A Tale of Two Cases

The SEC needs more transparency

The SEC needs to begin identifying those receiving bounties as another $30 million goes to an unidentified whistleblower, says Reuben Guttman of Guttman, Buschner & Brooks PLLC.

Last week the United States Securities and Exchange Commission (SEC) announced the award of a $30 million bounty to an undisclosed whistleblower who reported undisclosed conduct by an undisclosed publicly traded scofflaw. With the SEC’s announced settlement of yet another unidentified case, it would seem that the agency has the hearing sensitivity of a canine and is responding to dog whistles. I mean isn’t whistleblowing about exposing wrongdoers and the factual basis of their wrongdoing to public scrutiny?

The SEC’s failure to tell us a little bit more about the basis for this award would be the story except for a snippet of information that the SEC did share with the public. It seems the $30 million award was made to a foreign whistleblower and the announcement of that decision comes only several weeks after the United States Court of Appeals for the Second Circuit in Liu v. Siemens refused to extend the anti-retaliation protections of the Dodd-Frank statute to a foreign whistleblower who reported alleged violation of the Foreign Corrupt Practices Act.

FCPA allegation

According to a lawsuit Liu filed in a United States District Court in New York, he discovered that Siemens employees were indirectly making improper payments to officials in North Korea and China in connection with the sale of medical equipment to those countries. Liu complained internally, and was terminated, whereupon he reported to the SEC that Siemens had violated the Foreign Corrupt Practices Act – an Act prohibiting companies that trade stock on US exchanges from making payments to foreign officials to secure business. Liu also alleged that Siemens had violated Dodd Frank’s anti-retaliation provisions.

The District Court dismissed Liu’s case, and the U.S. Court of Appeals for the Second Circuit sustained that decision, refusing “extraterritorial” enforcement of the Dodd Frank anti-retaliation proscriptions. The Second Circuit found it of no consequence that Siemens trades its stock on U.S. exchanges – and presumably to U.S. purchasers – or that Liu may be entitled to a bounty from the SEC if the agency successfully pursues Siemens for FCPA violations. The Court justified its holding by maintaining that there is a presumption against extraterritorial application of a law where there is no clear congressional intent to do so.

Local versus foreign

In this tale of two cases, it would appear that while the SEC is willing to pay significant bounties to foreign whistleblowers who provide information leading to successful compliance enforcement, the Second Circuit Court of Appeals has taken the position that these very whistleblowers – who have been so helpful to the SEC — are not necessarily entitled to redress in a US Court if their employer terminates their employment for the very cooperation that aids US regulatory enforcement actions.

While the SEC whistleblower programme is undoubtedly a work in progress, the notion that whistleblower assistance can leverage compliance enforcement is sound. In a global economy where corporate tentacles span geographic boundaries, there are not enough agency officials to monitor compliance on a global scale. Triple agency staff and the problem still will not be solved. There is a need for eyes and ears on the ground with the technical and language abilities and cultural sensitivities necessary to gather and synthesize information. This is the role whistleblowers play.

They are a means to leverage agency enforcement ability. And even where they never set foot on US soil, foreign whistleblowers can be well positioned to provide regulators, including the SEC, with information and analysis critical to compliance enforcement in the United States. For these foreign individuals who can be so helpful to domestic compliance enforcement it is incongruous that at least one court will not extend the full protections of the Dodd Frank anti-retaliation proscriptions. And that is the tale of two cases.

Arbitrary application of law in a global economy

by Reuben A. Guttman. Guttman practices law with Guttman, Buschner & Brooks PLLC

There are more than 3,000 drug trials being conducted in China. Indeed, data from these trials is almost certain to find its way into applications filed back in the United States with the Food and Drug Administration.

Do large drug companies – which trade on U.S. domestic securities exchanges – accurately report complete information about drug trials conducted in China? Or do language barriers and cultural differences make it difficult – if not impossible – to secure unbiased results from these trials? Understanding that concepts imbedded in the western rule of law, including “conflict of interest,” “kick back,” and “independence,” may have different meanings elsewhere is crucial to understanding the magnitude of the problem, and we have no way of answering these questions with complete certainty.

