporate target
a. General prosecution factors
i. Sufficiency of the evidence
ii. Likelihood of success at trial
iii. The probable deterrent, rehabilitative and other consequences of conviction AND
iv. The adequacy of noncriminal approaches
b. Principles of Federal Prosecution of Business Organizations 9-28.300
i. The nature and seriousness of the offense
1. Including the risk of harm to the public, and applicable policies and priorities, if any, governing
the prosecution of corporations for particular categories of crime;
ii. The pervasiveness of wrongdoing within the corporation
1. Including the complicity in, or the condoning of, the wrongdoing by corporate management
iii. The corporation’s history of similar misconduct
1. Including prior criminal, civil, and regulatory enforcement actions against it
iv. The corporation’s willingness to cooperate
1. Including as to potential wrongdoing by its agents
v. The adequacy and effectiveness of the corporation’s compliance program at the time of the offense
vi. The corporation’s timely and voluntary disclosure of wrongdoing
vii. The corporation’s remedial actions
1. Including any efforts to implement an adequate and effective corporate compliance program or to
improve an existing one, to replace responsible management, to discipline or terminate
wrongdoers, or to pay restitution
viii. Collateral consequences
1. Including whether there is disproportionate harm to shareholders, pension holders, employees, and
others not proven personally culpable, as well as impact on the public arising from the prosecution
ix. The adequacy of remedies such as civil or regulatory enforcement actions
1. Including remedies resulting from the corporation’s cooperation with relevant government
agencies
x. The adequacy of the prosecution of individuals responsible for the corporation’s malfeasance
xi. The interests of any victims
c. Filip Factors
i. Corporations that timely disclose relevant facts may receive due credit for cooperation, regardless of
whether they waive ACP or WPP
ii. Forbids prosecutors for asking for non-factual ACP
iii. Prosecutors should consider whether a corporation has advanced attorneys’ fees to its employees, officers,
or directors
1. Only relevant in the rare situation where it would rise to the level of criminal obstruction
iv. Prosecutors may not consider whether the corporation has entered into a joint defense agreement
v. Prosecutors cannot consider whether a corporation disciplined or terminated employees for the purpose of
evaluation cooperation
65. Sentencing
a. In sentencing, judge will consider same/similar considerations from the prosecuting factors, BUT sentencing
guidelines are more of an equation rather than a balancing test
b. Equation:
i. Base Fine x Culpability Score Multiplier = Sentencing Range
1. Base fine = greater of pecuniary gain or loss from the offense
2. Culpability score = start with 5 point, then add or subtract
a. Involvement in or tolerance of criminal activity
i. Size of the organization
ii. How high up the misconduct went
b. Prior history
c. Violation of Order
d. Obstruction of Justice
 e. Effective Compliance and ethics program (preexisting)
i. If they did, maybe subtract some points
f. Self-Reporting, Cooperation, and Acceptance of responsibility
i. Helps subtract some points
ii. Does not add points if you don’t go above and beyond to cooperate

Civil Resolutions
66. Civil Monetary Penalties Law
a. Prohibits several types of improper conduct
b. Allows the OIG to seek civil monetary penalties and exclusion under the law, which specifies different amounts of
penalties and assessments based on the type of violation at issue
67. Corporate Integrity Agreements
a. OIG negotiates CIAs with health care providers, manufacturers, and other entities as part of the settlement of federal
health care fraud investigations arising under the FCA
i. Entity or individual consents to CIA as part of the civil settlement and in exchange for OIG’s agreement
not to seek exclusion
b. CIA features:
i. Usually lasts for a 5 year terms
ii. Require hiring compliance officers and develop new policies and procedures regarding compliance
iii. Employee trainings
68. Holder Memo: parallel proceedings
a. Gov’t should employ parallel civil and criminal proceedings to ensure effective and efficient prosecution (See U.S.
v. Stringer (2008))
b. Criminal should be working with civil side to know what’s going on with the deal (i.e., paying restitution) because
this goes to the factors about whether or not to prosecute in the first place
c. Company can ask for these things to be together. Why?
i. Admissions made in criminal case could be used against them in a civil case
69. Global resolutions
a. Company can request civil and criminal resolutions be completed together
b. Can request to max out civil penalties and not receive criminal penalties
c. Fifth amendment concerns

