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John Oliver Explains Dialysis

John Oliver recently devoted most of his show “Last Week Tonight” to explaining how America funds kidney dialysis.  Oliver admitted the topic was likely to make his viewers push the button on your TV remote marked “Dear God Literally Anything Else.”




But it’s an important topic.  The United States “continues to have one of the industrialized world’s highest mortality rates for dialysis care,” despite spending more on it than other nations.


Since 1972, the federal government has covered all kidney dialysis.  We now spend 1 percent of the federal budget just on kidney dialysis.  That’s half as much as we spend on the entire Department of Education!


Why do we spend so much? You can probably guess, fraud and greed. Two large companies, Fresenius Medical Care and DaVita, control 70 percent of the market.


Megallan Handford, a former DaVita employee who was fired for trying to unionize its employees, explained that:


“When I was working at DaVita, the priorities for transitioning patients was to get them on dialysis and get the next patient on as soon as possible,” Handford told Oliver. “You would have sometimes 15, maybe 25 minutes to get that next patient on the machine, so you were not properly disinfecting.”


This focus on profits above patients is reflected in the nearly $1 Billion in False Claims Act Settlements that DaVita has paid out in the last several years:



Nor do these settlements appear to represent the end of DaVita’s legal issues.  DaVita faces a lawsuit and related government subpoenas over use of a non-profit, the American Kidney Foundation to push patients from government healthcare to Healthcare Exchange-offered private plans in order to dramatically increase its reimbursements.


Nor should you think that Fresenius is without blame.  For example, in 2000,  a team led by Suzanne Durrell  secured the largest global settlement to date in a health care fraud case against Fresenius Medical Care. The investigation resulted in a record-setting $101 million criminal fine; an aggregate civil settlement payment of $385 million; and the withdrawal by the company of more than $130 million in pending claims for reimbursement with the Medicare Program.


If you have concerns about patient harm and fraud against the government by a healthcare company, please contact us to discuss how whistleblower laws including those above can protect and reward you and help ensure that the patients and taxpayers are protected.


Experiments in Materiality: Escobar, the Recent Decision in Pfizer, and the Problem of Continued Payment

The U.S. Supreme Court perplexed health care fraud aficionados last summer with dicta listing a number of enigmatic factors for determining when fraud under the False Claims Act (“FCA”) counts as material; a requirement for liability. Universal Health Services v. United States ex rel. Escobar, 136 S. Ct 1989, 2003-04 (2016). Since then, the lower courts are predictably being faced with this issue in almost every litigated False Claims Act, with defendants arguing that for various reasons their alleged misconduct, even if true (or assumed to be true), was not material, and thus they should not be held liable. Defendants’ arguments hinge on the use of a counterfactual touched on by several of the Supreme Court’s factors: the question of whether the government would have paid an (allegedly) false or fraudulent claim, had it known of the fraud.


A recent case out of the Eastern District of Pennsylvania rejected two such arguments by defendant Pfizer.  United States ex rel. Brown v. Pfizer, Inc., No. 05-6795 (E.D. Pa., Apr. 11, 2017).  In that case, relators Catherine Brown and Bernard Vezeau, a former marketing manager and sales representative/product manager for Pfizer, are alleging that Pfizer made fraudulent representations to the Food and Drug Administration (“FDA”) when applying for approval for its antifungal medication Vfend to treat Candida infections. In specific, Relators alleged that in 2002 the FDA refused to approve Vfend to treat Candida infections because a study showed it was not as effective as another antifungal medication. But then, in 2004, Pfizer misrepresented that same study as showing Vfend was effective, even though the study showed the opposite, and won approval. Id. at 21.


In an attempt to dismiss the case, Pfizer argued that the relators failed to state a claim under the False Claims Act because the relator’s allegations that Pfizer’s representations “‘could have’ influenced the FDA [was] insufficient to make the false representations material.” Id. at 20-21 (citing to the holding in D’Agostino v. ev3, Inc., 845 F.3d 1 (1st Cir. 2016)). The Brown court disagreed, holding that the relators pled materiality successfully because they alleged the misrepresentations “did in fact cause the FDA to approve Vfend for Candida infections.” Brown, No. 05-06795, at 21. The relators were able to do this because they had access to the perfect controlled experiment: the 2002 application in which there was no fraud, and the drug was not approved, compared with the 2004 application in which there was a misrepresentation and the drug was approved. There was no need to speculate about the counterfactual (what the government would have done, had it known of the fraud) because the controlled experiment proved the fraud’s materiality to the government approval (as well as, presumably, casting light on Defendant’s motive, see id. at 24 (discussing scienter)).


