False Claims Act Litigation Matters
Katie Norris speaks with Matt Turetzky of Norton Law Firm. Matt breaks down his experiences in FCA matters within the healthcare industry and the challenges defendants may face in false claims. Katie and Matt also discuss whistle-blower claims and provide insights on how companies can litigate cases successfully.
TRANSCRIPT
S1 00:08 [music]
Welcome to BRG's ThinkSet podcast. I'm your host, Eddie Newland. BRG is a global consulting firm that helps leading organizations advance in three key areas: disputes and investigations, corporate finance, and strategy and operations. Headquartered in California with offices around the world, we are an integrated group of experts, industry leaders, academics, data scientists, and professionals working beyond borders and disciplines. We harness our collective expertise to deliver the inspired insights and practical strategies our clients need to stay ahead of what's next. For more information, please visit thinkbrg.com.
In this special episode of the ThinkSet podcast, BRG Director Katie Norris speaks with Matt Turetzky, a senior associate at The Norton Law Firm, a litigation boutique based in Oakland, California, that focuses on high-stakes litigation matters. They'll discuss litigating False Claims Act cases and offer guidance for in-house counsel and chief compliance officers in the healthcare and life science industries who are often defending these cases. And with that, let's get started.
S2 01:24 Hello. This is Katie Norris with BRG, and I'm joined today by Matt Turetzky with Norton Law. We're here to talk about False Claims Act litigation matters. These are cases where it's alleged that a company has directly or indirectly caused the government to pay for items or services through fraudulent means. This is a common basis for litigation in the healthcare and life sciences industries, where federal dollars often cover the cost of care, whether that's through conventional healthcare services delivery or the cost of drugs or medical devices that are prescribed to patients by their doctors and then paid for by Medicare or Medicaid or the many other federal programs that exist in our country.
In recent years, we've seen hospitals, pharmaceutical and medical device manufacturers, and even healthcare providers to some extent become more willing to stay the course of litigation rather than to just settle FCA matters outright, but that can be a daunting move. Matt's going to share some tactical maneuvers and other strategies that'll position companies to litigate these cases successfully.
Matt, you represent a number of healthcare and life sciences companies, and your practice is heavily focused on FCA litigation. Can you walk us through the normal arc of an FCA litigation matter?
S3 02:37 Well, there are a number of avenues that defendants have in False Claims Act cases to get the cases dismissed. The False Claims Act is unique because when a plaintiff, known in False Claims Act speak as a relator, comes in and files a case, the relator has to do so and keep that case under seal. So the defendant actually is sitting there conducting its business, doing whatever it's doing, having no idea the whole time that there's a lawsuit, a False Claims Act lawsuit, filed against the defendant, that the Department of Justice is investigating the claims in that case. And only after the Department of Justice has made a decision about what it wants to do is that lawsuit going to be unsealed and then served on the defendant.
So by time the defendant gets the False Claims Act case, usually, there's been some sort of investigation. There may have been a subpoena served on the defendant. The defendant may have responded.
But oftentimes, when that case is unsealed, there is a propensity to just immediately want to make this case go away. And how do we do that? And I think before 2016, that was the typical response—"We have this case. What's it going to take to make it go away?"—because the damages involved in False Claims Act cases can be very intimidating for defendants. There's the possibility of treble damages, civil monetary penalties, and so there historically has been this drive to settle cases early and often.
But after 2016, more and more defendants have been litigating these cases. There are a number of procedural steps that defendants can take in False Claims Act cases to dismiss the case. And of course, given some recent guidance that we've received from the Supreme Court, False Claims Act defendants are now more likely to litigate a case to summary judgment and do so to trial and actually save themselves quite a bit of money doing so.
S2 04:26 So, Matt, as you mentioned, the obvious benefits to litigating a case successfully include, but aren't necessarily limited to, a full dismissal of the allegations at summary judgment, which would, of course, save time and a significant amount of money, especially in absence of a settlement. So we'll call that the Olympic gold medal of false claims outcomes for a defendant. Given this pervasive threat of whistleblower claims and the concept that a whistleblower can be accumulating information at the same time that the company is going about its ordinary business, how can companies successfully position themselves in a proactive stance to litigate these matters?
