The healthcare landscape is a heavily regulated, scrutinized, and ever-changing environment. It requires continuous monitoring, assessment, and revision to processes and procedures to protect organizations from financial, reputational, and legal risk. Now more than ever it is imperative that organizations be able to demonstrate proactive processes associated with detecting and mitigating risk to address unethical and non-compliant behavior. Not only must organizations ensure the effectiveness of their compliance programs, but recent U.S. Dept. of Justice (DOJ) guidance[1] also points to the need to ensure that compliant behavior is incentivized throughout the organization, and disincentives for non-compliant behavior are implemented – from the top down.
In an effort to continue to reinforce its focus on the importance of effective compliance programs, on March 3, 2023, the DOJ introduced new guidance that serves to further emphasize the importance of an organization’s commitment to compliance. According to the updated guidance, this commitment begins with the tone at the top and includes the identification of potential or actual misconduct and how consequences for non-compliant behavior are embedded in the organization’s compliance program. The DOJ’s stance is clear: “[C]ompensation structures that clearly and effectively impose financial penalties for misconduct can deter risky behavior and foster a culture of compliance. At the same time, positive incentives, such as promotions, rewards, and bonuses for improving and developing a compliance program or demonstrating ethical leadership, can drive compliance.” In other words, healthcare organizations should incentivize their workforce, including senior leadership and the board, for ethical behavior and penalize those who do not comply.
As part of this new policy, the DOJ has incorporated two significant changes to its process for evaluating executive compensation methods as a component of an organization’s compliance program. First, under the recently revised guidelines (March 2023) set forth in the “Evaluation of Corporate Compliance Programs[2],” the DOJ will assess an organization’s use of consequence management as part of its evaluation of a compliance program. For example, does the organization not only detect non-compliant behavior but also impose financial penalties, such as contractual provisions that require repayment of compensation received as a result of non-compliant behavior, i.e., “clawbacks,” for misconduct? Second, the DOJ’s Criminal Division is launching a three-year pilot program, which will require that as part of a criminal resolution, compliance programs include compensation-related criteria. Additionally, the program will offer fine reductions for organizations that clawback compensation in appropriate cases.
An organization’s tone at the top and visible emphasis on compliant behavior are essential. The tone flows from above and is the basis for a successful compliance program. Not only does an effective tone at the top guide employees, but it also emphasizes senior leadership’s commitment to compliance and to ensuring compliant behavior throughout the entire organization. Non-compliance exposes the organization to potential financial loss, business disruption, low quality patient care, and reputational damage.
In response to the DOJ’s compensation policy and clawback expectations, just as with other aspects of compliance, organizations should consider a proactive approach to implementation of the government’s expectations regarding consequence management and executive compensation. The policy and pilot program are not reactive tools alone; they are also an opportunity to develop a framework that will offset financial, operational, and reputational harm. For example, organizations that proactively adopt these changes may see fine reductions in applicable cases.
For those organizations already facing an investigation and potential criminal resolution, as noted above, the DOJ will require incorporation of compensation-related criteria into the organization’s compliance program. These criteria are expected to be designed to reward future ethical behavior and punish any additional misconduct. Potential criteria may include
- Bonus ineligibility for employees who do not meet compliance requirements
- Sanctions for employees in a supervisory role who violate applicable laws, rules, and regulations
- Incentives for employees who meet and/or exceed compliance requirements and expectations
Organizations entering into criminal resolutions will be required to report to the DOJ’s Criminal Division annually regarding implementation of this requirement during the criminal resolution period.
The DOJ’s announcement signifies the importance the DOJ places on ensuring compliance programs are effective, resourced appropriately, and fully implemented. Organizations should review their existing compliance programs and determine what changes should and can be made to both employee performance incentives and compensation clawbacks as a means to deter compliance violations and stress the importance of ethical and compliant behavior. Items for consideration include but are not limited to
- Do performance evaluations have compliance as a performance appraisal element for all employment levels? Does the organization align incentives and performance evaluation criteria with ethics and compliance objectives?
- Is the incentive program consistent with compliance program expectations and requirements? For example, is there a process to ensure bonuses and other incentives for ethical compliance behavior are tied specifically to established and quantifiable metrics? Are compliance expectations given the same weight as financial, strategic, and clinical/quality measures?
- Do all job descriptions include a requirement regarding commitment to compliance and compliance program responsibilities?
- Are organizational expectations regarding compliance program expectations and requirements clearly communicated during orientation and annual education?
- Are compensation clawbacks used as a method to deter non-compliance? If so, has the organization determined that the clawback processes are compliant with applicable state and federal laws?
- What is the organization’s process for detecting potential or actual non-compliance and for self-reporting confirmed non-compliance?
- Has the organization conducted a compliance program assessment? If so, were the results of the assessment considered as part of the performance measurement system for senior executives and reported to the board?
- Is there a need to review and revise established employment agreements and organizational policies? If so, has the organization’s human resources, legal, and compliance departments developed processes that allow them to work in concert to ensure local, state, and federal rules and regulations continue to be met?
Employees and executives at all levels should be recognized for outstanding performance and leadership in the area of compliance and ethics. Peter Drucker, thought of by many as the father of modern management theory, offers this insight, “[C]hanging habits and behavior requires changing recognitions and rewards. People in organizations, we have known for a century, tend to act in response to being recognized and rewarded — everything else is preaching…. The moment they realize that the organization rewards for the right behavior they will accept it.”[3] Such recognitions and rewards require well considered processes as well as a clear definition of the consequences for poor performance and non-compliance.
In order to be equitable and effective, decisions regarding incentives and consequences cannot be made in a vacuum. To assist with operationalizing compliance-related incentives and consequence management for non-compliant behavior, organizational compensation and compliance committees should work together to develop criteria to ensure appropriate implementation of an incentive and consequence management process as well as procedures for monitoring its effectiveness. Once developed, the process must be translated into written guidance; all staff should be effectively trained; and regular auditing and monitoring must be performed to ensure the process is adhered to and effective.
As reflected in this most recent guidance, the DOJ is focused on not only incentivizing ethical behavior but also enforcing compensation clawbacks for non-compliant behavior as part of consequence management processes. The willingness of executive leadership and the board to take on the onus of financial risk in a case of misconduct sends a clear message throughout an organization that compliance is a critical expectation of organizational day-to-day activities. It also sends a clear message to regulators that the organization views non-compliance as unacceptable.
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[1] https://www.justice.gov/opa/speech/file/1571906/download
[2] https://www.justice.gov/opa/speech/file/1571911/download
[3] The Essential Drucker: The Best of Sixty Years of Peter Drucker’s Essential Writings on Management. Harper Collins. October 13, 2009
