Peer Review Doesn’t Apply in False Claims Act Suit

Massachusetts General Hospital could not assert the medical peer review privilege to block production of documents sought by a whistleblower in her False Claims Act suit over the hospital’s alleged double and triple booking of surgeries, a U.S. magistrate judge has ruled.

. . .

During discovery, Wollman (relator) moved to compel production of medical peer review records and communications. In response, MGH asserted the peer review privilege, which keeps reports and records of medical peer review committees confidential.

. . .

Wollman’s attorney, Reuben A. Guttman of Washington, D.C., hailed the decision as an important ruling under the False Claims Act and said it was consistent with black-letter law.

“The case cries out for transparency,” Guttman added. “It is about cheating the government through the gross compromise of patient relationships and critical health care standards.”

Source: Massachusetts Lawyers Weekly. Read full article here.

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Boeing Company, $40 million

US Ex Rel. Roby v. Boeing Co.,
Southern District of Ohio.

Firm attorneys represented the relator in this False Claims Act suit alleging that the Boeing Company defrauded the US Government by manufacturing and selling the Army helicopters with defective parts. The Government contends that Boeing used faulty transmission gears that resulted in the crash of two helicopters and more than $20 million in damages and government expenses. The nature of this case is closely aligned with the original purpose of the False Claims Act; passed in 1863 it was enacted with the intention of preventing large corporate contractors from defrauding the US Army and Government. 

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Celgene Corporation, $280 million

U.S. ex rel. Brown v. Celgene Corporation,
Central District of California.

GBB recovered $280 million in a non-intervened False Claims Act case against Celgene Corporation on the eve of trial. The Complaint alleged that Celgene unlawfully marketed its drugs Thalomid and Revlimid, including for unsafe and ineffective uses, and subverted independent judgment of medical professionals through false and misleading promotion. The Complaint also alleged that Celgene paid kickbacks to medical professionals to prescribe and recommend Celgene’s drugs in violation of the Anti-Kickback Statute. The settlement is the second largest in a non-intervened case brought under the False Claims Act.

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Shadowboxer: Dan Guttman, a lifetime investigating the government’s “shadow workforce” of contractors

Federal procurement is not a subject that makes for compelling television, but procurement scandals can be good drama, which is why on Nov. 30, 1980, the CBS newsmagazine 60 Minutes aired a story that suggested private contractors were running the Energy Department. Outside consultants, intoned correspondent Morley Safer, seemed to do everything for Energy. They assembled the department budget. They wrote congressional testimony for Energy officials. They were the “bureaucrats’ bureaucrats,” Safer said.

On the 1980 videotape, you see a parade of lawmakers press the case against Energy, including Sen. David Pryor, D-Ark. Then you meet Dan Guttman, a fast-talking investigator who works for Pryor. Guttman says Energy’s use of consultants portends a great shift in how government works. “The public is not aware who is making decisions in this country,” he tells Safer. “We find agencies delegating large chunks of [themselves] to one or more firms over a number of years and, in effect, saying, ‘Run this portion of the agency.’ “

The camera clearly likes Guttman. He tells jokes, he gestures wildly with his arms, he gets more airtime than his boss. At one point, Safer even turns the microphone over to Guttman and lets him interrogate John Hewitt, Energy’s chief financial officer. Guttman also gets the last word: “You name what government does and we have found contractors doing it,” he says. “You get up close, it looks like a conspiracy, but really it’s chaos.”

Guttman has spent his career in the middle of this chaos. In the early 1970s, fresh out of law school, he co-wrote The Shadow Government (Random House, 1976), an exposé of the federal consulting industry. Since 1980, he has been part of nearly every congressional effort to scrutinize the government’s use of contractors. Along the way, he became convinced that the government’s increasing reliance on private companies raises basic, even constitutional, questions of accountability. He believes that most agencies can no longer effectively oversee their contractors and that existing oversight tools-such as setting performance standards in contracts-often don’t work.

“There are two sets of tools that we have for [contractor] accountability,” Guttman says. “One is legal-the presumption that only governmental officials can do certain work. That tool isn’t working. And then we have management tools, such as performance contracting. My observation is that those tools aren’t working either. Neither one of them is working in prime time.”

Needless to say, not everyone agrees. “Look, this is not some kind of Wild West show where everyone is just running amok,” says Stan Soloway, president of the Professional Services Council, an Arlington, Va.-based association that represents contractors. “I don’t believe there are very many examples of government procurement that raise the issues Guttman worries about,” says Steven Kelman, a professor at Harvard University’s Kennedy School of Government and former federal procurement administrator.

Although Guttman is not opposed to contracting in principle, he is associated with efforts to curb the use of contractors. Pryor cut agency budgets for consultants and waged an unsuccessful campaign to make federal contractors register all of their clients with Congress, just as lobbyists must do. Rick Goodman, a former Pryor staffer who worked with Guttman, remembers their icy relations with industry during a 1989 investigation. “The consulting industry thought we were a bunch of bomb throwers,” he says.

