Key Takeaways:
- State Attorneys General (AGs) Are Stepping Up: With reduced federal enforcement staffing, state AGs are expanding their budgets, hiring former federal prosecutors, and taking the lead in health care fraud investigations.
- Medicaid Takes Center Stage: As federal enforcement focuses on Medicare, state Medicaid Fraud Control Units are prioritizing Medicaid fraud, creating a shift in enforcement focus and risk profiles for health care companies.
- Proactive Compliance Is Critical: Companies must prioritize internal complaint management, monitor their external reputation, and engage experienced local counsel to navigate the complexities of state and federal enforcement.
In this episode of Speaking of Litigation, Epstein Becker Green attorneys Zachary Taylor, Sarah Hall, and Jeremy Avila discuss the implications for general counsel regarding the expansion of state-level health care enforcement and explore how companies can proactively manage risk in this evolving environment.
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Transcript
[00:00:00] Zachary Taylor: Today on Speaking of Litigation, we're discussing the federal enforcement vacuum and opportunities for state attorneys general, specifically the expansion of health care enforcement at the state level, and how general counsel can prepare for and respond to this new environment. Hello everyone. I'm your host today, Zachary Taylor.
[00:00:17] Zachary Taylor: I'm an attorney in Epstein Becker and Green’s Health Care and Life Sciences practice in our Newark, New Jersey office. Since early 2025, we have seen federal enforcement realignment. The new Trump administration has reorganized the Department of Justice. This includes dissolving the Civil Division's Consumer Protection Branch, the creation of the Enforcement and Affirmative Litigation Branch, and earlier this year, the White House announced a new DOJ Division, the National Fraud Enforcement, which will be led by a Senate confirmed Assistant Attorney General. As with any new administration, DOJ has announced new enforcement priorities emphasizing issues such as immigration and national security, and dramatically expanded the use of the Federal False Claims Act.
[00:01:00] Zachary Taylor: However, as many have noticed, DOJ staffing has been reduced with some estimating that more than 5,000 employees left DOJ last year. This will undoubtedly have an effect on the enforcement activities we've seen. Meanwhile, state AG offices have looked to fill these voids by increasing their budgets and staffing.
[00:01:20] Zachary Taylor: No longer riding federal coattails, state AGs are leading investigations, and health care enforcement remains a top priority of both DOJ and state AGs. Understanding the implications of these changes is of paramount importance to any GC in the health care industry. Joining our discussion today is Sarah Hall, member of the firm in our Washington, DC office.
[00:01:39] Zachary Taylor: Sarah is a former DOJ Criminal health care fraud prosecutor who has investigated and prosecuted cases with various state Medicaid fraud control units, also known as MFCUs, around the country. Now as a defense attorney, she defends companies and individuals under investigation for both criminal and civil health care fraud by DOJ and MFCUs.
[00:01:59] Zachary Taylor: Hi, Sarah. Thank you for joining us today.
[00:02:00] Sarah Hall: Hey, Zach. Thank you.
[00:02:02] Zachary Taylor: Also with us is Jeremy Avila, senior counsel in our San Francisco office. Jeremy is a former chief counsel for the California Department of Aging, where he worked closely with both state regulators and the California Attorney General's office on health care issues and contracting.
[00:02:16] Zachary Taylor: His public service background helps him guide clients through civil and criminal investigations and enforcement actions by both federal and state authorities. Hi, Jeremy. Good to see you. Thank you for being here today.
[00:02:26] Jeremy Avila: Nice to be with you both. Thank you, Zach.
[00:02:28] Zachary Taylor: So let's get right into it. And Sarah, I'll start with you.
[00:02:31] Zachary Taylor: Are we seeing a rebalancing of enforcement power, especially in the health care space?
You mentioned in the lead-in that a couple of branches in main justice have been eliminated and opened. And you know that those are notable in the health care enforcement space.
[00:03:09] Sarah Hall: The administration, much more recently in January announced this brand new division for National Fraud Enforcement, which is pretty notable because to establish a new division in DOJ, it's a pretty big deal. This new division is gonna be led by an assistant attorney general. This is probably the first reorganization in recent memory of the creation of a brand new division, as they call it, and this division for fraud enforcement for national fraud enforcement, is going to have civil as well as criminal authority.
[00:03:38] Sarah Hall: It's pretty early days to determine exactly what the scope and the reach of this new division will be. But essentially where we are now is we have three litigating components out of main justice that can all touch health care fraud. And I'm getting to the state AG aspect of our discussion in a minute.