The scary part is that our regulators – including the SEC, the FDA and the EPA – are so woefully understaffed that they lack the resources to fully enforce compliance in the United States, let alone on a global scale.

In a global economy, understanding and investigating conduct abroad is essential to domestic compliance enforcement. But triple the staff of domestic compliance enforcement agencies, and there still would not be enough government officials to enforce compliance in a global economy.

The truth is that since the founding of our republic, we have recognized that compliance enforcement cannot be left solely in the hands of government regulators. Compliance with our most fundamental constitutional protections, including the landmark decisions in Brown v Board of Education and New York Times v. Sullivan, have been accomplished through private party litigation — not government enforcement actions.
Our environmental, antitrust, and civil rights laws have specific provisions allowing private citizens to bring enforcement actions. Our laws are constructed this way because we as a nation understand that substantive law absent an ability to enforce compliance is meaningless. To have an enumerated right or privilege that cannot be protected or secured is the same as having no right or privilege at all. To ensure compliance enforcement, we have created mechanisms that leverage our abilities so that culprits understand that being caught and sanctioned is more than a mere theoretical possibility.  Indeed, Congress has passed laws, including the False Claims Act and the Dodd-Frank Act, that reward whistleblowers who bring to the government information about conduct that causes the wrongful payment of government monies and that lead to a recovery.
These laws tap the technical, cultural, and even language expertise of whistleblowers on both a domestic and global scale. In 2001, a German citizen named Kurt Bunk brought suit under the False Claims Act in a federal court in Virginia against freight companies engaging in a conspiracy – conceived in Europe – to elevate the cost of shipping services sold to the U.S. military.  The case resulted in the recovery of millions of dollars to the U.S. Treasury.  While not a U.S. citizen, Bunk’s expertise in the shipping industry, his knowledge of the German language, his ability to review thousands of documents written in German, and his account of facts necessary to prove the wrongful conduct were essential to a domestic compliance effort.

It would seem obvious that individuals who participate in compliance enforcement that benefits U.S. citizens or U.S. regulatory agencies should minimally receive protection in our courts. At a time when our State Department spends millions of dollars abroad extolling the virtues of U.S. “rule of law,” it would be ironic that a foreign citizen who aids in the enforcement of our laws would not be extended protection by our courts against retaliation. Yet, that is exactly what happened recently to Liu Meng-Lin, a citizen of Taiwan and a compliance officer for the healthcare division of Siemens China, Ltd.
According to a lawsuit Liu filed in a New York federal court, he discovered that Siemens employees were indirectly making improper payments to officials in North Korea and China in connection with the sale of medical equipment to those countries. Liu complained internally, and was terminated, whereupon he reported to the SEC that Siemens had violated the Foreign Corrupt Practices Act – an Act that prohibits companies that trade stock on U.S. exchanges from making payments to foreign officials to secure business. Liu also alleged that Siemens had violated Dodd Frank’s anti-retaliation provisions.
The federal court dismissed Liu’s case, and the U.S. Court of Appeals for the Second Circuit recently sustained that decision, refusing “extraterritorial” enforcement of the Dodd Frank anti-retaliation proscriptions. The Second Circuit found it of no consequence that Siemens trades its stock on U.S. exchanges – and presumably to U.S. purchasers – or that Liu may be entitled to a bounty from the SEC if the agency successfully pursues Siemens for FCPA violations.  The Court justified its holding by maintaining that there is a presumption against extraterritorial application of a law where there is no clear congressional intent to do so.
Really? In a global economy where the court conceded that Liu might actually be entitled to a monetary award from the SEC?
There’s another irony: At a time when large corporations through the U.S. Chamber of Commerce are maintaining that whistleblowers should report their grievances to internal compliance personnel before going to regulatory bodies, a big publicly traded company has established – at least in one court – that foreigners have no rights of redress in U.S. courts if their internal disclosure results in retaliation.

Regardless of whether the Second Circuit is correct in its analysis, its decision is a blow to whistleblower programs essential to enforcement of laws that, at the very least, protect those who reside within our domestic boundaries.  If the Second Circuit is correct that Congress was not clear in its intent to protect foreigners who help in the enforcement of domestic laws, it is time for Congress to speak up.