Professionally, Guttman defies easy description. A practicing attorney, he still represents whistleblowers and teaches graduate level courses in government at Johns Hopkins University. He is part lawyer, part historian, part gumshoe investigator. “We don’t have a discipline in law that [covers] what Dan does,” says Sallyanne Payton, a professor at the University of Michigan Law School, who met Guttman through the National Academy of Public Administration. “I think he’s more of an activist,” offers Jody Freeman, a professor at the UCLA Law School. In an e-mail, Guttman notes that many of his friends have started think tanks, and playfully wonders whether his interests could fit that mold: “How does the ‘Center for the Study of Public Functions by Nongovernmental Entities’ grab you?”

Guttman the person leaves a clear impression. With his unkempt hair and dark, darting eyes, he radiates intellectual intensity. When he wears his raincoat, he resembles television’s rumpled detective, Columbo. He is an incessant talker, the master of the marathon conversation. Spend some time with him and you realize he treats life as if it were a never-ending college seminar; every topic holds interest, every issue, no matter how obscure, must be wrestled to the ground. “Obscure and arcane is where Dan lives,” says Nancy Bekavec, a law school friend who is now president of Scripps College in Claremont, Calif. “If you gave him the choice of going to see a Mongolian rap artist, or Britney Spears, he would assume all the cool people were going to see the Mongolian rap artist.”

Guttman devours information. As staff director for the Presidential Commission on Human Radiation Experiments in the mid-1990s, he would literally wade into archival agency documents. “Every day we got a shipment of documents, and Dan would not wait for them to be processed. He would go in and start opening the cases and rifling through them,” remembers Gregg Herken, a Cold War historian who served on the commission.

Guttman’s investigations have made him a walking encyclopedia of government arcana, which he generously shares. “He helped me realize that the Library of Congress was basically run by contractors,” says 60 Minutes correspondent Andy Rooney. “It was a shocking revelation to me.” Rooney hired Guttman to do research for Mr. Rooney Goes to Washington, an award-winning CBS program broadcast in 1975.

Guttman seems genuinely indifferent to material things. In 1997, he left a job as a commissioner of the Occupational Safety and Health Review Commission partly because he felt guilty making a six-figure salary for a job that required little work. “It was an easy job, a good solid salary, and Dan was miserable,” says a friend.

Guttman has never held a management position in an agency, nor had any official authority over procurement rules. Yet he has found a way to influence contracting policy-or at least to be a thorn in the side of those making it-through his investigations and lawsuits. His work has helped set the parameters of the current debate over outsourcing federal operations. For example, the idea that certain jobs are “inherently governmental,” and must be performed by civil servants, dates to 1960s-era policies. But it only got legs-and a place in the 1998 Federal Activities Inventory Reform (FAIR) Act-after a 1989 investigation of federal contracting in which Pryor and Guttman pressed the General Accounting Office to define the limits of inherently governmental work: Should contractors be allowed to write official testimony? Or interpret regulations?

Now, in a new era, with no big lawsuits or congressional investigations on the horizon, Guttman is trying to focus attention on the government’s haphazard approach to outsourcing, which in his view raises constitutional questions. The framers sought to protect citizens from an overzealous government by enacting a Bill of Rights; the same concern led later generations to enact laws such as the 1887 Hatch Act and the 1974 Freedom of Information Act, which seek to control the behavior of federal officials. “The Constitution and all these statutes are directed at protecting us against the abuse of power by government actors,” Guttman says. “Well, what happens when private contractors, who aren’t covered by these laws, do much of the government’s work?”

Guttman’s arguments confound some procurement experts. Larry Wright, a senior vice president at consulting firm Booz Allen Hamilton, doesn’t see the constitutional link. “I’ve never heard these oversight issues characterized as constitutional issues before,” he says. “It’s the legal view,” says Chip Mather, a senior vice president with Acquisition Solutions Inc., a procurement firm based in Chantilly, Va.

Guttman carries a staggering amount of information in his head, and it can be overwhelming when unleashed on the uninitiated. His most recent congressional testimony included 49 endnotes in 15 pages. “Part of the challenge for Dan is for the world to know what he knows,” says Charles Lewis, director of the Center for Public Integrity, a Washington-based network of investigative journalists.

Guttman approaches contracting from the fields of history and law; his arguments hinge on a certain understanding of how contracting changed with the Cold War. They also grow out of his experience doing something very few other people have ever done-studying actual contracts.

CRACKING THE CODE

In the summer of 1971, Guttman walked into a contracts office at the old Health, Education and Welfare Department. He was searching for a report. “Help yourself,” said the man at the desk, and, over the next few weeks, he did. Poring over contract files, he discovered that most HEW contracts went to a few well-connected firms, often without competition. He read scathing letters from Lois Ellin Datta, head of evaluation for the Head Start program, to her contractor, the Stanford Research Institute. In its final report, Stanford had plagiarized papers she had published. “Can’t your staff think for itself?” she demanded. He found few contracts with performance standards. For example, a contract with RAND, a research organization, for an analysis of the distribution of doctors in rural areas simply declared, “As to the essential features of the performance, the best that can be bargained for is the contractor’s best effort.”

