By Jeff Overley, Law360
Law360, New York (July 21, 2014, 7:22 PM ET) — Courts during the first half of 2014 handed down a number of important rulings that will shape the hottest topics in health care, including provider consolidation, employee benefits under the Affordable Care Act and the availability of attorney-client privilege in False Claims Act litigation.
Hobby Lobby Lights ACA Litigation Match
One of the most closely watched cases in the country this year was Burwell v. Hobby Lobby, which resulted in a U.S. Supreme Court decision last month allowing closely held corporations to avoid complying with at least part of the ACA’s contraception mandate. While that lawsuit only involved four of the 20 methods of birth control covered by the mandate, the language of the opinion seemed to possibly support broader objections, and attorneys say they’re already hearing from employers that are eager to test the waters.
“We’ve seen clients with a decent amount of interest in pushing the envelope and discussing whether certain types of other coverage they offer could be taken off the table,” said Steven J. Friedman, co-chair of the employee benefits group at Littler Mendelson PC.
There are already cases playing out that have the potential to further weaken the mandate by allowing more types of employers to withhold more types of benefits, and lawyers say that the high court clearly invited even more litigation by declaring that corporations in some instances have religious rights.
“Hobby Lobby is going to start a whole new round of collateral litigation,” said Thomas S. Crane of Mintz Levin Cohn Ferris Glovsky & Popeo PC.
The cases are Burwell et al. v. Hobby Lobby Stores Inc. et al., case number 13-354, and Conestoga Wood Specialties v. Burwell et al., case number 13-356, in the Supreme Court of the United States.
FCA Case Law Evolves on Conditions of Payment
It’s been another busy year for FCA suits, and one of the more noteworthy decisions so far came from the Fourth Circuit in Rostholder v. Omnicare, where judges balked at equating noncompliant drug packaging practices with fraud.
That appeared to be one of the first circuit court decisions on whether violations of so-called good manufacturing processes might support an FCA suit, a question that has taken on major relevance as drug quality lapses increasingly enter the public eye. Similarly, the Rostholder case also represents yet another FCA dispute over alleged misconduct that did not involve an explicit condition of payment under Medicare or Medicaid.
“What Rostholder makes clear is that a regulatory violation, in and of itself, cannot provide the basis for an FCA violation,” said Robert T. Rhoad of Crowell & Moring LLP.
Judges have wrestled with the question of how to gauge whether a violation would truly influence a government decision to pay for a good or service, and the issue could eventually find its way to the high court, which Rostholder petitioned in May.
“It’s something I think will percolate up and be poised for Supreme Court review,” Rhoad said.
The case is U.S. ex rel. Rostholder v. Omnicare Inc. et al., case number 13-1411, in the Supreme Court of the United States.
Court Pushes Back on ACA Consolidation
The ACA spurred a stampede of health care industry consolidation — particularly hospitals buying physician groups — but a district court decision in St. Alphonsus v. St. Luke’s showed that providers won’t get carte blanche to increase their market share.
That ruling, which is being appealed at the Ninth Circuit, ordered St. Luke’s to divest itself of a physician practice and was the first by a federal court on Federal Trade Commission objections to such a tie-up. It’s a key reminder that there are limits on the government’s desire to see providers collaborate.
The fact that the case involved an 80,000-resident community in Idaho is significant, indicating that providers in less-populated areas with fewer providers are more likely to face FTC scrutiny as consolidation continues.
“It’s going to have implications for any hospital system that’s essentially in an area where you don’t have a lot of competitors,” said Harvey M. Tettlebaum of Husch Blackwell LLP.
The case is Saint Alphonsus Medical Center-Nampa Inc. et al. v. St. Luke’s Health System Ltd. et al., case number 14-35173, in the U.S. Court of Appeals for the Ninth Circuit.
FCA Particularity Split Deepens
Less than three months after the Supreme Court declined to resolve a circuit split on how precisely whistleblowers must plead FCA suits, the Third Circuit became the latest court to enter the fray, ruling in Foglia v. Renal Ventures that complaints need not always identify specific false claims in their early stages.
Attorneys at Fox Rothschild LLP, which is representing Renal Ventures, told Law360 that they intend to petition the Supreme Court for review, but it’s hard to predict whether justices will be receptive.
On the one hand, they’ve twice come close in recent years to taking cases on what exactly it means to plead an FCA case with the required “particularity.” On the other hand, the Obama administration has argued that the circuit split shows signs of resolving itself in favor of a less restrictive pleading standard, and the Third Circuit’s opinion gave credence to that assertion.
“My guess is the Supreme Court still isn’t going to take it, because they’re looking for a way for the circuits to resolve it, and they’re going to give them a little more time to do so,” said Eric P. Berlin of Jones Day.
The case is Foglia v. Renal Ventures Management LLC, case number 12-4050, in the U.S. Court of Appeals for the Third Circuit.
HHS Skirts Court’s 340B Ruling
A bitter fight in the so-called 340B program saw a D.C. federal judge in May vacate a U.S. Department of Health and Human Services regulation requiring drugmakers to give providers discounts on medicines that are approved to treat rare diseases when they’re used for other conditions that are more common.
HHS, however, has refused to back down. Last month, it argued that its interpretation of the policy remained intact, prompting trade group Pharmaceutical Research and Manufacturers of America to urge the judge to order additional briefing on the validity of that action.
HHS, in turn, told the court that PhRMA would need to bring a new lawsuit if it wishes to challenge the interpretation, which it formally issued on Monday. The issue has big financial implications because the discounts can cut a drug’s price in half. Also, if HHS’ policy were ultimately not to survive, a widely used drug could avoid having its price cut by securing approval to treat an extremely rare disease.
The case is Pharmaceutical Research and Manufacturers of America v. U.S. Department of Health and Human Services et al., case number 1:13-cv-01501, in the U.S. District Court for the District of Columbia.
Atty-Client Privilege Dodges Bullet
Several lawyers called attention to a ruling last month from the D.C. Circuit on the subject of when attorney-client privilege applies to internal company investigations, saying it prevented much of the current compliance framework from being upended.
At issue was a whether a whistleblower could access internal reports into possible fraud. A district judge earlier this year granted access after finding that the reports were commissioned more to ensure regulatory compliance than to obtain legal advice, but the circuit court reversed, finding that privilege applies if legal advice is a significant purpose of the internal inquiry.
Most major health care companies have robust compliance programs aimed at ensuring their billing is proper, and if written materials surrounding those programs were relatively easy to obtain through discovery, it could have made defending cases a whole lot tougher.
Lisa A. Estrada, a partner at Foley & Lardner LLP, cautioned that “not all compliance [activities] are privileged just because you involve a lawyer.” But, she added, the D.C. Circuit’s ruling was crucial for companies that already face plenty of challenges in beating back FCA complaints.
“That’s going to be really important going forward for health care companies,” Estrada said.
The case is In re: Kellogg Brown & Root Inc. et al., case number 14-5055, in the U.S. Court of Appeals for the District of Columbia Circuit.
–Editing by Jeremy Barker and Philip Shea.