[00:03:56] Sarah Hall: So you have the criminal division fraud section, my old office, which heads up the Health Care Fraud Strike Force, which is a mainstay of criminal health care fraud enforcement. You have the civil division, the civil frauds unit in the civil division, which is the home of the Federal False Claims Act Enforcement.
[00:04:17] Sarah Hall: And now you have this new, brand new division for national fraud enforcement. So you have three litigating components in main justice as well as the US attorney's offices around the country. But really the question is, you know, with this sort of reorganization of main justice, with the addition of this new division for National foreign Enforcement.
[00:04:36] Sarah Hall: Does that translate into more enforcement or just more litigating components in name? We know that from the press releases from the last year the Department of Justice has really touted their accomplishments in the health care fraud enforcement space, both criminal and civil.
[00:04:53] Sarah Hall: Last year's criminal health care fraud takedown was according to press releases the biggest takedown ever, and the civil False Claims Act numbers are the highest in, you know, recent years, if not ever under the department's press releases. We have all these factors at play. But as you mentioned, in the lead-in also we have headcounts way down across the Department of Justice as well as the federal law enforcement agencies, so the FBI, HHS, OIG, and other federal enforcement assets that bring, that investigate and prosecute these cases.
[00:05:29] Sarah Hall: So really the question is for this conversation, will the State Attorney general's offices and state MFCUs, Medicaid fraud control units, be able to sort of step into the void, step into that gap perhaps left by these lower headcounts and this, this reorganization, which is perhaps leading to some delay in implementation.
[00:06:02] Zachary Taylor: And, you know, you raise an interesting point because as the changes happen and the states step into these roles and, you know, Jeremy, maybe you can weigh in.
[00:06:10] Zachary Taylor: How are you seeing the state's focus on health care matters as this void starts to open up potentially? Are you seeing something out in California where typically the federal enforcement would be active and they're not so much anymore and now the state AGs office is stepping in?
[00:06:27] Jeremy Avila: I think we're seeing a couple different things.
[00:06:29] Jeremy Avila: You know, first, obviously, every state's gonna be different and every state's capacity to step up, as Sarah was mentioning, and fill that void, is gonna be dependent on the circumstances of their staffing, their appetite for getting into that area, and their budget constraints. At least here in California, we really have seen a lot of activity in that space and enthusiasm by the California Attorney General's office to continue its work in the health care field.
[00:07:00] Jeremy Avila: You know, it's funny, I was speaking with some colleagues recently who work at the department and even though the budget outlook here in California isn't exactly evergreen, the MFCU and other parts of California's AG that handle health care related issues are hiring. So they're looking to expand.
[00:07:21] Jeremy Avila: They are adding to their capacity in order to bring actions. And if you… I get daily alerts almost from the AGs office on this big settlement or this new investigative effort that's being undertaken. So I don't really see, at least here in California, any slowing down. And we continue to see, at least with the MFCUs, good partnership, I would say, between the federal government and the AG around issues relating to Medicaid fraud.
[00:07:48] Jeremy Avila: So, I don't know if there has been a slowdown per se in California relative to the federal government, but there is definitely a healthy enthusiasm on the part of the Attorney General's office to be a known player in this space.
[00:08:04] Zachary Taylor: Jeremy, you raise an interesting point, hitting on the Medicaid fraud.
[00:08:07] Zachary Taylor: You know, I think, Sarah, you can speak to this. Typically, Federal False Claims Act, you know, has been a big enforcement tool, but that's Medicare based. And so as we see that stepping back and pulling back potentially due to staffing issues, and as Jeremy said, maybe the states are amping up their roles to get more involved.
[00:08:25] Zachary Taylor: Do you anticipate seeing state AG offices across the country be more aggressive with their state False Claims Act statutes and pursuing Medicaid claims?
[00:08:34] Sarah Hall: Yeah, so it really creates a very interesting enforcement landscape because traditionally, as you're alluding to, the bulk of health care fraud enforcement on the federal level is focused on Medicare, which is not surprising because it's a huge federal government expenditure.
[00:08:49] Sarah Hall: It's one of the biggest expenditures of the federal government in the entire federal budget. And so, if we take the premise that perhaps because of reduced staffing on the federal level there will be less enforcement, and if we're assuming that it will fall to the MFCUs, the Medicaid fraud control units in the States and various territories, including the District of Columbia, their jurisdiction is Medicaid.