Pfizer’s second argument, that the (alleged) falsity was not material because the government had continued to pay claims for the drug even after it had learned of the relator’s allegations in its qui tam complaint in 2005, fared no better. The court demonstrated how hard it is to establish the defense that the government’s continued payment of claims shields a defendant from liability. Taking its lead from the First Circuit’s post-remand opinion in Escobar, the Brown court held that “[t]he mere fact that the government has continued to pay and approve claims for Vfend even after Relators’ allegations in 2005 is insufficient to establish that Relators’ claims lack materiality.” Brown, No. 05-06795, at 23; see also U.S. ex rel Escobar v. Universal Health Services, 842 F.3d 103, 112 (1st Cir. 2016). That is because “mere knowledge of allegations regarding noncompliance is insufficient to prove actual knowledge of noncompliance” Brown, No. 05-06795, at 23 (emphasis added). This accords with the Supreme Court’s stringent language in Escobar, where the court says that continued payment weighs against materiality only in the case of “actual knowledge.” Escobar, 136 S. Ct at 2003-04 (comparing “evidence that the defendant knows that the Government consistently refuses to pay claims . . . based on noncompliance”—which weighs in favor of materiality–with evidence that “the Government pays a particular claim in full despite its actual knowledge that certain requirements were violated” –which weighs against).


Moreover, as a practical matter, do defendants really want the government to stop paying all their claims just because there are allegations by a relator (not the government) of fraud? We don’t think so; if this happened, it would go in the category of “be careful what you wish for” and have the potential to wreak havoc with government contractors and programs.

Today is Patriots’ Day, a Uniquely Massachusetts Holiday


Today we celebrate Patriots’ Day in Massachusetts. What is it? Held on the third Monday of April, it is a state holiday commemorating the start of the American Revolutionary War on April 19, 1775 at the Battles of Lexington and Concord. Famously recounted in the poems the Midnight Ride of Paul Revere by Longfellow and The Concord Hymn (better known as the “shot heard round the world” poem) by Emerson, there are many events commemorating and reenacting the historical events.


Also, the Boston Marathon, first held on Patriots’ Day in 1896, is run on this day, and the Boston Red Sox play a morning game at Fenway Park, timed so the end of the game coincides with the Marathon runners passing through Kenmore Square (it used to be timed to see the leaders in the race pass by, but alas, baseball games have gotten longer, runners have gotten faster, and the start time of the Marathon has moved because it is now so crowded).


The long, interesting, somber, and sometimes raucous history of Patriots’ Day is chronicled here. And we should mention that the Patriots’ Day holiday is also celebrated in Maine—because Maine was once part of Massachusetts (it became a separate state in 1820).


So Happy Patriots’ Day! May we all do our part every day to be true patriots!

Material Instincts: Wood, Escobar & the CMS Provider Form Jungle

Alleging health care fraud is no picnic. It inevitably involves a journey into a morass of government regulations, not made easier by the fact that the heart of any case, the false or fraudulent claims, tend to be found in one or more of a plethora of forms for Medicaid or Medicare reimbursement. No wonder that the Supreme Court, in a transformative 2016 case advancing a new standard for determining what fraud really matters, lamented that “billing parties are often subject to thousands of complex statutory and regulatory provisions.” Universal Health Services v. United States ex rel. Escobar, 136 S. Ct. 1989, 2002 (2016). Good lawyers can help navigate this jungle, and to their aid comes a new case out of the Southern District of New York, United States ex. rel. Wood v. Allergan, Inc., 10-cv-5645 (March 31, 2017), which elaborates on the circumstances under which violations of one of those thousands of provisions should be taken seriously, in the process cutting through a lot of uncertainty about the exact wording of claims forms (while also drawing on a case in which our firm played a key role, United States ex rel. Westmoreland v. Amgen, Inc., 812 F. Supp. 2d 39 (D. Mass. 2011), in which we prevailed after the 1st Circuit reversed an earlier unfavorable decision, New York v. Amgen Inc., 652 F. 3d 103 (1st Cir. 2011)).


