Digital Realty – Elevating Form Over Function to the Detriment of SEC Whistleblowers

The Supreme Court issued its opinion in Digital Realty Trust, Inc. v. Somers recently, holding that the anti-retaliation provisions of the Dodd-Frank Act and SEC rule 21F protect employees who report possible Securities Law violations internally only if they have also filed a Tip, Complaint, or Referral (“TCR”) report with the SEC whistleblower program.  In doing so, the Court elevated statutory text above the pragmatic concerns animating the statute and created what many employers will consider a perverse system.  Now even if an employee prefers to raise concerns internally, he or she must report them to the SEC to obtain protection against retaliation.


Dodd Frank Whistleblower Protections


The Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, § 929-Z, 124 Stat. 1376, 1871 (2010) (codified at 15 U.S.C. § 78o) included two distinct programs applicable to whistleblowers:

  1. A rewards program offering 10-30% of the SEC’s recovery to those who submit tips (“Reward Program”), see 15 U. S. C. § 78u-6(b)(1)(A-B)
  2. Protections against retaliation based on the whistleblower’s attempts to report her concerns (“Protections”), see 15 U. S. C. § 78u-6(h).

The Protections within Dodd-Frank are very broad and prohibit retaliation against whistleblowers who

  1. provide information to the SEC,
  2. who assist or testify in SEC investigations, and
  3. who report (even internally) suspected violations of securities laws or regulations

15 U. S. C. § 78u-6(h)(1)(A).

Broad whistleblower protections make sense.  Congress wanted to encourage people to report potential securities fraud and making sure they don’t get fired for doing the right thing is an important part of that.  However, in the section dealing with the Reward Program, Dodd-Frank defines “whistleblower” as an individual who provides the SEC with information relating to a securities violation[1]. 15 U. S. C. § 78u–6(a)(6).  This also makes sense in the context of the Rewards Program – rewards should be limited to people that actually give information to the SEC.


Are the Protections Limited To “Tipsters”?


As written, Dodd-Frank says that the Protections apply to whistleblowers, who fall within one of the three categories above.  15 U. S. C. §78u-6(h)(1)(A).  If you apply the restrictive definition of whistleblower from § 78u–6(a)(6), it would mean that the broad protections apply only to people who filed a tip with the SEC.  To put it simply, does Dodd-Frank protect you if you fall within one of the Whistleblower Protection categories, but you did not provide any information to the SEC? This was the situation presented in Digital Realty.  Paul Somers reported concerns about securities violations to his bosses but did not provide any information to the SEC and was fired for doing so.

In a unanimous decision, the Supreme Court concluded that Dodd-Frank did not protect Paul Somers because he’d never reported his concerns to the SEC. The Court decided that Congress had intended to limit its protections to “tipsters” to encourage reporting to the SEC.  Id. at 11.


Dangerous Implications for Digital Realty


The decision is plainly bad for whistleblowers, but the practical result is also bad for employers.  Under the Supreme Court’s interpretation, if an employee intends to report a suspected securities violation internally, or has done so and fears imminent retaliation, she should report some information under SEC’s TCR program so as to qualify as a “whistleblower” eligible for the Whistleblower Protections.

In an upcoming post, we will discuss ways in which the SEC might extend the Whistleblower Protections to all whistleblowers. But until SEC remedies the effects of Digital Realty, any individual contemplating even internal reporting of securities violations should seek experienced legal counsel to help them ensure they are protected to the fullest extent of the law.

[1] The SEC has further defined Whistleblowers to include only individuals that submit information according to the SEC TCR process.  17 CFR § 240.21F-2(a).

Not The Golden Years This Florida Doctor Envisioned: The Perils of the Fast Lane

Back in the days when we were at the U.S. Attorney’s Office, we used to occasionally hear jokes about the fact that “we don’t catch the smart ones.”  This kind of comment would usually come after we might have come back from court in a case where the accused did something so colossally stupid to almost guarantee his or her getting caught — like writing a bank robbery demand note on the back of his pay stub.  (Yes, that really happened in one of my cases.)

The joke was a kind of tacit acknowledgment among us that with all the crimes out there to investigate, and all the many different priorities of law enforcement, smart criminals know how to cover their tracks a little more intelligently, or at least to avoid steps that will put them on the immediate radar screens of investigators and prosecutors.

Fortunately for prosecutors everywhere, stupid criminals abound.  And by stupid, we don’t mean poorly educated.  We mean, in many instances, so blinded by their own greed and self-delusion that they can’t understand how their behavior will look to the rest of the world.