[00:09:15] Sarah Hall: They can't, they don't have the jurisdiction to enforce Medicare fraud to the same degree that the Feds can. And so if the states are gonna come in and pick up the slack, there's this big gap that's left by Medicare, like who's gonna enforce the Medicare fraud aspects. But as Jeremy is alluding to the state MFCUs, and the state AGs in general, are really in a good spot in terms of hiring. They have been hiring former federal attorneys and agents at a good pace because there's a lot of those individuals who are no longer working for the federal government. So the states can step in and hire off all this talent.
[00:09:57] Sarah Hall: And so, you know, it's really creating a really interesting dynamic where perhaps the power might be shifting to the Medicaid side of the house in terms of enforcement.
[00:10:08] Zachary Taylor: So Sarah, do you think, risk profile for health care companies based on, you know, what you just discussed, is it going down? Is it a mixed bag? I mean, is it going down in Medicare and going up for Medicaid?
[00:10:21] Sarah Hall: You know, according to the press releases that we've seen out of DOJ over the past year in 2025, both on the criminal and civil signs it seems like enforcement on the federal side is booming, right? But the question becomes with this depletion of federal employees, prosecutors, agents, et cetera, will the pipeline run dry at some point?
[00:10:40] Sarah Hall: And so, you know, that remains to be seen. I think we'll watch what the press releases and what the case volume looks like in 2026. But you know, the states are there and they have, you know, there are 53 certified Medicaid fraud control units in the US. All 50 states have one, District of Columbia, Puerto Rico, and the US Virgin Islands.
[00:11:00] Sarah Hall: And they all have, you know, they all focus on their state False Claims Act, and each state has a different False Claims Act. They have different enforcement authorities under each of those state statutes. And so as far as the risk profile for companies operating in the health care space, I mean, it really depends on what type of, what lines of business you're in and what state you're in. So for example, some of the administration's big priorities in terms of enforcement have been things such as, you know, gender affirming care.
[00:11:39] Sarah Hall: So if you're a company that operates in that space of providing gender affirming care or supporting it in some way, your risk profile has gone up dramatically. You know, I think we see also evergreen areas of enforcement that have been sort of the bread and butter of at least federal enforcement for many years, such as skin substitutes. There's been a big crackdown on durable medical equipment providers, which is nothing really new.
[00:11:59] Sarah Hall: A lot of different areas, opioids. So there are these evergreen areas, but there's also this whole other bucket of areas that have been prioritized by the administration. So depending on what kind of company you are, what types of products and services you offer in the health care universe, your exposure risk could be up or it could be down, or it could be the same. It really depends.
[00:12:23] Zachary Taylor: Jeremy, I'm sure you know with your experience in California, you're seeing kind of this from a dual pronged approach, right? There's this federal increase in certain areas and then the state has its own interests in what they want to enforce, or maybe it's conflicting with the federal enforcement.
[00:12:38] Zachary Taylor: So, you know, what are you seeing in California in that regard with risk, and maybe some of the priority areas, and for you, for California?
[00:12:47] Jeremy Avila: Well, I'm glad you asked that, Zach, because it perfectly tee’s up an example of how not every state is going to be in line with the federal administration's views when it comes to enforcement activities.
[00:12:57] Jeremy Avila: And to pick up on something that Sarah mentioned, just a few weeks ago, the California Attorney General's office initiated an enforcement action against a large institutional provider of child health care services here in the state of California, primarily because that entity allegedly, has failed to provide gender affirming care.
[00:13:21] Jeremy Avila: And so, at least here in California and depending on, you know, the state that you may find yourself in, you might be between a rock and a hard place, so to speak, because you have the federal government espousing one view and taking one perspective on hot button issues like gender affirming care or serving the undocumented population.
[00:13:42] Jeremy Avila: But your state might have a very different view of things and might be holding you to a different standard under state law. And in the instance that we're seeing here in California, interestingly enough, what prompted that lawsuit by the state AG was you had a hospital system that went through a merger.
[00:14:01] Jeremy Avila: The merger was conditioned on continuing to provide services that were available at the time that the merger was cleared. And now fast forward about a year, maybe a little more than a year later, and the AG says, well wait a minute. You're not providing the services that you were providing at the time that we authorized your merger.
[00:14:19] Jeremy Avila: It is a dynamic and it's a tricky landscape for anyone operating in the health care field, I think, whether you're a private entity or a public entity that is drawing down Medicaid funding and you're just trying to figure out how do you appease two masters essentially, because, you know, like the saying goes, you can't please a hundred percent of folks a hundred percent of the time.
