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Obamacare is a Game-Changer for Extra Income Earned By Doctors

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Penalties, Fines and Adverse Consequences Doctors should know about before Entering into PODS, Consulting Agreements and other Arrangements with Medical Device Manufacturers and Pharmaceutical Companies

The U.S. market size for orthopedic medical device R&D is estimated to be $1.3 billion in 2011, corresponding to 8% of market revenues[1]. The aging population and expanded medical insurance coverage has resulted in a growing profitability of the orthopedic implant market.   It is not unusual for a new medical device company to realize 30% annual growth and 30% – 35% EBITDA.[2]

Prior to the implementation of the Affordable Care Act, which is commonly known as “Obamacare”,  manufacturers created a fake  research and development market using programs that had no intrinsic value to the companies or the patient population to bribe doctors with extra income gained from supposedly participating in the programs. In reality, the payments compensated the doctors for prescribing for patients the devices made by the bribing manufacturer. The bribes were disguised by:  the use of supposed consulting assignments; memberships on “medical advisory committees” set up by the manufacturers, royalties on contributions to minor, but insubstantial changes to the company’s products that were not needed except to fabricate an ostensibly legal  basis for compensating  the company’s doctor-customers; and other even more aggressive programs.

The  Hammer will be coming down on the blatantly illegal PODS

Beginning in around 2008, the entities that made and marketed orthopedic medical devices seduced doctors to become owners of their own distribution companies in an entity known as a “Physician Owned Distributor” or “POD”. This scheme put money directly into the hands of the doctors as a reward and incentive for the doctors’ efforts to boost sales of the participating manufacturer’s medical devises.

Here is how the POD’s typically work. Assume we have a manufacturer of orthopedic medical devices, known in our example as “Device-Co”; and assume also that Device-Co focused on spinal implants that were prescribed by spine surgeons. Device-Co approached a spine surgeon (whom we will call “Dr. Smith”), and offered to help Dr. Smith set up the Smith-POD – which would then be appointed as an independent sales representative to sell Device-Co’s spinal implants in the city were Dr. Smith had his surgical practice (“Practice City”). In this scenario, there would be one potential hurdle. Under existing federal conflict of interest laws and regulations on the books since the 1990’s, Dr. Smith could not be a buyer or prescriber of any medical device made by Device-Co. However, there was a ready (although highly suspect) solution:  Device-Co had made separate informal (and not written down) deals with “Competitor-Co,” one of its competitors that was similarly sponsoring spinal surgeons to set up PODS to sell products manufactured by Competitor-Co . We will assume for purposes of our example that Competitor-Co convinced Dr. Wilson, another spine surgeon in Practice City, to establish the Wilson-POD  to distribute spinal implant products made by Competitor-Co.

Under the POD business model, Dr. Smith would prescribe only spinal implants made by Competitor-Co that he purchased from the Wilson-POD . In return, Dr. Wilson would prescribe only spinal implants made by Device-Co that he purchased form the Smith-POD. Each of the spine surgeons would make a commission on the sales generated by his POD, and the two cooperating spinal implant manufacturers would insure that no other competitor selling spinal implant products could break into this market, no matter how good their products might be, or how much more reasonable their pricing. Under this scheme, Device-Co and Competitor-Co were happy to pay hefty sales commissions that otherwise would be paid to the support personnel anyway.

The Office of Inspector General says “No” to PODs

The Unites States Department of Health and Human Services Office has within its organization a body known as of the Office of Inspector General (OIG) that is charged, along with other federal and state regulators, to identify and stop conflicts of interest and schemes that potentially could entice a doctor to prescribe a product, not because it was the most effective device at the best price, but because the doctor had a collateral financial interest in the sale. Since most implant operations in hospitals have some subsidy provided by the federal government through Medicare, Medicaid, the Veterans Administration network and similar programs, schemes that inflate the cost of implant products or that deter the doctor from acting on his best medical judgment are deemed a fraud on the US government.  The OIG, has already  identified  many of the compensation arrangements are directly correlated to the surgeons’ selection of medical devices, and therefore illegal, and the chief offender are PODs.[3]