In Wood, a former Senior Manager at Allergan, which makes prescription eye care drugs, alleged that the company had “violated the FCA and the Anti-Kickback Statute (“AKS”) . . . by providing substantial quantities of free drugs and other goods to physicians in exchange for their prescribing to beneficiaries of Medicare, Medicaid, and other government programs the company’s brand name drugs.” Id. at 3. Wood identified false claims resulting from Allergan’s activities by pointing to the Centers for Medicaid and Medicare Services (“CMS”) Provider Agreement for Medicare Part D and Form 855I, which contain certifications of compliance with the AKS. Id. at 53. Violations of the AKS made those claims expressly false (and the pharmaceutical company could be held liable under the False Claims Act for “causing” those false claims even though it wasn’t the submitter of them). Furthermore, even though Wood did not identify express certifications or references to the AKS on Medicaid provider applications and state claims forms or on the CMS Form 1500, instead alleging only generally that many states require AKS certifications, references on the forms to “applicable Federal or State laws,” sufficed to imply that claims on the forms were false or fraudulent if there had been noncompliance with the AKS. Id. at 60. That reasoning accords with Amgen, 652 F. 3d at 112-14, in which the court looked to state anti-kickback statutes and regulations in four states, and provider agreements that had sufficient express wording in two more, to find that noncompliance with the AKS can result in false or fraudulent claims.


Escobar demands that for liability, the noncompliance must be “material,” that is, it must really matter, preventing unfairness to potential defendants by holding them liable for running afoul of some trivial provision amid the jungle of forms and regulations. Escobar, 136 S. Ct at 2003. How do we know what really matters? Wood cuts through some of the cryptic factors that Escobar discussed with an appeal to policy; violations of the AKS matter not because they involve rule-breaking but because “violation of the AKS is a far cry from an ‘insubstantial’ regulatory violation like, say, requiring ‘that [government] contractors buy American-made staplers’ rather than foreign staplers.” Id. at 61 (quoting Escobar, 136 S. Ct. at 2004.) There the Wood court builds on its comment, in identifying falsity, that “[k]ickbacks are designed to influence providers’ independent medical judgment in a way that is fundamentally at odds with the functioning of the system as a whole.” Id. at 60 (quoting United States ex rel. Westmoreland v. Amgen, Inc., 812 F. Supp. 2d 39, 53-54 (D. Mass. 2011)). Another kickback case, United States ex rel. Hutcheson v. Blackstone Medical, Inc., 647 F.3d 377 (1st Cir. 2011), also took AKS compliance language in provider agreements and hospital cost reports as indicative of materiality, suggesting that testimony from parties to the contract could help establish it further. Id. at 394-95.


This refreshing application of Escobar avoids getting mired in a fact-intensive counterfactual investigation into whether or not government officials would have paid the Allergan-caused false claims, had they known of the kickbacks at issue, and relies on our instinct about why kickbacks matter, as much as the language of the statute. This builds on the best of Escobar; an appeal to common sense. At the Escobar Oral Argument, Justice Kagan drew a powerful analogy between an unlicensed doctor and guns that don’t shoot as examples of fraud that anyone would recognize, which made its way into the opinion in the compelling quote that “because a reasonable person would realize the imperative of a functioning firearm, a defendant’s failure to appreciate the materiality of that condition  would amount to ‘deliberate ignorance’ or ‘reckless disregard’ of the “truth or falsity of the information” even if the Government did not spell this out.” United States ex rel. Escobar, 136 S. Ct. at 2001-02; Transcript of Oral Argument at 16 (No. 15-7). Signs that the lower courts have picked up on Escobar’s theme of indignation is good news for righteous whistleblowers, since they can convince courts to rule in their favor by an appeal to the overarching policy damaged by the fraud, as much as by digging into the regulations.

Now is a Time for Heroes

What Government Whistleblowers Can Do


We make our living representing whistleblowers.  It’s fascinating work, and not many days go by that we aren’t inspired by the courage of our clients to speak the truth when it would be easier not to, and the determination to stand up for something and to see it through.


We represent mostly whistleblowers under the False Claims Act or the relatively new SEC or IRS Whistleblower Programs.  They are usually insiders at private companies that cheat under government programs and contracts.


But there’s another universe of whistleblowers that we want to talk about — the government whistleblower.  The federal employee who is aware of something terribly wrong going on at his/her place of work and feels compelled to speak out.  What rights and protections do these people have?   While they may not be entitled to a “relator’s share,” in most situations, they do have legal protections, most notably under the Whistleblower Protection Enhancement Act (“WPEA”) of 2012.