Internal Investigations
70. OIG Self-Disclosure
a. Purpose: to establish a process for health care providers to voluntarily identify, disclose, and resolve instances of
potential fraud involving the federal health care programs
b. Benefits of disclosure:
i. Good faith disclosure typically indicates a robust and effective compliance program
1. Presumption against requiring integrity agreement obligations
ii. Individuals or entities that use the SDP and cooperate with OIG during the SDP process deserve to pay a
lower multiplier on single damages than would be required by a gov’t-initiated investigation
iii. Using the SDP may mitigate potential exposure under § 1128J(d) of the Medicare Act.
iv. Commitment to working with individuals and entities that use the SDP in good faith and cooperate with
OIGs review and resolution process.
c. Resolution
i. Depends on cooperation, realistic expectations, and clear communication between the OIG and the
disclosing party
71. Kane v. Healthfirst (2015)
a. Facts: action stems from a software glitch on Healthfirst, which caused 3 NYC hospitals to submit improper claims
seeking reimbursement from Medicaid for services rendered to beneficiaries of a managed care program
administered by health first. Healthfirst's remittances to Participating Providers erroneously indicated that they
could seek additional payment for Covered Services from secondary payors. Numerous Participating Providers
automatically generated and submitted bills to secondary payors, including Medicaid. It was not until the
Government issued a Civil Investigative Demand ("CID") in June 2012, seeking additional information about the
overpayments, that Continuum finally reimbursed DOH for more than 300 of the affected claims.
a. Holding:
i. The ACA requires a person who receives overpayment to report and return the overpayment to HHS, the
State, or another party if appropriate, in 60 days once identified. To define “identified” such that the clock
begins ticking when a provider is put on notice of a potential overpayment, rather than the moment when it
is conclusively ascertained, is compatible with the legislative history of the FCA and FERA.
 1. If it were the other way, then the obligation to pay would not be triggered until after they have
done the work to determine conclusively the precise amount owed. Thus, no incentive to even
look into possible bad claims
2. BUT the mere existence of an "obligation" does not establish a violation of the FCA. Rather, in
the reverse false claims context, it is only when an obligation is knowingly concealed or knowingly
and improperly avoided or decreased.
3. Congress intentionally placed the onus on providers, rather than on the Government, to quickly
address overpayments and return any wrongly collected money
ii. Defendants knowingly concealed or improperly avoided an obligation
1. The FCA's knowledge standard plainly encapsulates recklessness and deliberate ignorance. Here,
the gov’t has pleaded facts that are consistent with reckless or deliberate ignorance, not merely
negligence. At a later stage in these proceedings, Defendants may introduce evidence to suggest
that they took steps to investigate or address the problem
72. US v. Connolly (2019)
a. Facts: SEC opened an investigation into Deutsche Bank’s role in LIBOR manipulation. Black asks the court to
vacate his conviction and dismiss indictment against him on the grounds that the interview with Paul Weiss were
both fairly attributable to gov’t and compelled, thereby violating 5A rights against self-incrimination.
b. Holding: Private conduct is attributed to the gov’t when there is a sufficiently close nexus between the state and the
challenged action. This rule applies with equal vigor to private conduct where the actions of a private employer in
obtaining statements are fairly attributable to the gov’t.
i. The controlling factor is not whether the state directed the constitutionally prohibited conduct, but whether
the state involved itself in the use of a substantial economic threat to coerce a person into furnishing an
incriminating statement.
ii. There is no question that Black was compelled, upon pain of losing his job, to sit for at least three
interviews with Paul Weiss. The record shows that the gov’t directed Deutsche Bank to investigate Black
on its behalf.