[00:14:42] Jeremy Avila: So chances are somebody is going to potentially look at you crosswise with the way that you are doing things.
[00:14:49] Zachary Taylor: Yeah. And is an extremely challenging aspect to balancing those state and federal interests. And I'll come back to that, but I wanna dive in a little bit more to see, you know, outside of California, Sarah, are there other priority areas you're seeing state specific interest in?
[00:15:04] Zachary Taylor: Or is it just, like you said, these kind of evergreen concepts are still being pervasive?
[00:15:09] Sarah Hall: Yeah, I mean, I think every state's MFCU is different. I mean, the attorney generals are a different animal than the Department of Justice, right? Because the attorneys general of the United States, they're all politically elected.
[00:15:24] Sarah Hall: They're elected officials. And so there is a, you know, there is a view that they're more that they're more animated by the unique political issues that are important in that particular state. Some of them have reputations for being more aggressive than others. So for example, the New York Attorney General, the New York Attorney General's Medicaid Fraud Control Unit, they have a pretty good reputation for being aggressive.
[00:15:48] Sarah Hall: It really depends on, it depends on the case. It depends on what the case is about. I would say that a unifying principle for enforcement in the health care space is… well, two unifying principles. One is the money. All things being equal, federal and state regulators are gonna go after alleged schemes that involve higher dollar values because those are public monies.
[00:16:08] Sarah Hall: Money that are taken from taxes, from, you know, all of us contribute to the taxes that are used to pay for these programs. And so the greater the impact on the public fisc, whether that's the fisc of a particular state or the federal fisc, i.e. Medicare money, there's gonna be just all things being equal, a greater interest from enforcement.
[00:16:34] Sarah Hall: And then the second thing is patient harm. In the health care space, I think if you talk to all of the MFCUs around the United States and also the feds, when you have schemes that allegedly have an impact on patient health and harm, that's gonna be a priority. And those are really evergreen concepts.
[00:16:53] Sarah Hall: Those really have, don't really change too much from administration to administration. But it's really a question of knowing, as they say, reading the room. Not all MFCUs are the same. I think that the real importance for general counsels is to recognize that if you do get a touch from a state MFCU, you know, the MFCU in Texas is not the same as the MFCU in California or in Maryland or in the District of Columbia. They all have different priorities and interests and they all… and also bearing in mind that the False Claims Act in each of those states is gonna be slightly different. So the real risk prevention, I think, from a general counsel standpoint is to recognize that if you do get a touch from a state AG, you really wanna try to find counsel that is familiar with that particular AG or that particular MFCUs office because it's really not a one size fits all. There may be a perception among general counsels that sometimes if you get a touch from a state AG, it can be handled more expediently. That they're just gonna go away.
[00:17:55] Sarah Hall: And anecdotally, sometimes that is true, but sometimes that's not true. So really, the thing to be aware of is that it's not a one size fits all situation.
[00:18:06] Zachary Taylor: And a lot of that seems, based on what you just said, you know, you got to the point I was going on, on the motivation behind the enforcement and the agency bringing the action.
[00:18:14] Zachary Taylor: So if it's, you know, federal, they're appointed. If it's state level, that's an elected official. They're trying to get reelected. And you brought up this concept of patient harm and you know, obviously protecting constituents is gonna be a priority area for any state AGs office. Jeremy, is that something you're seeing in California that that patient harm is a driving factor or are there other things that are weighing in on enforcement?
[00:18:37] Jeremy Avila: I think it's definitely one of them. You know, to Sarah's point, all the MFCUs are different. So let's look at California for example. California has a population of just shy of 40 million individuals. You look at our Medicaid, Medi-Cal is our state Medicaid program. You look at Medicaid enrollment data here, and the most recent figures are December of 2025.
[00:19:01] Jeremy Avila: Going back to about this time, March of last year, the enrollment figure has not gone below 14.2 million. So that means approximately upwards of 30% of the state is enrolled in Medicaid here in California. Maybe all of them, you know, who knows if all of those individuals are voters, or if they're all in voting households.
[00:19:23] Jeremy Avila: But that's 14 million individuals who have a voice and who the attorney general is looking at to think about, how are these individuals being served? And you see it, I think, bearing out in some of the enforcement actions that are brought. Sarah referenced the evergreen areas of skin substitutes. Here in California, we definitely have seen a lot of that.
