No “Contracting Out” of Whistleblower Liability

sullivan_charlesThe recent Supreme Court decision in Lawson v. FMR LLC,  which dramatically expanded the reach of the Sarbanes Oxley Act, is interesting in a number of respects – not least because it involved what my colleague Professor Timothy Glynn describes as “employeeless employers.” The decision has obvious implications for the publicly traded sector in the health care industry, and especially for firms who contract with such companies.

Apparently, the mutual fund industry is structured, as the court said, to have literally no employees. Each mutual fund contracts with other entities to provide all the services necessary for its operation. This means that most of the laws governing work in the United States – which are typically framed in terms of the obligations of “employers” to “employees” – simply don’t apply: an individual doing work on behalf of one of these funds is, technically not working for it but rather for some other entity.

Of course, the fact that, say, Title VII, doesn’t cover a mutual fund per se may not matter much – most of the firms through which it operates are themselves “employers” within the meaning of that statute, which means that the workers in these firms have the kinds of protections that Title VII offers.

But SOX, as the Sarbanes Oxley Act is known, is different. Passed in the wake of the Enron scandal, its whistleblower provision, 18 U.S.C. §1514A, bars any publicly traded company (and most subsidiaries and affiliates) from discriminating against “an employee” for providing information for what she reasonably believes to be a violation of the securities laws. If a mutual fund has no employees, it can scarcely discriminate against them.

Of course, since mutual funds operate through other firms, the aim of SOX – which was to encourage the reporting of violations both internally and to federal regulators and Congress by protecting those who blew the whistle – that reality would seem to mean that retaliation by the entities who actually do the work was not barred, which would mean that the goals of SOX in an industry like this would be largely frustrated.

That policy argument for reading §1414A broadly certainly featured in the Lawson decision, but the majority opinion had no need to reach its result just on policy grounds: SOX explicitly bars retaliation not only by a publicly traded company but also by “any officer, employee, contractor, subcontractor, or agent” of such a company. Since the firms that actually operate the business of mutual funds do so under contract, they are “contractors” and thus explicitly within the statutory language.

But hold it: while contractors are prohibited from retaliating against employees, are they barred from retaliating only against the publicly traded company’s workers (remember, there are none in the mutual fund industry) or against their own employees?

Either interpretation poses problems: contractors are rarely in the position to retaliate against the employees of the company with whom they contract, which would make the statutory language largely irrelevant. On the other hand, to hold that “any officer, employee, contractor, subcontractor, or agent” can’t retaliate against its own workers would lead to the absurdity, as the dissent argued, that, say, an officer of a publicly traded company couldn’t retaliate against someone who had no connection to the company at all – his babysitter or housekeeper.

The arguments on both sides were not uninteresting, with Justice Ginsburg’s plurality opinion and the dissent of Justices Sotomayor, Kennedy, and Alito (an unlikely alliance!) debating such esoteric issues as how much interpretive weight to give statutory headings, the effect of the subsequent enactment of Dodd Frank on the meaning of SOX, and what agency had authority to interpret SOX (the candidates being the Department of Labor, which processes administrative charges of violations, and the SEC, which is charged with enforcing the securities laws).

But the bottom line was clear: the plurality, joined by a concurrence of Justices Scalia and Thomas (who viewed the plurality as going too far “beyond the interpretive terra firm of text and context, into the swamps of legislative history”), held that contractors could not retaliate against their own employees for conduct that would be protected under 1514A. Although the plurality recognized the babysitter problem, but thought it “likely more theoretical than real. Few housekeepers or gardeners, we suspect, are likely to come upon and comprehend evidence of their employer’s complicity in fraud.”

In short, for a Court that has recently often rendered opinions cutting back employee rights under federal statutes, Lawson is a very unusual and expansionary opinion.


Recent Research Regarding Potential Best Practices for Prescription Drug Monitoring Programs

October 17, 2012 by · Leave a Comment
Filed under: Fraud & Abuse, New Jersey 

tara-ragoneAs this blog has chronicled (see here and here), New Jersey has begun implementing the 2008 legislation that authorized creation of a Prescription Drug Monitoring Program (“PMP” or “PDMP”).  Although New Jersey’s PMP database has been collecting data for more than a year, the State has not yet issued implementing regulations to flesh out the details of the program beyond what the statute requires, such as the specific information and in what time frames pharmacies must make reports and the scope of interoperability agreements with other States.   The Prescription Drug Monitoring Program Center of Excellence at the Heller School for Social Policy and Management at Brandeis University released “Prescription Drug Monitoring Programs: An Assessment of the Evidence for Best Practices” on September 20, 2012, which provides much for the State to consider as it moves forward.