Last week, a 63 year old physician in sunny Florida was sentenced to 17 years of non-parolable time in prison (the judge seems to like round numbers, like 80), for having bilked Medicare of at least $73 million in a five-year period between 2008 and 2013.  That’s roughly $14 million per year, or more than $1 million per month of fraud.

Dr. Salomon Melgen had been considered a prominent eye doctor.  But something went terribly wrong along the way for the Harvard-trained physician.  In a two month trial last November, the government proved a vast pattern of bilking the taxpayers, primarily Medicare, for unnecessary treatments and tests, for “upcoded” bills and the like, totaling 67 criminal counts of conviction in all.  His pretrial release was revoked upon conviction and he’s been in custody since November.  A week and half ago, in late February, the sentencing judge held a hearing to determine, among other things, the extent of the loss to taxpayers.  The government argued for $136 million; the judge found that $73 million had been proven.  See http://wapo.st/2GXMCXd.  It was that same day that the 17-year sentence was handed down.

While every case is different from every other, there are some familiar patterns here.

First, our trillion-dollar-per-year health care economy is run, at least with respect to government insurance programs, on an honor system.  For the most part, claims that are submitted get paid, and problems that are identified get chased later.  (This is the so-called “pay and chase” system.)  What that means, as Dr. Melgen proved, is that defrauding Medicare and Medicaid is pretty darned easy.  An up-coded bill here, an unnecessary test there, pretty soon it’s real money.

Second, as most prosecutors will tell you, greedy people don’t suddenly stop being greedy after they’ve had a taste of their ill-gotten gains.  They usually acquire a taste for more.  Sometimes they just can’t hold back, which seems to have been the case with Dr. Melgen.  Now it’s not just the occasional upcoded bill, but masses of them.  And not the occasional unnecessary test, but a raft of them.  Fancy houses, fancy cars, fancy connections to politicians… a taste of life in the fast lane.

Next thing you know, however, you’re on some law enforcement agent’s radar screen.  Some patient might have complained.  Some whistleblower might have noticed your up-coding.

And now that Florida retirement is looking so, so different.

HIPAA: Blowing the Whistle While Respecting the Law

Prospective whistleblowers should be aware of HIPAA and its implications for establishing a viable case. Documentary proof can be helpful in building a case because a it strengthens credibility. This is particularly true for health care fraud cases.  Most courts require a whistleblower to identify specific examples of bills paid by the government that have been affected by fraud.  A whistleblower is unlikely to know invoice numbers, patient names, dates of service, etc., without some documents.

But which documents can a whistleblower rely on to help make out her claims?  We have previously discussed how an employee’s duties, Attorney-Client Privilege and other considerations provide modest limits on a Whistleblower’s right to copy documents to support her allegations. In addition certain types of documents require special care. Among these “special” categories, are documents that identify patients and implicate the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”).

What is HIPAA?

HIPAA authorized a nationwide set of privacy and security standards for health care entities – including health care providers, health plans, health care clearinghouses and their business associates – preventing the dissemination of “individually identifiable health information.” Referred to as “protected health information,” (PHI), includes any information that relates to an individual’s health or condition, provision of health care, or payments for health care, and identifies the individual or could reasonably be used to identify the individual. PHI includes both the obvious – Name, address, birth date, social security number- and the not so obvious – Dates of treatment, medical device identifiers and serial numbers, and associated IP addresses.

HIPAA Can Cause Trouble for Whistleblowers

Whistleblowers have run into trouble due to perceived carelessness with HIPAA-protected information in the past. For example, a California court ordered a whistleblower to return to the defendant all documents and notes containing HIPAA-protected information, concluding that HIPAA precluded the relator from obtaining and sharing with his attorney documents containing protected health information. Rutherford v. Palo Verde Health Care Dist., No. EDCV13-1247JAK(SPx), 2014 WL 12632901, at *13 (C.D. Cal. Apr. 17, 2014). Even more concerning, a Florida Magistrate Judge recommended sanctions for a relator and his counsel who had attached patient identifying information to a complaint to compensate the defendant for its costs in notifying patients that their identifying information had been released. United States ex rel. Alvord v. Lakeland Reg’l Med. Ctr., Inc., No. 8:10-CV-52-T-17EAJ, 2012 WL 12904676, at *6 (M.D. Fla. Sept. 14, 2012).