[00:19:45] Jeremy Avila: We have seen a lot of enforcement with respect to behavioral health and hospice. I think where we will see continuing areas of AG intervention, and this starts to get to the point that you were asking about, Zach, with patient care. Anything relating to quality of care, to patient care, to abuse, those are areas that are always splashy and can really demonstrate to the residents of a state, this is what your government is doing for you. We have here in California, by the time we reach the year 2030, approximately a quarter of the state will be over the age of 65. And so the state is getting ready for that massive demographic shift.
[00:20:24] Jeremy Avila: That's part of the work that I did when I was in the Newsom administration. One of those related aspects is thinking about, how are residents of long-term care facilities being served, how are they being provided for, and are facilities doing right by them? And I can tell you, having been part of those conversations, having been part of some of those investigations, that there is tremendous appetite to make sure that patients are cared for and that consumers are taken care of here in California, especially when it comes to issues relating to data privacy or relating to affordability. Those are hot topics that are always going to be salient here in California and I can imagine pretty much everywhere.
[00:21:06] Jeremy Avila: You can't go a single day without hearing about the cost of living and challenges facing the average individual. So, yeah, I think patient care is definitely an animating factor, but just overall consumer protection is something that is always going to be salient and, you know, enticing and eye-catching for AGs.
[00:21:26] Jeremy Avila: And that's not even getting into some of the more political stuff that we mentioned earlier, the really sensitive topics like gender affirming care or these other issues that, as we've seen, can really, really animate a lot of sentiments and views.
[00:21:41] Zachary Taylor: Yeah. So I mean, there's a lot swirling around at any given moment, right?
[00:21:44] Zachary Taylor: And trying to keep track of all of these different trends. And, you know, if you're an entity and you're located in one state, maybe you have a little more of a manageable task. But if you're somebody that has a business that practices nationally, that creates even more information overload. So what are some things, Sarah, that some general counsels can do to try to stay on top of this and prepare themselves?
[00:22:05] Sarah Hall: I look at this from the perspective of the False Claims Act. The False Claims Act is, you know, there's a Federal False Claims Act, and each of the states have their own False Claims Act, and it's a very powerful government enforcement tool. It's traditionally been used, of course, to prosecute civil health care fraud.
[00:22:24] Sarah Hall: Now, we know the administration is using the False Claims Act for other, call them non-traditional investigations. But the False Claims Act really when you really boil it down, it's a statute about whistleblowers. It's a statute that financially incentivizes whistleblowers to come forward. They can make really big paydays and there are, there's quite a number of very qualified and very skilled relators attorneys.
[00:22:52] Sarah Hall: So the attorneys who represented whistleblowers in False Claims Act investigations and cases. And so from the perspective of the corporate suite of the general counsel, most big companies and most companies of a certain size will have a hotline or some sort of complaint line or something like that where people who work for the company or vendors or business associates, they can all bring their complaints and file their complaints about what's going on at the company. If they think something is amiss, they can file a complaint. And so what I always tell my clients is pay attention to those internal complaints, because sometimes those complaints are maybe more weighty than others.
[00:24:42] Sarah Hall: So while companies don't have the direct ability to influence, you know, what the administration might prioritize or what they're gonna do next, what you do have control over is the reporting that comes to your attention internally. You know, I think it's even, to pay attention to potential whistleblowers at companies, even more important than knowing your data. A lot of people talk about, well, you have to know your data. Yes, you absolutely do have to know your data, but from an investigative and prosecution standpoint, data is not the end all, be all. Data is one thing, but data doesn't necessarily make a case.
[00:25:20] Sarah Hall: What really can make a case is an insider, is a whistleblower, is someone who will go to the feds or go to the states and provide them information, and the proliferation of financial incentive for them to do so is massive. I mean, it's not just under the False Claims Act, but also under a myriad of different policies that have been rolled out by different US attorney's offices, mostly on the criminal side.
[00:25:47] Sarah Hall: Also federal agencies such as the Securities and Exchange Commission. So the point is that there are so many financial incentives for these employees, typically, to, if they're not, if their complaint is not dealt with internally, for them to take it to the next level and go outside the company and try to seek redress through the legal system.
[00:26:09] Sarah Hall: And for any company that's been through a False Claims Act investigation, you know that they are lengthy, they are laborious, they are very expensive, legal fees. They're stressful. And if you can, you know, invest in compliance, invest in listening to the complaints that come to your attention naturally through the compliance pathways, it's possible that you can mitigate some risk in that area.
[00:26:35] Zachary Taylor: So what you're encapsulating is this internal awareness and effectively reviewing information that comes to your attention and being proactive in that approach. So Jeremy, Sarah did a really good job of bringing that all together.
