The U.S. Department of Justice arrested a record 301 individuals on health-care fraud allegations in late June. The number was striking, but so was the word—“takedown”—Attorney General Loretta Lynch used to describe what was essentially a white-collar enforcement operation. “Health-care fraud is not an abstract violation or a benign offense,” Lynch said at a June 22 press conference. “It is a serious crime.”
The arrests, from Florida to Alaska, involved about $900 million in suspect billings. They’re the most visible result yet of a policy shift set in motion last fall, when Deputy Attorney General Sally Yates issued a memo barring prosecutors, without special permission, from releasing individuals from criminal or civil liability when settling fraud cases against companies. Prosecutors typically used such immunity deals as leverage in pursuing civil settlements with companies accused of fraud. “Those days are gone,” says Mark Hardiman, an attorney in Los Angeles who represents health-care companies.
One of Hardiman’s clients is Dr. Prem Reddy, the founder and chief executive officer of Prime Healthcare Services of Ontario, Calif. Prime, one of the fastest-growing hospital chains in the U.S., is the target of a whistle-blower complaint alleging its doctors needlessly hospitalized Medicare patients to boost profits. On June 23 the government filed a civil complaint against Reddy. Prosecutors alleged in an affidavit that he personally told his emergency room doctors “to find a way to admit all patients over 65.”
“This particular case is a shining example of the DOJ’s follow-through with respect to the Yates memo,” Hardiman says. He and Troy Schell, Prime’s general counsel, say Prime and Reddy deny the fraud allegations. The Justice Department didn’t respond to requests for comment on the Prime case or the shift in health-care enforcement.
Prosecutors are forgoing subpoenas and civil investigative demands, which rely on a suspect’s cooperation, in favor of more forceful measures such as search warrants and raids. Patrick Cotter, a defense lawyer in Chicago who as an assistant U.S. attorney in Brooklyn in the 1990s prosecuted mobsters including John Gotti, says one of his clients was eating breakfast with his family earlier this year when armed agents burst through the door of his home. The agents ordered the family onto the couch while they hauled away computers, cell phones, and documents as part of an investigation into Medicare rules violations.
“In the past, these kinds of cases were handled through sanctions and settlements, or it was the corporate entity that was deemed to be responsible,” Cotter says. “Now we’re seeing traditional criminal prosecutorial tactics against individuals for the first time on a large scale. These tactics had previously been reserved for racketeers, bank robbers, and drug dealers. This is a sea change.”
The bottom line: Under a new Justice Department policy, federal prosecutors can’t exempt executives from corporate charges without special permission.