A healthcare company’s receipt of a civil investigative demand (“CID”) from the federal government typically means that an investigation into possible violations of the federal False Claims Act has begun.1 This realization can trigger a variety of concerns from CID recipients, including those relating to the nature and scope of the conduct under investigation, the potential financial costs to the company to defend the matter, and the possibility that individual employees will be targeted, among others. In this environment of uncertainty, a critical question is all too often overlooked: what steps can the recipient take to reduce the scope of documents demanded by the CID, thus reducing dramatically the expense otherwise required to respond?
Absent thorough exploration of this issue, healthcare companies that receive CIDs are destined to spend far more time, energy, and money gathering responsive information than might otherwise be necessary. While the prospect of securing a meaningful reduction in the scope of the CID can be challenging, it is far from unattainable. The vast majority of federal prosecutors are open to good faith negotiations about the scope of CIDs, particularly where the recipient can demonstrate a sincere desire to ensure that the government gets the evidence it truly needs along with the likelihood of disproportionate financial expense to the company resulting from the production of non-critical information.
Background on CID Issuance
The False Claims Act empowers the Justice Department to issue a CID where there exists “reason to believe that any person may be in possession, custody, or control of any documentary material or information relevant to a false claims law investigation ....”2 A CID is similar to a grand jury subpoena in that it obligates the recipient to produce the requested information absent a valid claim of privilege or narrowing, either by agreement or by order of the Court. The government has far greater flexibility is using information obtained pursuant to a CID than that obtained via a grand jury subpoena, which facilitates the investigative process. This flexibility includes sharing the information obtained with private citizens who initiated false claims investigations - known as qui tam relators - if deemed necessary.3
The government evaluates information obtained via CID in conjunction with other evidence gathered during the course of the investigation, including witness interviews, depositions, material provided by the relator (if one exists) and other sources such as data mining of claims databases. Using this information, the government makes a determination about whether a viable False Claims Act suit may be brought, and whether the potential recovery justifies the expenditure of resources necessary to move forward. This often lengthy and complicated process customarily involves frequent discussions between government attorneys and the putative False Claims Act defendant, and allows for consideration of equitable, in addition to purely legal, issues.4
Recent Dramatic Increase in Justice Department’s Use of CIDs
The government has increased substantially its use of CIDs since the passage of the Fraud Enforcement and Recovery Act of 2009 (“FERA”).5 FERA removed from the False Claims Act the requirement that the Attorney General personally approve the issuance of a CID, instead allowing the delegation of that authority to the individual United States Attorney whose office was conducting the investigation.6 Since those amendments took effect, the Department of Justice has reported an increase in both the number of CIDs issued (speaking at a conference in 2012, Tony West, the head of the DOJ’s Civil Division, estimated a six-fold increase in the number of CIDs issued compared to pre-amendment days)7 and the amount of money recovered (the DOJ reported nearly $5 billion in False Claims Act recoveries in 2012, which the DOJ deemed “by far a record.”).8
Steps a Healthcare Company Can Employ to Narrow a CID’s Scope
In this environment of heightened enforcement activity, healthcare companies must be prepared to respond when the government comes knocking. Upon receipt of a CID, a healthcare company should immediately consult with counsel experienced in responding to government inquiries of this type to assess the scope of the information sought, formulate a response plan, and avoid taking any actions which might negatively impact the company’s status in the government’s eyes. As part of that process, the company should take timely steps to prevent potentially responsive documents from being destroyed or altered, lest the government later conclude that the failure to secure this information was a deliberate attempt to impede investigative efforts.
In addition, in virtually every scenario, the CID recipient should establish and continue a dialogue with the government. Because the issuance of a CID typically indicates that the company is the subject of an ongoing investigation, having the company’s counsel maintain an open line of communication facilitates informed decisions about how to respond to that investigation. As a result of advancements in technology which allow for the storage of huge volumes of data – thus increasing substantially the cost of searching for and producing responsive documents – the first major issue to be addressed is how to deal with the potentially sizeable expense of complying with the CID in its original form.
CID recipients need to understand at the outset that simply telling the government the company has done nothing wrong will likely have no impact. Nor will generalized complaints about the time and money the company will have to spend to comply – the government frequently hears these types of vague protests, and, in the authors' experience, is almost never moved by them. Instead, the company needs to prepare a response to the government premised on two pillars: specificity and credibility.
Providing Specifics is the Key
As to the first, the company should be armed with details about the type, form and volume of the information in its files, as well as detailed estimates of the costs that it will incur – in the form of computer forensics efforts and outside counsel involvement – if required to respond to the CID as initially structured. In this context, the more precise the company can be, the better.