At the time, Guttman was one of “Nader’s Raiders,” the young progressives who churned out exposés of government and corporate America for consumer advocate Ralph Nader. This didn’t stop him from making friends with HEW staff. He joined them for coffee breaks. He answered the phone when they went to lunch. By the time someone questioned his presence in the office, he had already read through all the files. Guttman would have better moments as an investigator, but none that so vividly showed how contracting worked behind the scenes.

“It was like cracking the code,” he remembers. “When you get to the inside documents, you find too many cases where the light is on but nobody is home.”

Guttman was fascinated by the role of think tanks in setting public policy, not an unusual concern in the circles he traveled in. He grew up in White Plains, N.Y., the eldest of three brothers. A mediocre student in high school, he went to the University of Rochester, where he was a big fish in a small pond. Guttman was student body president, editor of the student newspaper, and an intramural wrestling champion. In 1968, his senior year, he helped lead student protests against Dow Chemical, the manufacturer of napalm, when the company came to recruit on campus.

In 1969, Guttman enrolled at Yale Law School-where it seemed that almost everyone was studying something besides law. Guttman’s friend Robert Peck studied architectural history; one student spent most of his time writing poetry. Guttman was no exception, quickly immersing himself in research on federal consultants.

Guttman loved to tell stories about the scandals he found. Peck remembers Guttman stopping him in the hall of their dorm. “‘Listen to this, isn’t it outrageous?'” he would say. But Peck and others wondered what the stories really proved. “I said, ‘Dan, it’s a lot of anecdotes, but what does it add up to?’ ” says Peck, a former commissioner of the General Services Administration’s Public Buildings Service, who is now president of the Greater Washington Board of Trade.

While still in law school, Guttman and Barry Willner, a fellow Nader researcher, decided to write a book about the consulting industry that had grown up around agencies, and to discuss the policy issues it raised. The result was The Shadow Government. “Barry and I could have easily shown that procurement rules weren’t followed,” says Guttman. “But we wanted to know how well the system was performing-whether it was providing successful results.”

They showed how the spread of management fads, such as the Defense Department’s Planning-Programming- Budgeting System, gave contractors entry into agencies. They also showed the role contractors played in bureaucratic turf wars. The book highlights the experience of Donald Rumsfeld, the young director of the Office of Economic Opportunity, who used contractors to gain leverage over a defiant career workforce. “Don found himself with a bureaucracy that hated him,” said Dick Cheney, then Rumsfeld’s assistant, now vice president, in an interview with Willner. In 1969, shortly after being appointed by President Nixon, Rumsfeld tapped Booz Allen Hamilton and Arthur Andersen to reorganize the agency. The new organization chart had no positions for 108 civil servants, who were left to wander the halls.

The book takes a stab at explaining the influx of contractors into government, a theme Guttman expanded on in later writings. He attributes the rise of the federal consulting industry-or the “contract bureaucracy,” as he calls it-to a group of mid-century reformers who believed government had to tap business and academia in order to carry out new missions given Americans’ aversion to big government. A pivotal text for him is The Scientific Estate (Harvard University Press, 1965) by Don Price, the first dean of Harvard’s Kennedy School of Government. Price argued that the then-emerging network of think tanks, universities and government created a “diffusion of sovereignty.” Guttman also points to Business in the Humane Society (McGraw-Hill, 1971), by John Corson, an influential McKinsey & Company executive, which heralds contracting out as a “new form of federalism” that enables the government to accomplish new tasks with help from industry.

The new approach came to life in organizations such as RAND, Aerospace Corp., and Mitre, nonprofits created during the Cold War to run Air Force weapons programs. It also took root in NASA and Energy, two agencies designed to be heavily dependent on contractors. Guttman believes government has not yet come to terms with the implications of these reforms.

THE WORK OF GOVERNMENT

Guttman doesn’t lose much sleep over the procurement of goods-the purchase of “ketchup and paper plates,” as he puts it. His interest lies in the government’s use of contractors to provide policy advice and management services, which he calls “the work of government.” The Shadow Government purports to reveal “the government’s multibillion-dollar giveaway of its decision-making powers to private management consultants, ‘experts,’ and think tanks.” Today, Guttman is less inclined to see wholesale contracting out as a scandal, but he is more critical of a federal culture that presumes agencies have the capacity to oversee contractors, despite evidence to the contrary.

Guttman says he’d prefer it if Office of Management and Budget Circular A-76, which governs federal outsourcing efforts, simply said, “If you want to contract out everything in the Defense Department, be our guest, but that may mean there’s no one left inside government who can monitor the contractors. Before you outsource, you should have to attest that there is adequate oversight capacity in place, or explain why it isn’t needed.”

That oversight, Guttman says, involves more than simply auditing to control cost overruns. His chief worry is that outsourcing will make government less accountable to the public. Contract employees are not listed in agency employee directories, and some contractors do not publicize their federal clients, making it hard to gauge their influence. Openness laws such as the Freedom of Information Act apply to civil servants, but not to for-profit contractors. Federal employees and contractors are both prohibited from acting in areas in which they would have conflicts of interest, but the rules for civil servants are much stricter and include criminal penalties.