Do We Really Trust Corporations To Investigate Their Own Profitable Impropriety?

by Reuben A. Guttman. Guttman practices law with Guttman, Buschner & Brooks PLLC.

Can a corporation really investigate its own behavior? Do internal compliance programs really work, or does their mere existence give well-compensated employees plausible rationale not to question conduct that would otherwise be questionable?

Answering these questions must begin with the age-old concern about conflicts of interest. The Book of Matthew counsels that “no man can serve two masters.” Our democracy itself is founded out of concern for the evils of self-interest, a form of conflict of interest. We abandoned a monarchy in favor of elected officials and then, fearing their self-interest, we created a system of checks and balances.

As our democracy emerged, scrutiny of conflicts of interest that might taint decision making – or at least the decision itself – has become ingrained in our processes. Corporations that are engaged in litigation must file disclosure statements identifying their affiliated entities so that judges can disqualify themselves – or be subject to disqualification – where they perhaps maintain a stock ownership interest associated with a litigant. Attorneys are schooled early on about the pitfalls of bringing a client into a business deal where the attorney has an interest. When our labor laws were promulgated in 1935, there were proscriptions against company dominated unions. Why? Because an employer has an inherent conflict of interest between steering a course toward maximizing shareholder returns and maximizing employee pay and benefits.

Given that the concern about conflicts of interest is so ingrained in our way of thinking, rejection of proposals to allow corporations to investigate themselves as a predicate to government regulatory agency involvement should be logical. Can we count on a corporation to investigate itself, to fully and accurately disclose its conduct so that victims may take recourse, and at the same time take action to prevent recurring wrongdoing – all of which may cause the business to lose money? And if a corporation were able to fulfill these tasks, would the reported result have sufficient integrity to withstand public scrutiny? Do we really trust the reports of corporations that investigate their own improprieties?

Representatives of the U.S. Chamber of Commerce – actually not just mere representatives, but lawyers supposedly versed in the doctrine of conflicts of interest – recently testified before a U.S. House of Representatives Oversight Committee that whistleblowers ready to pursue relief under the False Claims Act should be incentivized or required to allow a corporation to investigate its own alleged wrongful conduct before any concern is raised to an independent government authority.

The False Claims Act – dating back to 1864 – allows private citizens to bring suit on behalf of the United States Government where they have knowledge that wrongful or fraudulent conduct has caused the expenditure of government monies. Civil penalties under the statute may also be assessed when a “false claim” for payment “is submitted or caused to be submitted.” All cases filed under the False Claims Act are filed under seal allowing the government to investigate the case before public litigation actually proceeds. Sometimes civil litigation initiated by whistleblowers under the False Claims Act has resulted in parallel criminal proceedings. Examples include cases against Pfizer, GlaxoSmithKline, and Abbott Laboratories. Civil and criminal sanctions exceeding $6 billion in total were imposed against these companies for unlawfully marketing drugs that caused the expenditure of Medicare/Medicaid dollars. And in each of these cases the defendants or their subsidiaries pleaded guilty to a criminal infraction because – as the plea agreements made clear – they were guilty.

Each of these companies had internal compliance programs, and yet in each case the wrongful conduct was pervasive, brought billions of dollars of revenue to the Defendant, and persisted for years. These are not isolated examples. Enron, Tyco, and WorldCom all had internal compliance programs that proved incapable of addressing pervasive and, at least initially, profitable wrongdoing.

Where wrongful conduct actually results in increased revenue that rewards corporate officers and employees, is it plausible that a corporation’s internal compliance mechanism can freely and fully investigate and right wrongful behavior? Do corporations, and those individuals that guide them, really have an incentive to fully address wrongful conduct that generates significant revenue? These are important questions particularly at a time when civil and criminal penalties are merely part of the cost of doing business; they are as much “a part of the game” as is a calculated tripping penalty in an ice hockey contest where a goal is imminent. The truth is that even after Pfizer, GSK, and Abbott collectively paid billions of dollars to settle charges of unlawful marketing, these pharmaceutical giants still walked away with billions of dollars in profits from their unlawful conduct. Even the public announcement of settlements and guilty pleas had little or no impact on their market capitalization!