The issue is a timely one, as the chaotic first weeks of the Trump Administration have seen an unprecedented disruption to the normal functioning of the government.  Just look back to the sudden rollout of the immigration order (now stopped by the courts) and think of the airport scenes, the confusion, the changing interpretations from the White House, and so on.  It is indeed a very new day.


In this intimidating environment, we know that many federal employees are wondering what to do when they are forbidden from communicating with the public or given an order from a superior that is, in their view, illegal. We hope this article will help.


Silence is not the only option.  Look at what’s happened already:


• In the National Park Service, alt government accounts have popped-up to oppose the President’s gag orders relating to climate-change and science, or to correct the President’s misinformation about the crowd size at his inauguration.

• Federal employees at several other agencies, including the embattled E.P.A., began posting similar alt government  sites on social media as a result of the President ordering the official agency sites down.

• Over 1000 State department officials signed a “letter of dissent” cable opposing the Executive Order barring immigration from seven predominantly Muslim countries.

• HHS employees rose up in protest and forced the White House to temporarily withdraw its order that the agency cease advertising the deadline to enrolle in Affordable Care Act.

• And most notably, Acting Attorney General Sally Yates notified all Department of Justice employees that as long as she was in charge of the department, it would not defend the President’s travel ban in court.


Sally Yates, as she surely expected, was fired immediately.  But the her actions had a powerful impact, reminiscent of the principled stand taken by Archibald Cox and Eliot Richardson during the Watergate crisis.


As these examples make clear, federal whistleblowers — at all levels — can have a real impact in fighting executive overreach. With one party in control of both the executive and legislative branches and an executive acting forcefully and bluntly, the need for government whistleblowers is real.


Blowing the whistle on wrongdoing in government is both part of our national history, and specifically protected under federal law.


I.  The History.  We have always relied on courageous government employees to come forward and expose wrongdoing by our government.  The Continental Congress enacted America’s earliest whistleblower law in 1787, declaring it “the duty of all persons in the service of the United States” to provide information of any “misconduct, committed by any persons in the service of these states, which may come to their knowledge.”   The law was prompted by an incident in which sailors and marines serving on board the warship Warren had secretly informed the Continental Congress of wrongdoing – including torturing prisoners of war – by Commander-in-Chief of the Continental Navy, Commodore Hopkins.  Hopkins eventually sued two of the whistleblowers, lieutenant Marven and midshipmen Shaw.  The Continental Congress, recognizing the importance of their actions and our young nation’s duty to protect whistleblowers, provided funds to successfully defend the suit.


In 1863, President Lincoln urged the passage of and signed the False Claims Act, incentivizing whistleblowers to come forward in response to rampant defense contractor profiteering during the Civil War.  In 1986, the statute was amended in substantial ways and has given rise to a bar of lawyers (of which we are proudly members) that has, with the aid of our whistleblower clients, returned tens of billions of dollars to the federal treasury.


In recent years, laws have been passed making it illegal for the federal government to try to silence employees who are speaking out about wrong-doing.  These laws will be getting a workout, we predict, in the years of the Trump Presidency.


II.  Current Protections.  Here are some resources for government whistleblowers, under current law.


Most government employees are protected from retaliation for disclosing violations of laws, mismanagement, waste, abuse or danger to health and safety. Employees are also protected against censorship of scientific research and analysis. Even inaccurate disclosures, if made in good faith, are protected.  See the following link for a list of the kinds of employment actions that are prohibited by the Office of Special Counsel – an independent government agency that that looks out for federal whistleblowers.  Examples include coerced political activity, nepotism, inappropriate recommendations, abuse of authority, and whistleblower retaliation.  The OSC also advises agencies on compliance with whistleblower protections, like the anti-gag rule.  See here and here.


Employees who believe they have been retaliated against can file a grievance with their union, or a complaint with the Office of Special Counsel, or an appeal with the Merit Systems Protection Board.  Remedies include reinstatement, back pay, and attorneys’ fees.  No, you won’t be made rich as a federal employee whistleblower, but you do enjoy substantial legal protections, and vindication can sometimes be its own reward.


