The Securities and Exchange Commission’s use of “neither admit nor deny” settlements[1] continues to garner significant attention a decade after Judge Rakoff took aim at the policy. Most recently, authors on this blog used data from the Securities Enforcement Empirical Database (SEED) to examine the prevalence of “neither admit nor deny” settlements, as well as admissions of guilt, concluding that the SEC has, “albeit slowly, shifted away from the more aggressive prosecutorial stance instituted under Chair [Mary Jo] White” – a more aggressive stance taken in the wake of criticism from Judge Rakoff,[2] Senator Elizabeth Warren,[3] and countless commentators and scholars.
Strangely, while the SEC’s use of “neither admit nor deny” settlements continues to be the focus of criticism suggesting it is too lenient, there has been no similar criticism of the Department of Justice’s use of the False Claims Act, which plays a parallel role in health care enforcement to that of the SEC’s enforcement of the securities laws. The lack of attention is even more stark considering that DOJ continues to announce multi-billion dollar annual FCA recoveries, health care fraud continues to make up a sizable portion of the government’s expanding health care enforcement spend, and corporate defendants continue to do what even the “neither admit nor deny” SEC defendants did not – not only fail to admit wrongdoing, but affirmatively deny it. In a new article forthcoming in the Washington Law Review, I analyze 195 DOJ FCA resolutions (Civil Settlement Agreements, or “CSAs”) with corporate health care defendants between early 2018 and April 2020, finding that defendants explicitly denied wrongdoing in more than one-third of the settlements.
This analysis follows my earlier work (on this blog and in the Utah Law Review) analyzing FCA resolution data, which raised substantial questions about the quantum of credit given for cooperation, conduct DOJ values in resolving FCA cases, and the degree of consistency in cases settled by U.S. Attorney’s Offices across the country.
DOJ’s reluctance to require admissions in FCA cases, revealed by this new data analysis, is surprising and problematic not only because it undermines DOJ’s enforcement goals but because it flies in the face of DOJ’s clear, and well-reasoned, criminal-side (both as to health care matters and beyond) policy against allowing resolutions without acceptance of responsibility.
Health Care FCA Defendants Frequently Deny Wrongdoing When Resolving Matters
The FCA was originally enacted by Congress during the Civil War in response to concerns regarding fraud against the government by contractors selling “sick mules, lame horses, sawdust instead of gunpowder, and rotted ships with fresh paint.”[4] While the FCA remains a generally important tool for enforcement in government contracting, over the last thirty years it has been primarily used to address health care fraud, and it has been DOJ’s primary mechanism for prosecuting wrongdoing by health care companies. In Fiscal Year 2020, for example, the $1.8 billion recovered by DOJ in FCA cases involving the health care industry was more than 80% of the total recovered by DOJ in FCA cases, and this followed ten consecutive years in which DOJ’s civil health care fraud settlements and judgments exceeded $2 billion.[5]
Unlike in other government enforcement contexts, FCA settlements have historically not required defendants to accept responsibility or admit wrongdoing. As strongly-worded and triumphant as DOJ’s FCA press releases might be—frequently boasting of “hold[ing defendants] accountable”—most DOJ FCA press releases describe the settlements as being “to resolve allegations,” and include the disclaimer: “The claims resolved by this settlement are allegations only, and there has been no determination of liability.” That is because the vast majority of FCA settlement agreements contain the following language:
This Agreement is neither an admission of liability by [defendant] nor a concession by the United States that its claims are not well-founded.[6]
To avoid the delay, uncertainty, inconvenience, and expense of protracted litigation of the above conduct, and in consideration of the mutual promises and obligations of this Settlement Agreement, the Parties agree and covenant as follows:[7]
With this language in place, defendants are empowered to publicly deny—often aggressively—DOJ’s allegations.[8] And they do.
I conducted a review of CSAs between early 2018 and April 2020, as well as statements made by the defendants in press releases or in news media coverage related to the settlements. Of the 195 CSAs reviewed, 50 included explicit denials by the defendants in the agreement, while in others the defendants denied wrongdoing either through corporate press releases or in response to media inquiries. In total, more than one-third (36.9%) included a denial.
