Non Profit Board ResponsibilitiesEffective Compliance Program Oversight

John H. Fisher, II, JD, CHC

Presented To The Board of Directors of

Your Favorite Hospital

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Duty As A Director

Oversight of Corporate Compliance Program Common Law Duty of Care

Includes Duty To Assure Compliance With Laws Reasonable Care To Assure Systems In Place Not Responsible For Every Problem That Arises

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United States Sentencing Guidelines

• United States Sentencing Guidelines (“Guidelines”).

• Effective Compliance Program is a mitigating factor in sentencing.

• 2004 Amendments to the Guidelines set forth specific goals for Programs.

• 2010 Amendment places more responsibility on the Board.

• The Department of Justice and the SEC measure Programs against Guidelines’ standards when considering actions.

• Other government agencies use the Guidelines as the principle benchmark for assessing Programs.

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Not Only Based On Sentencing

Regulatory Focus On Individuals (Park Doctrine) OIG Compliance Guidance – Board Responsibility Clear OIG Public Comments and Articles Increased Fraud Enforcement Return On Investment Mentality

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Regulatory Oversight Duties

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Duty To Assure Effective Systems

In re Caremark International, Inc. Derivative Litigation, 698 A.2d 959 (Del. Ch. 1996)

Established Board obligation to assure information and reporting systems are in place.

Adequate to assure that appropriate compliance information will come to the attention of the Board.

Judicial proclamation that the board has an affirmative obligation to assure that systems are in place to proactively monitor compliance.

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Mandatory Compliance Programs

Affordable Care Act Mandates Compliance Programs Condition of Participation Under Medicare Nursing Homes Are First In 2013 Waiting For Regulations On Other Providers New York State Model Medicaid Revenues $5 Million or More

Already Require Certain Aspects

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Impact of 60 Day Repayment Rules

Overpayment Becomes A False Claim 60 Days After Identification 10 Year Look Back

False Claim Penalties Triple Damage/Up To $11,000 Per Claim

Comment In Proposed Regulations Expect Proactive Audit Create System To Identify Risk

Board Responsibility Over Finances

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This organization will eventually be required to defend the effectiveness of it’s compliance program and compliance efforts.

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Key Duties of the Board

Assure Program In Place Everyone Doing Their Job Process Being Actively Operated Program Proactive Board/Compliance Committee Proactive Adequately Funded Program Is “Effective”

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Current Board Recommendations

Obtain Outside Independent Effectiveness Assessment of Compliance Program Recommend Law Firm – Control Over Privilege Authorize Retaining Firm That Is Not Our Regular Counsel –

Independence Integrate Recommendations Into Next Budget Cycle

Consider Current “Dual Role” Compliance Officer Structure

Consider Creating Separate Compliance Budget

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Overview of Effective Compliance Program Elements

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7/8 Elements of Compliance

Policies and Procedures Oversight and Leadership Education and Training Auditing and Monitoring Reporting and Investigating Enforcement and Discipline Response and Prevention Risk Assessment

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Key Requirements for Program

Board needs to be knowledgeable of and oversee compliance.

Create a “tone at the top.” Requires effective organizational structure.

Senior personnel responsible for the Program Individual responsible for day-to-day operations Authority and access to the Board.

Adequate resources. Standards and procedures to achieve compliance.

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Key Requirements for Program (continued)

Effective compliance training throughout organization.

Confidential and anonymous disclosure mechanism (“hotline”).

Incentives to comply with Program. Consistent disciplinary measures for misconduct. Risk Assessment drives the Program. Regularly assess program for effectiveness.

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Board Duty To Oversee Program

Sentencing Guidelines Require

“The [Board] shall be knowledgeable about the content and operation of the compliance and ethics program and shall exercise reasonable oversight with respect to the implementation and effectiveness of the compliance and ethics program.” (§8B2.1(b) (2) (A)).

Implementation Board Training Regular compliance reports to the Board Other

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Tone at the Top

Guidelines Require Establishment and maintenance of an organizational

culture that “encourages ethical conduct and a commitment to compliance with the law.” (§8B2.1 (a) (2)).

Implementation Code of Conduct Board Statement On Compliance Organizational Culture

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Organizational Structure

Sentencing Guidelines Require

High level personnel who have substantial control over the organization or who have a substantial role in making policy are responsible for the compliance program. (§ 8B2.1(b) (2) (B).

Day-to-day operational responsibility for the program delegated to individuals who report to high level personnel. Individuals responsible for day-to-day operations must have . . . appropriate authority and direct access to the governing authority or an appropriate subgroup of the governing authority (§8B2.1(b) (2) (C)).

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Dual Role Compliance Officers

CFO General Counsel Problems

Conflicting ethical responsibilities Conflicting roles Divided attention Resources/Budget

This is an issue to be addressed by the Board.