In short, “Federal Employees have the right to make disclosures of wrongdoing” and cannot be punished for doing so.  The WPEA passed both houses of Congress unanimously in 2012, and makes it clear that speaking up is legally protected activity.


We never say “never” to clients or prospective clients, but it would be very difficult for the President to abolish this law or this agency.  He might try to  staff it with do-nothing types to weaken it, but it seems highly unlikely that the OCS or the laws it enforces won’t still be on the books for the duration of his Presidency.


No, this is not a normal time.  It is a time of risk.  There are some things a President can do, and some that he/she cannot do.  It is a time for heroes to stand up when the circumstances compel it.


And there is precedent:  Shaw, Marven, Ellsburg, Yates.  The risks are as real as they always have been, and greater than any time since the 1970’s.  The law provides protection, and lawyers of conscience both inside and outside the government are available to help.


Sometimes Less is More


One of the questions we deal with most frequently from our whistleblower clients is: what documents can I take out of my place of employment? What can I show you? And for us as lawyers the question is (and we’ve written about it before): Is there anything in this pile of paper (or in these thumb-drives) that we can’t even look at all?


For any lawyer unfamiliar with the False Claims Act or the SEC and IRS whistleblower programs, these questions can be daunting. The wrong answer can subject a relator with otherwise valid claims to dismissal and expose the client and lawyer to substantial sanctions: You don’t want to mess up a potential case before it even begins.


Fortunately, there’s fairly clear guidance that emerges from an examination of how courts typically deal with these kinds of problems — in litigated cases where employers and their former employees are duking it out over who took what, whether they had the right to, and whether anyone’s going to pay for the removal of documents.


The basic framework is this (leaving aside just for the moment the special issue of privileged documents):


    • Companies have a legitimate property interest in the emails, papers, and other documents generated by their employees.


    • These property interests are routinely recognized by courts, particularly in the context of former employees trying to use these materials to start up a new business or work for a competitor, for example. (Think trade secrets.)


    • But the property interests only go so far, and they can collide with other interests, as they do in the case of statutorily protected whistle-blowing activity.


    • The government has a right to use its powers to collect evidence of criminal wrong-doing, e.g., by subpoena or search warrant, and no company can use their property rights argument to defeat that interest.


    • Similarly, the FCA empowers relators (acting on behalf of government interests) to pass along company documents as evidence of fraud. Indeed, the statute creates an obligation on the part of relators to convey to the government everything they know about the problem, including any supportive documentation. So a relator could actually get some heat from the government if he/she came in and told the story but did not produce relevant documents from the employer.


    • So you have a competition between competing values. This sometimes plays out when companies file counterclaims against relators (e.g., for the theft of property) in non-intervened unsealed cases. These are where the interesting written opinions are.


    • You’ll see in the cases that where relators keep copies of selected relevant documents that they would normally have seen in the ordinary course of their business, courts generally say that’s o.k. and protected by your statutory rights under the FCA or other similar law.


    • Often an employer will argue that the removal of documents violates an express confidentiality agreement or a common-law duty of loyalty. Neither of these arguments trump whistleblower protections when a court determines that an employee is acting reasonably.


    • Courts generally do not approve, however, of relators who go snooping around the company looking for evidence that they normally wouldn’t have the right to see.


    • They also do not approve, generally, of a whistleblower who takes the only copy of a document from the premises (e.g., an original where there are no copies). (This is rare in the electronic age, but is still possible.)


    • This dividing line makes sense from a “rough justice” sense, even if it may be hard to square with the general purposes of the FCA. It’s a reflection of the human reaction of judges to the notion of whistleblowers as internal spies as opposed to do-gooders, i.e., there must be some limit to how far an employee can go in gathering evidence at his/her place of employment. Courts feel uncomfortable blessing unrestricted licenses to poke around.


So in practical terms, we typically advise clients to give us what they have in their “wingspan” and nothing else. In other words, if it’s a document that you saw or would normally see in the ordinary course of your work, it’s probably o.k. to share that with us.


But — there’s always a “but” in the law — then we have to give clients special care instructions with respect to anything potentially privileged, which could be the subject of a whole additional article. The basic approach is that we quarantine any documents where we think there’s an arguable claim of privilege, and we come back to them only if we need to. If we need to, we will often engage separate “taint” counsel for that purpose, so we don’t run any risk of disqualifying ourselves. The unfortunate corollary to this rule is that it is very risky for in-house counsel to serve as a False Claims Act relator as much of what they work on is privileged.


