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AHLA's Speaking of Health Law
Health Care Corporate Governance: DOJ’s Criminal Enforcement Plan and Board Oversight Responsibility
Rob Gerberry, Senior Vice President and Chief Legal Officer, Summa Health, speaks with Michael Peregrine, Partner, McDermott Will & Emery, about the Department of Justice Criminal Division’s recent release of its new white collar criminal enforcement plan and the board’s oversight responsibility for corporate compliance with the law. They discuss how the new plan relates to governance, the government’s current approach to health care fraud and abuse enforcement, and key compliance takeaways for boards to consider.
Watch the episode: https://www.youtube.com/watch?v=z2APW87JznY
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SPEAKER_01:Hello, everyone. This is Rob Gerberry. I'm the Chief Legal Officer of Summa Health and excited to announce the President-elect-designate of the American Health Law Association. I'd like to welcome you to our latest in our continuing series of podcasts on corporate governance issues affecting healthcare organizations. Today's topic is one of continuing interest to our membership and our clients, the board's oversight responsibility for corporate compliance with law. This is a topic that's been around, one we're not trying to recycle, but one which has a new thrust back in the headlights with the May 12th, 2025 release by the Department of Justice criminal division of its new white collar enforcement plan. And it's an important development, not just because of the seriousness of the issue, white collar enforcement, but also because of the very clear focus on healthcare fraud. So it's natural that as we reach back into our files, so to speak, and dust off our collective memories about compliance oversight, that we talk about the impact to the board, the audit committee, and things that they need to focus and know about. And of course, as the leading governance advisor to the board, the general counsel and the chief legal officer, likely teaming up with their corporate compliance officer. They're well-situated to brief the board and their key committees on this new development. And for us, we're lucky enough today to have my HLA colleague and friend, Michael Peregrin of McDermott, Willow& Emory, who's also an HLA fellow and a fellow of the American College of Governance Counsel. So Michael, before we dive into today's topic, I've got a fundamental question for you to start. Everything we've read during the presidential transition was that the new administration was going to change directions on white collar enforcement to maybe ease off the throttle a bit. And all that seemed to be confirmed by some of their early actions with respect to enforcement of the Foreign Corrupt Practices Act or the anti-mundering laundering laws. But did I miss something? What happened here?
SPEAKER_02:Well, no, you didn't miss anything, Rob. I think in a broad sense, we all were thinking kind of the same thing, that the government was going to focus on stuff like human smuggling operations, the flow of fentanyl and other dangerous drugs, child predators, and those kinds of violent crimes. And it's still going to do so. The Department of Justice views those and stuff like international money laundering and illicit financial and logistical networks as real threats to national security. So that's clearly a focus of the criminal division right now. But the division is still in the corporate fraud enforcement and individual accountability game and is definitely interested in federal program fraud. And you know what that means. So I think we were half right and half wrong. But the most important thing is, I think, from a board perspective, that the May 12th release reminds boards of their fundamental obligation to exercise oversight of compliance. And the criminal division remains very much in the health care fraud game.
SPEAKER_01:So fair enough. But even given with that background you just shared, Should this be a discussion more appropriately held by a white collar practice group, or do you think this definitely has governance connection?
SPEAKER_02:Well, I think that's really an excellent question, Rob. It's one of those areas, I think antitrust is another, where there has to be a teaming of white collar expertise and governance expertise, because we need to keep in mind that compliance impacts the obligations of the board and of senior management. They have a fiduciary obligation to exercise oversight of the organization's compliance program and its mission critical risks. As you know, and I don't want to, I think you were still in junior high at this time, but since the days of Enron, corporate governance and white collar law have been inextricably intertwined. Advice on the latter needs to be integrated and coordinated with advice on the former because so much of the white collar stuff in their resolution needs to be subject to board oversight and decision-making. I wanna underscore and decision-making. And as I said, we've got the very clear application of Caremark to all this. The obligation of the board to monitor the compliance and related mission risks of the company, including but not limited to maintaining an effective compliance program. And the stuff that's in this new plan really needs to be shared with the board and its audit and compliance committee if it's going to be in a position to satisfy those care mark duties. So I think it's super valuable to have in the corporate minutes that the chief legal officer and the chief compliance officer had briefed the board on the plan. Very valuable. But maybe you want to have that in tandem with your outside white-collar counsel. It's got to be a team effort.