Prosecution of Individuals
General Principles
73. Seeking accountability from individuals who perpetrated wrongdoing is important for several reasons:
a. Deters future illegal activity
b. Incentivizes changes in corporate behavior
c. Ensures that the proper parties are held responsible for their actions and
d. Promotes the public’s confidence in our justice system
74. General prosecution factors
a. Sufficiency of the evidence
b. Likelihood of success at trial
c. The probable deterrent, rehabilitative and other consequences of conviction AND
d. The adequacy of noncriminal approaches
75. Over the years, government has gotten push back for the lack of individual prosecutions.
a. Yates memo (below) was one of the memo’s released in response to this concern
76. Six key steps to strengthen pursuit of individuals (Yates memo)
a. In order to qualify for cooperation credit, corporations must provide to the Department all relevant facts relating to
the individuals responsible for the misconduct
i. Cooperation requires something more than doing just what you’re required to do
ii. Sometimes corporation goes out of their way to avoid prosecution of individuals
1. If this happens, doesn’t count as cooperating
b. Criminal and civil corporate investigations should focus on individuals from the inception of the investigation
c. Criminal and civil attorneys handling corporate investigations should be in routine communication with one another
d. Absent extraordinary circumstances or approved departmental policy, the department will not release culpable
individuals from civil or criminal liability when resolving a matter with a corporation
e. Department attorneys should not resolve matters with a corporation without a clear plan to resolve related individual
cases, and should memorialize any declinations as to individuals in such cases; and
f. Civil attorneys should consistently focus on individuals as well as the company and evaluate whether to bring suit
against an individual based on considerations beyond that individual’s ability to pay
77. United States v. Park (1975)
a. Facts: Each count of the information alleged that the defendants received food that had been shipped in interstate
commerce and that, while the food was being held for sale in Acme's Baltimore warehouse following shipment in
interstate commerce, they caused it to be held in a building accessible to rodents and to be exposed to contamination
 by rodents. The corporate officer pleaded not guilty. After a jury trial, the corporate officer was found guilty on all
counts and sentenced to pay fines.
b. Holding:
i. Responsible Corporate Officer Doctrine (AKA Park Doctrine): Corporate officers through whose act,
default, or omission, the corporation committed a crime in violation of the FDCA may be held criminally
liable whether or not the crime required consciousness of wrongdoing by the officer
ii. The theory permits a claim that a defendant was powerless to prevent or correct the violation to be raised
defensively at a trial on the merits. (potential for affirmative defense). The defendant has the burden of
coming forward with evidence, but this does not alter the Government's ultimate burden of proving beyond
a reasonable doubt the defendant's guilt
c. Dissent: the standard should require at least negligence
2. Sentencing Guidelines for Individuals
a. Criminal History Category: based on prior offenses
b. Offense level: baseline is offense specific, then increase and decrease for actions
c. Zone Levels
i. A: presumption of probation
ii. B: home confinement
iii. C: some imprisonment and some home confinement
iv. D: presumption of all imprisonment

Exclusions
Mandatory Exclusions
78. 42 U.S.C. § 1320a-7(a) requires exclusion IF:
a. Conviction of program-related crimes or state health care programs (FCA & AKS)
b. Conviction relating to patient abuse
c. Felony conviction relating to health care fraud (FCA, AKS, & FDCA)
d. Felony conviction relating to controlled substance
79. Minimum period of exclusion:
a. Not less than 5 years UNLESS
b. Based on a conviction, if the person has:
i. On previous occasion been convicted of one or more offenses: not less than 10 years
ii. On 2+ previous occasions been convicted of one or more offenses: permanent

Permissive Exclusions
80. 42 U.S.C. § 1320a-7(b) allows exclusion IF:
a. (1) Misdemeanor conviction relating to fraud, theft, embezzlement, breach of fiduciary duty, or other financial
misconduct (see Friedman v. Sebelius)
b. (2) Conviction relating to obstruction of an investigation or audit
i. Could be a felony
c. (3) Misdemeanor conviction relating to controlled substance
d. (4) License revocation or suspension
e. (5) Exclusion or suspension under Federal or State health care program
f. (6) Claims for excessive charges or unnecessary services
g. (7) Fraud, kickbacks, and other prohibited activities
i. Doesn’t require a conviction
h. (8) Entities controlled by a sanctioned individual
i. (9) Failure to disclose required information
j. (10) Failure to supply requested information on subcontractors and suppliers
k. (11) Failure to supply payment information
l. (12) Failure to grant immediate access upon reasonable request
m. (13) Failure to take corrective action
n. (14) Default on health education loan or scholarship obligations
o. (15) Individuals controlling a sanctioned entity
p. (16) Making false statements or misrepresentations of material facts
q. (17) Knowingly misclassifying covered outpatient drugs
81. Minimum period of exclusion:
a. (1)-(3): 3 years unless shorter is appropriate
b. (12): not greater than 90 days
c. (4)-(5): not less than the period during which the license is revoked, suspended, or surrendered
d. (6): not less than 1 year
82. Factors to consider for permissive exclusion
 a. Nature and circumstances of conduct and seriousness of offense
i. Financial loss, adverse impact on individuals, repeated conduct
ii. Absence of criminal sanctions does not affect the risk assessment
b. Conduct during the gov’t’s investigation
i. Cooperation vs. cooperative
ii. Prompt response to subpoena, etc.
iii. Internal investigations
c. Significant ameliorative efforts
i. Remedial efforts
d. History of compliance
i. Repeat offender
ii. Existence of compliance program

