A federal healthcare fraud investigation often follows months of billing or referral decisions that a compliance lawyer or outside consultant reviewed along the way. Providers facing a Department of Justice inquiry, a grand jury subpoena, or a civil False Claims Act case often assume that because counsel was involved, the government cannot prove intent. The advice-of-counsel defense exists in federal healthcare fraud prosecutions, but it rests on a narrow set of elements, and asserting it opens the privileged file that protected those same conversations to the prosecution.
The Elements the Defense Actually Requires
Courts have required an advice-of-counsel defense to rest on four showings: the defendant made complete disclosure of the material facts to the lawyer, specifically asked whether the conduct was legal, received advice that it was legal, and then followed that advice in good faith. The Fourth Circuit traced the doctrine to United States v. Painter, 314 F.2d 939 (4th Cir. 1963), which tied the defense to good-faith reliance on legal advice given after full disclosure of the facts. Partial disclosure, a question never actually asked, or advice that was received and then ignored defeats the defense before a jury ever weighs intent.
The Privilege the Defense Gives Up
Raising advice of counsel is a decision to waive attorney-client privilege over the communications that support it. In United States v. Bilzerian, 926 F.2d 1285 (2d Cir. 1991), the Second Circuit held that a defendant who intends to testify about good-faith reliance on a lawyer's advice cannot then block the government from cross-examining him on what that lawyer actually said, because the privilege cannot be used as both a sword and a shield. The same logic reaches healthcare fraud and False Claims Act matters, including conduct reviewed under the Anti-Kickback Statute or the Stark Law: the waiver typically covers every communication on the subject of the advice, not just the final opinion letter.
A warning from one lawyer, paired with a comfortable second opinion that alone survives in the file, undermines the good-faith element of the advice-of-counsel defense.
Why Reliance Is Harder to Prove Than Clients Expect
United States ex rel. Drakeford v. Tuomey, 792 F.3d 364 (4th Cir. 2015), shows how the defense fails in practice. Tuomey Healthcare System retained an attorney who had written a substantial portion of the regulations implementing the Stark Law to review proposed physician employment contracts. That attorney warned the contracts raised significant Stark Law red flags and would not survive what he called the red face test. Tuomey's own outside counsel gave a more favorable opinion, and the hospital relied on that opinion instead. The jury found Tuomey had not acted in good faith, and the Fourth Circuit affirmed a judgment of $237,454,195 in damages and civil penalties under the False Claims Act.
What Records Have to Exist to Support the Defense
The defense lives or dies on paper created before the conduct, not on recollection afterward. A provider asserting advice of counsel needs a written record of exactly what facts were given to the lawyer, the specific question asked, the written advice received, and evidence that the advice was actually followed rather than modified or partially adopted. A verbal assurance from a consultant who is not a lawyer, or advice obtained after the arrangement was already running, does not establish the defense. When the facts given to counsel changed before the advice was finalized, the disclosure element typically fails along with it.
Health Law Alliance's attorneys have overseen 2,000+ audits and handled 5,000+ matters, with 25+ years of experience.
Why Early Legal Counsel Is Critical
Healthcare providers should retain healthcare defense counsel as soon as a subpoena, audit notice, investigative request, or other government inquiry arrives. Counsel can shape what facts actually reach counsel of record, keep an inadvertent admission out of the file, and preserve the advice-of-counsel defense as a genuine option rather than a privilege waiver with nothing to show for it.
How Health Law Alliance Can Help
Health Law Alliance's criminal healthcare fraud defense team represents physicians and pharmacies in federal investigations and prosecutions. Contact us today for a free, confidential consultation.