As its title suggests, this White Paper aims to identify potential PDMP best practices, evaluate the evidence supporting labeling these as best practices, and survey the extent to which PDMPs throughout the country have adopted them.

After tracing PDMP development  from its early roots  in the 1980s and summarizing evidence suggesting that PDMPs are effective in improving the prescribing, and addressing the abuse, of controlled substances, the report identifies thirty-five potential best practices for these programs, including:

1.       Standardizing data fields and formats across PDMPs to improve the comprehensiveness of data, comparability of data across states, and ease of integration with prescription information collected by potential PDMP collaborators, like Medicaid, the Indian Health Service, the Department of Veterans Affairs, and Department of Defense.

2.       Reducing data collection intervals and moving toward real-time data collection to improve the utility of information collected for clinical practice and drug diversion investigations.

3.       Integrating electronic prescribing with PDMP data collection to facilitate communication with electronic prescribers and facilitate monitoring of prescriptions as they are being issued as well as before and after they are dispensed.

4.       Linking records to permit reliable identification of individuals (patients or prescribers), which is necessary for accurate analysis of trends and potential questionable behavior.

5.       Determining validated and standardized criteria for possible questionable activity.

6.       Conducting epidemiological analyses for use in surveillance, early warning, evaluation, and prevention to identify trends in prescribing and questionable behavior, which may inform public health objectives.

7.       Providing continuous online access and automated reports to authorized users to encourage utilization.

8.       Integrating PDMP reports with health information exchanges, electronic health records, and pharmacy dispensing systems to make it more efficient to access data.

9.       Sending unsolicited reports and alerts to appropriate users based on data suggesting potentially questionable activity, such as doctor shopping or inappropriate prescribing.

10.   Enacting and implementing interstate data sharing among PDMPs to address interstate diversion and doctor-shopping.

11.   Securing funding independent of economic downturns, conflicts of interest, public policy changes, and changes in PDMP policies, such as from grants, licensing fees, general revenue, board funds, settlements, insurance fees, private donations, and asset forfeiture funds.

12.   Conducting periodic review of PDMP performance to ensure efficient operations and to identify opportunities for improvement.

The authors noted, however, that good research evidence is not available to support the value of the vast majority of these potential best practices because “research in this area is scarce to nonexistent.”  Thus, they suggested a prioritized research agenda with the goal of strengthening the evidence base for practices they believe have the greatest potential to enhance effectiveness of PMP databases and that can be studied using scientific techniques like randomized controlled trials or observational studies with comparison groups.  Specifically, the report recommends focusing research and development on (a) data collection and data quality; (b) linking records to identify unique individuals; (c) unsolicited reporting and alerts; (d) valid and reliable criteria for questionable activity; (e) medical provider education, enrollment, and use of PDMP data, which includes the question of whether to require providers and dispensers to access the database; and (f) extending PDMP linkages to public health and safety.

The report makes valuable recommendations that will help guide policy makers as these programs continue to evolve.  Despite its many strengths, however, the report gives short shrift to a critical area for ongoing monitoring — whether PMPs have a chilling effect that makes it more difficult for patients in pain to obtain appropriate, palliative care.    Although this concern is mentioned in passing in various places in the report, it is not expressly incorporated into the authors’ conceptualization of how we should evaluate PDMP effectiveness.  Indeed, it is dismissed as potentially overblown even though Appendix A to the report notes that twenty-three percent of Virginia doctors in a 2005 survey who believed their prescribing was being more closely monitored because of the PDMP “reported it had a negative impact on their ability to manage patients’ pain.”   Admittedly, other studies summarized in the appendix found no chilling effect.  But given the article’s critique of most studies as lacking empirical rigor and its call for more scientific study, it seems prudent to encourage empirical research to evaluate this concern.  Recognizing that “an explicit goal of PDMPs is supporting access to controlled substances for legitimate medical use,” an August 20, 2012 [fee required to access] report from the Congressional Research Service suggested that “[a]ssessments of effectiveness may also take into consideration potential unintended consequences of PDMPs, such as limiting access to medications for legitimate use . . . .”  (Although the August 20, 2012 CRS report does not appear to be available without charge on the internet, a July 10, 2012 version of this report is available here.)

