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BU Law Class Seven: All the Tools in the Regulatory Toolbox

In our most recent session in the Health Care Fraud and Abuse seminar at BU Law, we had a lively review of the variety of different ways federal and state agencies can regulate, encourage, punish, and otherwise direct industry decision-making.  It was a fun exercise, with not enough room on the chalkboard.

 

First, in addition to reading about corporate integrity agreements, exclusion and debarment remedies, civil monetary penalties, and the many criminal statutes that can be brought to bear, students were asked for homework to draw a diagram with one circle in the middle (doctors, hospitals, pharma companies, device companies) and four circles in the corners of the page.  Those four circles would represent 1) DOJ/FBI/and U.S. Attorney’s Offices, 2) State Attorneys General and state agencies, 3) the Food and Drug Administration, and 4) the Office of Inspector General of the Health and Human Services (“HHS/OIG”).  Then, using arrows and lines, they were asked to sketch the types of powers each of the outer circles could exert over the inner circle.  The chart above is our distillation of that collective effort.  Easy, right?

 

Interestingly, the four outer circles are just four of the biggest of a much larger universe of potential regulatory bodies a company or practice might have to deal with.  State pharmacy boards, medical licensing and disciplinary boards, and the like are all out there, too.  No wonder this arena employs so many lawyers.

 

As a particular case study, the class took on Friedman et al. v. Sebelius et. al., a decade plus long piece of litigation in the District of Columbia and the U.S. Court of Appeals for the D.C. Circuit, involving HHS/OIG’s use of its permissive exclusion powers to bar from participation in the government health insurance programs corporate officers convicted of Food Drug Cosmetic Act (“FDCA”) offenses.  Particularly insightful is the 2010 District Court opinion of Judge Ellen Huvelle, in which she affirmed the agency’s exclusion decisions of the lead actors in the FDCA misbranding case.  The dispute stemmed from the guilty pleas of Purdue Pharma and several executives to falsely understating the addition risks of OxyContin, manufactured by Purdue (which, as we know, has led us to a national crisis).  The defendants paid their fines, but then the individuals fought in court when HHS/OIG sought to exclude them for a lengthy period of time.

 

Both the company and the individuals had admitted their misconduct in guilty pleas entered under criminal Rule 11(e)(1)(C) (where the parties ask the court to adopt their agreed-upon disposition of the case, including the sentence.  Why, one wonders, didn’t the defense lawyers for the individuals wrap up the exclusion issue at the same time?  It’s a puzzle — the parties might have spared themselves a decade of litigation.

 

Judge Huvelle’s decision and order affirming the exclusions were based in part on the so-called Responsible Corporate Officer doctrine or “RCO”.  Following two Supreme Court precedents from decades past, United States v. Dotterweich, 320 US. 277 (1943) and United States v. Park, 421 U.S. 658 (1975), the RCO allows for misdemeanor convictions of corporate officers without evidence of direct knowledge of or involvement with the crime, a striking exception from the normal rules of the road in criminal cases.  If the evidence shows that the defendants had the power to stop the criminal conduct in some supervisory role, i.e., responsibility and authority for the work of others, then proof of actual knowledge and intent is not necessary.

 

In effect, the RCO borrows from civil tort law standards for establishing negligence:  that the defendant should have known and did nothing to stop it despite his/her power to do so.

 

If this sounds like a scary situation in which to be a corporate officer, there is a limiting principle or two:  First, this applies only to misdemeanor liability; to prove the felony violation. the government must still prove criminal intent.  Second, this applies only to the FDCA in the panoply of health care fraud criminal statutes.  There are no analogs to this, for example, in the Anti-Kickback Act.

 

So as to not kill the goose that laid the golden egg, government prosecutors use the RCO sparingly, so as to not trigger a judicial limitation on the doctrine.  In my opinion, they don’t use it enough to go after individuals who drive corporate malfeasance.  As an example, multi-billion dollar drug wholesaler AmerisourceBergen recently pled guilty to an FDCA misdemeanor and paid $260 million in criminal fines for wholesale misbranding oncology drugs for years in an unregistered Alabama “pharmacy” that was actually a drug re-packager and manufacturer.  As set forth in the government’s charging document, this lucrative scheme put many very sick patients at risk.