In June 2011, five US senators requested that the OIG investigate the legality of PODs.  This prompted the Affordable Care Act (‘ACA”) to vastly increase the funding for the OIG  and other federal watchdogs under the Health Care Fraud and Abuse Control program, the Medicaid Integrity Program, and the American Recovery and Reinvestment Act of 2009. The OIG investigations are not limited to device manufacturers since money has been allocated to 50 Medicaid Fraud Control Units for investigation and prosecution of criminal and civil actions against physicians and other  Medicaid providers  who may have committed patient fraud.[4] Moreover section 6002 of the ACA—the Physician Payment Sunshine Act—requires HHS to create and  operate a “sunshine” database of information disclosed by applicable manufacturers of all  financial relationships with physicians and hospitals. This means that the law requires every POD to be disclosed to HHS.

In addition, the states are now getting into the act. For example, New Hampshire has pending legislation designed to end PODs that provides,

A health care practitioner, including an immediate family member, shall not:  Enter into a contract or business arrangement with another entity where the purpose or effect of the contract or business arrangement is to accomplish prohibited self-referrals indirectly, such as through the use of a third party, or through the use of a cross-referral agreement. Such prohibited contracts or business arrangements shall include any arrangement that requires or has the purpose or effect of causing the purchase of such medical devices from a specific supplier as a condition of, or incident to the provision of medical care by the health care practitioner.[5]

Are there any legal ways for doctors to make money from device manufacturers?

The short answer is “yes”. The ACA is tough, but it has loopholes that allow medical device manufacturers to enter into arrangements that ultimately provide payments to surgeons who prescribe their products. The method of complying with the law may seem like a maze, but there are now institutions that were established to allow doctors to continue to earn income form non-clinical duties and to be in full compliance with the law.

Sidkoff, Pincus & Green P.C. has worked with many of  its physician clients as well as clients in the chain of medical device manufacturing and distribution to help create alternatives to the now infamous PODs and several other discredited schemes that were popular before passage of the HCA. If you have any interest in learning of our work in this area, feel free to contact us by visiting our web site: www.greatlawyers.com.

[1] Current 10Ks at Feb 2011: Stryker, Zimmer, Biomet indicate 8% of sales spent on R&D

[2] Globus Medical Devices is one such example, surpassing $100 million in sales within 5 years.

[3] The Department of Health and Human Services and The Department of Justice Health Care Fraud and Abuse Control Program Annual Report for Fiscal Year 2009.

[4] Medicaid Integrity Program Report, the HHS Office of Inspector General

[5] New Hampshire,  HOUSE BILL 1725-FN

 

Philadelphia Business Lawyers: Intentional Interference with Contractual Relations under Pennsylvania law

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The tort of intentional interference with existing contractual relations is governed by Section 766 of the Restatement (Second) of Torts.  See Walnut Street Associates, Inc. v. Brokerage Concepts, Inc., 982 A.2d 94 (Pa.Super. 2009), aff’d, 610 Pa. 371 (2011).

Section 766 provides: “One who intentionally and improperly interferes with the performance of a contract…between another and a third person by inducing or otherwise causing the third person not to perform the contract, is subject to liability to the other for the pecuniary loss resulting to the other from the failure of the third person to perform the contract.”  Restatement (Second) of Torts § 766 (1979).

“The necessary elements of the cause of action are (1) the existence of a contractual relationship between the complainant and a third party; (2) an intent on the part of the defendant to harm the plaintiff by interfering with that contractual relationship; (3) the absence of privilege or justification on the part of the defendant; and (4) the occasioning of actual damage as a result of defendant’s conduct.”  Walnut Street Associates, Inc., supra at 98; Small v. Juniata College, 682 A.2d 350, 354 (Pa.Super. 1996).

In determining whether a particular course of conduct is improper for purposes of setting forth a cause of action for intentional interference with contractual relationships, the court considers: 1) the nature of the actor’s conduct; 2) the actor’s motive; 3) the interests of the other with which the actor’s conduct interferes; 4) the interests sought to be advanced by the actor; 5) the proximity or remoteness of the actor’s conduct to interference, and 6) the relationship between the parties.  Ira G. Steffy & Son, Inc. v. Citizens Bank of Pennsylvania, 7 A.3d 278 (Pa.Super. 2010); Restatement (Second) of Torts § 767 (1979).

