By: Christopher A. Parrella, Esq., CPC, CHC, CPCO Parrella Health Law, Boston, Ma. A Health Care Provider Defense and Compliance Firm

Healthcare providers know that honesty is often the best policy, but self-disclosures under the Health Care Fraud Self-Disclosure Protocol (SDP) can sometimes produce more risk than reward. The recent $12 million settlement by Innovasis Inc., a spinal device manufacturer, illustrates the precarious path that self-disclosure can lead to in certain cases.

The Innovasis Case: When Self-Disclosure Meets Litigation

Innovasis found itself embroiled in a False Claims Act (FCA) case, primarily due to alleged kickbacks to spine surgeons who used its products. These alleged incentives included all-expenses-paid trips, inflated consulting fees, and even payments for intellectual property that ultimately went unused. The company had previously disclosed potential misconduct through the SDP, thinking it would reduce liability. However, a whistleblower’s lawsuit soon followed, and the Department of Justice (DOJ) took up the case. The result? A hefty $12 million settlement, doubling what Innovasis initially anticipated.

Despite the company’s proactive reporting, they received no significant benefit from the SDP—highlighting the uncertainties of self-disclosure.

Understanding the Calculated Risks

Self-disclosure can feel like a necessary step for organizations attempting to correct a compliance issue, but the risks are rarely clear-cut. The SDP offers the possibility of resolving potential misconduct with reduced penalties and without corporate integrity agreements. But as former Assistant U.S. Attorney Melissa Jampol explains, the reality is rarely straightforward: “There’s a lot of ways things can mutate, which is part of the calculated risk you take when you go into the self-disclosure protocol.”

This lack of certainty can be exacerbated when other protocols and policies, such as the DOJ’s Voluntary Self-Disclosure Policy, also come into play. Released in 2023, this policy offers leniency in fines and may prevent criminal charges if companies self-report. However, it’s a complex landscape where choosing the wrong path can mean missed protections under the FCA.

The Consequences of Misjudged Self-Disclosure

The Innovasis settlement also draws attention to how quickly self-disclosures can become a liability instead of a solution. As Innovasis learned, disclosing to one agency (OIG) doesn’t shield a company from DOJ intervention, nor does it necessarily release the organization from FCA liability. Worse, competitors or former employees may still file whistleblower suits, triggering investigations that might otherwise have remained dorman

For Innovasis, the decision to self-report ultimately offered little relief from litigation and penalties. Their story illustrates the high stakes involved in self-disclosure: an organization may risk significant financial penalties even when making a good-faith effort to disclose and address potential misconduct.

When Self-Disclosure Goes Wrong: Lessons for Healthcare Organizations

1. Evaluate All Risks: Before initiating a self-disclosure, assess the likelihood of parallel investigations and whether disclosure will meaningfully limit liability. Organizations should not assume that self-reporting guarantees leniency.
2. Seek Holistic Advice: Legal counsel experienced in both DOJ and OIG procedures is crucial to determining the best path forward. Consult with multiple advisors if possible to gauge the full spectrum of risk and reward.
3. Consider the “X Factor”: With evolving policies like the Voluntary Self-Disclosure Policy, it’s essential to understand the broader regulatory environment. Self-disclosure without a DOJ settlement can still leave a company exposed to FCA suits.
4. Weigh Financial vs. Ethical Considerations: While self-disclosure may be the right thing to do, organizations should also recognize that the potential financial risks may outweigh the ethical incentive in certain cases.

The Innovasis case is a powerful reminder of the unpredictable nature of self-disclosures in healthcare compliance. While self-reporting may feel like a proactive approach to compliance, organizations should fully understand the regulatory complexities and potential repercussions. At Parrella Health Law, we work with clients to navigate these challenging decisions, providing insights on when self-disclosure aligns with your best interests.

If you have any questions or comments about the Self-Disclosure Protocol or have questions about identified non-compliance, please contact Parrella Health Law at 857-328-0382 or reach out to Chris directly at cparrella@parrellahealthlaw.com.