Guttman believes these differences are anything but academic. He loves to cite a 1998 dispute in which the electric power industry came face to face with the rules governing the contractor workforce. Concerned about new clean air rules proposed by the Environmental Protection Agency, power companies tried to obtain the data underlying the rules. The EPA refused, noting the data was maintained by Harvard University, which had developed it under an EPA grant. So the companies took their concerns to Congress, which, over howls from nonprofit organizations and universities, amended FOIA to allow public access to their federally sponsored research. “Regulated industries urged openness in government, while nonprofits complained that the application of FOIA to them would be chilling to their activities,” says Guttman.

Because contractors and civil servants are governed by different rules, efforts to blur the boundaries between the two workforces are extremely troubling to Guttman. The notion that civil servants and contractors are interchangeable, except where “inherently governmental” work is involved, is a central premise of President Bush’s competitive sourcing initiative. It animated the Clinton administration’s “reinventing government” campaign as well. To Guttman, this argument ignores the essential differences between the public and private sectors. “Both the Clinton/Gore reinventing government [initiative] and the Bush management agenda aim to render civil servants more ‘contractor-like,’ but do so with little or no reflection on the fact that our long-standing laws do not now provide for the blurring of the boundaries between official and contractor status,” he says.

Critics reply that laws such as the Freedom of Information Act and the Hatch Act have little bearing on the kinds of jobs at stake in the push to subject federal work to competition in both the Bush and Clinton administrations. “By no stretch of the imagination does the question of contracting for laundry services at Veterans Health Administration hospitals raise any of the issues that [Guttman] most strongly worries about,” says Kelman. In theory, jobs that do raise these issues are protected from outsourcing by the principle of “inherently governmental” work.

But in practice, Guttman notes personnel ceilings often force agencies to hire contractors to perform new work, whether it is inherently governmental or not. And the principle says little about whether outsourcing will help an agency’s mission. The Defense Department now uses the concept of “core” and “noncore” jobs to guide its outsourcing decisions.

“People in Defense know ‘inherently governmental’ is not an adequate concept,” says Guttman. He notes that the principle has not stopped agencies from contracting out procurement oversight or military logistics work in Iraq-both tasks Guttman considers to be “the work of government.”

Guttman’s legal cases have left him deeply skeptical of government’s oversight ability. In 1993, Energy proudly unveiled a new strategy for the cleanup of nuclear weapons plants: The contractors running the plants would subcontract the cleanup to other private firms, bringing new expertise to the cleanup effort. Subcontracting allowed the firms to replace the longtime federal workforce at the plants, which was represented by the Oil, Chemical & Atomic Workers Union and its attorney, Guttman. When a subcontractor took control of the cleanup at Fernald, Ohio, the union filed suit in U.S. District Court to prevent layoffs.

During the discovery process, Guttman obtained contract documents suggesting Energy had little idea what its new subcontractors were up to. In its health and safety plan, the Fernald subcontractor instructed workers not to tell Energy inspectors about possible problems at the plant. These revelations grabbed Congress’ attention, and the subcontractor quickly settled the case with the union, retaining its workforce.

But some of Guttman’s adversaries say the world of federal procurement is different now than when he did the bulk of his research. Agencies today prefer to do business with a single integrator that oversees many firms, each of which has a specific role, making conflicts of interest easier to prevent, they argue. “It’s absolutely true that in the last 20 years, government has tightened up on a lot of things,” says Booz Allen Hamilton’s Wright.

When Peck went to the Public Buildings Service in 1995, he had few plans to hire outside contractors. But then he realized that his leasing staff lacked in-depth knowledge of the real estate market. And Congress was pressuring the agency to outsource. So Peck hired real estate firms to provide leasing advice to PBS offices in each region of the country. “That’s a pretty good way to use contractors,” he says. “If Dan had the chance to run a big agency, I think it would be really interesting to see where he would draw the line on contractors.”

GETTING AT THE TRUTH

It’s not easy to picture Guttman as an agency head. He is too iconoclastic to follow party orthodoxy, and seems physically unable to speak in sound bites. “You could never quite be sure what he might say or do,” says Bekavec. “Dan fiercely wants to get to the truth and he’s going to get there no matter what.”

When asked what he would do if he had a top management position-Kelman’s federal procurement administrator job, for instance-Guttman hesitates. “I wouldn’t know where to start,” he says. He imagines many of his ideas would face resistance from contractors, an assessment shared by his friends. “If my job is to contract out, do I really want to do less of it or do it more carefully?” asks a colleague.

Guttman believes he can have more of an effect on the outsourcing debate from his perch in academia. When he left government in 1997, he hoped to draw attention to the basic questions of accountability posed by outsourcing. He and an eclectic group of friends in academia and at nonprofit groups are studying how contractor accountability affects everything from warfare to Medicare.

