Volume 9 | September 2020
DOJ Issues Guidance On Inability To Pay Process

Even throughout the COVID-19 pandemic, the federal False Claims Act (FCA) has remained one of the federal government’s top tools to investigate and punish alleged fraud, waste, and abuse in relation to federal programs, particularly federal healthcare programs. In fiscal year 2019 alone, the Department of Justice (DOJ) collected over $3 billion in settlements and judgments under the FCA, the majority of which was from companies and individuals within the healthcare industry. While the DOJ may have recently temporarily shifted priorities to address pandemic-related fraud, large FCA settlements have kept on coming. In April, for example, a laboratory and associated pain clinic, along with two former executives, agreed to pay $41 million to resolve FCA allegations that they engaged in unnecessary urine drug testing. Later that month, another laboratory agreed to pay $43 million to resolve allegations that it billed for medically unnecessary lab tests. In June, a hospital system based in Atlanta agreed to pay $16 million to resolve allegations that it improperly submitted claims for inpatient stays, and that it overpaid to acquire a cardiology physician group.  

In large part due to the tremendous damages and penalties that an FCA defendant faces if found liable, in addition to the cost of defending an FCA case, the vast majority of FCA cases resolve by way of settlement. Many times, the FCA defendant argues that it is unable to pay the amount that the DOJ is seeking. Enter the “inability to pay” process. In sum, if an FCA defendant claims that it cannot pay the amount the DOJ is seeking to resolve an FCA case, that defendant can complete a detailed financial packet (there’s one packet for companies and one for individuals) and submit that form under penalty of perjury, along with supporting documents like bank statements, balance sheets, and other financial documents, to the DOJ. A financial analyst from the DOJ then reviews that information and determines either that the defendant can, in fact, pay what the DOJ is seeking or, if not, how much the defendant can pay in satisfaction of the claim. While the inability to pay process has been around for a while, the ongoing COVID-19 pandemic has brought the process to the forefront, as many businesses and individuals who find themselves on the wrong side of an FCA investigation, particularly in industries like healthcare, have been financially affected by the pandemic, therefore affecting their ability to pay a settlement or judgment.

The inability to pay process is outlined in the Justice Manual (formerly the United States Attorney’s Manual), which is the DOJ’s main policy manual. Specifically, the Justice Manual states that the Attorney General and the Attorney General’s delegates have the authority to compromise civil monetary claims on behalf of the United States, and then goes on to discuss the bases for compromising such claims. Section 4-3.200 of the Justice Manual provides that the DOJ can compromise a claim if it believes “that the full amount of a claim of the United States cannot be collected in full due to the financial condition of the debtor.” The Justice Manual also states that “[t]here must be a real doubt as to the government’s ability to collect in full” and that “[h]ardship, which does not involve inability to pay, is not a proper basis for settlement.” 

Defendants (and defense counsel) who have gone through the DOJ’s inability to pay process have often expressed frustration with a lack of information as to how the DOJ actually determines a company’s or individual’s ability or inability to pay. On September 4, 2020, Ethan Davis, the Acting Assistant Attorney General for the DOJ’s Civil Division, issued a memo to all DOJ civil employees entitled “Assessing an Entity’s Assertion of an Inability to Pay.” That memo reiterates that the DOJ will consider an entity’s assertion that it is unable to pay “an otherwise appropriate amount to resolve an alleged claim or violation of the law because it lacks sufficient assets required to pay the government and meet its ordinary and necessary business and/or living expenses.” The memo goes on to state that the entity “bears the burden of establishing its inability to pay, and why a higher payment amount would constitute an undue financial hardship, including by providing all information requested by the [Civil] Division.” The memo then lays out certain factors that the DOJ will consider in evaluating an entity’s assertion of an inability to pay:

