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False Claims Act Is Top Concern for General Counsel in Healthcare Space, New ALM Study Finds

Survey suggests many companies lack compliance policies or procedures to manage whistleblower risks, despite awareness

NEW YORK – December 10, 2014 –A new report released by ALM Legal Intelligence, “Whistleblowing in the Healthcare Arena: The False Claims Act and Qui Tam Litigation,” reveals that many companies have inadequate policies and procedures in place to minimize risk and efficiently manage claims arising from potential whistleblower filings, despite identifying it as a primary concern. The report, based on the results of a survey distributed to legal departments of U.S. life sciences and healthcare companies, in association with Foley Hoag, examines compliance policies and procedures related to the False Claims Act within the life sciences industry.

The False Claims Act (FCA) is the federal government’s primary civil remedy to redress false claims for government funds and property under government contracts or programs such as Medicare. It includes whistleblower, or qui tam, provisions that allow private citizens to file lawsuits alleging false claims on behalf of the government.  Over half of the healthcare General Counsel surveyed listed the False Claims Act as one of the top three risks their companies face, especially in relation to billing and reimbursement and implications for their third party relationships. However, only three out of four companies had FCA compliance policies or procedures in place.

“The survey revealed a surprising disconnect between the concern among legal departments over False Claims Act compliance and the internal procedures designed to address those risks,” said Kevin Iredell, vice president, ALM Legal Intelligence.  “One in four respondents did not have internal compliance policies in place, despite the fact that one in three had been subject to an FCA investigation in the past five years, with the Department of Justice siding with the whistleblower in half of those cases.”

Among the study’s key findings:

• In 2014, 13 percent of respondents plan to increase their use of outside law firms to advise them on matters of risk, and 27 percent plan to do the same on compliance issues.
• Over half of the healthcare general counsel (GCs) surveyed listed the False Claims Act as one of the top three risks their companies face, especially in relation to billing and reimbursement and implications for their third party relationships.
• Almost half of all respondents cited the HIPAA-HITECH rules protecting personal health information and changes in federal regulatory laws among their top three concerns.
• Potential claims of marketing products for unapproved “off-label” uses also ranked as a concern. In FY 2013 the Department of Justice (DOJ) recovered $1.8 billion in settlements from pharmaceutical companies and medical device makers under the FCA for alleged false claims for drugs and medical devices charged to federal healthcare programs
• One in three of the respondents’ companies had been subject to an FCA investigation in the past five years – half of them in the past year alone. In half the cases, the DOJ chose to intervene on the side of the whistleblower.
• Despite the clear risks arising from the False Claims Act, only three out of four companies had FCA compliance policies or procedures in place. Policies were usually developed in-house, often in consultation with outside counsel.
• GCs were clearly aware of the potential exposure of the company in case of a violation of the False Claims Act. Most cited damage to the company’s reputation as their chief vulnerability.
• Virtually all respondents said their companies offer compliance or ethics training to executives and senior managers, and most (86 percent) said this training is required. Most training of compliance professionals is done internally, though 37 percent use external resources including training provided by trade associations.

A link to the full report can be found here

“For all of the damage that can arise from a whistleblower case, there’s not enough urgency in the general counsel community about heading them off and, when that fails, responding effectively,” said Foley Hoag partner Nicholas C. Theodorou. “We sponsored this report as a service to GCs. We aren’t trying to be scolds. We’re trying to give them data and information that helps them show their executives and directors that they should be empowered to make whistleblower policies and procedures a higher priority.”

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