[00:26:49] Zachary Taylor: What about other external sources could general counsels look to help inform their decision making that when complaints come in the door, which ones draw the most attention? Obviously, if something's very severe and obvious on its face, that's one thing, but other things may be more subtle.
[00:27:03] Jeremy Avila: Yeah, I mean, a theme that's coming out of what Sarah's talking about, which is something that guided me when I was in a GC oriented role in the administration, the Newsom administration, was talking to your people and understanding what's coming, to your point, Zach, what's coming from the outside? So how, you know, the end users, the end individuals that we are serving. You know, whether you're in a for-profit business or you're in a nonprofit or a government entity, there is somebody that is using your service.
[00:27:33] Jeremy Avila: There is somebody using your good. A customer, a beneficiary, whoever you wanna call them, there is somebody that is relying on your organization for whatever it is that your output is known for, whatever you're putting out there. And those individuals are going to have comments. Those individuals are going to have feedback.
[00:27:50] Jeremy Avila: Sometimes there are public feedback lines. There's social media that everybody knows how to use and stand on their soapbox and make their voices heard. I was recently brought into a matter actually where the way that the attorney general became aware of activity that it wanted to investigate was because of complaints to the Better Business Bureau and complaints that were being posted on Yelp and Reddit.
[00:28:18] Jeremy Avila: Yes, know your data, know the complaints that are bubbling up internally, but also try to have, to the best extent that you can, try to have your antenna kind of wired for what's happening outside of the four walls of your workplace. And understand what your reputation is in the industry, what your reputation is in the community, and what your reputation is amongst your clients or your customers, because those are the individuals who are going to start the narrative that is going to catch the attention of a state attorney general or an enforcer. And, you know, Sarah, I mean, you hit it exactly, you hit the nail on the head and I was trying to hold back a smile because I'm thinking about my days earlier in my career when I was a prosecutor, and absolutely.
[00:29:03] Jeremy Avila: A stack of papers, a stack of data does not tell a story in the same way that a live witness, especially, you know, or relator or somebody who had a front row seat to what was happening, that story is gonna get told in such a much more powerful and compelling way than any enforcement action that's based just off of paper and data and documents alone. That's not going to fire anyone up, that's not going to make an interesting and compelling enforcement action. There is a human drama to some of this, and the individual, whether they're the client, the employee, whoever it is that comes forward and says I'm noticing things that I think are wrong.
[00:29:44] Jeremy Avila: That's what's going to really be the hook that an enforcement agency is going to look for and rely on to move forward.
[00:29:53] Sarah Hall: To Zach's question about what do you look for in an internal complaint? Not all complaints are created equal. Some of them are, some of them don't rise to the level of, you know, hey, we need to launch an internal investigation.
[00:30:05] Sarah Hall: We need to get to the bottom of this. This could be a, you know, a mission threatening situation we have here. I mean, some of them are more garden variety and can be handled through sort of routine channels. But I think the most important thing is to triage them, right? To treat each complaint in a serious manner and to give each complaint the degree of rigor that it deserves, right?
[00:30:34] Sarah Hall: Don't discount something that comes in that may be sort of half right and half wrong, or perhaps from someone who the company perceives as sort of a disgruntled employee. I think the real compliance value is in treating each complaint with the same level of seriousness until you can triage it appropriately to say, okay, well this, this is not well founded, but this one is, right?
[00:31:03] Sarah Hall: We need to actually look at this one more closely because by the time you read about it on the front page of the Wall Street Journal, it's sort of too late. You have access as a general counsel to your internal compliance department, to your employees, a lot of things. You know, we see a lot of situations in our practice that could have been resolved internally at a very early stage, but for whatever reason weren't, and then unfortunately for the company blow up into full on DOJ investigations.
[00:31:34] Sarah Hall: And so there is a lot of prevention that can be done internally in a privileged setting with the assistance of outside counsel or not, that can really reduce your risk profile because, I said before, none of us have any control over the political climate in terms of what is targeted for enforcement. That is up to elected officials.
[00:31:53] Sarah Hall: That is not up to corporate America. That's up to, you know, the Department of Justice and the state AGs that are elected officials. But what you do have control over is your own internal complaints, your own people, your own data. And then as Zach alluded to earlier, having awareness of what's happening in the marketplace, awareness of what's happening politically.
[00:32:15] Sarah Hall: But simply just being aware of what's happening externally is really not enough to reduce your risk profile in the health care setting.