Whistleblowers and their Lawyers Should Know HIPAA Safe Harbors

However, HIPAA contains important safe-harbors designed to permit vital whistleblower activities. So long as whistleblowers and their counsel know of and abide by those safe harbors, HIPAA should not stop them from reporting their allegations of fraud to the government. These safe harbors are the topic of part two of this series. Protecting patient confidentiality is a complicated issue and whistleblowers and their attorneys are not relieved of the obligation to safeguard this information. Because of the unique nature of each case, these issues highlight the importance of speaking with experienced counsel well versed in health care fraud and the issues involved when considering the decision to blow the whistle.

Don’t Believe the Hype – United States ex rel Greenfield v. Medco Health Solutions: Third Circuit Reaffirms the Breadth of False Claims Act Liability for Illegal Kickbacks

Courts have long held that to prove a False Claims Act case premised on illegal kickbacks, a plaintiff need not prove that kickbacks caused specific claims because “[t]he Government does not get what it bargained for when a defendant is paid by CMS for services tainted by a kickback. ”  See, e.g., U.S. ex rel. Wilkins v. United Health Grp., Inc., 659 F.3d 295, 314 (3d Cir. 2011); United States ex rel. Hutcheson v. Blackstone Medical, Inc., 647 F.3d 377, 393 (1st Cir. 2011) (rejecting defense “services that would have been provided in the absence of” violations.”). The Third Circuit recently addressed this standard in its affirmance of a district courts dismissal of FCA claims in  United States ex rel. Greenfield v. Medco Health Sols., Inc., No. 17-1152, ___ F.3d ____ (3d Cir. Jan. 19, 2018).  Predictably, commentators are already claiming that the decision alters this analysis now requiring plaintiffs to link kickbacks to “specific false claims” to make out a False Claims Act violation.

Greenfield reflects no such sea-change in law.  Rather, it applied the Wilkins rule — that claims “tainted” by kickbacks are false — to the less common situation where kickbacks are paid in exchange for “recommendations” rather than referrals.

Anti-Kickback Statute

The Medicare and Medicaid Fraud and Abuse Statute (the “Anti-Kickback Statute” or “AKS”), 42 U.S.C. § 1320a-7b(b), is a criminal statute that prohibits soliciting or receiving or offering or paying anything of value to induce any person to induce use of a service for which payment may be made under a federally-funded health care program. 42 U.S.C. § 1320a-7b(b).


The prohibitions on referring and furnishing – (“‘A’ Prohibitions”), are generally directed at healthcare professionals and prevent the corruption of their medical judgement when they perform procedures refer their patients to other providers.  § 1320a-7b(b)(1)(A), (b)(2)(A).  The prohibitions on “purchasing, leasing, or ordering” and “arranging or recommending” (“‘B Prohibitions”) are much broader and directed to patients themselves, marketers, and authoritative third-parties to protect the public fisc against their corruption. § 1320a-7b(b)(1)(B), (b)(2)(B).  Since 2010, the AKS has explicitly stated that “a claim that includes items or services resulting from a violation of this section” is a false claim.  Id. at § 1320a-7b(g).  That language reflects pre-2010 case law as well.  See United States ex rel. Westmoreland v. Amgen, Inc., 812 F. Supp. 2d 39, 52 (D. Mass. 2011).

Most AKS litigation involves “A prohibitions” where the connection between the kickback and the good or service is straightforward –when a medical professional receives kickbacks for a particular good or service, the services actually performed and goods or services actually referred are false or fraudulent under the FCA. But with “B Prohibitions” it is less clear which claims “resulted from” kickbacks.  That was the issue presented in Greenfield.

Greenfield Confirms Kickbacks Cause False Claims

In Greenfield, Medco subsidiary Accredo Health Group Inc, a specialty pharmacy focused on hemophilia patients donated several hundred thousand dollars to hemophilia-related charities, in exchange for recognition as an “approved” provider that provides “the highest quality of care,” and links from the charities’ websites along with an admonition to visitors to “[r]emember to work with our” approved providers.  Greenfield, Slip Op. at 5. The charities provided their “treatment centers with lists identifying [approved] specialty pharmacies” including Accredo.  Id.

Thus, Accredo’s hundreds of thousands of dollars in “charitable donations,” induced trusted patient-focused charities to recommend Accredo’s services to the vulnerable populations they served.  This is precisely the corruption of trust that the AKS prohibits, nor was there any dispute in Greenfield that this arrangement violated the AKS.