Notably, the few cases in which defendants did admit wrongdoing do not differ from the others in subject matter, facts, or available evidence. Instead, they can be distinguished only by the prosecuting U.S. Attorney’s Office, each of which has unique internal, and informal, policies favoring admission of wrongdoing. And where DOJ’s Civil Division’s Commercial Litigation Branch (CLB) was also involved together with a U.S. Attorney’s Office, admissions were even rarer and the percentage of cases with a denial rose to nearly half (49.3%).
| All | Involved CLB | |
| Total | 195 | 69 (35.4%) |
| Admissions | 16 (8.2%) | 2 (2.9%) |
| Denials[9] | 72 (36.9%) | 34 (49.3%) |
The frequent denials suggest that DOJ’s FCA enforcement system extracts money from innocent defendants. For example, when DOJ settled an FCA case against a compounding pharmacy for $17 million in February 2019 alleging violations of the Anti-Kickback Statute and submission of duplicate bills, the DOJ press release included a statement from a U.S. Attorney holding up the resolution as an example of DOJ successfully holding wrongdoers who engage in such misconduct accountable.[10] The same day, the defendant issued a press release denying that the settlement reflected wrongdoing:
[R]esolution of this civil matter represents a business decision made in the best interest of our company and nothing more. We firmly believe that, at all times, [the company] billed all government payors appropriately while providing countless patients with access to these life-saving nutritional therapies.[11]
The press release also included a quote from the chief executive officer stating, “we continue to deny the assertions and allegations made by the government pertaining to this settlement which in any way challenge[s] our business practices.”
In another example, in April 2020, DOJ announced a $43 million settlement involving allegations that a lab had fraudulently billed for unnecessary lab services, with the Assistant Attorney General again citing the resolution as an example of DOJ’s commitment to accountability, boasting that providers billing for unnecessary services “will be held accountable.”[12] A company spokesman explicitly denied the allegations when contacted by reporters, stating:
We conducted our own thorough investigation and are confident in the medical necessity of our tests and that [we] acted completely appropriately. While we believed that [we] would have prevailed, we are pleased to avoid considerable distraction and expense by resolving this matter without any admission of guilt or wrongdoing.[13]
With CSAs typically including neither admissions nor language barring denials (such as that used by the SEC), defendants make these statements knowing not only that they are permissible under their settlement agreements, but also that DOJ policy prevents DOJ from providing additional information to respond publicly to defense denials.[14]
DOJ’s Policy in Criminal Cases Requires Admissions in Virtually All Cases
Although the FCA has largely replaced criminal prosecution as a mechanism for DOJ’s enforcement of health care laws against business entities, DOJ’s admissions policy in civil cases more closely resembles that of private civil litigants than that of DOJ in criminal cases. In criminal cases, DOJ has, with few exceptions, insisted on acceptance of responsibility as a condition for resolving cases.
Typical criminal pleas involve defendants admitting their guilt as part of the process by which the court determines that there is a factual basis for the plea. And defendants wishing to enter nolo contendere pleas (in which the defendant does not accept or deny responsibility but agrees to accept punishment) or Alford pleas (in which the defendant pleads guilty while asserting innocence) run into strong opposition from DOJ, with the Justice Manual making clear that DOJ fears allowing pleas without admissions – or worse yet with denials – would undermine views of the system’s legitimacy.
The Justice Manual includes a rationale for rejecting Alford pleas that would seemingly apply with equal force to FCA settlements:
[I]t is often preferable to have a jury resolve the factual and legal dispute between the government and the defendant, rather than have government attorneys encourage defendants to plead guilty under circumstances that the public might regard as questionable or unfair . . . .
. . . .