He explores the same issues in the classroom. On Wednesday evenings, Guttman teaches a seminar at Johns Hopkins’ center in Washington. Its purpose is to explore the American tradition of harnessing private interests to serve the public interest, a theme that hopscotches from The Federalist Papers to present-day outsourcing arrangements. In the seminar’s second meeting this fall, Guttman paced across the front of the room, discussing Alexander Hamilton’s proposal for a national bank. The bank was designed to give the federal government a role in the nation’s economic development, while also helping the merchant class. “Today, we would call it a public-private partnership!” he exclaimed.

Guttman believes the time is right for another top-to-bottom look at the government’s use of contractors. “It’s a good time for someone to say, here are the bigger questions that aren’t getting attention,” he says. “And then you’ll see some congressmen asking questions. And once they do, they’ll see that federal officials are not completely in control of contractors.”

This is a remarkably timeless article from 2003 by JASON PECKENPAUGH, for Govexec.com, about Dan Guttman, of counsel, Guttman, Buschner & Brooks, PLLC.

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Effective Compliance Means Imposing Individual Liability

By Reuben A Guttman |

Deputy Attorney General Sally Yates said it in a memo dated September 9, 2015, and her successor, Rod Rosenstein, said it in remarks dated October 6, 2017: corporations act through individuals, and compliance enforcement must necessarily account for holding individuals liable for the wrongs they orchestrate under cover of the corporate umbrella.(1)

The logic is reasonable and necessary. We blame corporations for catastrophic environmental events(2), misbranded drugs that cause injury, and financial products that destroy the life savings of those who have toiled for a living; yet at the helm of the corporations—guiding their path of impropriety—are people, many of whom who have benefited handsomely from the corporate misconduct that they have captained. Unfortunately, in comparison to the guilty pleas that are taken by corporations, which cannot be put behind bars, prosecutors—both criminal and civil—barely scratch the surface when it comes to pursuing the individual human culprits.

This is not to say that there have been no criminal prosecutions of individuals for corporate crime. Insider trading cases are quite common, and when the wrongdoing has catastrophic consequences, as in Enron, Tyco, WorldCom, and the Madoff organization, prosecutors have put real people behind bars.(3)

There are, however, too many instances where individuals have put a corporation on a destructive tear, and still managed to elude personal liability. Considering that many of the large drug companies have either taken guilty pleas or paid fines to the government for conduct that has placed patients at risk by causing the consumption of powerful, unnecessary drugs, it is astounding that few, if any, pharmaceutical executives have been pursued criminally for conduct tantamount to battery.(4) Imagine, for example, if an intruder broke into your house, opened your medicine cabinet, and loaded the cabinet with bottles of pills that were either not medically necessary—or worse—could cause physical injury or illness? How far removed is this from marketing schemes that cause doctors to write prescriptions based on misinformation, that cause dangerous products to be placed in medicine cabinets and ultimately consumed? Or what about the drug companies that funnel kickbacks to doctors disguised as “speaker fees” or “consulting agreements” while monitoring prescription data to confirm that the doctors are writing the “scripts” as directed.

In 2012, Abbott Labs, one of the largest pharmaceutical companies in the world, plead guilty to illegally marketing the powerful drug, Depakote, which is a limited indication anti-epileptic. Among other things, Abbott marketed the drug to elderly patients in nursing homes for off-label purposes and for pediatric use, even though Depakote was not approved to treat anyone under the age of 18. After the entry of a guilty plea, the U.S. Attorney for the Western District of Virginia, Timothy Heaphy, noted in a Department of Justice press release that, “Abbott unlawfully targeted a vulnerable patient population, the elderly, through its off-labelpromotion.”(5) Think hard about this statement; a company that holds itself out as a manufacturer of life-saving drugs was knowingly placing patients at risk for the purpose of making a buck.

In 2013, Wyeth Pharmaceuticals agreed to pay $490.9 million in criminal and civil penalties for engaging in proscribed marketing practices regarding the prescription drug, Rapamune. Rapamune is an immuno- suppressive drug—that is, it prevents the body’s immune system from rejecting a transplanted organ. At the time of the guilty plea, Wyeth had merged into Pfizer, and was no longer a standalone entity. Wyeth plead guilty to a criminal information, charging it with a misbranding violation under the Food, Drug, and Cosmetic Act. In characterizing the case, Antoinette V. Henry, Special Agent in Charge of the Metro-Washington field office of the FDA’s Office of Criminal Investigations noted, “Wyeth’s conduct put profits ahead of the health and safety of a vulnerable patient population dependent on life sustaining therapy.”(6) Also in 2013, pharma- giant GlaxoSmithKline plead guilty and paid $3 billion to the government in order to resolve fraud allegations and the failure to report safety data. As part of a global settlement, the company also settled a series of civil claims under the False Claims Act, stemming from marketing derelictions including kickbacks.

Time and time again, large pharmaceutical companies have engaged in conduct that placed patients at risk, and, at times, caused real harm, yet, virtually no individual has been prosecuted or put behind bars.(7) The idea that misrepresentations, kickbacks, and assorted fraudulent schemes can be employed to cause patients to put drugs in their bodies at personal peril without anyone going to prison is stunning. Our jails have no shortage of inmates sentenced to long terms for selling illegal drugs and/or engaging in various batteries. Yet, when white collar executives engage in schemes to drive revenue by causing the consumption of extra drugs, or the use of drugs for improper purposes, individual liability is rare.