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Various Guidance On Dual Role

OIG Industry Guidance Corporate Integrity Agreements Public Statements Investigations (Tenet, Pfizer) Federal Sentencing Guidelines AHLA Reports Consultant Reports

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Current Organizational Structure

Board

CEO

Legal Counsel

Compliance Officer

No Sr. Management Compliance Officer

No Compliance Committee

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Top Level of Management – CCO

Board

CEO

Legal Counsel

CFO CCO

Compliance Staff

Compliance Committee

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Program Must Have Adequate Resources

Guidelines Require

Individuals responsible for day-to-day operations must have adequate resources . . ..(§8B2.1(b) (2) (C)).

Implementation Budget From Last Year (included in legal budget) Recommend Separate Compliance Budget Based On Annual Work Plan Recommendations Following Effectiveness Audit

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Compliance Standards and Procedures

Sentencing Guidelines Require“The organization shall establish standards and procedures designed to prevent and detect [misconduct].” (§8B2.1 (b) (1)).

Implementation Risk Identification Process Reporting System Training All Elements of Effective Compliance

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Compliance Training

Guidelines Requirements

“The organization shall take reasonable steps to communicate periodically and in a practical manner its standards and procedures, and other aspects of the compliance and ethics program, to [the Board, high level personnel, substantial authority personnel, the company’s employees, and as appropriate, the company’s agents] by conducting effective training programs and otherwise disseminating information appropriate to such individual’s respective roles and responsibilities.” (§8B2.1(b) (4) (A)).

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Compliance Training (continued)

Implementation • New Hire Compliance Training• Minimum Annual Compliance Training• Additional Optional Training• Risk Area Related Training• Remedial Training• Divisional/Departmental Training

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Hotline

Sentencing Guidelines Require“The organization shall take reasonable steps---(C) to have and publicize a system, which may include mechanisms that allow for anonymity or confidentiality, whereby the organization’s employees and agents may report or seek guidance regarding potential or actual [misconduct] without fear of retaliation.” (8B2.1(b)(5)(C)).

Implementation • Our Compliance Hotline• Leave a Message Option• Detailed Complaint Handling Process

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Reward and Enforcement - Carrots & Sticks

Sentencing Guidelines Require“The organization’s compliance and ethics program shall be promoted and enforced consistently throughout the organization through (A) appropriate incentives to perform in accordance with the compliance and ethics program; and (B) appropriate disciplinary measures for engaging in [misconduct] and for failing to take reasonable steps to prevent or detect [misconduct].” (§8B2.1(b)(6)). Particularly important with regard to senior management who must set the “tone at the top” and whose performance and compensation may be considered by the Board.

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Carrots & Sticks (continued)

ImplementationCompliance is an evaluation factor

ManagementService Line Leaders

Discipline for failing to attend trainingPromotion of Program Within OrganizationEnterprise-Wide Approach

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Risk Assessment

Sentencing Guidelines Require“The organization shall periodically assess the risk of [misconduct] and shall take appropriate steps to design, implement, or modify [the Program] to reduce the risk of [misconduct] identified through this process.” (§8B2.1(c)).

ImplementationRisk identification processInternal Enterprise-Wide Risk IdentificationExternal Sources for Risk IdentificationRisk Scoring and PrioritizationIntegrate Into Yearly Work Plan and Budget Process

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Program Needs to be Kept Effective and Regularly Evaluated

Guidelines Require“The organization shall take reasonable steps—(A) to ensure that the organization’s compliance and ethics program is followed, including monitoring and auditing to detect [misconduct]; and B) to evaluate periodically the effectiveness of the organization’s compliance and ethics program.” (§8B2.1 (b) (5) (A&B)).

“After [misconduct] has been detected, the organization shall take reasonable steps to respond appropriately to the [misconduct] and to prevent further similar [misconduct] including making any necessary modifications to the organization’s compliance and ethics program.” (§8B2.1 (b) (7)).

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Program Needs to be Kept Effective and Regularly Evaluated (continued)

ImplementationIndependent Process EvaluationGap AnalysisIntegrate Into Compliance Work PlanIntegrate Into Budget

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“A compliance program is never finished; it should always be a work in progress.”

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Risk Identification Process

Risk Identification

Risk Prioritization

Audit PlanAudit Results

Corrective Action

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Effectiveness Revue Cycle

Program Structure

Effectiveness Revue

Identified Gaps

Prioritize Actions

Create/Approve

Corrections

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©2012 Ruder Ware, L.L.S.C. Accurate reproduction with acknowledgment granted. All rights reserved. This document provides information of a general nature regarding legislative or other legal developments. None of the information contained herein is intended as legal advice or opinion relative to specific matters, facts, situations, or issues, and additional facts and information or future developments may affect the subjects addressed.

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John H. Fisher, II, JD, CHCHealth Care Counsel

Ruder WareWausau and Eau Claire, Wisconsin

jfisher@ruderware.com