 

Charging the company with a misdemeanor in such a situation makes some sense, because a felony conviction would have led to mandatory exclusion, which might have harmed innocent third parties like low level employees or patients who need their drugs.  But if the government is in the misdemeanor neighborhood anyway, why not apply the RCO and go after the corporate captains who profited so handsomely from this?

 

Sally Yates, the Deputy Attorney General who later became famous for her principled stand on the Trump travel ban, wrote a memo during her tenure at the Department of Justice, urging prosecutors to be not-too-quick to give individuals a pass in corporate global settlements.  Part of her reasoning was that to achieve true deterrence, the government must cause corporate malfeasants to fear for their liberty, or at least for the contents of their wallets.  Still, charging corporate officers in these large corporate settlements remains the exception rather than the rule.

 

For some companies even a $260 million fine is just the cost of doing business as usual.  It’s the equivalent of a parking ticket for you and me, except it’s a parking ticket that someone else (shareholders) pays.

Health Care Fraud and Abuse Starts New Session

Happy day after Labor Day, everyone!  And welcome back to work after what we hope was a great summer.

 

Here in Boston, the Labor Day Weekend avalanche of students moving back in to their living arrangements is mostly behind us (there are so many colleges and universities here that the U-Haul companies run out of trucks and vans this time of year).  It’s always quite a buzz.

 

At BU Law School this afternoon, Whistleblower Law Collaborative attorney Bob Thomas will be starting his seminar on “Health Care Fraud and Abuse,” a 13-part semester long course on the intricacies of the fraud and abuse problem in our health care system and what is being done about it.  (For a glimpse of how the course goes, here’s the syllabus.)  This is the seventh time Bob has taught the course at BU, and it remains a popular one among students.  Last year’s student comments included:

“Best class I’ve taken at BU.”

 

“Professor Thomas has proven to be one of my favorite professors in my time in law school.  His ability to foster enthusiasm and interest is a valuable and rare quality.  He is an asset to the faculty here!”

 

“Fantastic course!”

 

Today’s introductory class will cover the big picture:  how did the health care fraud problem come to exist?  What is the scope of the problem, and why is it so easy to defraud government health insurance plans, as well as private plans?  Who is working to slow down this problem, and what tools do they have at their disposal?  Finally, we will talk about the many different professional opportunities for young lawyers in this dynamic area of the law.

 

We will endeavor to post updates on the course each week.

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.

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.

Remembering President Lincoln, the Father of the False Claims Act

When I was a kid growing up in Vermont, Lincoln’s birthday was its own holiday, a time to remember and honor “Honest Abe.”  I didn’t learn about the False Claims Act, which was signed into law by Lincoln, until many, many years later. Turns out his legacy of honesty lives on in that law—a law which at its core seeks to keep those who do business with the government honest.  A simple idea really. In his day, if you were selling boots or horses to the Army they better not be defective or overpriced. Not only did such behavior cost the government money, it could put lives at risk.

 

Fast forward 150 years and the False Claims Act is as important as ever. As  government has grown and evolved, so too have the ways in which it can be defrauded by unscrupulous companies, contractors, and individuals. At stake are millions or billions of dollars in all sectors of our economy, from defense and homeland security, to banking and finance, to health care, to transportation and infrastructure.  Also at stake are people’s lives: the soldier whose weapon is defective, the child whose drinking water comes from contaminated pipes, the sick patient whose prescription drugs are too expensive, the list could go on and on.

 

So next time you have a penny in your hand, take a good look at that picture of Lincoln, remember the lofty and enduring goals of the False Claims Act, and pledge to do your part to form a more perfect union.

Happy Fourth of July from Boston

The patriots who signed the Declaration of Independence over 235 years ago, concluded the Declaration with these words:

And for the support of this Declaration, with a firm reliance on the protection of divine Providence, we mutually pledge to each other our Lives, our Fortunes and our sacred Honor“.