A recent case out of the 11th Circuit Court of Appeals is consistent with this general pattern described in the bulleted points above. Although it was not a False Claims Act case, the dispute between the former employee and the employer revolved around the employee’s having accessed other employee’s’ email accounts (which did not have personalized passwords). Gaining access using a universal password, the former employee found evidence of wrongdoing which he then reported to compliance. But the tables were turned when ultimately the investigation turned focused on him for having improperly obtained the information. He was fired and the courts upheld the firing. The case is Brown Jordan International et al. v. Carmicle.


So there’s a lot of nuance in this issue. If you’re not sure, err on the conservative side. Or get advice first. Good advice can keep you safely in the zone of “protected activity” under the applicable whistleblower laws, without having to worry about later claims by the employer of document theft and the like.

Watch Out for Supplements!


We’ve written before about the murky territory that exists between drug manufacturers and pharmacies.  It’s a great example of how distinctions that once made sense can fail to address changed circumstances or the cleverness of people who like to game the system.  Right now here in federal court in Boston, one of the principals of the infamous New England Compounding Center is on trial for second degree murder — that’s right, murder — for his role in the scandal that led to two dozen deaths.


Laws changed because of what that case revealed:  that industrial-sized drug repackagers and compounders were posing as pharmacies, subject only to state pharmacy regulations, even though they were not really pharmacies but drug manufacturers anxious to avoid federal oversight.  Today, the federal Drug Quality and Security Act and the Compounding Quality Act make such gamesmanship far more difficult, and allow for federal oversight over compounders and repackagers who are handling drugs on an industrial-scale basis.  One change:  the “cGMP” standards (short for “current good manufacturing practices”) will now apply.  One can no longer hide behind a pharmacy sign and play games with drug products before sending them on to unsuspecting consumers. No doubt lives will be saved as a result of these new laws.


Yet supplements are a similar accident waiting to happen.


Most people know and understand that the Food and Drug Administration (“FDA”) regulates the activities of drug manufacturers and food producers, ensuring that the drugs we take and the food we eat are safe.  On the drug side, this means that before a drug can be sold, the manufacturer must satisfy the FDA through a series of rigorous submissions showing that the drug is 1) safe and 2) effective.  Detailed labeling requirements allow consumers to have a fighting chance in the effort to understand what they are taking and what the risks are.


The regulation of food is handled somewhat differently, but also has human safety as its paramount object.  Two areas are well understood and well justified:  inspection and labeling.  The FDA has the authority to inspect plants that are engaged in large scale food production.  Slaughterhouses, for example, are subject to FDA inspection to ensure that meat is safe and that plant conditions are sufficiently sanitary to avoid contamination.  Recalls can result from the FDA’s inspection authority, with the aim of preventing human consumption of unsafe meat.  (History buffs may perhaps know that the genesis of the Food, Drug and Cosmetic Act, as it is now known, was the exposure of unsanitary and unsafe conditions in the Chicago meat-packing industry, made vivid in Upton Sinclair’s The Jungle.)


Labeling is another safeguard.  Now, given the astonishing amount of additives that go into processed foods, food producers are required to accurately label the ingredients in a processed food package.  This, too, gives consumers a fighting chance.  If you’re diligent, you can pause and think twice before buying that package whose key ingredient is Red Dye Number 7.


But one secret most consumers don’t understand — but should — is that the FDA’s jurisdiction does not extend to supplements.  At least not yet.  So consider this a public service announcement.  Those products on the shelves that make outrageous claims about enhancements to your body and to your health are mostly supplements and outside the rules that apply to food or drugs.  No one has had to prove to the FDA or anyone else that: 1) it is what it purports to be, 2) it’s safe, or 3) that it’s effective in the ways that it claims.  Buyer beware!


As we see so often in our whistleblower practice, when rules are unclear, temptation takes over.  Last week’s front page story in the Boston Globe provides a sobering glimpse into what’s out there.


Jared Wheat, the CEO of High-Tech Pharmaceuticals, is a twice-convicted drug dealer who thought up the idea for his “High-Tech” drug supplement business while serving time in prison for his conviction for selling ecstasy.  In 2003, according to the article, he was again convicted for running an illegal online “pharmacy.”  (Sound familiar?)  Nonetheless, his company currently grosses $100 million per year by selling dietary supplements with catchy names like Black Widow and Yellow Scorpion.  Due to Congressional inaction (and general coziness with industry), there is little that the FDA can do to police the supplement industry, unless provided specific information about safety risks, by people like whistleblowers.