Consider that this nation is immersed in battling what the press now calls the “opioid crisis”(8) or the “opioid epidemic.” (9) This crisis reared its head at least a decade ago when the U.S. Attorney in the Western District of Virginia prosecuted the drug manufacturer Purdue Pharma, and three corporate executives for illegally marketing the drug Oxycontin. On July 23, 2007, the United States District Court for the Western District of Virginia (James P. Jones, Judge) issued an Opinion and Order approving a criminal plea agreement and summarizing its provisions. Among other misdeeds, during a six-year period, “certain Purdue supervisors and employees with the intent to defraud or mislead, marketed and promoted OxyContin as less addictive, less subject to abuse and diversion, and less likely to cause tolerance and withdrawal than any other pain medications.” Among an array of specific derelictions, Purdue representatives “told certain health care providers that Oxycontin did not cause a ‘buzz’ or euphoria, caused less euphoria, had less addiction potential, had less abuse potential, was less likely to be diverted than immediate-release opioids, and could be used to ‘weed out’ addicts and drug seekers.”(10) The court’s opinion noted that “Purdue has agreed that these facts are true, and that the individual defendants, while they do not agree that they had knowledge of these things, have agreed that the Court may accept these facts in support of their guilty pleas.” The plea agreement—accepted by the Court—called for Purdue to pay approximately $600 million to resolve civil and criminal claims. It also provided that no individual defendant would be incarcerated. In the absence of record proof of their culpability, the Court was left with no choice but to accept the agreement as to no prison time for individuals. Noting what we now know about the opioid problem, the Court made this ominous point:

I would have preferred that the plea agreements had allocated some amount of the money for the education of those at risk from the improper use of prescription drugs, and the treatment of those who have succumbed to such use. Prescription drug abuse is rampant in all areas of our country, particularly among the young people, causing untold misery and harm. The White House drug policy office estimates that such abuse rose seventeen percent from 2001 to 2005. That office reports that currently there are more new abusers of prescription drugs than users of any illicit drugs. As recently reported, “Young people mistakenly believe that prescription drugs are safer than street drugs. . . but accidental prescription drug deaths are rising and students who abuse pills are more likely to drive fast, binge-drink and engage in other dangerous behaviors.” Carla K. Johnson, Arrest Puts Spotlight on Prescription Drug Abuse, The Roanoke Times, July 6, 2007, at 4A. It has been estimated that there are more than 6.4 million prescription drug abusers in the United States.(11)

Fast-forward eleven years, and the opioid crisis—which commenced with pharmaceutical companies manufacturing and marketing opioids well beyond their legitimate demand—and we have a nation now addicted to drugs, with additional supplies flowing from Mexico and China. The origin of this crisis is not just the drug companies; it starts with the individuals who ran the drug companies, placing revenue generation ahead of medical need—perhaps because bonus structures and stock options made it personally advantageous.(12)

Today, legislators on Capitol Hill grouse about the cost of our healthcare system and debate what level of benefits should be reduced. Yet, few, if any, lawmakers focus on what should be a front-end question: how much money is being wasted through fraud and abuse? Few, if any lawmakers are even contemplating a second question: how much money is spent to treat injuries and illnesses attributable to drugs that should never have been taken? And few, if any, have contemplated how to change behavior by holding individuals accountable. And of course, few, if any, legislators have contemplated making drug companies pay for wide dissemination of honest information about their products as one Federal Judge in the Western District of Virginia contemplated over a decade ago.

At the end of the day, if there is a perception that only a legal fiction will be caught holding the bag (albeit a fiction impossible to imprison), corporations—and those individuals that control their conduct—will view civil and even criminal sanctions as simply the price for a license to break the law. And to company insiders—that is to say, the shareholders, officers and Directors—paying this fee for the license to break the law may be worth it if the analysis was simply a matter of dollars and cents.

In 2012, when Pfizer paid $2.3 billion to settle unlawful marketing claims involving a number of its products, it was a small price to pay for the right to engage in a history of conduct that generated a revenue stream in excess of $100 billion.(13) Moreover, it was a small price to pay for the right to poison the market for honest medical information and thus establish a standard of care that would generate a revenue stream in the years to come. Put simply, when companies engage in pervasive misbranding of their products over a period of years, they disseminate misinformation that then becomes the standard of care. While that standard may not be evidence based, it is still hard to undo. Hence, paying a mere dollar fine will not reset or correct the market for honest medical information; and so manufactures get the continued benefit of a standard of care which may encourage use of a product even though it is potentially harmful or not otherwise medically necessary.

It is not just a problem endemic to the pharmaceutical industry. An array of corporations routinely game the system seemingly calculating the penalties for non-compliance. Publicly traded big box stores routinely pollute our navigable waterways with runoffs from parking lots that aggregate toxic hydrocarbons from leaky vehicles. Similarly, manufacturing plants have created a legacy—and continue to do so—of groundwater contamination that will for centuries prevent the safe enjoyment of our aquifers and tributaries. They do so because the cost of preventing the harm may well exceed the fine.

