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Halifax Hospital False Claims: Health Care Fraud & Abuse Class Gets First Person Account

June 8, 2017

Bob Thomas treated his Health Care Fraud and Abuse seminar to a fascinating retrospective from a successful whistleblower.  Elin Baklid-Kunz, a former employee of Halifax Hospital, recently settled her False Claims Act case against the hospital for $85 million. Ms. Kunz and her attorney Marlan Wilbanks spoke to the students by telephone and answered a variety of excellent questions from the students.

Students Move on to Whistleblower Perspectives

Having covered the most important areas of health care fraud law (the False Claims Act, the Anti-Kickback Act, the off-label/misbranding/adulteration prohibitions of the Food Drug & Cosmetic Act, and the Stark Laws) earlier in the semester, the students are being exposed in the final four weeks of the seminar to the thoughts of different participants in this dynamic field. Last week, they visited Cambridge biotech Ironwood Pharmaceuticals to hear from its chief compliance officer. Yesterday they heard from a whistleblower and her attorney (concerning a case they had studied previously in the course with respect to the Stark law). In the following two weeks, they will be hearing from two former Assistant U.S. Attorneys, who will be addressing the prosecutorial and defense perspectives.

In preparation for the class on “the whistleblower perspective,” the class read a number of articles about people who had gone through the experience, as well as a study of the collective experiences of all whistleblowers, published in the New England Journal of Medicine in December 2010. That study corroborated what most whistleblower lawyers will tell you.  The process is difficult and long.  A whistleblower must prepare for personal and professional isolation.  Most importantly, only whistleblowers motivated by stopping fraud rather than earning a reward will have the stomach to ride out the unpredictable turns of a False Claims Act case.

Halifax Hospital False Claims Act Case

Ms. Kunz worked in finance at the Halifax Hospital in Florida. She noticed that the hospital heavily rewarded neurosurgeons and oncologists based on number of patient referrals.  This represents a highly circumspect arrangement under the Stark law.

Halifax Hospital in-house Counsel substantiated Ms. Kunz’s False Claims Concerns

Her attempts to ascertain the legitimacy of these arrangements were not well-received.  In particular, the doctors, some of whom were earning close to $2 million per year, opposed her.  However, an in-house attorney at Halifax helped substantiate her claim. He drafted a memo concluding that the Hospital was in fact violating the Stark law and the bonuses were illegal. Discovery would later reveal that the hospital sought a second opinion from the firm that ultimately tried unsuccessfully to defend it in court, which said that the arrangement did not violate Stark.

The judge presiding over the case ruled that the hospital improperly withheld the first legal memo from the government in discovery, under the “crime-fraud exception” to the attorney-client privilege, making the opinion discoverable and presumptively admissible at trial. Needless to say, the hospital had little wiggle room at that point, and eventually cuts its losses by settling the case for $85 million (plus the tens of millions it paid its law firm, the same law firm that had issued the questionable second opinion).

Halifax Hospital Believed it Got Off Easy

Ms. Kunz reflected on the ultimate take-away from the case and her experience. She noted that the company believed it got off easy because the amount of the settlement was much lower than expected. None of the company management faced resignation,  litigation, or indictment. Indeed, several were promoted and received raises and kept their lucrative pension plans. Most disappointing, she said, is that the culture of the hospital seems not to have changed, based on what she hears from her former colleagues.

One particularly interesting side note to all of this. Ms. Kunz, who is originally from Norway, reported that two aspects of the case  astounded her Norwegian friends. First, the huge discrepancy in compensation based on how much business a doctor brought in. Hospitals in Europe do not pay physicians in this manner.  Second, that a whistleblower who turned out to be right would be subject to retaliation. In Norway, a Company would appreciate a whistleblower for having alerted the company to the problems.

Equity and integrity. Not unreasonable principles from which to ground a medical practice.

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