Attorneys for the government in Alford cases should endeavor to establish as strong a factual basis for the plea as possible not only to satisfy the requirement of [Federal Rule of Criminal Procedure] 11(b)(3), but also to minimize the adverse effects of Alford pleas on public perceptions of the administration of justice.[15]
And DOJ has made explicit the expectation that corporate defendants similarly be held accountable through admissions, even when resolving a criminal case via a Deferred Prosecution Agreement. Yet, without explanation, no such requirement has taken hold in the FCA context. While one might imagine the fact that the resolution is civil might itself provide the basis for the distinction (as civil settlements between private parties typically do not include admissions), such a distinction is belied by DOJ’s repeated references to the FCA as a tool not only for the recoupment of funds but also, like criminal prosecution, to promote accountability and general deterrence.
The SEC’s “Neither Admit Nor Deny” Policy May Provide a Path for Amending DOJ’s FCA Practice
There are clear parallels between the role of FCA settlements as an enforcement tool against health care fraud and the role of SEC settlements as an enforcement tool against financial misconduct. Just as DOJ’s civil components play a far greater role in regulating the health care industry through FCA settlements than its criminal components do through criminal prosecutions, financial misconduct enforcement is more frequently handled civilly by the SEC than through criminal prosecution by DOJ. And as with FCA cases, the vast majority of SEC cases settle rather than proceed to litigation.
For all of the criticism of the SEC’s neither admit nor deny policy and the degree of its subsequent shift in policy (both of which were recently chronicled on this blog), unlike DOJ’s FCA practice, the SEC at least forbids defendants from denying wrongdoing. Whatever the impact on accountability from failing to require defendants to make admissions, surely more damage is caused by what the SEC’s policy prevents and DOJ’s allows – settling defendants announcing to the world that they did nothing wrong and the resolution was merely a cost of doing business.
Left as is, DOJ’s policy threatens to undermine the perceived legitimacy of the enforcement system, as industry and the defense bar question whether FCA resolutions reflect DOJ addressing true misconduct or a DOJ shakedown of corporate defendants for settlement dollars. This threat to legitimacy is particularly problematic as it may hamper DOJ’s programmatic goals of incentivizing cooperation and creating a culture of compliance in the health care industry.
The lack of a judicial role in the FCA settlement process means that there will be no Judge Rakoff to spur DOJ to make a change. Instead, change will need to come from within DOJ. Though concerns about resources and litigation risk may weigh against DOJ adopting a strict criminal-like policy of requiring admissions in virtually all cases, a move to an SEC-like model – demanding admissions in targeted cases while uniformly forbidding denials through “no denial” language in CSAs – would make substantial progress towards creating accountability for health care fraud and protecting the legitimacy of the enforcement system.
Footnotes
[1] “Neither admit nor deny” settlements are those in which the defendant makes no admissions, while also agreeing that the defendant will not publicly dispute having engaged in the alleged misconduct. Typical language includes the following:
Respondents understand and agree to comply with the Commission’s policy “not to permit a defendant or respondent to consent to a judgment or order that imposes a sanction while denying the allegations in the complaint or order for proceedings” (17 C.F.R. §202.5(e)). In compliance with this policy, Respondents agree: (i) not to take any action or to make or permit to be made any public statement denying, directly or indirectly, any finding in the Order or creating the impression that the Order is without factual basis; and (ii) that upon the filing of this Offer of Settlement, Respondents hereby withdraw any papers previously filed in this proceeding to the extent that they deny, directly or indirectly, any finding in the Order. If Respondents breach this agreement, the Division of Enforcement may petition the Commission to vacate the Order and restore this proceeding to its active docket. Nothing in this provision affects Respondents’: (i) testimonial obligations; or (ii) right to take legal or factual positions in litigation or other legal proceedings in which the Commission is not a party.
[2] SEC v. Vitesse Semiconductor Corp., 771 F. Supp. 2d 304, 309 (S.D.N.Y. 2011); SEC v. Citigroup Global Mkts., Inc., 827 F. Supp. 2d 328 (S.D.N.Y. 2011).
[3] Office of Sen. Elizabeth Warren, Rigged Justice: How Weak Enforcement Lets Corporate Offenders Off Easy (Jan. 2016).