SPEAKER_01:So we're back to Caremark again, aren't we? It seems like we can never quite get past the implications of that case. But we previously talked about the new plan being important for management as well. Can we highlight why Caremark's not only important to boards?
SPEAKER_02:Yeah, I think that's one of the things that's missing. We've perhaps become a little bit too sensitized to the many Caremark cases coming out of Delaware. We've lost sight of the fact that the latest and most complete iterations of Caremark reference the obligations of the senior corporate executives. to affect care mark light oversight of the compliance issues arising within their little world, their scope of responsibility. And that's gonna differ, of course, depending upon the title and duties of each senior executive. But I think the case law speaks pretty clearly to a broad expectation at both levels of senior leadership, the board and management, And I'm not sure that all management teams get that, Rob. If you were to poll the C-suite members other than the CEO of a lot of health systems, would they be aware that they may be subject to care mark responsibilities within their own sphere of influence? This is another opportunity to remind them of that. Not that they're going to want to hear it, not that they're going to be happy to hear it, but it's a reality.
SPEAKER_01:Great. So going back to that May 12th release, Where do you view the administration as going with this new plan? What are they really trying to achieve here?
SPEAKER_02:Well, I think this is where it gets interesting. From my read, and I think of others, the Department of Justice is trying to make a break from what they perceive to be the excesses of the prior administration when it comes to corporate fraud enforcement. And I'm not trying to do Biden bashing or anything of that nature or kind of read into something political, which is not there. But it's pretty clear in the speech introducing the plan, the new head of the criminal division described those prior enforcement efforts as having come at too high of a cost for business. that too often businesses have been subject to unchecked and long-running investigations that can be costly, not only to the subjects and targets of the investigations, but also to the Department of Justice, and that these kinds of investigations can really mess up and interfere with business operations. And you're going to get a lot of head shaking up and down by corporate executives in that regard. To me, it's a pretty strong message. And you see it not only from the plan itself, but from the speeches of the new chief of the criminal division. The government thinks that the prior approach under the Biden administration, and there were plenty of corporate fraud enforcement mechanisms and incentives that were built into that administration. The current administration thinks that the prior approach has deterred companies from cooperating. That's an important message. They think that the heavy emphasis on investigations has forced companies to push back and be less willing to cooperate and allows the government to more readily target the more culpable actors. In other words, I think they're saying that a lot of time has been wasted by both companies and the government on pursuing investigations which may or may not have merit, and that force the government to take its eye off the ball of the kinds of targets and actors that they now feel are most culpable. And in my mind, and I think of others, it looks like the administration now is seeking a more of a carrot and stick approach to enforcement. So, again, I think it's if you if We have business executives who read some of the speeches given by the criminal division chief. They're going to say, hey, that's music to my ears, tone down investigations. And they're kind of suggesting that, but they're saying we're going to be more efficient and fair in our investigations.
SPEAKER_01:So if companies or their boards were going to exhale and say, particularly those in the healthcare space, this new plan signals something where we're going to get more latitude, would that be a misinterpretation?
SPEAKER_02:Yeah, I think that's the danger. It would be fair on first reading, again, if you read the speeches from the chief of the criminal divisions, you would exhale. You'd say, wow, we're off the hook. We're going to throttle back. But then if you start turning the page, you're going to see it's different. The new plan expands the Department of Justice's whistleblower awards program to add what the Trump administration views as new priority areas for tips, for whistleblowing. And that falls into the broad area of procurement customs enforcement, and federal program fraud. But this is what I think the key message is from the chief legal officer. Healthcare waste, fraud, and abuse is the number one, repeat, number one, top of the list, first in the class priority item listed in the plans, subject matters where the criminal division is prioritizing its investigation and prosecution. And I want to repeat that. Healthcare waste, fraud, and abuse is at the top of the list of the topics that the criminal division is prioritizing with respect to investigation and prosecution.