The point is that companies and corporate officials that make money off of wrongful conduct have a conflict of interest when it comes to self-investigation of profitable impropriety. There is a real danger – and not just an economic one – in requiring whistleblowers to utilize internal compliance reporting mechanisms before voicing concerns to independent government regulators. In the False Claims cases against Pfizer, GSK and Abbott, the underlying allegations involved marketing derelictions that potentially placed patients in harm’s way or perhaps even caused personal injury or death. Do we really want to encourage matters of health and safety to be kept from independent government regulators and perhaps injured victims? Do we really a trust a company that placed revenue over patient safety to investigate its own impropriety and come clean?

If internal compliance programs are not effective in addressing pervasive wrong doing, the question remains as to whether they are – at worst – merely benign. Should we be legitimately concerned that the existence of these programs may cause employees not to question corporate behavior? In the cases involving Pfizer, GSK, and Abbott, the alleged wrongful conduct was not any secret to the hundreds of sales representatives who dallied from doctor to doctor hawking drugs. Yet only a few insiders stepped forward to blow the whistle. Did there exist corporate cultures leading employees to believe that giant corporations with internal rules and compliance programs could do no wrong? Why, for example, in the case General Motors’ faulty ignition switches, did the revelation of the wrongdoing not come from a GM employee but from an outside expert working for a plaintiff’s lawyer?

While these are all important questions, their answer is perhaps age-old and embedded in biblical wisdom. Unfortunately creating the illusion that a corporation can investigate its own alleged impropriety may very well lull the diligence of those who would otherwise raise concern.

Another Reminder of Why Corporations Cannot Police Themselves

This article, written by Reuben Guttman and Traci Buschner who practice law with Guttman, Buschner & Brooks PLLC in Washington DC. Published in the McClatchy-Tribune News Service on August 13, 2014.

What kind of people would knowingly expose someone to the risk of infection just to make a buck?

Read carefully the allegations underlying the recent $97 million settlement between the U.S. Department of Justice and Community Health Systems and that question may be answered.

Responding to lawsuits brought under the False Claims Act by multiple whistleblowers, the government investigated and came to terms with the Nashville-based hospital giant resolving allegations that patients were admitted from emergency rooms to overnight stays not for medical necessity but for the purpose of racking up Medicare and Medicaid revenue and bilking private payers.

No harm, no foul. Right? Just skimming a few dollars off the government with no potential harm to patients? Right? Wrong on both counts!

While hospitals are places to get well, staying in a hospital is – these days – a place to acquire a hospital infection. According to allegations brought by three of the whistleblowers, including a physician at a CHS-owned Philadelphia hospital, overnight admission to a hospital absent medical necessity is not prudent medical practice. And, the rationale behind that conclusion is not just about saving dollars. It is a question of health and safety.

So, according to the allegations spanning multiple whistleblower law suits – as the publicly traded CHS was gobbling up community hospitals across the country, it was supporting its buying fling by admitting patients who allegedly did not need hospitalization.

And so the story goes; once again whistleblower lawsuits brought under the False Claims Act – a law allowing private citizens with knowledge of wrongdoing to bring suit in behalf of the government – was being used to recover taxpayer dollars and expose conduct placing citizens at risk. Technically these suits are about the submission of false claims for government payment or approval. In reality they are about much more.

In recent years, whistleblower litigation under the False Claims Act has uncovered conduct by giant pharmaceutical manufacturers including Abbott, GlaxoSmithKline, Amgen and Pfizer that has resulted in criminal convictions and billions of dollars in recovery for hard-pressed government payers. In each case the Government paid hundreds of millions of dollars in reimbursement for prescriptions that were the resulted of marketing tactics that violated the law. Patients were given medicine for reasons not solely grounded in medical necessity or rationale.

To be clear where companies including Abbott and Glaxo pleaded guilty to marketing schemes that placed patients at risk, they did so knowingly and in each case told the court they were pleading guilty because they were indeed guilty.

