May 2022 |
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Laboratory Enforcement Trend – Strategic Use of Immediate Jeopardy Findings in Fraud, Waste and Abuse Investigations

In recent years, we have observed an increasing trend of immediate jeopardy findings (nominally based on operational deficiencies) that appear to be stop-gap measures preventing laboratories that are the targets of fraud, waste and abuse (“FWA”) investigations from continuing to bill during a pending investigation.

We frequently encounter long-term laboratory industry participants who have received notice of an immediate jeopardy finding and are frustrated and confused over apparently inconsistent application of CMS rules. These complaints are often factually accurate but may miss a more important question: why is the government selectively exercising its oversight to shut down the lab? Very often, the answer is that there are additional FWA concerns that may have nothing to do with the cited bases of the immediate jeopardy finding. It is obviously important to promptly address all operational deficiencies resulting in an immediate jeopardy finding, but particularly where immediate jeopardy findings seem stretched or forced, it is equally important to identify potential FWA concerns that the government may have and to correct or prepare a defense for those concerns.

To some extent, the coordination between CMS and the investigative entities (including the Department of Justice (“DoJ”)) is explicit. For example, in CMS’s July 31, 2019 revisions to its Guidance on Immediate Jeopardy, the Agency instructs surveyors and state agencies to identify and report to appropriate government authorities certain criminal acts related to immediate jeopardy determinations. However, in other contexts the relationship between CMS’s clinical oversight and the DoJ’s FWA enforcement is much less obvious. Immediate jeopardy fills an important hole in the DoJ’s enforcement toolkit. Understanding that relationship can help labs and their counsel more quickly identify potential enforcement action and prepare for effective defenses.

The civil and criminal divisions of the DoJ have a wide variety of effective tools at their disposal in preparing and bringing FWA enforcement actions: they have access to vast data sets and sophisticated data analytics; they can issue civil investigative demands and grand jury subpoenas and can gain access to extensive financial records; they have a broad network of agents and cooperating witnesses at their disposal; and importantly, their investigative and enforcement activities are not burdened by the sometimes-substantial financial limitations faced by private parties.

Despite these tools, the government also has equally undeniable difficulties in prosecuting healthcare fraud. Two of the most obvious weaknesses are speed and ability to recover damages. A fraud investigation is a formal and slow process that can take years to materialize. A huge percentage of that enforcement timeline falls (i) after the government has identified conduct that it feels confident warrants enforcement action but (ii) before it is procedurally prepared to initiate formal action. Put differently, identifying fraud is often quick, but proving fraud is generally slow and painstaking.

In part because of how slow and deliberate the investigative process is, the government also has substantial limitations in recovering fraud proceeds. Assets are often dissipated or concealed, and in many instances, the lion’s share of fraudulently obtained proceeds goes to the cost of operating the entity that perpetrated the fraud (legitimate rent, payments to non-culpable employees and contractors, etc.). Huge judgments can result in small actual recoveries. As a result, the government often finds that it can punish the wrong doer but cannot substantially undo the harm.

As a result of these three factors, quick identification, slow proof, and low recovery ratios, the government often finds itself in the following situation: it has identified a perceived “bad actor,” it is in the process of preparing what it believes will eventually be a successful enforcement action, but in the interim, millions of dollars (that will likely never be substantially recouped) continue to flow out of government coffers each month. The DoJ has some interim tools, but they are generally slow and/or difficult, and they require the DoJ to give the target information about the substance of the FWA investigation.

More and more often, immediate jeopardy is a more appealing interim solution: first, because it works – in most instances, an immediate jeopardy finding results in a prompt and significant reduction of government payments. Laboratories have limited recourse to challenge the findings, and second, the DoJ can generally avoid showing their hand on the substantive issues of the FWA investigation. The nature of the CMS/laboratory relationship allows for speed and broad discretion that is anathema to criminal and civil enforcement. Surveyors do not need to substantially justify the inspection. They do need, at least in theory, grounds for an immediate jeopardy finding that are rooted in operational deficiencies, but they have an extensive and complex body of operational rules to work with, and they are not strictly held to a uniform standard of review across providers.

This lack of uniform treatment is a major source of frustration for laboratories. In many instances, management is so preoccupied with the perceived unfairness of the immediate jeopardy finding and attempts to navigate the complex and unfriendly administrative environment, that it does not even occur to them that the finding may be largely pretext.

Especially when an independent jeopardy finding seems forced or inconsistent, the lab should consider whether FWA concerns are the motivating factor. These concerns may be unknown to the lab: there could be a rogue employee or contractor that is circumventing the lab’s compliance infrastructure. The practice may have resulted from honest mistake or misunderstanding. Similarly, sometimes the government’s initial impression of a practice is simply incorrect.

Regardless, the first step is to not misunderstand the situation and squander the opportunity to prepare. At Elliott Sauter, PLLC, our former federal prosecutors can evaluate and implement plans to correct or defend potential FWA issues. If you have questions regarding an immediate jeopardy finding or potential FWA enforcement action, please contact Mindy Sauter at (469) 758-4151 or


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