Had their bold experiment failed, they would have lost everything, including their lives.

 

As the long 4th of July holiday weekend is unfolding, let us remember the vision, sacrifice, faith, and hard work that have preserved our democracy, and appreciate the many acts, large and small, that contribute to the common good.

 

Among these are the courageous whistleblowers who at great personal cost come forward to tell “the government”, our government, that it is being cheated, by a defense contractor, a health care company, a bank, or others.   Sometimes they succeed, sometimes they fail, but regardless they are doing their part as citizens in a democracy.

 
In just the past month, we have already seen the largest settlement involving alleged violations of the Anti-Kickback Statute by skilling nursing facilities in the United States, Trinity Industries was ordered to pay 463.4 for defrauding the Federal Highway Administration, and UPS agreed to pay for False Claims Act violations.  All due to the contributions of whistleblowers.  Their bravery, and the dedication of the public servants who work the cases, inspire us.

 
We wish everyone a safe and happy Fourth of July from Boston!

Prosecutorial Discretion

We (Bob Thomas and Suzanne Durrell) were both federal prosecutors in our not so distant past, and we work with federal prosecutors every day.  One of the least understood aspects of criminal law is prosecutorial discretion, the leeway given to prosecutors to make judgment calls that have huge impacts on the lives of people and companies.  On the criminal side, they (prosecutors) get to decide whom to charge with what offense, whom not to charge, whom to immunize, whom to seek the death penalty against, and so forth.

 

On the civil side, where we now operate more frequently with our False Claims Act whistleblower practice, they get to decide whether to intervene in a case, which theories of liability to run with and which to jettison, which individuals to pursue civilly and which to let slip, what amount of money to settle a case for, which companies and individuals to try to exclude from future participation in the Medicare and Medicaid programs, and so forth.

 

The list of areas where prosecutorial discretion surfaces is quite long.  And in fact, it is hard to imagine a job that a person could have in their late twenties or early thirties where he or she could have so much discretionary power over other people’s lives.  It’s one of the reasons young lawyers love being Assistant U.S. Attorneys:  they get to have relevant professional lives that have real impact, at a relatively early stage of their careers.

 

But the dark side of this reality is that prosecutors can do enormous damage in the exercise of their discretion, which is essentially unreviewable.  This New York Times piece yesterday gave a good example.  On the criminal side of the house, the use of the Section 851 mandatory minimum sentencing enhancements can give prosecutors enormous leverage to force defendants to plead guilty when they would otherwise go to trial.  Sometimes the use of this leverage is inoffensive; other times it can be deeply troubling and lead to unjust results.

 

We now incarcerate a higher percentage of our population than any other industrialized nation in the world, with disproportionate numbers of the prison population being people of color.  Congress, in its zeal to show how tough it could be on drug crime, passed many sentencing “enhancement” laws in the 1980’s that caused sentences to go well beyond the structured sentencing schemes put in place by the federal Sentencing Commission and the guidelines it promulgated.  Section 851 was one of those “enhancements,” and one that should be re-evaluated.

 

On the civil side of the house, an area of fertile debate is the government’s discretionary power to settle large cases against companies for monetary fines and civil damages only, without going after the individuals behind the corporate schemes. In the Pfizer case, for example, the then-record $2.3 billion settlement was impressive indeed, but the judge overseeing the case went out of his way to question prosecutors how $2.3 billion worth of fraud could not result in any individuals being held accountable.  Judge Rakoff in the Southern District of New York has also been a frequent critic of these corporate deals, in one instance rejecting a proposed settlement reached between the government and a bank defendant as too friendly to the bank and lacking in any actual admissions of wrong-doing.

 

So prosecutorial discretion is one of the things that makes the job of a prosecutor challenging and fun. But the wide latitude it gives individual lawyers, with relatively little oversight, can also lead to bad outcomes, or results that leave many questions still to be answered.

Is There Fraud in That Blur of Paperwork?