S3 05:00 So I think—and this is particularly true in the healthcare space—companies that can articulate their story from the outset of litigation are the ones who are best positioned to litigate the case to trial. And in the healthcare context, what that means is understanding the arrangements that you have with various third parties and understanding the Stark implications of those arrangements; understanding the Anti-Kickback Statute implications of those arrangements; and more recently, following the Supreme Court case that I vaguely referenced earlier, understanding how your contracts with third parties may impact potential False Claims Act liability. And what I mean by that is that all False Claims Act cases, what they all boil down to is some claim that's made for payment to the United States government is false. Right? That's the idea of a False Claims Act case.
So in the Stark context and the Anti-Kickback context, that means that there was some sort of arrangement that the client had with someone that violated one of those laws, and as a result, all the claims that were being made to Medicare or Medicaid, that those were false, and so those violated the False Claims Act.
But it could also be true in other contexts, like government contracting, for example. Right? And the question there is going to be whether the claims that were made to the United States government for payment—if the government had known of the alleged falsity, would the government have paid those claims anyway?
And if the answer is yes, then the relator doesn't have much of a False Claims Act case.
And so this all goes to the story. Right? What sort of compliance efforts do you have internally, and are you documenting those efforts? Doing all the things that you should be doing on the front end are essential in order to allow the litigation team to litigate the case, because the only way they're going to litigate the case effectively is by having a story to tell. What you don't want is to find yourself in a situation where, after the lawsuit has been filed, you are now trying to recreate some compliance effort that never occurred in the first place. Instead, being able to tell the court early and often that "This is what we did. This is why what we did is legal. And this is why the relator may not understand the arrangement, or the relator's simply wrong on the law or wrong on the allegations"—all that stuff from the outset of litigation is key.
S2 07:18 You raise a great point there. It seems that there are many times when a whistleblower may have partial information but not access to the full suite of facts that can inform decisions, whether that's business activities or compliance strategies that companies implement in order to maintain good standing with the federal government, really in the opposite context of not violating the False Claims Act and not violating the Anti-Kickback Statute and other similar cases. What can companies do as a matter of course to establish that type of foundation so that their ability to successfully navigate these cases is consistently strong?
S3 07:56 Sure. So I think having counsel who are able to guide the client through the thicket of healthcare regulations that govern Medicare and Medicaid, having counsel who is able to advise clients on how to navigate Stark and Anti-Kickback. These are all highly technical regulations.
And of course, healthcare providers, medical device manufacturers, pharmaceutical companies, these are highly sophisticated companies operating in a highly regulated space, so these are things that they probably know already.
But when these cases come to light, they play out on a very micro level. It's very rare that a False Claims Act case has allegations that go to the very top of some large healthcare business' operations. It's usually some hospital had some arrangement, and that's the arrangement that the relator knew about. And so the relator is coming after that arrangement. Or in the medical device context, it may be there are these specific medical devices among the thousands of medical devices that a large medical device manufacturer may be manufacturing.
And so whatever steps on the compliance side that healthcare companies are taking at the macro level, they have to be constantly assessing, "How is that playing out in practice on the ground?" because by time these cases get to litigation, the litigation team is going to be very focused on a lot of details that are focused on one specific aspect of the business involving one, two, three, or maybe a small handful of medical devices, or one, two, or three hospitals within a massive hospital system. So having those macro-level compliance efforts in place and making sure that they are trickling down to the individual product level or service level—that's absolutely critical in order to set the litigation teams up for success.
S2 09:51 And in the parlance of compliance operations, we consider that to be compliance monitoring, whether that occurs in the live environment or as a function of back-end testing through data collection and analysis, which is something that we recommend occurs on a routine basis at various levels of the organization and involving various business activities structured around a risk calculus, which really dovetails back into something that you mentioned, which is having the counsel to really work closely with the company to advise on things like Anti-Kickback and false claims and Stark—these areas of the law that really pose great risk of litigation, and specifically False Claims Act litigation, as we've discussed. What would you recommend for companies about how to communicate with their counsel, whether that's internal counsel or external counsel, as they try to implement the advice of counsel that's been provided?
S3 10:42 In-house counsel is going to have a role in managing certain business initiatives, and those communications about those initiatives won't necessarily be privileged. In-house counsel will be managing internal complaints and investigations. Those are likely privileged. And then in-house counsel will also be interacting with compliance professionals. These can be people like yourself, Katie, or other lawyers on the outside who are assisting in the compliance efforts. And those communications, they're not going to necessarily be privileged. In fact, if we get to litigation and if you're going to try to maintain an advice of counsel defense, those communications are certainly not going to be privileged.