With this caveat in mind, the Brandeis report undoubtedly is a valuable resource to policy makers and academics as they consider how to make the most appropriate and efficient use of PMPs.  New Jersey can build on this knowledge base as it decides how to make use of its PMP.  As the White Paper’s laundry list of potential best practices makes clear, the State has a plethora of options to research and consider.  If New Jersey adopts the proposed regulations permitting electronic prescribing of controlled substances, for example, it should consider how it can integrate electronic CDS prescription records with its PMP.  Given the statutory authorization to share data with other States, New Jersey also can learn from the experiences of States that are adopting standardized data formats and implementing interoperability agreements with other States.

The State also should evaluate the evidence that unsolicited reports increase the effectiveness of PMPs and whether legislation and/or regulations would be required to authorize their use in New Jersey.   A related issue is what criteria to adopt to define potentially questionable behavior that would trigger an unsolicited report, which must balance the risks of false negative and false positive reports.

Similarly, the State may wish to explore the advantages and costs of moving toward a real-time database rather than its current design that requires dispensers to report at least twice per month.  The Alliance of States with Prescription Monitoring Programs’ PMP Model Act 2010 Revision recommends that pharmacies submit data no more than seven days from when the script was dispensed, and Oklahoma is implementing real time reporting.  (A recent study published in CMAJ found a 32.8% relative reduction among residents receiving social assistance in inappropriate prescriptions for opioids and a 48.6% reduction in inappropriate prescriptions for benzodiazepines within thirty months of implementation of a Canadian centralized database containing real-time prescription data.)

New Jersey also could study the experiences of various states like New York that are requiring certain prescribers and dispensers to register with the State’s PDMP and, in some cases, to check the database before authorizing or dispensing prescriptions for CDS.  A research study underway in Utah may shed some light on whether mandating provider participation in PDMPs improves effectiveness.

In general, the State may wish to research how to strike the appropriate balance between educating prescribers, dispensers, and patients of the risks of prescription abuse and punishing those involved with diversion or abuse.

Because virtually all of these policy choices also involve substantial costs to research and implement, New Jersey might wish to pursue alternative sources of funding, such as grants available through the federal Harold Rogers Prescription Drug Monitoring Program or the National Association of State Controlled Substances Authorities.


Anti-Fraud Efforts Intensify, Broaden

August 14, 2012 by · Leave a Comment
Filed under: Fraud & Abuse 

Health Law, anti-fraudOver the last few weeks, the fight against healthcare fraud has prominently been in the headlines.

First, late last month the Obama administration announced a joint effort between the federal government and major health insurance companies to fight fraud.  According to the New York Times, under the partnership – called the National Fraud Prevention Partnership – the federal government and health insurance companies will share data, trends, and tools to find “upcoders” and other fraudulent billers.  As the article indicates, it is a partnership that makes much sense from the federal government’s perspective as the financial strain on the federal healthcare programs grows ever-tighter, and the return-on-invest for the governments’ fraud investigations is somewhere between $7-to-$1 and $15-to-$1 – no matter the actual number, a good investment for Uncle Sam.

Second, just last week, the New York Times reported that Hospital Corporation of America (“HCA”) Healthcare, the major for-profit hospital chain that owns 163 hospitals across the country and a party that has been no stranger to fraud settlements in the past, is under investigation for unnecessary cardiac procedures at its hospitals that sometimes resulted in clear patient harm.

With anti-fraud tools built in to the Affordable Care Act, an increase in funding to fight healthcare fraud throughout the country, and intensified focus, expect the anti-fraud efforts of the federal agencies to not only continue, but intensify.  Those providers who offer clearly unnecessary procedures will have very little defense.  Indeed, in addition to overbilling the federal-government and private insurance payors, causing the costs of healthcare for us all to increase, these providers are harming patients by subjecting them to more (and often dangerous) care – which sometimes results in life-threatening harm for no reason.

However, with these increased resources, the challenge of differentiating which cases reflect clear, intentional, and fraudulent overtreatment from the investigations that reflect poor or inefficient decision-making by the provider will be formidable.  And with the blunt, unforgiving False Claims Act in the back pocket of the federal government’s investigators, providers should take extra caution when trying to decide whether or not to order that extra test or procedure.