SPEAKER_01:So as if we didn't have enough challenges already in healthcare, we're number one on the hit parade, huh?
SPEAKER_02:Well, that's, you know, unfortunately, you know, so the good news on the one hand is the government is focused on being more fair and efficient in its investigation. But the bad news is that they've articulated very clearly that they are hot to prevent procurement and federal program fraud. And they list health care fraud right at the top of the list. And that's something, Rob, I think the board has to be aware of. The plan clarifies this voluntary self-disclosure policy to provide enhanced incentives for companies to self-report. This is really important. They also provide greater transparency on the factors prosecutors will consider when imposing a corporate monitor. We haven't seen a lot of that in the healthcare industry, but I think it's important that the board understand, given its ultimate care mark responsibilities, that the new voluntary disclosure policy is, intended to offer what the chief of the criminal division says the most generous benefits the criminal division can offer. Now, you may want to put your hand over your wallet there, but it really makes clear that it provides, that the goal of the voluntary self-disclosure policy is to provide a clear path to declination of prosecution. That's a big deal. If a company is about to be subject to investigation where it's concerned about its exposure and believes that a voluntary self-disclosure will result in a declination of prosecuting the company, boy, it's got to consider that. And certainly it would be the board's decision to authorize a self-disclosure, not management. And for the compliance officers who we work with, the boards also will want to be reminded that an organization can only self-disclose what it learns through its own diligence. And that, of course, requires a robust compliance program. So we may be number one on the priority hit list, but the criminal division's plan believes that it's providing some carrots as well as sticks.
SPEAKER_01:So those are interesting developments. But when we think about those self-disclosures, Am I hearing you right? That's a board call, not management. Historically, I've seen management teams below certain thresholds have the latitude to make those decisions, and the board makes decisions above a higher certain penalty threshold. Is that not how you're seeing it?
SPEAKER_02:Not at all. And people may disagree with me, but I think that this is a board call all the way for three reasons. First, I think a decision to make a voluntary self-disclosure is of such significance that the board has to be involved in any related decision. Too much is on the line. Second of all, the ability to take advantage of the new self-disclosure program depends in part on the effectiveness of the organization's compliance plan, which is absolutely in the board's ambit. And third, and this is a little bit sensitive and it's going to irritate some people, but the board's got to be attentive to the potential for conflict of interest, especially the case when options for resolving a controversy and getting a declination through self-disclosure would create a conflict for executive management and their personal interests and those of the company. In other words... And this has always been the case with any kind of self-disclosure, especially when the government is so focused on individual accountability. The board has to be aware that the members of the executive management team could be unintentionally conflicted if the result of the self-disclosure could result in their own individual exposure or culpability. You don't know where that goes. And this kind of goes, Rob, to something we talked about a couple of months ago in our podcast about some new professional responsibility rules. It's a murky mess, but it just simply means that the board ultimately, in my mind, has to have the final call on whether or not you're going to make some kind of self-disclosure of the new plan. Too much is at stake.
SPEAKER_01:Great. So our members hear this podcast today, they go to their audit committee chair and ask for 15 minutes to talk at an upcoming meeting on this topic. What do you think the focus should be?