As whistleblower lawyers, we spend a lot of our professional lives trying to get big companies to behave better when it comes to fraud and abuse matters.  Yes, we represent clients, many of them courageous individuals risking their careers and their personal lives to alert the government of ways the taxpayers are being defrauded.  Yes, some of those clients get paid well for doing the right thing, and when that happens, we get paid as well.  But that’s not the main reason we do this work.

 

We do this work in part because we’re offended by systemic patterns of cheating, and we’d rather spend our time exposing those patterns that coming up with excuses for them.

 

Over the years, one of the things we’ve noticed is how the bewildering complexity of our society’s rules, regulations, and laws have created an environment that actually encourages fraud by making it easier to hide things in the great morasses of paper or electronic data that no one actually reads.  Just bury the details in a massive amount of paper, and what are the chances anyone will ever notice that little — or not so little — scam?

 

There are so many examples.  A recent New York Times article detailed a phenomenon with which we are all familiar:  medical and health insurance paperwork can be utterly impossible to make sense of.

 

“Medical bills and explanation of benefits are undecipherable…, even for experts…”

 

The article quotes a professor of health law.  So we as consumers just shrug and do our best to live in a system that we don’t have time or ability to question.

 

How many of those bills contain errors that we can’t see?

 

As the article points out, we don’t accept this lack of transparency when we go to the grocery store, or when we get a credit card bill.

 

Would it be so difficult to have health care providers and insurers communicate with their patients with transparency?

 

The problem, of course, is not limited to health care.

 

Take a look at the home loan business.  There is a mortgage service company called OCWEN that has been the subject of many recent investigations and lawsuits, over a whole variety of allegations of misfeasance and non-feasance.  Recent settlements with state regulators in California and New York show that the company, which services millions of mortgages, is virtually incapable of providing homeowners with accurate information on their loans.

 

Here’s from a Consent Order with New York State, language that the company admitted:

 

“Ocwen regularly gives borrowers incorrect or outdated information, sends borrowers backdated letters, unreliably tracks data for investors, and maintains inaccurate records. There are insufficient controls in place— either manual or automated—to catch all of these errors and resolve them.”

 

How’s that make you feel as a homeowner?  (OCWEN paid $150 million to New York on behalf of defrauded homeowners in that state alone.)

 

One would never treat a customer this way in a face-to-face transaction.  But in a world of over seven billion people, and more daily transactions than can be counted, we are awash in data and quite blinded by the volume.  And in that smokescreen, there’s plenty of opportunity for mischief.

 

This is why insiders are so critical to the success of whistleblower statutes like the False Claims Act, or the SEC’s Dodd Frank whistleblower program.  In this vast, overwhelming chaos of data, there are people whose job it is to make sense of it all, to navigate through the mess.  When there’s fraud in that morass, only an insider can enable prosecutors and investigators to find it.

Blowing the Whistle on Environmental Law Violations

Scientists believe 2014 will likely be the warmest year on record; and now Christopher K. Warren, a third year law student at Boston College Law School and a former summer law intern with the Whistleblower Law Collaborative, has written a timely and excellent law review article: “Blowing the Whistle on Environmental Law_ How Congress Can Help“.

 

[SCIENTIFIC AMERICAN article].

 

The Note will be published in Volume 42, Issue 1 of the Boston College Environmental Affairs Law Review and is also available online for download as a PDF.

 

Congress has a history of instituting whistleblower programs to protect and reward individuals who expose wrongdoing to the government, most notably the False Claims Act and more recently the Dodd-Frank Act.

 

In this article, Mr. Warren persuasively argues that the recent whistleblower programs instituted by the Securities and Exchange Commission and the Commodities Futures Trading Commission pursuant to the Dodd-Frank Act should be used as models for an Environmental Protection Agency whistleblower program to expose environmental statutory violations and crimes.

 

The major environmental laws such as the Clean Air Act and the Clean Water Act have been on the books for decades now, but the government needs the help of insiders to adequately address violations just as Congress decided in 1986 that the False Claims Act originally enacted during the Civil War needed to be modernized to address the growing problem of fraud against the government. The amended False Claims Act has been hugely successful resulting in the recovery of over $30 billion to the Treasury. The environmental crisis facing the United States and the world is even more daunting and we need all hands on deck. Let’s hope Congress will consider Mr. Warren’s idea.