83. Prosecutorial Discretion

a. Significant discretion
b. Prosecutors often consider mandatory exclusion issues when thinking of criminally prosecuting individuals or
corporations
i. Example: may not want to criminally prosecute a big corporation because mandatory exclusion is almost a
guarantee to put the pharma company out of business

Tax-Exempt Organizations
Federal Tax-Exemption Under § 501(c)(3)
84. To qualify for exemption from federal income tax: entity must be organized and operated exclusively for certain tax-exempt
purposes
a. To qualify:
i. No net earnings may inure to the benefit of any private shareholder or individual
ii. No substantial part of activities can be aimed at influencing legislation
iii. May not participate or intervene in any political campaign on behalf of any candidate for public office
politics
b. Exclusively = Primarily (as interpreted by IRS)
c. Tax-exempt purposes:
i. Religion
ii. Charity (generally, health care falls in this category)
iii. Educational
d. Two-part test:
i. Organizational test: requires that the hospital’s constitutive documents limit its activities to exempt
purposes
1. Look to articles of incorporation
2. AKA: “You have to say you’re going to operate to further charitable purposes”
ii. Operational test: requires that the hospital be operated primarily for exempt purposes
1. Health care organizations must show that it “promotes health for the general benefit of the
community”
2. AKA: “You said you were going to do it, but what do you actually do?”
85. Charitable Purpose
a. Community benefit standard: promote health for the general benefit of the community
i. No specific requirement for “charity” care
b. IRS Form 990 Schedule H
i. Community benefit report for tax exempt hospitals
ii. Must include:
1. Reporting for 7 categories of charity care and community benefit
2. Description of its charity care policy
3. Statement of how it assesses community needs
4. Detailed info on billing and debt collection
c. IHC Health Plans v. IRC (10 Cir. 2003)
i. Facts: IHC is a Utah based nonprofit health system that operates about 22 hospitals. IHC formed IHC
Health Plans to operate as an HMO integrated delivery system. In 1999, Commissioner concluded that
neither health plans nor group could be considered a tax exempt org. Question is whether petitioners
qualify for tax exempt status as organizations operated exclusively for charitable purposes
ii. Holding:
 1. To meet the community benefit standard, a health care provider must make its services available to
all in the community plus provide additional benefit:
a. Must either:
i. (1) further the function of gov’t funded institutions OR
1. Such as Medicaid and Medicare
ii. (2) provide a service that would not likely be provided within the community
but for the subsidy (examples below)
1. Providing free or below cost care
2. Emergency room services regardless of ability to pay
3. Research, education, and medical training
b. Further, the additional public benefit conferred must be sufficient to give rise to a strong
inference that the public benefit is the primary purpose for which the organization
operates
2. Generally, separately incorporated entities must qualify for tax exemption on their own merits.
Exception to this is known as integral part doctrine
a. Here, only 20% of the physicians at this HMO are enrolled through the HMO. Thus, 80%
of the services were outside of the system. They are not integral
86. Additional Requirements for tax-exemption under § 501(r)
a. The IRS has several requirements under the subsection, but it doesn’t tell a hospital exactly how or what you have to
do
b. Community health needs assessment
i. Must conduct this once every three years
ii. Must be available to public
iii. Then must adopt an implementation strategy to meet the needs identified in the assessment
iv. If not, subject to an excise tax of 50K
c. Financial assistance and Emergency Medical Care Policies
i. Must maintain and publicize a written financial assistance policy (FAP)
ii. Sets forth eligibility criteria for free or discounted care for low-income patients as well as how charges to
such patients are calculated
iii. Applies to hospitals and other related entities, even if they do not operate an emergency room
d. Limitations on charges
i. For individuals who are eligible to receive financial assistance under the hospital’s policy, a hospital cannot
charge more than the amounts generally billed to insured individuals for emergency and other medically
necessary care
e. Billing and collections
i. Hospital must make reasonable efforts to determine whether a patient is eligible for assistance before taking
any extraordinary collection actions
f. Audited financial statements
i. Required to provide copies of audited financial statements for the organization or consolidated financial
statements for organization that prepare financials on a consolidated basis