Further, there are specific circumstances in which interference with a contractual relationship is not improper.  For example, one who intentionally causes a third person not to perform a contract or not to enter into a prospective contractual relation with another does not improperly interfere with the other’s contractual relation by giving the third party truthful information or honest advice within the scope of a request for advice.  See Restatement (Second) of Torts § 772 (1979); Walnut Street Associates, Inc., supra.

If you think you might have a claim for intentional interference with contractual relations, please contact the experienced lawyers at Sidkoff, Pincus & Green in Philadelphia at 215-574-0600, who are licensed to practice law in all courts in Pennsylvania and New Jersey.

Unlawful Access to Stored Communications under Pennsylvania law

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Pennsylvania law provides that “it is an offense to obtain, alter or prevent authorized access to a wire or electronic communication while it is in electronic storage by intentionally: (1) accessing without authorization a facility through which an electronic communication service is provided; or (2) exceeding the scope of one’s authorization to access the facility.”  18 Pa.C.S.A. § 5741(a).  Subsection (a) of the statute does not apply, however, with respect to conduct authorized: (1) by the person or entity providing a wire or electronic communication service; (2) by a user of that service with respect to a communication of or intended for that user; or (3) under certain circumstances related to governmental access (pursuant to sections 5743 and 5744).

A party aggrieved by a violation of Section 5741 can bring a civil cause of action against the person or entity which committed the violation.  See 18 Pa.C.S.A. § 5747; Klump v. Nazareth Area School Dist., 425 F.Supp.2d 622 (E.D.Pa. 2006).  In a civil action under Section 5747, appropriate relief includes: such preliminary and other equitable or declaratory relief as may be appropriate; damages (equal to the sum of the actual damages suffered by the plaintiff and any profits made by the violator as a result of the violation, but in no case shall a person entitled to recover receive less than the sum of $1,000); and reasonable attorney fees and other litigation costs reasonably incurred.  18 Pa.C.S.A. § 5747(b), (c).

If you think you might have an action under Pennsylvania’s Unlawful Access to Stored Communications statute, please contact the experienced lawyers at Sidkoff, Pincus & Green in Philadelphia, who are licensed to practice law in all courts in Pennsylvania and New Jersey.

Civil Conspiracy Claims in Pennsylvania

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“Civil conspiracy occurs when two or more persons combine or agree intending to commit an unlawful act or do an otherwise lawful act by unlawful means.”  Weaver v. Franklin County, 918 A.2d 194, 202 (Pa.Cmwlth. 2007).  A plaintiff bringing a civil conspiracy claim is required to aver “material facts which will either directly or inferentially establish elements of conspiracy.”  Id.  Additionally, a plaintiff must allege (1) the persons combined with a common purpose to do an unlawful act or to do a lawful act by unlawful means or unlawful purpose, (2) an overt act in furtherance of the common purpose has occurred, and (3) the plaintiff has incurred actual legal damage.  Id.  Importantly, absent a civil cause of action for a particular underlying act, there can be no cause of action for civil conspiracy to commit that act.  McKeeman v. Corestates Bank, N.A., 751 A.2d 655 (Pa.Super. 2000).

“Proof of malice, i.e., an intent to injure, is an essential part of a conspiracy cause of action; this unlawful intent must also be without justification.”  Reading Radio, Inc. v. Fink, 833 A.2d 199, 212 (Pa.Super. 2003).  Further, all of the elements of a claim for civil conspiracy may be proven circumstantially by subsequent acts of the alleged conspirators, provided that the evidence is “full, clear and satisfactory.”  Id.

If you think you might have an action for a civil conspiracy claim, or if you have been sued for committing civil conspiracy, please contact the experienced lawyers at Sidkoff, Pincus & Green in Philadelphia, who are licensed to practice law in all courts in Pennsylvania and New Jersey.