  • Background on current financial condition:  “The review considers the entity’s current financial condition, what gave rise to it, and projected financial earnings and expenses.”
  • Alternative sources of capital: “The review considers an entity’s ability to borrow funds . . . or to raise capital. . . . The Division also considers whether an entity has any claim under an insurance or indemnification agreement, or has any other type of enforceable monetary claim against a third party.”
  • Timing of payments:  “The review considers the amount that an entity can afford to pay immediately and over time, typically for a period not to exceed three to five years.”
  • Tax deductibility: “The review takes into account the tax deductibility of any monetary payments.”
  • Contingency arrangements: “The review considers, in certain circumstances, acceleration or escalation contingency arrangements. Such circumstances include but are not limited to forecasts of a future sale of significant assets, a new product launch or contract, other new earnings, or growth opportunity.”
  • Collateral consequences:  “The review considers any significant adverse collateral consequences of a monetary resolution that exceeds an entity’s financial inability. For example, the Division evaluates potential disproportionate impacts on an entity’s ability to provide support to other family members, or an entity’s operations and obligations. . . . Collateral consequences that generally are not relevant include adverse impacts on growth, future opportunities, planned or future product lines, future dividends, unvested or future executive compensation or bonuses, and planned or future hiring or retention.”
  • Third party liability: “In appropriate cases, the Division considers whether additional entities, including family members or related parties, may be liable for the debt as a result of a fraudulent transfer, successor liability, or the Federal Priority Statute.”

While the inability to pay process can offer an opportunity for an FCA defendant to resolve a matter on favorable financial terms under the right circumstances, it is certainly not appropriate in every case, and is not a process that anyone should undergo without first carefully considering the options. If an FCA defendant does decide to go through the inability to pay process, it is crucial that they seek the guidance of attorneys and accountants before submitting the required information to the DOJ for analysis.

DOJ Highlights its Continued Focus on PPP Fraud

On September 10, Acting Assistant Attorney General Brian Rabbitt delivered remarks at the PPP Criminal Fraud Enforcement Action Press Conference. A written version of his remarks can be accessed here.

The Paycheck Protection Program (PPP) was part of the CARES Act, which was signed into law on March 27, 2020, in response to the COVID-19 pandemic. Pursuant to the PPP, the federal government has made billions of dollars in forgivable loans to businesses that met certain criteria. Chilivis Grubman has published several blog posts regarding the PPP and related fraud enforcement actions, available hereherehere, and here.

In his remarks, Rabbitt noted that “[u]nfortunately, almost every crisis brings out not only those who seek to help others, but also those who try to exploit the situation for their own unlawful purposes and financial gain.” Rabbitt stated that Attorney General Bill Bar has instructed the Department of Justice (DOJ) to focus on pandemic-related fraud, including fraud schemes related to the PPP. Rabbitt explained that, soon after the PPP began, the DOJ set up a “team dedicated to PPP fraud, began investigating immediately, and brought our first cases within months of the PPP being announced.”

Rabbitt announced that, as of the date of his speech, the DOJ’s criminal division, along with various law enforcement partners, had criminally charged more than 50 people who allegedly committed fraud to obtain money from the PPP, and had been able to recover or freeze over $30 million in assets. According to Rabbitt, the cases that have been brought by the DOJ thus far involved PPP loan requests ranging from $30,000 to $24 million, and cases have been brought in 19 federal judicial districts.

Rabbitt explained that PPP fraud cases fall into two categories. According to Rabbitt, the first category involves individuals or small groups who have lied about legitimate businesses or who have claimed that they needed PPP funds for legitimate business purposes, but instead used those funds to purchase luxury items for themselves. The second category described by Rabbitt involves “coordinated criminal rings that have engaged in systematic, organized conduct to loot the PPP.” Rabbitt also spoke of “a few common threads” of PPP fraud schemes, including: (1) “the brazen, bold, and simply false representations we allege the defendants made in their applications for PPP funds”; (2) “the defendants’ use of their stolen PPP funds for entirely illegitimate purposes”; (3) “[t]he money these defendants stole was taxpayer money”; and (4) “the success of the defendant’s fraudulent loan application meant that there were fewer funds available at that time in the PPP for legitimate businesses that were in genuine need of support.”

Rabbitt went on to list some “critical aspects” of the DOJ’s investigation and prosecution of alleged PPP fraud: (1) “the unparalleled speed with which these cases have been investigated and prosecuted”; (2) the DOJ’s “use of data analytics to develop these cases so quickly”; (3) the DOJ’s use of “public-private partnerships to maximize our awareness and visibility of suspicious conduct and our collection of critical evidence”; and (4) the “whole-of-government approach we have employed in bringing these cases.”  