Joint Ventures Between Tax-Exempt and For-Profit Organizations

87. Generally allowed:
a. Even though 501(c)(3) requires that the exempt entity be organized and operated exclusively for exempt purposes,
IRS interprets this to mean primarily.
b. Thus, tax-exempt organizations may engage in trade or business unrelated to their exempt purposes, BUT income is
taxable and the activity must be insubstantial as compared to the exempt activities
88. Joint ventures MUST:
a. Have intent to pursue charitable purposes
b. Must actually engage primarily in activities that further charitable purposes
c. Pay Unrelated Business Taxable Income (UBTI)
i. UBTI is income that results from conduct which is not substantially related to the entity’s exempt purpose

Inurement, Private Benefit, Excess Benefit Transactions

89. Private Inurement
a. This applies to insiders within the organization only (i.e., physicians)
b. NO de minimums exception—death penalty
i. Why?
1. Worry for influence (parallels to Stark Law)
2. Key: payments to physicians/insiders is all necessary to get the services for the charitable purpose
c. Does not prevent:
 i. Payment of reasonable compensation for goods or services
ii. Physician recruitment
1. Organization can meet the operational test by showing that, taking into account all of the benefits
provided the physician by the org, the org is paying reasonable compensation for the services the
physician is providing in return.
2. Usually shown by objective evidence of Fair Market Value (i.e., typical payment to this type of
physician in this type of area with this type of access)
d. Designed to prevent:
i. Dividend-like distributions of charitable assets or expenditures to benefit a private individual
ii. Likely to arise where organization transfers financial resources to a person solely by virtue of the
individual’s relationship with the organization, and without regard to the accomplishment of exempt
purposes
e. Death Penalty/Knell
i. Private inurement violations used to be death knell, but IRS has moved away from that a bit
ii. IRC § 4958 (1996) provides for intermediate sanctions as an alternative for death penalty
1. Thus, an excise tax may be imposed on EBTs now
2. It imposes an excise tax on insiders (“disqualified persons”) engaged in excess benefit transactions
and on organizational managers who approve them
3. Tax imposed on the difference between the value of the economic benefit over the value received
90. Private Benefit
a. This applies to anyone
b. De minimis exception applies
i. Weigh private benefit against charitable benefit
ii. Example: OK for physicians to contract with 501(c)(3) hospital to use facilities for private patients. This is
de minimis to hospital’s purpose
91. Excess Benefit Transaction (EBTs)
b. Excess benefit transaction (EBT): any transaction in which an economic benefit is provided by a tax exempt org
directly or indirectly to or for the use of the disqualified person where the value of the economic benefit provided by
the org exceeds the value of the consideration
i. Disqualified persons: any person (and family members) who was, at any time during the 5 year period
ending on the date of such transaction, in a position to exercise substantial influence over the affairs of the
org
b. Core prohibited transactions: those in which the disqualified person engages in:
i. Non-fair market transactions
ii. Unreasonable compensation arrangements OR
iii. Proscribed revenue sharing arrangements
c. Ways to avoid scrutiny
i. Board approval for transactions
ii. Board must not have conflicts
iii. Board relies on objective criteria that is well documented
iv. Gives a rebuttable presumption of reasonableness