When Harvard researcher Dr. Pieter Cohen began running tests on the products of High-Tech and other companies’ supplements, he found that the supplements contained unsafe levels of certain synthetic compounds and publicly urged FDA to inspect the facilities.  He was slapped with a libel suit brought by Wheat and was forced to justify all of his findings in an unpleasant libel trial.  Although Cohen won the suit, Wheat unabashedly says that he hopes the hundreds of thousands of dollars he spent on the libel suit will make researchers think twice before publishing their results.  The incoming President says he wants to “open up” libel laws to make this type of lawsuit easier.


We’re entering into a political phase where all manner of regulations will be questioned.  If people have their eyes open, though, they will urge restraint, because many of the existing regulations are clearly making us safer.  (Do we really want to go back to the days portrayed in The Jungle?)


Under a Trump Administration, we should certainly not expect any expansion of regulation into new areas like food supplements.  It will remain Caveat Emptor! for the indefinite future, with consumers at a real disadvantage.


Be careful out there!


Supreme Court to Rule on False Claims Act Case Where the Seal Requirement was Violated


Can loose lips sink ships? Or put another way, if a relator or his agent breaches the seal provision of the False Claims Act, must the case be dismissed? This is the issue currently pending in the United States Supreme Court where the Court recently heard oral arguments in State Farm v. United States ex rel. Rigsby.


In Rigsby, the relators, two sisters who had been insurance adjustors for State Farm, alleged that State Farm defrauded the federal government by claiming that Hurricane Katrina related claims were ones eligible for coverage by the United States, thus getting State Farm off the hook for the insurance claims. A jury agreed with the relators, finding that the federal government had been defrauded of $250,000, and State Farm was ordered to pay $758,000 in damages under the FCA’s treble damages provision. The sisters were awarded $227,000 by the United States as a relator share for disclosing the fraud under the False Claims Act. The verdict was later affirmed on appeal by the United States Court of Appeals for the Fifth Circuit.


State Farm is asking the Supreme Court to dismiss the case because the relators’ (now former) attorney revealed the allegations to several members of the media while the case was still under seal. State Farm’s position is that a violation of the FCA’s seal requirement necessarily mandates that the FCA qui tam case be dismissed. The United States Department of Justice and the relators argue that the court has discretion and should apply a balancing test, using factors such as bad faith, harm to the government, reputational harm to defendant, severity of violation. Those who attended the argument report that the Court seems poised to unanimously reject State Farm’s argument, and adopt some type of balancing test.  And the transcript of the argument confirms this view.


Regardless of how the Court rules, relators and their counsel violate the mandatory seal provision of the False Claims Act at their peril. The FCA expressly states that the complaint shall be filed under seal, and it remains in that posture until the Court enters an order unsealing the action. Unless and until it does so, violations of the seal order are punishable by contempt and other sanctions. Whether the sanction involves the case being dismissed or not, DOJ takes the position that a relator’s breach of the seal may decrease the award/ relator share paid to the relator in a successful case. While the briefs and the oral argument transcript discuss many nuances and interesting questions (e.g., is it only the fact that there is a complaint filed in court that is subject to the seal or are the underlying allegations also covered by the seal?), the fact remains that relators and their counsel must be vigilant and careful while the seal is in place.


Accountable Care May Mean Less Fraud Too


The lead story in Friday’s Boston Globe was about a “massive change” coming to the Commonwealth’s Medicaid program, known as MassHealth.  As many of you know, Medicaid is the federal health insurance program for the impoverished that is jointly funded by the states and the federal government but administered by the states.  So there are 50 Medicaid programs, each run a little differently from each other, based upon local conditions.



What was news on Friday was the federal government’s approval of an overhaul of MassHealth, shifting from the traditional “fee for service” mode of payment, where a doctor submits a bill to MassHealth for a service he/she has rendered, to an “accountable care” model, where doctors and hospitals are given a set amount of money to care for a population of patients with complex medical needs.  (Private health insurance companies and Medicare have already taken steps in this direction.)



This overhaul has two aims in mind:  improvement of patient care and cost accountability, both laudable goals.