Abuse of Process Claims in Pennsylvania

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The tort of “abuse of process” is defined as “the use of legal process against another primarily to accomplish a purpose for which it is not designed.”  Lerner v. Lerner, 954 A.2d 1229, 1238 (Pa.Super. 2008).  “To establish a claim for abuse of process it must be shown that the defendant (1) used a legal process against the plaintiff, (2) primarily to accomplish a purpose for which the process was not designed; and (3) harm has been caused to the plaintiff.”  Id. (quoting Shiner v. Moriarty, 706 A.2d 1228, 1236 (Pa.Super. 1998)).  “The gravamen of the misconduct for which the liability stated…is imposed is not the wrongful procurement of legal process or the wrongful initiation of criminal or civil proceedings; it is the misuse of process, no matter how properly obtained, for any purpose other than that which it was designed to accomplish.  Therefore, it is immaterial that the process was properly issued, that it was obtained in the course of proceedings that were brought with probable cause and for a proper purpose, or even that the proceedings terminated in favor of the person instituting or initiating them.  The subsequent misuse of the process, though properly obtained, constitutes the misconduct for which the liability is imposed….”  Lerner, supra at 1238-39 (quoting Rosen v. American Bank of Rolla, 627 A.2d 190, 192 (1993)).

The word “process” as used in the tort of abuse of process “has been interpreted broadly, and encompasses the entire range of procedures incident to the litigation process.”  Id. For example, “process” for purposes of the tort, may include discovery proceedings, the noticing of depositions and the issuing of subpoenas.  Id.  “Abuse of process is, in essence, the use of legal process as a tactical weapon to coerce a desired result that is not the legitimate object of the process.”  Werner v. Plater-Zyberk, 799 A.2d 776, 785 (Pa.Super. 2002).

If you think you might have an action for an abuse of process claim, or if you have been sued for abuse of process, please contact the experienced lawyers at Sidkoff, Pincus & Green in Philadelphia, who are licensed to practice law in all courts in Pennsylvania and New Jersey.

Survival Actions in Pennsylvania

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The Survival Act, 42 Pa.C.S. § 8302, provides that all causes of action or proceedings, real or personal, shall survive the death of the plaintiff or of the defendant, or the death of one or more joint plaintiffs or defendants.  A survival action refers to a personal injury claim, brought by the decedent’s estate, which would have been brought by the decedent had he or she lived. For example, the decedent’s estate may seek to recover for pain and suffering experienced by the decedent prior to his or her death. In contrast to a wrongful death action, a survival action is not a new cause of action occasioned by the death of the decedent; rather, it is a cause of action accruing to the plaintiff that survives his or her death.  Sunderland v. R.A. Barlow Homebuilders, 2002 PA Super 16, 791 A.2d 384 (2002).

Damages awarded in a survival action are based upon the pecuniary loss that the decedent, and not his or her dependents, suffered. Thus, in survival cases, the action enforces the liability of the tortfeasor to the decedent’s estate, not to his or her relatives or dependents. Damages recovered in a survival action for personal injuries to a decedent are subject to liability for debts because the survival action is a chose belonging to the decedent and passing to decedent’s personal representative with the other assets for administration. In re Lucabaugh’s Estate, 74 Pa. D. & C. 68, 1951 WL 3452 (Orphans’ Ct. 1951).

For more information related to filing a survival action, please contact an attorney at Sidkoff, Pincus & Green, with offices in Philadelphia, Pennsylvania, and attorneys licensed in Pennsylvania and New Jersey. Call 215-574-0600.

Wrongful Death Actions in Pennsylvania

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The purpose of the Wrongful Death Statute, 42 Pa.C.S. § 8301, is to compensate the decedent’s relatives for their loss. Tulewicz v. Southeastern Pennsylvania Transportation Authority, 529 Pa. 588, 606 A.2d 427, 431 (1992). A wrongful death action does not compensate the decedent; it compensates the survivors (spouse, parents, children) for damages which they have sustained as a result of the decedent’s death. The damages recovered are therefore not part of the decedent’s estate; rather, they constitute compensation to the individual family members for their loss. Tulewicz., 606 A.2d at 431.  These damages can include the value of the services the victim who died would have rendered to his family if he had lived.” Slaseman v. Myers, 309 Pa.Super. 537, 545, 455 A.2d 1213, 1218 (1983).

Under the wrongful death act the widow or family is entitled, in addition to costs, to compensation for the loss of the contributions decedent would have made for such items as shelter, food, clothing, medical care, education, entertainment, gifts and recreation. Linebaugh v. Lehr, 351 Pa.Super. 135, 505 A.2d 303, 304-305 (1986).  Under Pennsylvania law, a child can recover in a wrongful death action for the loss of companionship, comfort, society and guidance of a parent. Steiner by Steiner v. Bell Telephone Co., 358 Pa.Super. 505, 510, 517 A.2d 1348, 1356 (1986), aff’d. 518 Pa. 57, 540 A.2d 266 (1988). This element of damages has also been described as “loss of guidance, tutelage, and moral upbringing.” Buchecker v. Reading Co., 271 Pa.Super. 35, 57, 412 A.2d 147, 158 (1979).