On the heels of that discussion, the company should be equipped to propose a specific alternative to those CIDs which contain requests that would require an inordinate amount of time money with which to comply. It is not enough to offer complaints about the harm the company would suffer if forced to respond to the CID in its original form; the company must also demonstrate that it recognizes the government’s legitimate need to conduct its investigation in an orderly fashion. While a CID recipient’s ideal approach will always be to secure the government’s agreement to withdraw entire categories of requests, as a practical matter the more realistic response – i.e., one most likely to be agreed to by the government - will endeavor to strike a balance between the amount of the expense to be incurred and the legitimacy of the investigative interest.
The Incremental Approach
Often, the best way to do this is to suggest an incremental approach, whether on a geographic or subject matter basis. For those companies that operate in multiple states, seeking to secure the government’s agreement to limit the CID to certain locations serves a dual purpose: it reduces the burden on the company and, perhaps equally important, provides valuable insight on the true focus of the government’s investigation. Whether or not the government agrees to this proposed limitation, the company can also make headway by offering to produce initially certain types of easily identifiable and readily deliverable materials (such as compliance policy manuals, organization charts, and personnel files) while securing an agreement to hold off on searching for and producing the more difficult categories (such as emails, patient files, and documents which relate to a particular topic) and thus necessitate a more involved substantive review as a prerequisite to production. While it is possible that such an offer can be viewed as an attempt to delay the disclosure of the substantive documents and records the government wants to receive, by developing a tight production schedule with established milestones supported with facts, a company improves its ability to obtain concessions from the government. Without that context, this may be seen as just another attempt to delay, stall, or prevent the production of incriminating evidence.
Under an incremental approach, both sides realize a benefit but neither gets exactly what they want. For the government to agree to concede or at least delay its right to access information, the company must be prepared to do more than simply make the proposal. In addition, the company must be able to demonstrate credibility in a form and volume sufficient to warrant the government’s concession.
The Importance of Credibility
Credibility is valuable currency in this context. At the outset, the company starts out in the hole, since the issuance of a CID almost always necessarily means that allegations of wrongdoing have not only be made, but in fact been deemed reliable enough for the government to dedicate resources for an investigation. To overcome that initial presumption, the company needs to be able to establish that it takes the investigation seriously, is committed to determining whether violations of law have occurred, and is prepared to take the measures necessary to fix whatever problems are determined to exist. This commitment can be shown by taking quick and decisive action to implement safeguards to prevent the destruction or alteration of relevant documents and records, undertaking cooperative efforts to make company employees available for interviews, and ensuring prompt and complete responses to the government’s inquires through counsel. If the government believes that the company is genuinely dedicated to addressing the issues which underlie the investigation, concessions on the CID will come much easier than if the government reaches the conclusion that the company seeks only to delay and hinder the investigative process.
Healthcare companies that receive CIDs should understand that there exists room for negotiation about the scope of information required to be produced. That process should not involve wholesale concessions or blanket refusals to compromise. Instead, it is knowing which battles to pick – and how best to fight them – that ultimately serve a CID recipient best. Healthcare companies who recognize this fact at the outset are best equipped to weather the storm that accompanies a CID in the most effective and cost-efficient manner possible.
|1||The False Claims Act, codified at 31 U.S.C. § 3729 et seq., permits the issuance of CIDs as a means of gathering evidence. While other statutes authorize the use of CIDs in other contexts, (including securities, antitrust and RICO investigations, as well as those conducted by the recently created Consumer Protection Financial Bureau) this article focuses on CIDs issued by the Department of Justice in furtherance of False Claims Act investigations relating to healthcare.|
|2||31 U.S.C. § 3733(a)(1). While CIDs issued under the False Claims Act can seek information in different forms - including written interrogatories and oral testimony - this article focuses on CIDs which seek the production of documents and electronically stored information.|
|3||31 U.S.C. § 3733(a)(1)(D). The False Claims Act provides that relators who initiate claims under the statute - and thus alert the government to the possibility for recovery - shall be entitled to share in that recovery. 31 U.S.C. § 3730(d).|
|4||For example, many False Claims Act cases uncover evidence of improper claims being submitted, but in amounts or under circumstances which do not warrant government intervention to redress. Where a healthcare company can demonstrate that it maintains a suitably robust compliance program or has otherwise taken measures to prevent recurrence of violations of law, the government may be less inclined to move forward. Whenever the circumstances suggest that the problematic claims represent isolated instances rather than evidence of systemic failures, the government will be less inclined to file a suit against the company.|
|5||Pub.L. 111–21, S. 386, 123 Stat. 1617.|
|6||FERA, Sec. 4(c).|
Kevin P. Mulry, Justice Department Increasing Use of Civil Investigative Demands, New York Health Law Blog, May 22, 2012, available at
|8||Press Release, Justice Department Recovers Nearly $5 billion in False Claims Act Cases in Fiscal Year 2012, December 4, 2012 available at http://www.justice.gov/opa/pr/2012/December/12-ag-1439.html. According to the Justice Department, over $3 billion of this amount represented recoveries in healthcare fraud cases.|