Renewed Ban on Sub-Regulatory Guidance Critical in False Claims Act Cases

The Biden administration has reinstated a controversial policy allowing federal agencies to cite non-binding guidance documents when pursuing False Claims Act (FCA) enforcement actions, marking a significant shift in regulatory enforcement strategy that could have far-reaching implications for healthcare providers, government contractors, and other entities doing business with the federal government.

The Department of Justice (DOJ) recently rescinded a 2017 memo issued during the Trump administration that prohibited prosecutors from using sub-regulatory guidance as the basis for civil enforcement actions. This reversal returns to agencies greater flexibility in how they enforce regulations and pursue alleged violations.

Sub-regulatory guidance includes documents such as advisory opinions, interpretive rules, policy statements, and agency manuals that explain how agencies interpret existing laws and regulations. While these materials don’t carry the force of law, they often serve as crucial reference points for businesses seeking to maintain compliance with complex federal requirements.

“This policy change significantly alters the compliance landscape for healthcare organizations and government contractors,” said Martin Thompson, a healthcare compliance attorney with Beacon Legal Group. “Companies now face increased uncertainty when agencies can cite their own interpretive materials as evidence of wrongdoing, even when those materials haven’t gone through formal rulemaking procedures.”

The False Claims Act, originally enacted during the Civil War to combat fraud against the Union Army, has evolved into the government’s primary civil enforcement tool for addressing fraud against federal programs. In fiscal year 2022 alone, the DOJ recovered over $2.2 billion from FCA settlements and judgments.

The healthcare industry, particularly susceptible to FCA enforcement due to its heavy reliance on Medicare and Medicaid reimbursements, is expected to feel the most immediate impact. Hospitals, pharmaceutical companies, and medical device manufacturers often navigate complex regulatory frameworks where guidance documents provide critical interpretations of how rules apply in specific scenarios.

“When providers are trying to follow the rules in good faith, they often rely on guidance documents to interpret complex regulatory requirements,” explained Jennifer Romero, Chief Compliance Officer at Regional Medical Center. “This shift essentially moves the goalposts by giving those same guidance documents enforcement weight they previously didn’t have.”

The original 2017 prohibition, part of then-Attorney General Jeff Sessions’ efforts to reduce regulatory burden, was designed to prevent what critics called “regulation by guidance” – the practice of agencies effectively creating new obligations through interpretive materials rather than through formal rulemaking processes that include public comment periods.

Proponents of the Biden administration’s reversal argue that the change will strengthen consumer protections and allow agencies to more effectively fulfill their oversight missions. They contend that guidance documents provide necessary clarification of existing legal requirements rather than establishing new ones.

“This restoration simply acknowledges the reality that guidance documents play an essential role in helping regulated entities understand their obligations,” said Marguerite Hoffman, a former DOJ attorney. “Prohibiting their use in enforcement created artificial constraints on agencies’ ability to address clear violations.”

Critics, however, warn about potential due process concerns and heightened regulatory uncertainty. Without the formal notice-and-comment procedures required for regulations, guidance documents can change more frequently and may not adequately consider stakeholder perspectives.

The policy shift comes amid broader efforts by the Biden administration to strengthen enforcement across various sectors, including healthcare, financial services, and environmental protection. Last year, the DOJ announced a renewed focus on individual accountability in corporate wrongdoing and increased resources for investigating complex fraud schemes.

For businesses navigating this changed landscape, compliance experts recommend thorough reviews of relevant agency guidance, documentation of compliance efforts, and proactive engagement with regulatory agencies when uncertainty exists.

“Companies need to be vigilant about staying current with agency interpretations and guidance,” advised Elizabeth Chen, compliance director at Federal Contracting Associates. “What might have been considered a reasonable interpretation of a regulation in the past could now be scrutinized differently if it conflicts with an agency’s published guidance.”

As this policy takes effect, courts will likely play a crucial role in determining how much weight guidance documents should carry in FCA cases and in establishing boundaries for when reliance on such guidance is appropriate in enforcement actions.