Rigid, Severe Penalties of FCAs On Full Display

April 15, 2012 by · 1 Comment
Filed under: Fraud & Abuse, Health Law 


News of the $1.2 billion verdict against Johnson & Johnson and its subsidiary Janssen Pharmaceuticals Inc. for their roles in marketing Risperdal during the middle of last decade sent reverberations through the industry earlier this week.  The award resolved Arkansas’ claims that the companies fraudulently marketed the “second generation” antipsychotic, misleading doctors and deceiving the state’s Medicaid program into paying for 239,000 prescriptions of the drug.  Specifically, the state claimed the companies minimized Risperdal’s dangerous side effects by not disclosing the risks on its label, marketed the drug for unapproved uses, and characterized it as more effective than competitors’ drugs.

After the jury found that the companies had misled doctors about the risks associated with Risperdal, Judge Tim Fox awarded $11 million for the violation of the state deceptive trade practices act. Further, Judge Fox turned to the Arkansas’ False Claims Act (FCA) – which carries a minimum $5,000 civil penalty for each violation of the Act (the federal FCA requires a minimum civil penalty of $5,500) – and applied Arkansas’ statutory penalty to the 239,000 prescriptions of Risperdal paid for by Arkansas Medicaid between 2002 and 2006, totaling $1.195 billion in damages.  According to Janssen, the state paid only $8.1 million for Risperdal during the 3½ year time period, which amounts to less than 1% of the damages amount.  The companies plan to appeal.

Arkansas adds itself to a growing list of states taking legal action relating to Risperdal’s marketing – trials in Louisiana and South Carolina have already resulted in damage awards of $258 million and $327 million, respectively.  Earlier this year, the state of Texas settled its allegations for $158 million.  And the federal government is also pursuing the companies, reportedly seeking between $1.3 and $1.8 billion to resolve its claims.

The Arkansas award provides an opportunity to engage in serious “Monday morning quarterbacking” as to why the companies did not settle the case, with a settlement estimate perhaps as low as $30 million.  In addition to providing an opportunity to second-guess the trial strategy, the court’s award also places the mandatory and stark penalties of state and the federal FCAs – blunt, severe governmental tools – into public discussion.  Due to the statutes’ structures, the damages amounts often far exceed the amounts of monetary damages the government initially suffers.  Further, as in federal fraud recoveries, the award amount does not go to those who may have been personally harmed by the Risperdal marketing tactics (notably, however, at trial, the state failed to show any patient harm, according to Janssen).  Instead, the recovery goes into the Arkansas Medicaid program (which, as pointed out by the Associated Press, is facing a $400 million shortfall for 2013).

The huge damage amount required by the federal FCA prompted one court in a widely publicized non-health-related fraud case in February to refuse rewarding any damages after finding FCA liability.  See U.S. ex rel. Bunk v. Birkart Globistics GMBH & Co., 2012 WL 488256 (E.D. Va. Feb. 14, 2012).  In Bunk, qui tam relators had brought a lawsuit (in which the government eventually partially intervened) alleging that bidders to a contract with the U.S. military had engaged in price collusion.  After the bidder had certified to the government they had independently arrived at their prices and denied collusion, the parties entered into a contract relating to transporting goods belonging to U.S. military members and their families.  Once relators found that the bidders had in fact colluded in setting the price, they brought suit.  The court found the defendants liable under the federal FCA, and proceeded to determine damages.

The defendants had filed 9,136 invoices under the contract, mandating damages under the FCA of at least $50 million (at least $5,500 per violation).  However, the court concluded that the prices under the contract – even if not independently reached – were fair and reasonable.  Further, the court found that the government was not financially harmed, and as such, the statutory penalty constituted an excessive penalty under the Eighth Amendment.  After finding that it lacked discretion to reduce the statutory penalty, the court refused to award any damages to the relators.

Both cases demonstrate the seriousness and rigidity mandated by both the federal and Arkansas FCAs.  Where the Risperdal settlement is staggering in its amount, the Bunk court’s failure to impose any damages is equally stunning.  As the government continues to rely on big FCA penalties to combat and deter healthcare fraud, defendants are incentivized to settle before trial, and more courts may be forced into a Bunk-like analysis.