The externalities of corporate greed are not only imposed on consumers. Labor lawyer, Jon Karmel, in his recent book, Dying to Work,(14) raises awareness of unsafe working conditions that have resulted in death and/or injury to workers. Karmel traveled the country to interview victims and their families and his book highlights how corporations have simply not placed a premium on protecting their workers from harm. Unfortunately, our laws make it too easy for employers to game out the penalty for unsafe workplaces. Workers compensation systems designed to provide injured workers with quick relief also cap liability by preventing direct causes of action for significant actual and punitive damages. There is no shortage of reports of coal miners toiling in unsafe mines replete with regulatory derelictions, who have lost life and/or limb in pursuit of company profit.(15) Yet, compensation systems cap the employer’s economic exposure and—again—at the end of the day, few, if any, individuals are held personally accountable.(16) For the corporation, the fix or preventative measures are often considered more expensive than the penalty.

Over the past year, the nation has come to realize what many have known as true for some time; that discrimination based on class, race, gender, and national origin festers in our workplaces. There may be few, if any, visible cross burnings in this century, but the internet and cyberspace are overflowing with evidence that the most vulgar forms of racism and gender discrimination are thriving even in the 21st century. Perhaps, some had thought, that the civil rights legislation of the 1960s struck a blow to discrimination, causing its demise. Although we sing the praises of this legislation, it too caps liability and limits the rights of the aggrieved. Consider Title VII of the 1964 civil rights act(17)—that statute requires that claims of discrimination be brought within six months.(18) Punitive damages are capped, and the courts have impeded plaintiffs from seeking redress on a class basis for wrongful conduct.(19) Other than damage to brand and reputation, employers can easily calculate the fee for the license to discriminate. Before the #MeToo movement, which now seemingly causes consumers to factor in a company’s compliance with laws proscribing discrimination in evaluating the integrity of a brand, derelictions of employment laws had less severe consequences for corporate wrongdoers. For years, Wal-Mart battled claims of pervasive gender discrimination without any significant impact on its brand. (20)

Against this backdrop, the regulators and those enforcing compliance routinely tout million, multi-million, and even billion-dollar settlements as evidence of efforts that change corporate behavior. But do these settlements really change behavior? The answer is no. If our laws are structured to allow corporate defendants to game out the penalty, corporate insiders will gauge the cost of noncompliance as the cost of doing business. Penalties that appear to be massive may be minimal when compared to the profits the corporation secured through wrongful conduct. If corporations can game out the price of non-compliance and individual wrongdoers can hide behind the corporate cloak and continue to collect bonuses based on unlawful corporate conduct, business will continue as usual. And this is the lesson for both regulators and lawmakers.

Reuben A. Guttman is a partner at Guttman, Buschner & Brooks, PLLC and has represented whistleblowers in cases against the pharmaceutical industry which have returned more than $5 Billion to the Federal and State governments. He is an Adjunct Professor at Emory Law School and a Senior Fellow at the Center for Advocacy and Dispute Resolution. He is also a member of the Board of the American Constitution Society. He extends thanks to his colleagues Traci Buchner, Justin Brooks, Liz Shofner, Caroline Poplin, MD, Dan Guttman, Paul Zwier, Richard Harpootlian, the Honorable Nancy Gertner, and Joy Bernstein, who have been a constant sounding board for these issues.