Rabbitt concluded his remarks by making it clear that the DOJ’s work related to PPP fraud is ongoing.
EEOC Updates Guidance Related to the ADA and COVID-19

As employers continue efforts to return to normal amid a raging pandemic, they continue to be confronted with how to safely resume operations as guidance from the scientific community evolves while still complying with employment laws like the Americans with Disabilities Act (ADA).

The Equal Employment Opportunity Commission (EEOC) issued guidance earlier this year to address the intersection of the ADA and COVID-19 precautions. Chilivis Grubman previously presented a webinar on the ADA and other employment laws’ implications for re-opening in the midst of the pandemic, available here. On September 8, 2020, the EEOC updated its Technical Assistance Questions and Answers webpage to provide additional clarification. The guidance is a must-read for employers seeking to precautionary measures while re-opening.

Specifically, the ADA requires that any mandatory testing of employees must be “job related and consistent with business necessity.” Recognizing that an employee with COVID-19 poses a direct threat to the health of others in the workplace, the EEOC has stated that the ADA does not interfere with employers following the CDC’s recommendations regarding whether, when, and for whom testing or other screening measures are appropriate. However, the EEOC’s updated guidance notes that employers may screen or test a particular individual only if the employer has a reasonable belief, based on objective evidence, that the individual may have COVID-19. Employers are also reminded that they cannot ask employees whether their family members have COVID-19 or are suffering from COVID-19 symptoms, as such question are prohibited by the Genetic Information Nondiscrimination Act.

The updated guidance also addresses the confidentiality requirements of the ADA. Ordinarily, the ADA requires that an employer keep confidential an employee’s medical information. However, managers are not prevented from reporting an employee with symptoms or a diagnosis of COVID-19 to company officials so that appropriate actions, consistent with CDC guidance, can be taken. The EEOC emphasizes that employers should take as many steps as possible to limit disclosing the name of an employee who has symptoms of or has been diagnosed with COVID-19.

Lastly, the updated guidance addresses the issue of reasonable accommodations under the ADA. COVID-19 and the concomitant government orders to shelter in place led many employers to implement teleworking policies. This has raised many questions regarding pre-existing reasonable accommodations and future requests for reasonable accommodations. The EEOC notes that an employer does not have to automatically grant a reasonable accommodation request, even if the request pertains to temporary teleworking accommodations. If a request is made, the employer and employee should engage in a collaborative dialogue to determine whether the request is warranted or whether a different accommodation would suffice. 
and Provides Support for Zoom Hearings
The COVID-19 pandemic has forced courts and ADR forums across the country to grapple with how to safely conduct hearings and other in-person proceedings. FINRA began making changes in early March, when it administratively postponed all in-person arbitration and mediation hearings through the end of May. As the pandemic persisted, those postponements were extended. This summer, FINRA also permitted parties to hold virtual hearings via Zoom, either by agreement or panel order. Most recently, FINRA administratively postponed all in-person arbitration and mediation hearings scheduled through December 4, 2020 and renewed its commitment to support virtual hearings:  
"FINRA Dispute Resolution Services (DRS) is focused on providing the support and services necessary for arbitration and mediation hearings to proceed telephonically or by Zoom when the parties stipulate to such an approach or the arbitration panel orders it. Staff are available to schedule virtual hearings and provide technical support and resources and FINRA has made available a Virtual Hearing Guide for Arbitrators and an Arbitrator Training Video for Virtual Hearings. Please contact your case administrator if you have any questions about virtual hearings."
The question of whether virtual hearings can be conducted in a manner that can withstand legal challenges was raised in the early days of the pandemic. So far, courts appear unwilling to interfere with a FINRA panel’s decision to hold an arbitration hearing via Zoom. If this trend continues and the COVID-19 pandemic remains with us through November, participants in the FINRA arbitration process should be prepared to participate in virtual hearings well into 2021.

Chilivis Grubman News

Business Beware! Preparing For and Responding to Ransomware Attacks

On September 2, Chilivis Grubman attorneys Randy Dalbey and Christian Dennis presented a webinar entitled Business Beware! Preparing For and Responding to Ransomware Attacks.

Even in the midst of the COVID-19 pandemic, cyber criminals have continued to attack businesses of all types and sizes with ransomware. Ransomware attacks can be extremely costly, and as such attacks become more frequent, it is imperative that businesses know how to prepare for and respond to such an attack.