The only question was which claims “resulted” from the kickback arrangement.  The district court concluded that “resulted” means “caused” and held that a plaintiff must provide “some evidence” that federal beneficiaries “chose [the good or service] because of” the kickbacks. Greenfield, 223 F.Supp.3d at 230.  In other words, a plaintiff would have to produce evidence regarding the subjective intent of the patients.  On appeal, the U.S. Government filed an amicus brief arguing that this requirement misstated the law.  Reviewing the statutory text and legislative history, the Third Circuit agreed with the Government and Plaintiff that nothing “requires a plaintiff to show that a kickback directly influenced a patient’s decision to use a particular medical provider.”  Greenfield, Slip Op. at 18.

Third Circuit Interprets “Link” Between Kickbacks and Claims Broadly

While “a ‘link’ is required” to establish that claims “resulted” from kickbacks, the appeals court’s analysis makes clear that the link may be quite broad.  Id.  In the context of Greenfield, that meant only that the plaintiff must produce some evidence that patients who utilized Accredo’s services had been exposed to the charities’ recommendations.  Id. at 21.

The plaintiff, however, offered no evidence whatsoever of any link, relying on the mere fact that Accredo submitted claims during the same time period that it paid kickbacks.  The Third Circuit recognized that the outcome would have been different with evidence ”that any of Accredo’s 24 federally insured patients viewed [the] approved provider list or that [the charities] referred the federally insured patients to Accredo through some other means” or even that “federally insured patients were members of [of the charities] and thus recipients of [the] communications.”  Id.

Thus Greenfield does not in any way suggest the need to show a heightened link between kickbacks and the resulting claims. Indeed, Greenfield appears to make no change when False Claims result from a medical professionals referrals under “A prohibitions” and illustrates the breadth of kickback arrangements that give rise to False Claims Act liability.

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.

BU Law Class Takes On the Food Drug and Cosmetic Act

It wasn’t the first time, and it won’t be the last.


Sometimes during the semester of BU Law’s Health Care Fraud and Abuse seminar led by Whistleblower Law Collaborative Attorney Bob Thomas, news stories or case announcements surface at just the right time.  So it was this week — twice.


First, the U.S. Department of Justice announced last week the criminal plea of drug wholesaler AmerisourceBergen to charges of intentional misbranding of five oncology drugs that the company had manipulated and repackaged, putting patient health and safety at risk.  (See criminal information and plea.)  Then, just a few days later, the Washington Post and CBS News teamed up on a 60 Minutes Broadcast that exposed a deeply troubling effort by drug companies and distributors to strip the Drug Enforcement Administration of its powers to regulate the illegal distribution of opiates, despite an epidemic of opiate abuse in this country that is killing tens of thousands of Americans every year.


So it is not difficult to emphasize to students the relevance of the materials they are reading and analyzing.


The Food Drug and Cosmetic Act is a broad statute empowering the federal government (specifically the Food and Drug Administration) to regulate industry’s manufacturing and distribution of food and drugs.  Of particular relevance to the course on Health Care Fraud and Abuse are the concepts of 1) off-label marketing of drugs, 2) misbranding of drugs, 3) adulteration of drugs, and 4) compliance with Current Good Manufacturing Processes (“cGMP”) standards.


The statute provides a range of remedies for the agency to employ against industry misbehavior or mistakes.  There are criminal penalties for knowing misconduct, misdemeanor criminal liability for corporate executives who “should have known” and/or been able to stop misconduct, civil liability for damages and/or injunctive relief, as well as a range of administrative remedies, including inspection and recall powers.


Importantly, the statute can be used in combination with the False Claims Act to give the agency the power, in conjunction with the Department of Justice, to sue the drug companies for treble damages.  The seminar studied the case of U.S. rel. Eckhard v. Glaxo, a case from Puerto Rico and highlighted in a 60 Minutes expose, in which Glaxo failed to correct serious manufacturing deficiencies despite the repeated efforts of an employee-turned-whistleblower and despite the alarming list of “adverse patient events” from product mix-ups.  This was the first major case of FDCA manufacturing problems being combined with a False Claims Act theory of liability — the theory being that the government (e.g., Medicare, Medicaid) paid for things that were not what they purported to be and were therefore false claims.  This theory of liability has been followed many times since then, including last week’s AmeriSourceBergen plea, which dealt with oncology drug misbranding on a truly massive scale.  (Although this was a criminal plea under the Food Drug and Cosmetic Act, AmeriSourceBergen is also subject to civil False Claims Act suits relating to the same facts, according to its public statements, but those suits have not yet settled or been litigated.)


