In an important governance development for hospitals and health industry companies, the standards for an "Effective Compliance and Ethics Program" contained in the Federal Sentencing Guidelines have been amended by recent action of the United States Sentencing Commission. These new amendments make several subtle but important changes to the construct of an "effective" plan, focusing in particular on (a) board reporting relationships of the chief compliance officer, and (b) actions the organization should take following detection of criminal conduct. The full text of the amendments is contained in regulations published on April 29, 2010, and available online here. Given the board's compliance plan oversight obligations, the general counsel / chief compliance officer are well advised to brief the audit and compliance committees on the implications of these important new amendments.
As most compliance professionals are aware, the provisions of Section 8B2.1 ("Effective Compliance and Ethics Program") of the Federal Sentencing Guidelines are generally regarded as the template from which effective corporate compliance programs are based. The Sentencing Commission's April 29, 2010, action serves to:
- Revise the seventh "effectiveness criterion" to reflect what the Commission considers to be an appropriate organizational response once criminal conduct has been detected: first, taking steps to remedy the harm caused by the criminal conduct, including (but not limited to) restitution, self-reporting and cooperation with authorities; and second, conducting an assessment of the organization's existing compliance program, including modifications to the program as may be appropriate to prevent the occurrence of similar conduct. The amendment specifically refers to the use of outside professional advisors to ensure the adequacy of the assessment efforts.
- In an indirect yet important manner, provide that a direct and personal reporting relationship between the compliance officer and the governing board (or the compliance committee) should be considered a specific component of an effective corporate compliance program. (This provision appears as part of a new exception to the general rule that provides that a corporation is not entitled to a reduction in its "culpability score" if senior management was determined to have been involved in, condoned or willfully ignorant of the criminal conduct.)
These new amendments are significant because they:
- Serve as a reminder that the Sentencing Commission Guidelines's "Effective Compliance and Ethics Program" criteria remain living, breathing and subject to periodic modification
- Are a clear indication that prosecutors and other government regulators consider a "direct report" requirement an important element of a compliance program and will consider its existence when deciding whether to charge organizations in criminal cases or pursue them in civil cases
- Are consistent with other new compliance plan developments, including new board compliance oversight requirements mandated in recent DHHS OIG Corporate Integrity Agreements, the increased willingness of the federal government to exercise its right to exclude individuals (including officers and directors) from federal health care programs and recent health sector application by federal prosecutors of the strict liability "Responsible Corporate Officer Doctrine"
- Provide an opportunity to raise for internal discussion, where applicable, both (a) board access and reporting relationships involving other key executives (e.g., the general counsel and the chief financial officer); and (b) the most appropriate degree of coordination between the general counsel and the compliance officer (without creating "conflict of interest" concerns by federal prosecutors/investigators)
The new guidelines have been submitted to Congress and automatically become effective if not disapproved by Congress before November 1, 2010.