For anyone who was unable to attend, a recording is available here.

Partner Scott Grubman was recently featured in the AJC for his defense of Elite Medical Group against false advertising claims.

Partner Scott Grubman and Associate Brittany Cambre were recently featured in the AJC for their defense of former City of Atlanta CFO Jim Beard.
Georgia Access to Medical Cannabis Commission Expected to Issue Procurement Soon for Production of Low THC Oil for Medicinal Purposes

The State of Georgia is taking steps that allow licensees to grow cannabis and produce low THC oil that can be used for defined medicinal purposes. In 2015, the Georgia General Assembly enacted “Haleigh’s Hope Act,” which is a law that allows patients to possess up to 20 fluid ounces of medical cannabis oil with up to 5% THC if the person was registered with the Georgia Department of Public Health or was involved in a clinical trial through the University System of Georgia. In 2016, the legislature expanded the medical conditions for which the cannabis oil could be used to fourteen stated conditions, including cancer, ALS, Parkinson’s, Sickle Cell, autism, and Alzheimer’s. The problem, however, was that Georgia law did not allow patients to purchase the low THC oil; the law allowed individuals only to possess the oil.

In 2019, Governor Brian Kemp signed into law HB 324, known as Georgia’s Hope Act, which allows patients to purchase low THC oil for medicinal purposes and grants licenses to entities to grow the cannabis and produce the low THC oil. Georgia’s Hope Act sought to fill the gap in then-current law that permitted people to use low THC oil but prohibited the purchase of the oil. When enacting HB 324, the General Assembly found that a “carefully constructed system of in-state cultivation” of low THC oil would “benefit patients within the State of Georgia.” Because the purchase and possession of a certain amount of low THC oil remains a crime, Georgia law makes clear that “contractors associated with the production of low THC oil in accordance” with the law are exempt from “arrest, prosecution, or any civil or administrative penalty.” (O.C.G.A. § 16-12-231(4)). Similarly, “contracts related to the cultivation, harvesting manufacturing, production, and distribution of cannabis solely for the manufacture of low THC oil” are not “deemed contracts against public policy” that otherwise would be void because the subject matter ordinarily is illegal. (O.C.G.A. § 16-12-233). Thus, the production of low THC oil pursuant to state-issued licenses is an exemption to the Georgia criminal code.  See O.C.G.A. § 16-12-191(f) (stating that criminal prohibition against possessing between 20 and 160 fluid ounces of low THC oil does not apply to “a designated university, pharmacy, or licensee” if acting pursuant to this code section). 

HB 324 also created the Georgia Access to Medical Cannabis Commission, which is a seven-member commission that, among other things, is charged with developing and maintaining a low THC oil distribution network and issuing a limited number of licenses to designated universities and contractors for the production of low THC oil. Members of the commission were appointed in December 2019 and have met several times since then. The commission may issue up to two Class 1 production licenses, which authorize the licensee to grow cannabis in up to 100,000 square feet of cultivation space and manufacture low THC oil, and up to four Class 2 licenses, which authorize the licensee to grow cannabis in up to 50,000 square feet of cultivation space and manufacture low THC oil. The Commission is expected to administer a procurement soon for the licenses to grow cannabis and produce low THC oil.  


Fight for the things that you care about, but do it in a way that will lead others to join you

Hon. Ruth Bader Ginsburg (1933-2020)


The online HIPAA Journal has published the statistics for reported breaches of protected health information (PHI) of 500 or more patients occurring during August, 2020, available here. The total number of such breaches reported was 37, virtually identical to the number of breaches reported in July and a significant decrease from June. Notably, however, the total number of patients whose PHI was accessed in these breaches rose dramatically, from 1.3 million in July to over 2.1 million. This increase appears largely, if not entirely, attributable to the ransomware attack against Blackbaud, a business associate of many healthcare organizations in the United States.

Hacking/IT incidents continue to account for most of the reported attacks and to cause the vast majority of PHI disclosures. These attacks were evenly divided between attacks against network servers and phishing attacks occurring via email.  

Given the average cost per record of a medical data breach, these numbers are a vivid reminder to health care providers to constantly stay prepared for cyber threats. Chilivis Grubman presented an informative webinar on preparing for and responding to ransomware attacks.
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