The tragedy is that the CHS settlement – a civil settlement – is yet another reminder that people captured by a corporate culture have willingly placed countless unwitting citizens at health risk all for the purpose of making additional profit. That is indeed the tragedy. The travesty is that even after the health care providers we once trusted have plead guilty to conduct that places people at risk, the U.S. Chamber of Commerce – or at least a few lawyers speaking on its behalf – still claim that these purportedly outstanding companies need to be cut some slack. Testifying before the U.S. House of Representatives’ Judiciary Committee Subcommittee on the Constitution and Civil Justice on July 30, lawyers for the Chamber attacked the False Claims Act, arguing that corporations should police themselves with whistleblowers being required to first report their concerns to corporate internal compliance personnel before alerting government officials.

Of course, these mouthpieces for the Chamber neglected to mention that every pharmacy giant that has pleaded guilty over the last five years had internal compliance programs that did not work so well. Actually, come to think of it, CHS also had an internal compliance program.

So what kind of people would knowingly expose someone to the risk of infection just to make a buck? One quick answer is definitely not the kind of people we want policing themselves for good behavior.

CHS Cites ‘Shifting’ Standards in Fraud Allegation Settlement

This interview with Reuben Guttman, who practices law with Guttman, Buschner & Brooks PLLC in Washington DC. and who represented three Plaintiff-Relators in United States ex rel. Doghramji v. Community Health Systems Inc., was conducted by John Commins, Senior Editor with HealthLeaders Media. The interview was published online on August 6, 2014.

An attorney representing one of the whistleblowers alleging that Community Health Systems committed fraud says that as a nation, “we have a healthcare delivery system where doctors and individual decision making, to some degree, have been shoved to the side by corporate managers.”

Community Health Systems, Inc. and federal prosecutors have agreed to a $98.1 million payout to settle system-wide fraud allegations levelled by whistleblowers against the Franklin, TN-based for-profit hospital chain.

While they have agreed on a settlement, CHS and federal prosecutors disagree on what prompted 119 hospitals in the nation’s largest acute care hospital chain to allegedly overbill Medicare, Medicaid, and TRICARE from 2005-2010 for inpatient services for patients who may not have needed to be hospitalized.

CHS Chairman and CEO Wayne T. Smith said the hospital chain was struggling “to operate in a complex and everchanging regulatory environment.”

“The question of when a patient should be admitted to a hospital is, and always has been, a matter of medical judgment by the individual physician responsible for a patient’s care,” Smith said in a media release.

“Unfortunately, shifting and often ambiguous standards make it extremely difficult for physicians and hospitals to consistently comply with the regulations. We are committed to doing our best, despite these challenges. Because this is an industry-wide issue, we hope the government will work to devise sound and reasonable rules for the important decision about whether to admit an individual for inpatient care, and we appreciate the opportunity to engage in meaningful dialogue with the government over these incredibly complicated issues.”

A CHS spokesperson amplified Smith’s point by saying that the shifting standards, “such as the two-midnight rule, which has had numerous updates, clarifications, and additional guidance attached to it since it was issued in August 2013… make it difficult for ALL providers to consistently comply with regulations.”

Federal prosecutors said flatly that the fraud allegations stemmed from a “deliberate corporate-driven scheme.”

“Charging the government for higher-cost inpatient services that patients do not need wastes the country’s healthcare resources,” said Assistant Attorney General Stuart F. Delery for the Justice Department’s Civil Division. “In addition, providing physicians with financial incentives to refer patients compromises medical judgment and risks depriving patients of the most appropriate healthcare available.”

Even though the settlement terms don’t include a guilty plea, Daniel R. Levinson, inspector general of the Department of Health and Human Services said that “in an effort to ensure the company’s fraudulent past is not its future, CHS agreed to a rigorous multi-year Corporate Integrity Agreement requiring that the company commit to compliance with the law.”

CHS had already set aside $102 million to cover the settlements and legal bills.

The settlement also resolves several whistle-blower lawsuits levelled by CHS employees in hospitals in several states. The whistleblowers’ share of the settlement has yet to be determined, DOJ said.

Reuben Guttman, an attorney with Grant & Eisenhofer representing whistleblower James Doghramji, MD, a former emergency physician at CHS’s Chestnut Hill Hospital in Philadelphia, spoke with HealthLeaders Media about the settlement. The following is an edited transcript.