But in-house counsel's management on this is key. In-house counsel has to understand the different hats that in-house counsel's going to be wearing. Right? In-house counsel may be focused on business initiatives and investigations and compliance, and in-house counsel's going to have to manage those things. Privilege issues have a sticky way of playing out in litigation, and it'll be important for in-house counsels who, on one hand, protect the internal complaints and investigations processes that in-house counsel's managing while, at the same time, walling off whatever advice of counsel defense that the company is trying to create for itself by having compliance professionals like yourself or healthcare attorneys who are regularly communicating with the same in-house counsel.
S2 12:10 And do you have any tips or best practices for executing those communication strategies?
S3 12:16 Absolutely. I think it's critical for not just in-house counsel, because they usually do understand this, but for business folks with whom in-house counsel is interacting with regularity to understand what attorney-client privilege is and what attorney work product is and what that means. That's critical, because it seems to me in the work that I've done that when you get involved in these cases, you find that there are a number of folks who work in the business who regularly communicate with counsel and have this mistaken belief that if they're just cc'ing or even bcc'ing an attorney in the legal department, that they've just applied a blanket confidentiality to this email, and now it's never going to see the light of day in a court case. And that's just not true. That applies only to requests for legal advice and when the attorney's providing legal advice. And oftentimes, in-house counsel is providing business advice.
S3 13:12 In my experience, I've seen a number of business folks confuse attorney-client privilege communications for just standard business communications, and simply bcc'ing an attorney or throwing an attorney-client privilege label on it, that doesn't necessarily get you to the confidential status that you're trying to achieve. And this is key in False Claims Act cases, because you have in-house counsel wearing these multiple hats, right? And when in-house counsel's conducting an investigation, for example, counsel wants to keep those communications privileged, and those communications ought to be privileged. But if you begin blurring the line with the business folks, if the business folks with whom in-house counsel is working, if they don't seem to understand the difference between communications related to the investigation and communications related to the business initiatives, they could easily step into some landmines.
Some best practices that I would advise: one would be to make sure that the business team understands that their electronic memorialized communications with counsel, they should be discreet. They should be to the point. And if they're privileged, they ought to make sure that those privileged communications are separated from nonprivileged communications to avoid the possibility of conflating ordinary business advice with what's going on in an internal investigation.
S2 14:31 I think that's really helpful advice, especially if you think about the way in which cross-functional communications unfold on a daily basis, especially with respect to key activities like interactions with healthcare professionals in the context of a pharmaceutical or medical device company. And those interactions are often the subject of False Claims Act litigation. You can imagine a scenario where a compliance officer seeks advice from their in-house attorney about a particular business objective and understands then what that is, and perhaps that advice involves the routine check-ins with counsel, and the email train can get very confusing.
S3 15:11 Absolutely. And I'm not advocating here that in-house attorneys ought not have business-related communications with their business team. Quite the opposite, right? Katie, I'm sure you've seen this before in many of your cases. It's so easy for in-house counsel and for the business teams to conflate the investigation work that they're doing with business work that they're doing. And the more that they can keep those conversations separate, the better that they will be able to protect the privilege of the internal investigations that they've done. That's why it's important for in-house counsel—when they're dealing with compliance professionals who are providing either opinion letters or helping to negotiate a certain arrangement—it's important to make sure that keeping the final work product separate from the early communications that go into the engagement, and, "Here's what the story is, and here are the efforts that the business is taking right now. Can you please analyze these efforts?"—all that stuff is going to be privileged.
The key is making sure that that end work product, that you have that walled off so you're able to introduce it, whether it's to the relator's attorney to say, "Look, these are the arguments we're going to make, and so you ought to dismiss this case," or if it's going to form an actual advice of counsel defense at trial or summary judgment. It's just important to keep those things separate.
S2 16:29 That's excellent operational insight. With respect to the policies and the procedures in that end work product that you reference, as you consider the cases that you've litigated, what are the features that you like to see? What really helps you make a good case when you're looking at the work product that's been created following the advice of counsel?