[00:32:23] Zachary Taylor: What I hear you guys talking about is, obviously we all have a preference towards a proactive approach. Getting out in front of something that naturally breeds a reaction in how you handle those complaints coming in.
[00:32:34] Zachary Taylor: But some people find themselves in the position of they've missed that boat and now they're in purely a reactionary posture with an enforcement authority, a state AGs office. And so what are the biggest strategic missteps, or the biggest strategic misstep, that you see when companies are first engaged with a state AGs office in a reaction position?
[00:32:55] Jeremy Avila: I've seen a wide range of activities. You know, something that Sarah mentioned earlier, there are certainly some individuals that put it on the back burner because it’s just some state entity, it's not the feds. Would definitely advise against that. I don't think that serves anyone.
[00:33:11] Jeremy Avila: You know, even if you have a little bit longer leash, from the state regulator or the state attorney general, they reached out to you for a reason and they usually don't like being ignored, so they will follow up. So I think that is definitely something that I have seen that does not tend to serve folks well in the end.
[00:33:32] Jeremy Avila: I think another thing that I have seen is, you know, again, to your point, folks get that touch, that first contact from the AG or from the regulator and the enforcement agency. And then there's a sense of, oh, okay, what do we do next? And sometimes I think there is, understandably, a bit of a defensiveness rather than kind of setting down and thinking, okay, let's gather up all the information that we need and let's look at this in an analytical framework and see what we can do to engage with that regulator.
[00:34:04] Jeremy Avila: They know, they only know what has been handed to them. The way that I advise clients and what I've told them is maybe the conversation started out the wrong way or started out on the wrong foot. But this is actually the opportunity to have a dialogue, to really start engaging and telling your narrative, putting your side of the story out there and putting things into context so that the enforcer, the AG, the regulator, whoever it is that's on the other side of that table, starts to see and understand things from your perspective and your point of view.
[00:34:36] Jeremy Avila: Sometimes that works, sometimes it doesn't. Part of that is just, you know, I think the process of working with your counsel, working with your, you know, the person who's going to be your advocate, talking to and interfacing with that agency so that you are, I think, being responsive, you are being respectful, you're being cooperative, but you are not letting them write the narrative and control the narrative because there's two sides to this to this predicament, and they only know what's been given to them.
[00:35:09] Jeremy Avila: So this is your opportunity to set the record straight, so to speak.
[00:35:13] Zachary Taylor: Sarah, you have any thoughts to add on that one?
[00:35:15] Sarah Hall: Just as I think it's a great idea for general counsels to know their internal personnel, when you get a touch from a state AG or Department of Justice, depending on what one it is, you need to know your personnel in terms of who is going to be your spokesperson.
[00:35:28] Sarah Hall: If you get a touch from the attorney general of the state of California, well, probably you wanna call somebody like Jeremy, right? I mean, it just sort of makes sense. Someone who has prior experience dealing, not only dealing with that AG, but actually having been a prosecutor within that attorney general's office.
[00:35:48] Sarah Hall: It's often said that politics is local. I mean, the same thing sort of holds true for the selection of counsel. And as I keep saying, every MFCU, every component is different. Every office has its own way of doing things. And you don't want to be in a situation as a general counsel where you're selecting the wrong personnel to deal with a particular enforcement agency.
[00:36:10] Sarah Hall: You want to have somebody who has the prior experience, has the expertise to know what the norms are, sort of the unwritten rules of how you deal with that particular agency. And so I think it's, I think it can be a mistake to sort of take, again, take a one size fits all approach, because every enforcement agency is gonna have different priorities and a different way of doing things.
[00:36:35] Sarah Hall: And so you can really, as a general counsel, buy yourself a lot of credibility by that initial selection of the appropriate counsel. So for example, Zach is in New Jersey. He's licensed in New Jersey. He is a New Jersey lawyer. If I have a New Jersey problem, I'm calling Zach. And you know, other of our partners who operate in New Jersey, former AUSAs in New Jersey who are in our firm.
[00:36:57] Sarah Hall: It's the same concept when you're dealing with any MFCU, when you're dealing with any component of the Department of Justice that you need to respond to by way of that CID or any other type of subpoena or any type of touch. You want the right personnel.
[00:37:13] Zachary Taylor: Thank you. I would agree that knowing the local people is important and having those direct connections. We’re obviously spread out across the country and that's very helpful. And it's an interesting point you bring up as you're talking, it reminds me to go back to this concept with the multiple MFCUs, typical of federal enforcement, you get pinged for that, your entire entity's up.