What these cases show, among other things, is how extraordinarily powerful the drug industry is in dealing with the federal agencies and with Congress, how the regulating agencies are often outgunned at every level in their efforts to police misconduct, and the essential role played by whistleblowers in the government’s attempt to protect the public and recoup its own financial losses due to this misconduct.


Next week Whistleblower Law Collaborative Attorney David Lieberman will help the students in the course unpack the often mystifying rules around the Stark Laws, another tool in the government’s anti-fraud toolbox.

Class Four: How to Influence Physicians Without Running Afoul of the Anti-Kickback Act

In the BU Law School Health Care Fraud and Abuse seminar, the topic this week is the anti-bribery law known as the Anti-Kickback Act, a criminal statute. The law prohibits the solicitation, receipt, or offering of “any remuneration,” direct or indirect, in cash or in kind between a vendor of drugs or devices and a provider (doctor or hospital) if such remuneration is tied in some way to referrals of business. It is a sweeping statute, designed to stop economic influences from driving physicians’ medical decisions.


There are all sorts of cases that have arisen under this law, from brazen cash-under-the-table bags of cash to much more subtle forms of “inducement.” Regulated industries have adopted voluntary codes of conduct on this topic, and virtually every pharmaceutical company compliance plan addresses this issue in some form or another. But still companies keep getting in trouble.




Part of the reason is that very few companies have adopted any alternative to the traditional eat-what-you-kill model of compensating their sales representatives. Generous bonus structures usually allow sales reps to greatly increase their compensation if they tear the cover off the ball in selling the product. Reps who hit high numbers that are out of line with their peers are often held up as heroes rather than being subjected to scrutiny about how they achieved such anomalous results. Reps who don’t push the envelope are often treated as laggards or simply let go.


One thing should be clear, though. It is not the sales reps who drive the numbers game; they are simply the troops following the orders. Sales targets are put in place by management, who often has investor and Wall Street expectations in mind. So there is an inherent tension between profit maximization and compliance with the law. Companies that have gotten in trouble with the AKA have failed to manage that tension.


For class this week, the students were given the following assignment to consider: “Assume that there are two similar products on the market, bioequivalent and the same in every way that matters (safety, efficacy, price, ease of administration). They are made by two competing companies who care very much about market share and are willing to be very aggressive in making sure that the other company doesn’t increase its market share to their detriment. The question arises: how can we get more doctors to write our drug rather than the competitor’s? In light of the AKA, what can you do to get their attention and potentially influence their prescription writing practices, without running afoul of the AKA?


Answers included:


Major advertising expenditures, both in television, trade journals, magazines and social media.


Attractive branding and naming of the product.


Making targeted charitable donations to earn goodwill in the community of patients and providers.


Hiring (or continuing to hire) very good looking, outgoing, friendly sales reps. (This suggestion was partly in jest, but only partly!)


Offering free screenings to patients.


Offering direct-to-consumer coupons to prospective patients.


Determining whether any beneficial arrangements can be made with third parties, such as pharmacies, group purchasing associations, wholesalers, and pharmacy benefit managers.



Welcome to the world of trying to make a profit while staying out of serious trouble. It’s tricky out there!

Health Care Fraud and Abuse Class Three: Taking on Theories of Liability

This week’s class at BU Law School in Bob Thomas’ course on Health Care Fraud and Abuse started the deep dive into theories of liability under the False Claims Act, and recent ways in which the law has evolved.


Starting with the language from the False Claims Act, the question of what actually is “false or fraudulent” within the meaning of the law was a good place to start.  Most “claims” are on their face truthful (e.g., provider treated patient in XYZ manner on ABC date), so how does the statute capture concepts of falsity or fraud in these circumstances?  If a doctor’s medical judgment has been polluted by a kickback or by illegal off-label promotion, for example, how does that make the doctor’s claims for reimbursement “false or fraudulent”?


Courts grappling with this question came up with their own body of judge-made law, using concepts of “express” and “implied certification” to hold (sometimes) that as a “condition of participation” in government health care programs or a “condition of payment”, there can be embedded in every claim an express or implied certification of compliance with applicable laws.  Thus, the argument goes, the government requires that contractors obey applicable laws and contracts only for “taint-free” services and is entitled to reimbursement where claims, even those that on their face are truthful, have been tainted by illegality.  The entity engaged in the bad conduct “caused” the doctor to submit a tainted claim, the theory goes.