Corporate Governance
Fiduciary Duties
92. Duty of Care
a. Requires a board member to act in:
i. Good Faith AND
ii. In a manner reasonably prudent (i.e., staying informed + doing something about it)
b. Applies to both for-profit and non-profit organizations
93. Duty of Loyalty
a. Requires a board member to act in the best interest of the organization
i. Avoid self-dealing
ii. Avoid conflicts of interest (must disclose as well)
iii. Avoid usurping corporate opportunity
iv. Recusal from voting
b. Applies to both for-profit and non-profit organizations
94. Duty of Obedience
a. Requires a board member to act in accordance with the organization’s stated purpose and mission (i.e., nonprofit
mission)
b. Applies to non-profit organizations only
 95. Stern v. Lucy Webb (DC 1974)
a. Facts: The Lucy Webb Hayes National Training School built Sibley Memorial Hospital to carry out its charitable purpose.
The Board of Trustees created an Executive Committee authorized to handle most of Sibley’s day-to-day operations such as
opening checking and savings accounts, approving budgets, renewing mortgages, and entering into contracts. A separate
Finance Committee was also created to renew the budget and report on possible investment opportunities. But for nearly 20
years the trustees played little or no role in Sibley’s daily operations. The Board and the Executive Committee routinely
accepted and ratified the actions of Orem and Ernst without even meeting. Allege: (1) mismanagement with investments
and (2) conspiracy to unjustly enrich themselves.
b. Holding: duty of care and loyalty violated
i. Court fails to find a conspiracy
ii. Duty of Care
1. A director who fails to acquire the information necessary to supervise investment policy or
consistently fails even to attend the meetings are considered to have violated their fiduciary duties
to the corp.
iii. Duty of Loyalty
1. A director should not only disclose his interlocking responsibilities but also refrain from voting on
or otherwise influencing a corporate decision to transact business with a company in which he has
a significant interest or control
2. Here, they permitted the hospital to enter into business relationships in which they had a
substantial interest without making full disclosure and voted in favor to transact business with
entities they had substantial interest in without recusal
96. In re Caremark
a. Facts: Caremark pleaded guilty to a single felony of mail fraud and agreed to pay civil and criminal fines for
violating the AKS. Suit was filed on behalf of company against Board to seek restitution.
b. Holding: record does not support that the defendants lacked good faith or allowed violations to occur
i. A board decision that results in a loss because that decision was ill advised or negligent:
1. This is subject to review under BJR.
2. Courts will not second guess if reasonable and made in good faith
3. Lack of good faith as evidenced by sustained or systematic failure of a director to exercise
reasonable oversight -- is quite high.
ii. A board decisions from an unconsidered failure of the board to act in circumstances in which due attention
would have prevented loss:
1. A Director’s obligation includes a duty to attempt in good faith to assure that a corporate
information and reporting system, which the board concludes is adequate, exists, and that a failure
to do so under some circumstances may render a director liable for losses caused by
noncompliance
2. Here, the compliance program in place did not find the evidence of the wrongdoing; but there was
no evidence that there was systemic failures in the compliance program (i.e., sometimes things slip
through the cracks)

Conversions, Asset Sales, and Mergers

97. MEETH v. Spitzer (NY 1999)
a. Facts: MEETH, nonprofit, wanted to sell because of financial troubles. Sloan Kettering offered to buy assets to
expand cancer center. MEETH provided ENT services. Real estate was worth 46-55M, MSK offered and Board
agreed to sell assets for 41M, without any explanation. Seek court approval
b. Holding: duty of care, loyalty, and obedience violated
i. A nonprofit Board has the fiduciary obligation to act on behalf of the corporation and advance its interests
in good faith and with that degree of diligence, care, and skill which ordinarily prudent men would exercise
under similar circumstances in like positions
ii. Terms of transaction fair and reasonable:
1. MEETH was not able to operate successfully anymore, the business had value. It was a
functioning acute care specialty hospital and the good value of the name. But the transaction only
took into account the fair market value of the real estate. It failed to take into account MEETH’s
name. Therefore, full value was not considered
iii. Purposes of organization will be promoted
1. The proposed use of the assets involves a new and fundamentally different corporate purpose.
Moreover, there was a conflict of interest when MSKCC offered to retain the strategic advisor
which had a direct and substantial interest in the sale of the real estate (consultant received a 1$
cut of total value of real estate). There was no discussion or deliberation by the Board over the
potential conflict.