[00:37:35] Zachary Taylor: But at a state level, if a state comes knocking at your door and you are only operating in one state, maybe you're only dealing with that MFCU. But if it's multiple states that your business covers, you know, how does this change and this dynamic get impacted and, you know, are you expecting to see closer communications between the states in 2026 with regards to enforcement action?
[00:37:58] Sarah Hall: Yeah, so there's something called the National Association of Medicare Fraud Control units, otherwise known as NAMFCU. Lots of acronyms here. But NAMFCU is essentially a professional organization. It's where all the MFCUs sort of get together and share information.
[00:38:16] Sarah Hall: There's also a lot of information sharing between the MFCUs and the feds. Not just the Department of Justice, but also Health and Human services, Office of Inspector General, CMS. You know, it's often said that in the federal government, the right hand doesn’t know what the left hand is doing, and sometimes that's true, but sometimes that's not true.
[00:38:34] Sarah Hall: And sometimes there's an intense coordination of information. And so, in any sort of government investigation setting, you know, I always tell my clients it's like an iceberg, right? On the defense side, we can only see the part of the iceberg that's floating above the water. The government, on the other hand, can see the entire iceberg, what's floating beneath the water.
[00:38:54] Sarah Hall: A fallacious assumption that sometimes people make is that, oh, well this is just contained within one particular state. Nobody outside that state is ever gonna find out about it. It's not gonna be, that information won't be shared to other MFCUs, other DOJ components. Once it's out there, it's sort of out there.
[00:39:13] Sarah Hall: The challenge for general counsel and outside counsel is trying to do a risk assessment and to see, what are the outer edges of where this information could go that could present a risk for the company, and then developing a strategy to appropriately deal with that.
[00:39:28] Zachary Taylor: You know, as we get to the end here, in closing, Jeremy, I'll ask you, you know, all things considered, if you could give general counsel just one piece of advice to manage navigating state AG enforcement in 2026, what would it be?
[00:39:42] Jeremy Avila: Do not underestimate your state attorney general. As Sarah mentioned, I think virtually every, if not every state and jurisdiction has an FCA. Here in California we have other statutes as well, as I'm sure other states have. And so there is an arsenal of statutes and levers that state AGs can pull in order to bring their enforcement actions. So maybe it's not, you know, here in California, for example. Maybe it's not an FCA action, but the AG is going to bring an action under our unfair competition, unfair business practices law, or a false advertising law, all of which are utilized very, very freely, I'll say, both by the government and by the private bar. And carry treble damages exposure. And so I would say the number one most important thing to telegraph is, you know, going back to where we started, there's a little bit of a realignment and it's not the way that it used to be.
[00:40:50] Jeremy Avila: If you're getting a knock on your door from your state AG, it's something to pay attention to. The days of thinking that that's not a big player are certainly gone and behind us.
[00:41:01] Zachary Taylor: Further support for Sarah's comment that, you know, consulting and working with counsel who understand those state laws is extremely important. And Sarah, what about you? What piece of advice to tack on to Jeremy’s?
[00:41:14] Sarah Hall: The important thing to keep in mind is that those 5,000 individuals who are no longer working for the Department of Justice, where are they working now? Well, many of them may be working at the state attorney general's offices around the country and also in the MFCUs, and so if you get a knock on the door, you get a subpoena, you get some sort of contact from one of those state AGs, in this current situation we have, those MFCUs may be picking up the slack that would've been carried, or the water that would've been carried previously by the feds. I mean, the feds eventually will close the gap and rehire and bring their numbers back up to, maybe not to where it was exactly before.
[00:41:57] Sarah Hall: US attorney's offices around the country are, you know, seeking to bring additional personnel back. But for the time being, we may be experiencing a bit of a perhaps a shorter term episode where the MFCUs are carrying the weight and they are going to be the ones who are the first line that reaches out to corporate America with the subpoenas and so forth.
[00:42:19] Sarah Hall: And the consequences would remain the same because the information can be freely shared among all the different states’ MFCUs, as well as the feds. It's never, you know, don't sleep on the MFCUs. They are an important piece of the health care fraud enforcement apparatus in the United States, and I think they will continue to be in that setting as we move forward.
[00:42:42] Zachary Taylor: Well said. Sarah, Jeremy, thank y'all very much for your time and your insights. And thank you to our listeners. We hope you found this to be informative. I'd be remiss if I did not ask you to subscribe to Speaking of Litigation or on YouTube or wherever you get your podcasts. Have a great day.
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