SPEAKER_02:Well, I think one is to overcome misperceptions. And this is going to be a big, this is why I think the compliance program is really going to need to be re-energized. If you read the plan, it's intended to reflect a significant shift from prior government policies on corporate fraud enforcement. And again, not a political statement, but it just says that in black and white. I think you read it as trying to strike at a balance between the need to identify and investigate corporate and individual criminal wrongdoing, while at the same time minimizing what it perceives to be unnecessary burdens on the day-to-day operations of the business. But to infer from that, that there's gonna be a relaxation on corporate fraud enforcement is gonna be a huge mistake. And it's important that the board recognize that as such. As we've talked about, the plan makes clear that the government is very much, remains in the corporate fraud enforcement business and on holding individuals accountable for their actions. I mean, the headlines may have been on the international terrorism and child trafficking and fentanyl issues from the Department of Justice, but corporate fraud is still a main target of theirs. And The board's gonna therefore is gonna be incentivized to maintain a compliance oriented tone at the top to correct any misperceptions or misconceptions from the management team. Again, we all, like you started our conversation today, Rob, all of us kind of thought that the foot was gonna kind of come off the throttle or the pedal a little bit in the new administration, that they would be less interested in pursuing corporations. And that's just not gonna be the case. And so the board needs to work with management to support the vitality of the compliance program and in developing additional ways to reduce organizational exposure. I know there are a lot of people in a lot of client management teams that just saying, you know, we're tired of spending money on compliance programs, especially in this exceedingly difficult financial environment. And that's just, boy, that's penny wise and pound foolish in this new climate. So we're not suggesting micromanagement by the board, but we are suggesting that give the board the information it needs to address an important ongoing fiduciary responsibility. Corporate leadership at both the board and executive levels, I think would welcome a briefing by its general counsel on this new compliance development.
SPEAKER_01:So as we get into that discussion, isn't the issue of management conflict of interest a bit tricky?
SPEAKER_02:Well, yeah, Rob, I don't know if you ever remember the old movie, Young Frankenstein, where the Marty Feldman character looks at the– they're approaching a door down to the bottom of the castle, and Marty Feldman goes to– Gene Wilder, this looks dangerous. You go first. I think the concept of individual accountability and its implications for management, you don't want to be the messenger telling this to the executive management team because there's an inference that they're going to do the wrong thing. I think the point is that there just is this inescapable potential for conflict between the interests of executives as individuals and their relationship to whatever conduct the company might disclose in order to get a declination of prosecution. There's a potential at some point that those interests could clash. So the board has to keep its finger on the pulse of that situation and handle it discreetly. You're not trying to condemn the executives or throw them under the bus, but you've got to recognize that that's one of the challenges that when you're making a self-disclosure.
SPEAKER_01:So you're saying this does have potential to be a double-edged sword for healthcare companies and their board, doesn't it?
SPEAKER_02:Yeah, I think it really is. And that's why it has to be, I think, discussed really thoroughly at the board and audit committee level. On the one hand, there are the aspects of the plan and the policy changes from the government that are meaningful and will be welcomed by organizational leadership. And that's the stuff about... the goal of making investigations short, limited, and efficient, and recognizing that prior investigations have been overbearing and costly to companies. That's going to be welcomed by boards. On the other hand, the government is still very much in the criminal law enforcement business. And I know that, as I noted before, healthcare fraud is right at the top of the list. So it's going to be at the top of the whistleblower focus too, and their counsel. I'm sure that the whistleblower councils have cut that out and pasted it on their bulletin board, the list of what it is, 10 or 12 priority items to pursue.
SPEAKER_01:Well, Michael, this has been very informative as usual. It adds another item for our discussions with our board in upcoming meetings and another thing to put on our plate. It seems like many of our members have a new government policy that they're going to need to read that just came out and find some time to make sure they brief their board and their management teams on this topic. So thanks as always for sharing your thoughts with us. We'll be back next month with our next governance podcast discussion. At that time, we're going to dig into the distinction between recusal and abstention, when they're appropriately applied and when they're misapplied. And as we go into spring, even though it doesn't feel like it here in the Midwest, the only subject, Michael, you know more about than corporate governance being baseball. Any early thoughts on the season?
SPEAKER_02:Look up who Ronnie Simon is and what happened to him the other night against the Padres and how his teammates played. provided the most effective demonstration of a positive workforce culture that anybody could ever imagine. So that's my tease for the group today.
SPEAKER_01:Fantastic. Thanks again, Michael. We look forward to talking next month. Thank you, Rob.
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