Healthcare and Life Science Companies Aware of But Not Prepared for Whistleblower Lawsuits, Survey Finds

January 15, 2015

Many healthcare and life science companies are ill-prepared for federal “whistleblower” lawsuits under the False Claims Act despite their knowledge of the law and its potential consequences, according to a national survey sponsored by Foley Hoag LLP.

The False Claims Act empowers private citizen whistleblowers to file lawsuits against companies suspected of filing false claims for funds and property under government contracts, or under programs such as Medicare.

The survey, conducted by the legal research firm ALM Legal Intelligence, found that one in four companies lack internal compliance policies and procedures to help avoid whistleblower lawsuits and to control damage when they occur. Damage to their companies’ reputations from whistleblower claims was the respondents’ chief concern.

The absence of policies and procedures contrasts with respondents’ answers to other questions, where they demonstrated a sound grasp of the False Claims Act’s whistleblower provisions.

“The survey reveals 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.”

The ALM/Foley Hoag survey went to general counsel at U.S. biotechnology, medical device and healthcare companies across the country in August 2014. The majority of respondents (57%) represented companies with annual revenues of less than $1 billion, while the remainder reported income ranging from $1 billion to more than $10 billion.

In addition to the lack of preparedness for whistleblower suits, the survey found:

  • More than 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.
  • Monetary damages can be as big as damage to reputation. 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.
  • 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.

“These results are a call to action for better preparedness against whistleblower cases. 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 hope this report provides general counsel with the data and information they need to show their executives and directors that whistleblower policies and procedures should be a higher priority.”

A link to the full report can be found here.

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