The damages recovered under a wrongful death action brought for the benefit of the spouse, children or parents of the deceased, whether or not citizens or residents of the Commonwealth or elsewhere, will be distributed to the beneficiaries in the proportion they would take the personal estate of the decedent in the case of intestacy and without liability to creditors of the deceased person under the statutes of Pennsylvania.10 Summ. Pa. Jur. 2d Probate, Estates, and Trusts § 12:31 (2d ed.). Awards pursuant to wrongful death claims, therefore, pass outside of the decedent’s taxable probate estate under Pennsylvania’s inheritance tax provisions, and any claims by a decedent’s creditors cannot be made against a wrongful death award.  In re Estate of Merryman, 669 A.2d 1059 (Pa. Commw. Ct. 1995). Thus, a child’s share of a wrongful death award under a federal statute is not subject to payment of the decedent’s debts where the federal statute makes proceeds directly payable not to the estate, but to the personal representative on behalf of the decedent’s surviving spouse and children.  In re Sibilia’s Estate, 279 Pa. 459, 124 A. 137 (1924).

If you belive you have a claim for the wrongful death of a spouse, child or parent, please contact an attorney at Sidkoff, Pincus & Green, with offices in Philadelphia, Pennsylvania, and attorneys licensed in Pennsylvania and New Jersey.

Local Counsel is Required in Federal Court in the Eastern District of Pennsylvania

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The Local Rules of Civil Procedure for the U.S. District for the Easter District of Pennsylvania require that any attorney who is not a member of the Eastern District must hire an attorney that is a member as associate counsel of record.  Local Civil Rule of Procedure 83.5.2, titled “Associate Counsel,” states that unless appearing on behalf of the U.S. Government or a department or agency of the U.S. Government, any attorney who is not a member of the bar of the Eastern District, shall have a local counsel of record whom all pleadings, motions, notices and other papers can be served.  See, L.R.Civ.P. 83.5.2(a).

Non-member attorneys, who wish to appear in a case, must have local counsel file a Motion for their Pro Hac Vice Admission, pursuant to L.R.Civ.P. 83.5.2(b). The cost of filing such a motion is currently $40.  A sample form for a Motion for Pro Hac Vice Admission to the Eastern District is provided by the Clerk of Court and can be found on the Court’s website.  This form requires the applicant to state, inter alia, where he/she is currently licensed to practice, that the applicant affirms that he/she is in good standing of those state and/or federal bars, and that the applicant pledges to act in accordance with the law.  The local counsel, acting as sponsor for the applicant, must certify that, inter alia,  the applicant’ “private and personal character is good.”

Although the sample form provided by the Clerk is generally accepted by the judges of the Eastern District, it is important that local counsel be familiar with the preferences of each judge, because the form is not accepted by all.  For example, the Honorable Joel H. Slomsky provides in his “Policies and Procedures for Scheduling and Motion” that the form application provided by the Clerk is “inadequate.”  Judge Slomsky requires that counsel moving for the pro hac vice must explain why the party desires the attorney to participate and why the attorney is especially qualified to do so.

The attorneys at Sidkoff, Pincus & Green are capable of acting as local counsel and appear regularly in the Eastern District of Pennsylvania; they are familiar with the local rules of courts, trial practice, discovery procedures, and the preferences of the local judges.  Please contact an attorney at Sidkoff, Pincus & Green, with offices located in Philadelphia, if you have a need for local counsel.

Tortious Interference Claims in Pennsylvania (Absence of Privilege or Justification Defined)

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The tort of intentional interference with existing contractual relationships is governed by section 766 of the Restatement (Second) of Torts, which the Pennsylvania Supreme Court adopted in Adler, Barish, Daniels, Levin & Creskoff v. Epstein, 482 Pa. 416, 393 A.2d 1175 (1978). Section 766 provides as follows: One who intentionally and improperly interferes with the performance of a contract (except a contract to marry) between another and a third person by inducing or otherwise causing the third person not to perform the contract, is subject to liability to the other for the pecuniary loss resulting to the other from the failure of the third person to perform the contract. Rest. 2d Torts § 766 (1979); Walnut St. Associates, Inc. v. Brokerage Concepts, Inc., 2009 PA Super 191, 982 A.2d 94, 97-98 (Pa. Super. Ct. 2009) aff’d, 610 Pa. 371, 20 A.3d 468 (2011).