S3 16:48 Yeah. So from the outset of any case, I want to be able to tell the story in my motion to dismiss. That's going to be the same story that I tell to a jury at trial. If that story's the same, it's going to be persuasive. It's going to be persuasive to the judge. It's going to be persuasive to the jury. It's likely that I will be more persuasive, because if that story's consistent, it's a much easier story to argue. There's not a whole lot of nuance to consistency.
So I think it's important from the outset that in-house counsel and clients, generally, that they understand what that story is so we can tell that story from the very beginning. Many of the False Claims Act cases that I've litigated, I've been fortunate enough to get many of them dismissed before discovery. So that means we would go in and file a motion to dismiss, and the judge would ultimately grant our motion and either dismiss the case with prejudice; or, in the cases where they were dismissed without prejudice, the relator may decide it's just not worth refiling.
Those successes are great, but with every one of those motions, I'm always keeping in mind, what happens if this motion is denied? And I want to make sure that whatever I'm putting into that motion is likely going to be the same story that I'm telling in summary judgment, because on summary judgment, what I want to be saying to the judge is, "See, Judge, I know you didn't want to dismiss this case from the outset, but what I told you from the outset is the same story that we're dealing with now, and now I have undisputed facts to support the story that I've been telling you from the beginning. So I know that you've been hesitant to make this case go away, but now I'm giving you no choice because the facts only point in one direction, the direction that I've been telling you that they've been pointing this whole time."
And that's very persuasive, right? That's persuasive from a judge's point of view if you're able to show that type of consistency. It's something that clients can do on the front end, and it makes it much easier for us to do our job on the back end. It ultimately saves them a lot of money in the long run and produces really good results.
S2 18:42 So are you seeing these compliance efforts really pay dividends in the sense that they are key to a successful litigation outcome?
S3 18:49 Absolutely. Not just in terms of a successful litigation outcome but also in terms of allowing the litigation team to efficiently litigate the case. If we know the story going in, we know the people we need to interview. We know what the relevant facts are. We have a good sense of what the relator knows. If, instead, we're being engaged from the outset to not just litigate the case but figure out what was going on from the get-go, and having to repiece a patchwork of current employees and former employees and what they understood was going on, and combing through emails to figure out what the actual story was, we're going to be spending a lot of time and money in order to come up with that persuasive case that ultimately produces a positive result for the client.
So it's not to say that we can't get to that end result, Katie, if we don't have that proactive compliance effort on the front end. We certainly can, and I've done that before, but we can also win in a much more efficient fashion when clients are thinking about these compliance efforts from the get-go.
S2 19:49 So start at the end and work your way back as you're considering, maybe, a new business arrangement or a new arrangement with a provider and try to think through, how will these steps in the approach play out?
S3 20:01 Absolutely. So let's start from the beginning here. You're thinking of entering into some sort of arrangement with, let's say, some medical center. Let's say that there's some contract, and you're a physicians group, and you're going to provide services for some medical center. From the outset, somebody should be looking at what the Stark and Anti-Kickback ramifications are of that arrangement. If that's not being done from the outset, then that type of work, it's recreated on the back end.
And this doesn't just play out in the provider context. It also plays out in the medical device context, as well. You don't have Stark and Anti-Kickback issues necessarily, but you can have False Claims Act issues. And the question in most False Claims Act cases, if you're not dealing with Stark and Anti-Kickback, is whether the government would have paid claims if it knew of the allegations in the relator's complaint.
And so from the get-go, having good contract compliance efforts, right, making sure that once your contract is in place that you have people who are monitoring the contracts and making sure that the company is complying with all the relevant terms and conditions, that's key, because when you're doing those things on the front end, fast-forward several years, a qui tam lawsuit is unsealed, now you know whom to go talk to. You know which emails to pull. You have a good sense of what the story is. And so from the get-go, you're ready to litigate this case, and more important, you're ready to win.
S2 21:28 Matt, how are you seeing the compliance efforts of healthcare and life sciences companies play out once these matters do reach FCA litigation?
S3 21:36 Well, I'm seeing this play out in a couple of ways. The first is increased and effective pre-litigation communication with the government. So an important thing to know about the False Claims Act is that while the relator is usually the one bringing the case, the relator is doing so in the name of the government. And so the False Claims Act gives the government the power to come in and dismiss the case, just as the statute gives the government the power to come in and take the case over and intervene and run the case. So from the get-go, it's important to have a line of communication with the government, because if you can convince the government that this case is frivolous or it's going to cost your client a lot of money to litigate, even though the relator here doesn't know anything and doesn't actually have a case, and here's why: if the government is persuaded that the qui tam case is just a waste of time, you may be able to convince the government to come in and dismiss the case. So it's a unique avenue to obtain a dismissal. It exists exclusively in the False Claims Act context, and folks should take advantage of that.