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  1. See “Individual Accountability for Corporate Wrongdoing,”U.S. Department of Justice (September 9, 2015) https://www.justice.gov/archives/dag/file/769036/download; Rod J. Rosenstein, Deputy Attorney General, Keynote Address at the NYU Program on Corporate Compliance & Enforcement (October 6, 2017) https://wp.nyu.edu/compliance_enforcement/2017/10/06/nyu-program-on-corporate-compliance-enforcement- keynote-address-october-6-2017/.
  2. “Deepwater Horizon,” U.S. Department of Justice: Environment and Natural Resources Division, https://www.justice.gov/enrd/deepwater-horizon.
  3. See Aaron Smith, “Madoff Arrives at N.C. Prison”, CNN:Money (stating Bernie Madoff, release date November 14, 2139, is inmate 61727-054 at the Butner Medium Security Prison) (July 14, 2009 2:19 PM) (http://money.cnn.com/2009/07/14/news/economy/madoff_prison_transfer/; Marcia Heroux Pounds, “Dennis Kozlowski, former Tyco CEO who went to prison, back in M&A business”, Sun-Sentinel (stating Tyco CEO Dennis Kozlowski spent six and one half years in prison and was released in 2015) (Jan. 11, 2017 6:26 PM) http://www.sun-sentinel.com/business/fl-dennis-kozlowski-life-after-prison-20170111-story.html;”Bernie Ebbers’ wife files for divorce,” NewsOK (Worldcom CEO, Bernard J Ebbers, release date July 4, 2028, is inmate number 56022-054 at the FMC Forth Worth Federal Prison) (April 23, 2008 4:48 AM) http://newsok.com/article/3233823; Rufus-Jenny Triplett, “Prisonworld View-Corporate CEO Gets Skimmed Sentence,” Dawah Interational, LLC (stating Former Enron CEO, Jeffrey K Skilling, release date February 21, 2019, is inmate number 29296-179 at the FPC Montgomery Federal Prison Camp) (May,15, 2015) http://prisonworldblogtalk.com/2015/05/15/prisonworld-view-corporate-ceo-gets-skimmed-sentence/.
  4. See, e.g., “Criminal Resolution”, U.S. Department of Justice: Glaxosmithkline Settlement Fact Sheet, https://www.justice.gov/sites/default/files/usao-ma/legacy/2012/10/09/Settlement_Fact_Sheet.pdf ; “Pfizer to Pay $2.3 Billion for Fraudulent Marketing,” U.S. Department of Justice: Justice Department Announces Largest Health Care Fraud Settlement in its History, https://www.justice.gov/opa/pr/justice-department- announces-largest-health-care-fraud-settlement-its-history; Megan Stride, “Wyeth Paying $491 M to End Criminal, Civil Rapamune Cases”, Law360, https://www.law360.com/articles/461203/wyeth-paying-491m-to- end-criminal-civil-rapamune-cases
  5. See “Abbott Laboratories Sentenced for Misbranding Drug”, U.S. Department of Justice (October 2, 2012) https://www.justice.gov/opa/pr/abbott-laboratories-sentenced-misbranding-drug.
  6. See “Wyeth Pharmaceuticals Agrees To Pay $490.0 Million For Marketing The Prescription Drug Rapamune For Unapproved Uses”, U.S. Department of Justice (July 30, 2012) https://www.justice.gov/usao-wdok/pr/wyeth-pharmaceuticals-agrees-pay-4909-million-marketing-prescription-drug-rapamune.
  7. See Erica Goode, “3 Schizophrenia Drugs May Raise Diabetes Risk, Study Says”, The New York Times (August 25, 2003) https://mobile.nytimes.com/2003/08/25/us/3-schizophrenia-drugs-may-raise- diabetes-risk-study-says.html.
  8. Opiod Crisis Fast Facts, CNN: Health, (March 2, 2018 9:25 AM) https://www.cnn.com/2017/09/18/health/opioid-crisis-fast-facts/index.html.
  9. M. Scott Brauer, “Inside a Killer Drug Epidemic: A Look at America’s Opioid Crisis, (Jan. 6, 2017) (according to the New York Times, “the opioid epidemic killed more than 33,000 people in 2015) https://www.nytimes.com/2017/01/06/us/opioid-crisis-epidemic.html.
  10. United States v. Purdue Frederick Co., 963 F.Supp.2d 561 (W.D.Va. 2013).
  11. Id.
  12. See Reuters, U.S. Senator Sanders Introducing Bill Targeting Opioid Manufacturers, VOA: USA, (April 17, 2018 10:24 AM) (stating the idea of imposing harsher criminal penalties on drug company executives has been championed by Vermont Senator Bernie Sanders who has proposed the Opioid Crisis Accountability Act of 2018) https://www.voanews.com/a/us-senator-sanders-bill-opioids-manufacturers/4351732.html
  13. See Gardiner Harris, “Pfizer Pays $2.3 Billion to Settle Marketing Case”, The New York Times (September 2, 2009) https://www.nytimes.com/2009/09/03/business/03health.html.
  14. Karmel, Jon, Dying to Work, Cornell University Press (2017)
  15. See, e.g., Dana Ford, “Don Blankenship, ex-Massey Energy CEO, sentenced to a year in prison,” CNN, (April 6, 2016 11:29 PM) (explaining it was the explosion at Massey Energy’s Upper Big Branch mine which killed 29 people. Massey CEO Don Blankenship was ultimately convicted of a misdemeanor with regard to the skirting of safety regulations. He served one year in prison and is now a candidate for the United States Senate in West Virginia) https://www.cnn.com/2016/04/06/us/former-massey-energy-ceo-don- blankenship-sentenced/index.html; Nicole Gaudiano, “Don Blankenship, convicted ex-Massey CEO now Senate candidate, calls for more mine safety,” USAToday: OnPolitics, (April 4, 2018 6:43 PM) https://www.usatoday.com/story/news/politics/onpolitics/2018/04/04/don-blankenship-convicted-massey-ceo- senate-candidate/487230002/.
  16. See “Dying to Work: Death and Injury in the American Workplace”, Cornell University Press (December 2017).
  17. 42 U.S.C § 2000e (1964).
  18. Dov Ohrenstein, “Limitation Periods–What’s the Limit,” Healys LLP, http://www.radcliffechambers.com/wp-content/uploads/2010/02/Limitation_seminar_-_Dov_Ohrenstein.pdf (Explaining in comparison to claims for contracts and most torts, six months is a very limited statute of limitations. Undoubtedly many claims die on the vine because they were not brought in time)
  19. See infra note 18.
  20. Wal-Mart Stores, Inc. v. Dukes, et al., 564 U.S. 338 (2011) (explaining the case is one of several cases impacting the ability to certify class action discrimination cases).
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