The necessary elements of the cause of action are (1) the existence of a contractual relationship between the complainant and a third party; (2) an intent on the part of the defendant to harm the plaintiff by interfering with that contractual relationship; (3) the absence of privilege or justification on the part of the defendant; and (4) the occasioning of actual damage as a result of defendant’s conduct. Walnut St. Associates, Inc., 982 A.2d at 98.

With respect to the third element, proof must be shown that the defendant’s actions were improper under the circumstances; this is generally done through consideration of the factors listed in Restatement (Second) of Torts section 767.  The Restatement holds as follows, “In determining whether an actor’s conduct in intentionally interfering with a contract … is improper or not, consideration is given to the following factors: (a) the nature of the actor’s conduct; (b) the actor’s motive; (c) the interests of the others with which the actor’s conduct interferes; (d) the interests sought to be advanced by the actor; (e) the social interests in protecting the freedom of action of the actor and the contractual interests of the other; (f) the proximity or remoteness of the actor’s conduct to the interference; and (g) the relations between the parties.” Restatement (Second) of Torts § 767 (1979.)  There will not be liability for this tort where one intentionally causes a third person not to perform a contract by giving truthful information or honest advice within the scope of a request for the advice.  Restatement (Second) of Torts § 762; Walnut St. Associates, Inc., 982 A.2d at 98-99.  In addition, there are other factors listed in sections 768 through 773 of the Restatement (Second) that set forth specific circumstances in which interference with contractual relationships is not improper. Walnut St. Associates, Inc., 982 A.2d at 98-99.

If you believe that you have a potential claim for tortious interference, or you are being sued for tortious interference, please feel free to contact an attorney at Sidkoff, Pincus & Green, with offices in Phladelphia, Pennsylvania and attorneys licensed in Pennsylvania and New Jersey.

Tortious Interference Claims in Pennsylvania (Prospective Clients Defined)

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Under Pennsylvania law, the requisite elements of a cause of action for interference with prospective contractual relations are as follows: (1) a prospective contractual relationship;(2) the purpose or intent to harm the plaintiff by preventing the relation from occurring;(3) the absence of privilege or justification on the part of the defendant; and (4) the occasioning of actual damage resulting from the defendant’s conduct. Restatement (Second) of Torts § 766B (1979); Phillips v. Selig, 2008 PA Super 244, 959 A.2d 420, 428 (Pa. Super. Ct. 2008). With respect to the first element, the term “prospective contractual relationship,” has been regarded by the Pennsylvania Supreme Court as something less than a contractual hope, but something more than a mere hope. Thompson Coal Co. v. Pike Coal Co., 488 Pa. 198, 209, 412 A.2d 466, 471 (1979).

In determining whether there is a reasonable likelihood or probability of a prospective contractual relationship, courts will apply an objective standard and have consistently required more evidence than a current business or contractual relationship.  Philips, 959 A.2d at 428,429.  For example, in Thompson, the Court declined to find a prospective contractual relationship based on evidence that the parties had renewed a year-to-year lease for mineral rights for ten consecutive years.  Thompson, 412 A.2d at 472. Likewise, in Strickland v. University of Scranton, 700 A.2d 979, 983 (Pa.Super.1997), the Superior Court refused to acknowledge a prospective contractual relationship when a university administrator’s contract was not renewed after almost twenty-five years on the job. Strickland, 700 A.2d at 985. Accordingly, where a plaintiff attempts to prove a prospective contractual relationship by relying on an existing contractual relationship, the courts will deem that evidence, by itself, as insufficient as a matter of law.

If you believe that you have a potential claim for tortious interference, or you are being sued for tortious interference, please feel free to contact an attorney at Sidkoff, Pincus & Green, with offices in Phladelphia, Pennsylvania and attorneys licensed in Pennsylvania and New Jersey.