The other thing that I'm seeing healthcare companies and life sciences companies do is leverage the materiality lessons that have been learned from that Supreme Court case I kept referring to. This is the US ex rel. Escobar case [Universal Health Services, Inc. v. United States ex rel. Escobar, 579 US], which was decided in 2016. And what that case said is that you don't necessarily have to have an express false claim. It doesn't necessarily need to be a claim for payment that is false, that you know is false, seeking payment. It can be just a breach of contract. But that breach, the breach of that term, needs to be material to the government's decision to pay.
And so what you're seeing folks in the healthcare space do is litigate the materiality of these terms of these contracts that allegedly form the basis of the False Claims Act suit. This ultimately requires a lot of discovery, and I think that's a big reason why we're seeing folks not just in the healthcare and life sciences space but really all False Claims Act defendants pursuing litigation more if they know their story from the outset, if they know that the lawsuit really doesn't add up, trying to obtain the discovery they need in order to show the judge or show the jury that these alleged violations of contract terms weren't material to the government's decision to pay claims. And if you're able to do that, that too is another way to make these cases go away.
S2 24:03 Fantastic. Well, Matt, these are powerful insights, and we could undoubtedly dive into each of them with much greater depth. But two questions: one, what are the greatest barriers that healthcare and life sciences companies face when deciding to settle or pursue relief through litigation? And in your experience, what are the top three success factors that you recommend companies to bear in mind as they go on about their operations?
S3 24:28 Sure. So I've been very fortunate in my career. I've had many great clients, and together we've achieved some great outcomes, many of which were dismissals before discovery, and those dismissals, of course, saved the clients a lot of money.
But the biggest barrier to success for most healthcare and life science companies is the siloed nature of these organizations. As a litigator, you need to be able to tell a story, and I know that's something that I've been hammering home throughout this podcast. But that story needs to be persuasive. It needs to be consistent. It needs to be coherent. So when you have several different business units who all have a different understanding of the same story, it makes litigating a case tough, because you're not exactly sure, without a significant amount of work, what that story is. It's key to have somebody at the business who can tie together all those silos. So a litigation team is able to put that story together and make it persuasive, consistent, and coherent.
In terms of the three top tips for success, I'm sure I have more tips than just these, but these would be, I guess, the top three. The first would be that clients ought to take what I'll call an “eat your vegetables” approach to compliance before litigation. Having a robust compliance program—I'm not going to sugarcoat this—it can be expensive, but it's necessary. It's necessary not just to avoid litigation in the first place, but it's necessary to give you the confidence to litigate the case successfully once the lawsuit is filed. If you know, after that lawsuit is filed, that you've done everything on the front end that you needed to do in order to produce a successful outcome, then you can rest assured that the litigation team should be able to achieve that outcome. And you just have to trust the process to play out in order to produce it.
The second tip would be: Have and know your story from the outset. It makes dismissals more likely if you can tell a coherent story in your motion to dismiss. If that motion gets denied, you're able to retell it in the summary judgment and say, "See, Judge, look. Here are all the facts, and they play out exactly as we said they would in our motion to dismiss."
And then the third tip that I'd have is that clients need to understand their goals from the outset. As I mentioned at the top of the podcast, historically, clients have wanted to settle False Claims Act cases the moment that they're unsealed. That trend has changed because, in 2016, I think the Supreme Court has made it easier for defendants to litigate these cases because of this materiality standard that was described in the Escobar case. And businesses often value defending litigation at a certain number and for various reasons. Sometimes it's purely economic. Other times it's reputational. Sometimes it's somewhere in between. But the client needs to figure that out from the outset, and they need to be upfront with outside counsel about the goal that they want to reach and understanding what that goal is and how the business values the case. If everyone's on the same page, from the outset, of what that goal is, it's a lot easier to achieve it.
S2 27:29 Thank you so much for sharing your thoughts today. And thank you, listeners, for joining us.
S3 27:34 Absolutely. Thank you.
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