Health Care Fraud & Abuse Gets First Person Account

Students in the Health Care Fraud and Abuse seminar led by whistleblower attorney Bob Thomas were treated to a fascinating retrospective from a successful whistleblower, Elin Baklid-Kunz, the former employee of Halifax Hospital, which recently settled False Claims Act accusations against it for $85 million. Ms. Kunz and her attorney Marlan Wilbanks spoke to the students by telephone connection, and answered a variety of excellent questions from the students.

 

Having covered the most important areas of health care fraud law (the False Claims Act, the Anti-Kickback Act, the off-label/misbranding/adulteration prohibitions of the Food Drug & Cosmetic Act, and the Stark Laws) earlier in the semester, the students are being exposed in the final four weeks of the seminar to the thoughts of different participants in this dynamic field. Last week, they visited Cambridge biotech Ironwood Pharmaceuticals to hear from its chief compliance officer. Yesterday they heard from a whistleblower and her attorney (concerning a case they had studied previously in the course with respect to the Stark law). In the following two weeks, they will be hearing from two former Assistant U.S. Attorneys, who will be addressing the prosecutorial and defense perspectives.

 

In preparation for the class on “the whistleblower perspective,” the class read a number of articles about people who had gone through the experience, as well as a study of the collective experiences of all whistleblowers, published in the New England Journal of Medicine in December 2010. That study corroborated what most whistleblower lawyers will tell you: that the process is difficult and long, that the whistleblower must be prepared for personal and professional isolation, and that only those whose motivations are primarily principle-based (as opposed to purely monetary) will have the stomach to ride out the unpredictable turns of a False Claims Act case.

 

Which brings us back to Elin Baklid-Kunz. Ms. Kunz worked in finance at the Halifax Hospital in Florida. She noticed that neurosurgeons and oncologists at the hospital were being accused of conducting unnecessary medical procedures and that their compensation packages were heavily weighted towards a bonus based on number of patient referrals brought in, a highly circumspect arrangement under the Stark law. Her attempts to ascertain the legitimacy of these arrangements were not well-received, particularly by the doctors themselves, some of whom were earning close to $2 million per year. An in-house attorney at Halifax seemed to substantiate her claim, however, drafting a legal memo concluding that the Hospital was in fact violating the Stark law and that the physician bonuses could be legally challenged by the government. Discovery would later reveal that the hospital sought a second opinion (from the firm that ultimately tried unsuccessfully to defend it in court), which said that the arrangement did not violate Stark. The judge presiding over the case ruled that the hospital improperly withheld the first legal memo from the government in discovery, under the “crime-fraud exception” to the attorney-client privilege, making the opinion discoverable and presumptively admissible at trial. Needless to say, the hospital had little wiggle room at that point, and eventually cuts its losses by settling the case for $85 million (plus the tens of millions it paid its law firm, the same law firm that had issued the questionable second opinion).

 

Ms. Kunz reflected on the ultimate take-away from the case and her experience. She noted that when the settlement was announced internally at the company, there was great applause because the amount of the settlement was much lower than expected. None of the company management has been forced to resign or face litigation or indictment; indeed, several have been promoted and been given raises and kept their lucrative pension plans. Most disappointing, she said, is that the culture of the hospital seems not to have changed, based on what she hears from her former colleagues.

 

One particularly interesting side note to all of this. Ms. Kunz, who is originally from Norway, reported that her Norwegian friends, who learned of the case through media reports in that country, were astounded by two things in particular: 1) that there was such a huge discrepancy in compensation for certain types of doctors over others, related to how much business they brought in, which was quite different from how doctors are paid in Norway and elsewhere in Europe, and 2) that a whistleblower who turned out to be right would be subject to retaliation. In Norway, she was told, the emphasis would be on fixing the problem, and thus the whistleblower would be appreciated for having alerted the company to what needed to be fixed.

 

Equity and integrity. Not unreasonable principles from which to ground a medical practice.