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Fraud And Corporate Wrongdoing In The Healthcare Sector « Back
Matt Atkins, September 2012
Page 2 of 3
Healthcare professionals themselves have come under the scrutiny of regulators. The US justice department has recently cracked down on hospitals where doctors conducting expensive operations are charging the costs to Medicare and Medicaid. One such case involving Maryland’s St. Joseph’s Medical Center resulted in a $22m fine for violations of the False Claims Act. Firms must also tread very carefully when dealing with healthcare professionals in the promotion of drugs and generation of business referrals. Globally, such professionals are often in the employ of the government and as such the provision of goods and services to sweeten the deal risks infringing upon local law as well as the UK Bribery Act and US FCPA. An additional area of concern for all parties is the conduct of clinical trials for drugs and devices. Penalties for perceived misconduct vary from country to country.

New methods of fraud detection are making the work of regulators and prosecutor all the more straightforward.

With companies leaving a vast data trail in their wake, fraudulent activity is recognisable and new techniques and technology in forensic accounting make the execution of fraud a less concealable venture. “A recent development I have seen that could impact the entire sector is the DOJ and HHS’s use of a company’s own billing data to identify billing spikes and abnormalities that can, in some instances, constitute evidence of fraud,” says Mr Walther. “HHS currently has many ways to sift through billing data collected through the Medicare program and is developing technology that would identify billing spikes and abnormalities in ‘real time’. Once they are able to do this, it will allow the DOJ and HHS to open criminal, civil, and administrative inquiries based on the data.”

The size of recent settlements highlights the massive penalties that face companies found guilty of fraud, but along with the obvious financial disincentives, perhaps the greatest penalty facing healthcare firms and providers is the potential exclusion from government health programs, and the resulting impact on business.

Detecting potential wrongdoing

In an industry as driven by technological innovation and procedural evolution as the healthcare industry, it can be difficult for companies to keep up with the accompanying regulatory change. It is, however, the job of the legal and compliance departments to stay ahead of the curve in this respect, and there is little excuse for firms that fail to educate themselves on the risks and examine their practices in the context of the current regulatory environment. For large firms that perform thousands of different services each day this may be more difficult; it is, however, also much more important. “One way legal and compliance offices can do this is by paying attention to the company’s billing and looking for billing spikes in a similar way that the government is trying to collect and analyse the data,” Mr Walther explains. “For pharma and device companies, it is important for the legal and compliance functions to be conscious of risk areas related to everything from clinical trials, to identifying corruption risks when entering foreign markets to how products are being marketed, and to then communicate those risks to the business units and take steps to make sure there is proper oversight and review of those processes.” For multinational companies, while adhering to local laws is of utmost importance, care must be taken to implement a company-wide program, bringing all employees under the same umbrella of anti-fraud compliance. Where possible, running such a program independently of local management is preferable.

Compliance failures are a likely occurrence for any large company, whether as a result of negligence or the intentional actions of staff members. How firms tackle such failures is the most important factor, stresses Mr Loucks. “Failures to comply with applicable laws and regulations are normal for all organisations,” he says. “However, such failures, depending on the size and scope, may trigger regulatory action. Failures by management to take action against regulatory violations identified by the compliance function, on the other hand, are far more likely to trigger aggressive regulatory and prosecutive action. Thus, it is crucial that management create a track record and promptly and appropriately deal with identified compliance failures.”

Preparing for investigation

The potential reputational and financial consequences for a business under regulatory investigation are serious. Appropriate handling of regulatory investigations should therefore be a top priority for healthcare companies. In the event that non-compliant behaviour surfaces, firms can take a number of steps to prepare for and manage the investigation process. The most important step is to learn as much about the impending investigation as is possible, and ascertain which facts regulators are aware of and which they are not. All of this should be brought to the investigator’s attention at the outset. Working with regulators to resolve the issue is strongly recommended. “This can be a delicate task because if the government is actively investigating a case, a company does not want to create the appearance that it is interfering with the government’s investigation,” Mr Walther is keen to note. “In my experience, though, companies can work with the government to develop an investigatory plan that will allow the company to take the lead in investigating itself – avoiding the pains of responding to lengthy government document requests or subpoenas and of subjecting executives to interviews or testifying before a grand jury – and in some instances reporting all or some portion of those findings to the government.” Maintaining clear records throughout the investigation process is, of course, essential – but then, firms that neglect this before investigators arrive open themselves up to the risk of fraud.
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