Ruane v. Levy: Both Sides of the Bar Meet in Health Care Fraud and Abuse Class

March 15, 2012 by · Leave a Comment
Filed under: Fraud & Abuse, Health Law 
Pictured, from left: Bruce A. Levy, Director, Criminal Defense Department, Gibbons P.C.; Maureen A. Ruane, Chief, Health Care & Government Fraud Unit, US Attorney's Office for the District of New Jersey; Chris Zalesky, Vice President of Global Policy & Guidance for Johnson & Johnson

Pictured, from left: Bruce A. Levy, Director, Criminal Defense Department, Gibbons P.C.; Maureen A. Ruane, Chief, Health Care & Government Fraud Unit, US Attorney's Office for the District of New Jersey; Chris Zalesky, Vice President of Global Policy & Guidance for Johnson & Johnson

[Ed note: This article was authored by John Barry '13, a second year law student pursuing a Health Care Concentration at Seton Hall Law.  A native of New York, he graduated in 2005 from the University of Pennsylvania with a degree is psychology.]

Recently, Professor Zack Buck’s Health Care Fraud and Abuse class was treated to a spirited panel on the current state of health care fraud, prosecution and defense.  The panel, meeting again this year to allow students an opportunity to hear details about actual practice from both sides of the bar, was moderated by Chris Zalesky, the Vice President of Global Policy & Guidance for Johnson & Johnson in the Office of Health Care Compliance & Privacy.  Zalesky has more than 20 years of experience in regulatory affairs, quality assurance and research and development functions within the medical device and pharmaceutical industries. He has also taught as an Adjunct here at Seton Hall Law.

The panel included Maureen Ruane, Assistant U.S. Attorney and Chief of the Health Care & Government Fraud Unit for the United States Attorney’s Office, District of New Jersey, and Bruce Levy, an attorney with the firm of Gibbons, P.C.  Ruane served as Assistant United States Attorney from 1998 to 2004, and returned to the office in 2010 after working as a partner in the law firm of Lowenstein Sandler.  Levy, also formerly an Assistant U.S. Attorney, currently focuses his practice at Gibbons on criminal, civil, and administrative cases arising from federal and state health care fraud investigations, health care compliance, The False Claims Act and qui tam cases, corporate investigations, and white collar criminal law.

Touching on a wide variety of topics, Ruane explained that the “sea of health care fraud is so deep” that it affects all aspects of the American health care system, from hospitals to physicians to pharmacies and all other health care providers.  Many of the fraud prosecutions that flow through Ruane’s office come in the form of qui tam actions under the False Claims Act.  Coming from a Latin phrase meaning “[he] who sues in this matter for the king as [well as] for himself,” a qui tam action is a unique fixture of the False Claims Act that allows private citizens to act as whistleblowers and sue health care corporations for perpetrating fraud on the government.  The whistleblower, or “relator,” stands to gain a percentage of the civil damages awarded against the corporations.

Having seen countless relators over her time with the government, Ruane was in a rather unique position to speak about the underlying motivations behind the people who sue on behalf of “king and self.”  Contrary to common thinking, Ruane explained that whistleblowers generally did not act out of greed or a desire to hurt the company.  In fact, she felt the opposite:  most relators were actually intensely loyal to their companies and had usually tried to voice their concerns multiple times in-house before bringing a complaint to the attention of government prosecutors.

Working as defense counsel, Levy voiced the concerns of private industry, in particular about the lack of guidance in the current law.  He stressed that many pharmaceutical companies, hospitals, physicians and health care providers feel as if they are trying to act within the bounds of the law when in reality those boundaries are more blurry than clear.  As an example, Levy talked about how he felt the need for clearer guidance on pharmaceutical marketing of “off-label” medications.   When the Food and Drug Administration approves a medication for use in the U.S. health care market, the drug is approved for a specific use or indication.  However, clinical studies often show beneficial uses for medications for additional aliments, and it is legal for physicians to prescribe the drugs for these other uses.  In addition, Medicare and many private insurers will pay for use of a medication for different indications than what the FDA approved, in effect, subsidizing “off-label” use. There are thus competing federal agency views on medications, with the FDA only approving the drug for a particular use, but the Center for Medicare Services alternatively approving use of the drug for other, off-label uses.  Problems arise because there are complex, and Levy felt unclear, regulations as to how pharmaceutical companies may represent or market the drug for off-label use.  Levy explained that he felt new legislation was required to give clear guidance to the industry.

Both Ruane and Levy, approaching the bar from different perspectives,  engaged in lively conversation and took questions from the audience, giving students numerous real-world examples of the theories and topics they learn about in class.  As might be imagined, bringing with them contrasting prosecution and defense-side perspectives, the two often approached the same issues from opposing viewpoints, providing a unique experience for the class.  However, the one thing they both agreed on was that with rising health care costs directly on the government’s radar, aggressive prosecution of health care fraud will not slow down any time in the future.


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