But there’s another point here that the article missed that I think should be mentioned:  this accountable care model could decrease fraud and abuse in the health care system.



Why so?



Health insurance programs, particularly the Medicaid and Medicare programs, are run on “honor systems” whereby claims are paid before being fully verified.  There are millions of claims per day to the Medicare and Medicaid systems, and the program would break down if every claim had to be fully verified before being paid.  So the programs pay the claims and chase problems later, the so called “Pay and Chase” model.  Well it turns out that the combination of “fee for service” and these honor systems creates a kind of perfect storm for fraud.  It’s just too easy to do.  Pad a claim here, up-code a claim there; pretty soon it’s real money.  Tens of billions per year by the time you add it all up.



By taking out the fee for service component of some of these reimbursement formulae, we remove a lot of the built-in temptation for fraud.  In other words, when it’s easy for providers to over-prescribe and increase their levels of compensation, it will happen.  By providing incentives to avoid over-prescribing, you slow down the temptation to pad bills and engage in self-enrichment behaviors.



This will be interesting to watch.  Health care is complicated.  Thwarting the pernicious creep of fraud and abuse is complicated, too.  But perhaps this notion of “accountable care” will turn out to have another layer of accountability:  a slowdown in health care fraud and abuse.


OxyContin Marketing: Peddling Opiates for Profit


This fall, whistleblower attorney Bob Thomas has again been teaching as an adjunct professor at BU Law School, offering a course on Health Care Fraud and Abuse.  As the title suggests, the course is about the many ways in which the government health care reimbursement systems such as Medicare and Medicaid are gamed by fraudsters, and what’s being done about it.


One of the more interesting aspects of teaching a course in this area of the law is the dynamic nature of the subject matter.  Each year the syllabus must be updated because of amendments to laws like the False Claims Act or regulations under statutes like the Food Drug and Cosmetic Act (dealing with misbranding and off-label marketing, among other things), and case law interpreting new issues being litigated (such as the Supreme Court’s recent Escobar opinion).   The course also shows students why it’s important to read the news and to pay attention to the many ways the content of the course intersects with real life issues in front of us.


This week was a perfect example.  What would normally have the potential to be a fairly dry topic (“Remedies:  exclusion and debarment, and corporate integrity agreements”) evolved into something directly connected to an evolving news story.


As a case study on corporate officers being excluded from the Medicare and Medicaid programs after pleading guilty under the “responsible corporate officer doctrine,” students were asked to read the 2010 Friedman case from the district court in D.C., in which Judge Huvelle upheld lengthy periods of exclusions for three high ranking officers of Purdue Pharmaceuticals, Inc.  The Purdue settlement in 2007 was a blockbuster at the time:  $634 million in civil damages and criminal fines, criminal pleas by a subsidiary and three corporate officers, tens of millions in personal fines against the officers, and a corporate integrity agreement imposed against the company.  Why?  Because the company irresponsibly (and criminally) marketed its highly addictive painkiller OxyContin as safe and non-addictive, and as a reliable substitute for other non-addictive painkillers.  This behavior is credited by many observers as a key driver of our current opioid epidemic.  The investigation of the company started in 2001 and lasted several years, covering the marketing schemes going all the way back to the 1990’s.


Well right on cue, just as the class was evaluating the many aspects of this “global” (civil, criminal, and administrative) settlement, Purdue Pharmaceuticals was right back in the news.  First, the always provocative but usually spot-on John Oliver took the company to task for ignoring patient safety and for fueling the opioid epidemic.  Then, this morning on the front page of the Boston Globe, another article appeared about Purdue and its marketing of OxyContin, showing how the company manipulated pharmacy benefit managers (“PBMs”) to remove limitations on physicians’ prescription-writing abilities for the drug.  This latter scheme was not part of the government’s 2007 prosecution of the company, but may be the subject of future lawsuits, according to the article.  With a huge public health crisis in the works and a flourishing black market for its addictive painkiller, it seems Purdue just couldn’t say no to schemes to get its product into as many hands as possible.  With sales rep bonuses as high as five times their base salary, the message was clear:  Sell, Sell, Sell.  Lost in that emphasis was the horrible toll this would take on patients, some of whom would injure themselves intentionally to be able to obtain further prescriptions of OxyContin.


For the BU students, it was a perfect example of one of the recurring themes of the course:  Do any of these remedies really slow down fraudsters?  If not, what should we be doing differently?