[4] U.S. Dep’t of Justice, “Press Release: Justice Department Recovers Over $2.8 Billion From False Claims Act Cases in Fiscal Year 2018” (Dec. 21, 2018), available at https://www.justice.gov/opa/pr/justice-department-recovers-over-28-billion-false-claims-act-cases-fiscal-year-2018.
[5] U.S. Dep’t of Justice, “Press Release: Justice Department Recovers Over $2.2 Billion from False Claims Act Cases in Fiscal Year 2020” (Jan. 14, 2021), available at https://www.justice.gov/opa/pr/justice-department-recovers-over-22-billion-false-claims-act-cases-fiscal-year-2020; U.S. Dep’t of Justice, “Press Release: Justice Department Recovers Over $3 Billion From False Claims Act Cases in Fiscal Year 2019” (Jan. 9, 2020), available at https://www.justice.gov/opa/pr/justice-department-recovers-over-3-billion-false-claims-act-cases-fiscal-year-2019.
[6] This language or its functional equivalent appeared in 151 of the 195 CSAs reviewed for purposes of this analysis.
[7] This language or its functional equivalent appeared in 167 of the 195 CSAs since early 2018 reviewed for purposes of this analysis.
[8] One particularly active district – the District of Massachusetts – did not include either of the above-quoted paragraphs in 14 of the 15 CSAs included in this Article’s review. This silence, however, did not prevent two defendants from making public statements of denial outside of the CSA. See Nate Raymond, “Drugmakers Astellas, Amgen to pay $125 million in U.S. charity kickback probe” Reuters (Apr. 25, 2019) (“Neither company admitted wrongdoing. Amgen in a statement said it did not agree that its conduct was inappropriate but settled to put the matter behind it. Astellas also said it believed its actions were lawful.”)
[9] The “Denials” category includes both CSAs containing an explicit denial within the CSA and CSAs where defendants issued statements denying wrongdoing at the time of the announcement of the CSA.
[10] U.S. Dep’t of Justice, “Press Release: Pentec Health, Inc. to Pay $17 Million to Settle False Claims Act Allegations” (Feb. 4, 2019) (quoting U.S. Attorney as stating that “[t]hose who engaged in these practices will be held accountable”), available at https://www.justice.gov/usao-edpa/pr/pentec-health-inc-pay-17-million-settle-false-claims-act-allegations.
[11] Pentec Health, “Press Release: Pentec Health Announced the Closure and Settlement of a Civil Matter with the United States Attorney’s Office” (Feb. 4, 2019), available at https://markets.businessinsider.com/news/stocks/pentec-health-announced-the-closure-and-settlement-of-a-civil-matter-with-the-united-states-attorney-s-office-1027922824#.
[12] U.S. Dep’t of Justice, “Press Release: Testing Laboratory Agrees to Pay Up to $43 Million to Resolve Allegations of Medically Unnecessary Tests” (Apr. 27, 2020), available at https://www.justice.gov/opa/pr/testing-laboratory-agrees-pay-43-million-resolve-allegations-medically-unnecessary-tests.
[13] Daniel Walton, “Genova Diagnostics settles billing fraud claims for up to $43 million,” Mountain Xpress (May 9, 2020); Christopher Brown, “‘Unconventional’ Tests Bring $17 Million False Claims Settlement,” Bloomberg Law News (Apr. 27, 2020).
[14] U.S. Dep’t of Justice, Justice Manual § 1-7.000 (2019), available at https://www.justice.gov/jm/jm-1-7000-media-relations.
[15] Justice Manual § 9-27.440.
Jacob T. Elberg is an Associate Professor of Law and the Associate Director of the Center for Health and Pharmaceutical Law and Policy at Seton Hall Law School. Before joining the faculty of Seton Hall, he served for 11 years with the Department of Justice, leading one of the largest and most impactful health care fraud units in the country. This post is based on his recent article, “Health Care Fraud Means Never Having to Say You’re Sorry,” forthcoming in the Washington Law Review.
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