HLM: CHS CEO Wayne Smith says that the billing irregularities are due to complex and shifting federal requirements. Do you buy that?

RG: I don’t think he has a legitimate point. This is a company that is crying out for additional scrutiny and oversight and this is a poster child for a Congressional investigation. In theory, doctors are supposed to make decisions.

In practice, people like Mr. Smith and companies like CHS have set up a dynamic where individual patient medical necessity is secondary to marketing and money. We are at a point where we have a healthcare delivery system where doctors and individual decision making to some degree have been shoved to the side by corporate managers.

This is a story about a company that was gobbling up suburban hospitals for no medical rationale. It’s not that they can run them better or that they were providing significant expertise. It was just about extracting cash from the Medicare/Medicaid system.

CHS was designing its admissions criteria on a centralized basis. CHS in Nashville was tracking exactly what was going on in all of these hospitals. They knew the economics at a micro level. I don’t think plausible deniability exists here.

HLM: Do you have a sense of the value of the alleged fraud versus what CHS is paying for?

RG: If you actually look the cash flow for this company, this is a very significant amount of money that they have put off. It is probably not significant in relation to the actual cost to the United States government or individual payers or what the government could extract if they tried the case, but it is a number that pushed the edge of the envelop in terms of paying something that is significant but allows the company to go forward.

The most significant thing about these cases is that they make the wrongdoing to some degree transparent as a catalyst perhaps for Congressional oversight. The reality is that unfortunately, many of these settlements are nothing more than the fee for a license to continue to break the law. What is apparent to us is that a lot of large companies are gaming the system and thinking ‘what is the likelihood of getting caught, and if we get caught what is the penalty?’ The penalty becomes part of the game.

We have to have a penalty system that is hard to calculate in advance and that will make it more difficult. But in reality you have to change the healthcare delivery system in the sense that we rely on the integrity of these types of corporations that have put medical decision making secondary to making money.

You can see when a train wreck is about to occur when you look at the debt service for a company. You are not going to create additional sick people. There are only a certain number of sick people. This is a situation that is going to be ripe for fraud.

HLM: Was there a smoking gun for prosecutors or whistleblowers in this case?

RG: In all of these cases, the complexity of the cases, you don’t find smoking guns. It requires you to find the smoke and the pieces to the gun and put it all together. Then, the trick for somebody who is doing lots of fraud cases is to look at the facts that aren’t there, or the rules that don’t exist, or to see what appears to be facially neutral practices are driving impropriety.

For example, if you have an innocuous practice that says when somebody comes into an emergency room and there is a rule that says they should be put on an IV, you can look at that and say that is not a smoking gun, putting someone on an IV.

But wait a second, when you put someone on an IV that means you are going to streamline them into an admissions situation as opposed to giving them bottles of water, maybe they will be OK, and we will send them home. You have to look at facially neutral practices and how they are driving an unlawful result. That is the trick to uncovering fraud. It’s extraordinarily complicated.

You have two things that are going on. One is you have companies engaged in these facially neutral practices that have an unlawful result for the purpose of deceiving regulators. Two, more significantly, it is a way of creating a cult and convincing people internally that they don’t have to worry about it because nobody internally is putting the pieces together. People who are paid well generally don’t want to do it.

This is the simple question you need to ask: What person or entity knowingly exposes somebody to infectious diseases in order to make a buck? That is the cutting question, because the reality is that while hospitals are places to get well they are also places that are dangerous because there are infectious diseases in hospitals. You don’t want to admit somebody unless it is medically necessary.

There are corporate executives who are knowingly and recklessly putting people at risk. That is unconscionable.

HLM: Do you feel this is a fairly widespread practice in the hospital sector?

RG: I wouldn’t be surprised.

A CHS spokesperson reached for comment late Tuesday said “This investigation was not about the quality of care provided or the location of the care that was provided for any patient–or even how long patients were in the hospital. It is about whether the hospital could rely on the physician’s signed orders in the medical chart to establish the patient status as inpatient–and then bill for the exact care that was provided. It is about the “status” of the patient–inpatient or observation–while that patient was in the hospital.