FCA risk management policies most effective when paired with appropriate enforcement

The False Claims Act dates back to Abraham Lincoln's presidency, but the longevity of the law hasn't alleviated any concerns surrounding it, particularly for those in the healthcare and life sciences industries.

According to a survey conducted by ALM Legal Intelligence and sponsored by Foley Hoag LLP, healthcare and life sciences companies are "ill-prepared" for federal whistleblower lawsuits under the False Claims Act (FCA). Lawyers from the life science industry were asked to rank their top three risks; respondents overwhelmingly identified the False Claims Act as their top priority. In fact, 31 percent of respondents identified the FCA as their biggest risk, a 10-point difference from the next highest concern, intellectual property litigation. More than half of respondents included FCA litigation among their top three concerns.

"It's pretty clear that a lot people understand that there are issues out there and they are taking steps to implement compliance programs," Nicholas C. Theodorou, a partner with Foley Hoag, said in an exclusive interview with FierceHealthPayer: AntiFraud.

Specifically, 64 percent of respondents were concerned about the impact that FCA liability would have on billing and reimbursement, and 60 percent were concerned that it would impact their relationships with third parties. Ultimately, compliance disparity often exists in the area between having a written policy and enforcing that policy.

Enforcement is key

Although most companies have written policies concerning false claims, simply having a documented policy that addresses FCA liability risks is not enough. Healthcare companies need to take the additional step to enforce those policies in order mitigate their risk.

This is particularly important when it comes to managing senior executives who have not acted pursuant to the written policy, Theodorou said. Companies that have been able to mitigate FCA risks have done so by providing thorough ethics training and implementing audit procedures to ensure all employees are acting lawfully.

Following through with strict disciplinary actions and sanctions for all employees demonstrates that the compliance policy is effective, he added. Although 75 percent of ALM survey respondents reported having FCA compliance policies or procedures in place, none of the respondents reported having incentives and disciplinary measures in place to enforce compliance. Furthermore, only 44 percent said they have a readiness plan in place for handling whistleblower claims and 10 percent reported including a thorough risk assessment and periodic internal audits.

"It's one thing to have a compliance program, but it is very important that the company enforces it regardless of the employee's position in the company," Theodorou said.

Respondents also indicated particular concern about damaging the company's reputation as well as exclusion from Medicare, Medicaid or other federal healthcare programs in the aftermath of False Claims Act lawsuits.

FCA claims can be particularly damaging to a company's reputation when senior executives or management are involved, Theodorou said. "That can affect a company in terms of not only continuing to do government contracting, but also in relationship with the marketplace."

Size disparities impact compliance

The greatest disparity in FCA compliance may be in the approach of large versus small healthcare companies. A major, publicly held company with more resources may be better able to devote additional efforts toward FCA enforcement and auditing, whereas a smaller, private company may have risk mitigation lower on their list of priorities.

It's unclear how this nuance plays out in the ALM survey. The majority (57 percent) of respondents hailed from companies with less than $1 billion in annual revenue. The rest ranged from $1 billion to $10 billion annually. Regardless, size is one driving factors behind compliance, Theodorou said.

"Some companies are stretched in terms of their resources where they have a single product, which may be the case with a closely-held company. They may be too focused on trying to get one product to market and grow and therefore do not devote as much as they probably should to compliance."

For more:
- here's the Foley Hoag summary and white paper (.pdf)

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