Some courts have had trouble with these concepts, particularly where the non-compliant activity was, relatively speaking, trivial in nature or something that the paying government agency was already well aware of.  The Supreme Court recently clarified this complicated landscape — to a degree — in its Escobar decision of 2016.   In Escobar, the Court held that “implied certification” is a valid theory of liability, BUT that only false claims “material” to the agency’s payment determination would count for liability under the FCA.   In other words, if the transgression, had it been known, would have had a reasonable chance of changing the agency’s decision to pay the claim, then it’s material.  Lawyers have been quick to point out, however, that “materiality” is a factual question requiring discovery from government agencies.  So while it may be easier for whistleblower suits to survive initial legal challenges (motions to dismiss), the discovery phase of a case could be tricky as defense lawyers try to prove that a paying agency such as the Center for Medicare and Medicaid Services (“CMS”) was sufficiently aware of the issue and didn’t care enough about it to deny the claims.  Lots of work for lawyers ahead on that front.


As an example of an “implied certification” type claim, the seminar explored the current state of liability theories relating to “off-label promotion” of drugs and/or medical devices.  This theory, long a favorite of prosecutors, is premised on the notion that the marketing of unapproved uses of drugs or devices can lead to FCA liability.  While doctors are free to write prescriptions off label, companies are constrained by regulations from the Food and Drug Administration (“FDA”) in what they can say to promote such uses.  Running afoul of those restrictions has landed many a company in hot water on the theory of implied certification:  that claims are valid only if they are not tainted by illegal activity that caused the claim to happen.


Recently, however, the defense bar has successfully argued for a free speech (First Amendment) limitation on such FDA regulation and FCA liability.  The argument, successfully advanced in a Second Circuit case known as Caronia, is that if there is nothing false or misleading about off-label promotion, it must be protected by the “commercial speech” doctrine under the First Amendment.  The Supreme Court has not taken this question up directly, so Caronia is the law only in the Second Circuit Court of Appeals, but prosecutors are now forewarned that any off-label case they bring should include, at a minimum, some showing of falsity or deception, or some material omission in the communications in order to survive a defense challenge under the First Amendment.


Finally, as a way of tying together some of these concepts of “materiality” under Escobar and deceptive marketing, the class examined the tricky fact pattern that is often presented in off-label scenarios:  where the FDA has expressly not approved a certain use, but CMS has decided, based on available data in certain “compendia”, to reimburse off-label claims anyway.  Under Escobar, the fact that the paying agency is aware of the off-label promotion and literature, even reviews it, and pays the claim anyway makes prosecution of an off-label case highly problematic.  A prosecutor or whistleblower lawyer would need, for an FCA case to survive, substantial evidence of false and deceptive practices, or other illegal conduct like kickbacks, to keep such a case alive.


Speaking of kickbacks, that’s what the class will talk about next week.

Second Session in Health Care Fraud and Abuse Seminar Focuses on False Claims Act

At BU yesterday, the Health Care Fraud and Abuse did its first deep dive into the False Claims Act, the government’s primary weapon in this field and an extraordinarily versatile tool.  The statute allows federal prosecutors to seek treble damages, plus penalties of $11,000 per false claim, plus possible exclusion and debarment from the government health insurance programs.



For reading, the class took on the statute itself, as well as Department of Justice statistical records showing how much money has been recovered over the years via the False Claims Act (over $40 billion).  Moreover, the trend is clear that increasingly each year, the government relies on whistleblower suits for its investigative leads, as these suits now account for a greater amount of recovery that suits initiated by the government itself.



Several key points were stressed in the review of the statute:



How the liability provisions include not only the submission of false claims but causing them to be committed, conspiring to have them be submitted, and also the retention of overpayments.


How the intent standard of the law does not require “specific intent” but can be satisfied with a lesser showing of intent, like “reckless disregard” for the law.


How certain hurdles are embedded on the statute that can make success in these cases difficult to predict, like:  the first to file requirement, the public disclosure bar, the Rule 9(b) specificity pleading standards, and 4) the “government knowledge” and “materiality” issues.  And


How the federal FCA and 30 state FCAs inter-relate and how law enforcement coordinates on these matters.



Of course, we covered as well the role of whistleblowers and their counsel in identifying these cases, bringing them to the government, and helping the government investigate and prosecute them.



The students asked excellent questions throughout.



Next week:  The FCA in action:  theories of liability, First Amendment defenses to “off-label” cases, and the new materiality standard of Escobar.

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.