Fraud in the Healthcare Industry & the Role of Whistleblowers

What does the False Claims Act do, and when does it involve medical devices? 

In today’s episode, you’ll hear from Jonathon Tycko, an attorney who represents whistleblowers. Jonathan is a founding Partner with Tycko & Zavareei LLP, a law firm with offices in Washington, D.C., and California. His practice represents whistleblowers under the False Claims Act, along with similar statutes. Jonathon created and hosts his own podcast, The Garrulous Gavel.

In today’s conversation, we cover the history of the False Claims Act and the lifecycle of the medical device. Listen to the episode to hear what Jonathon has to say about the process of the whistleblower’s claim, best practices for companies in relation to whistleblowers, and what kinds of penalties might result from a finding of fraud.

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Some of the highlights of this episode include:

• History of the False Claims Act

• The process of filing a whistleblower claim

• What happens if the whistleblower’s claim isn’t investigated

• The flow of money in whistleblower cases

• How many whistleblower cases are successful each year

• Best practices for companies in relation to whistleblowers

• Whether whistleblowers can be reintegrated into the company when they don’t have a case

• Whistleblower cases in the medical device field

• Boundaries and understanding when you’re on the hook for what you do within your company

• What the penalty for potential fraud could look like

• Definitions of profiteering and price differentiations between the government or another entity

• Advice for medical and medical device companies

Links:

Jonathan Tycko LinkedIn

Tycko & Zavareei LLP

The Garrulous Gavel podcast

Etienne Nichols LinkedIn

MedTech Excellence Community

Greenlight Guru Academy

Greenlight Guru

Memorable quotes from Jonathon Tycko:

“The vast, vast, vast majority of the cases that the government brings is because of whistleblowers, because of that 1986 amendment.”

“This is where most companies get in trouble in the device field. It’s in the marketing of the product.”

“You don’t want to do this and get caught by the Department of Justice. It will not be worth it to you.”

“If your goal is to have a sustainable company that’s going to be around for a while, you have to accept the fact that you’re in a highly, highly, highly regulated business, and you can’t just put the blinders on when it comes to compliance.”

Transcript:

Etienne Nichols: Hey everyone. Welcome back to the Global Medical Device Podcast as I'm the host of today's podcast, Etienne Nichols. Today with me is Jonathan Tycko.

I'm excited to talk with you today, Jonathan, because this is. We're going to get into some things hopefully that, you know, maybe I've never even really considered me personally and, and maybe some of our audience has, but I know you're an attorney.

1. Tell us a little bit about what you do and, and some of the things you get into.

Jonathan Tycko: Okay, yeah, happy to do that. And thanks for having me on the podcast.

So, yes, I am an attorney, guilty as charged.

And you know, I've been a lawyer for almost 30 years now and have done a lot of things over that time, but I, but what I've done for about the last 12 years or so of my career has been focused on a particular statute called the False Claims Act.

And this is the, the basic law in, in the federal system that makes it illegal to commit fraud on the federal government or on federal government programs.

And I generally have represented whistleblowers because the False Claims act has what's called a key TAM provision which allows a private citizen to bring a case in the name of the government against a company or an individual who they believe is violating the False Claims act by committing fraud on the government.

And I think why this is of particular interest to your listeners focused on the healthcare industry is that somewhere between 60 to 70% of these cases are healthcare related.

And that's just because, you know, as you well know, there is so much federal money in the healthcare system.

And so, any company that is engaged in some sort of fraudulent conduct in the healthcare industry is likely violating the False Claims act because that fraud is going to lead to claims under Medicare, Medicaid, the VA System, Tricare, all the various programs that the government uses to fund health care.

So that, that, that's, you know, kind of the short version of what I do. I represent whistleblowers in these False Claims act cases, and much of that is in the healthcare industry.

Etienne Nichols: Okay, very interesting.

Yeah. So, I, I'm not.

Can you tell us a little bit about how that works? What does the process look like when someone, maybe they stumble upon this or maybe they knew about it for a while.

I don't know which direction it usually goes, but when they have this information, and they do want to reveal that. How does, how does that process look. Look like?

Jonathan Tycko: Yeah, it's a great question. And this, this statute is very unique in a lot of different ways. It's not a normal lawsuit.

So, let. Let.

Probably the way to explain it is to say what is a normal lawsuit? A normal lawsuit is, you know, let's say you're in a car accident and you want to bring a claim against the person who ran into you with their car.

You file a complaint in court, and then you're obligated to give that complaint to the person you've sued so that they know that they've been sued so they have a chance to defend themselves. Right? And that's the way a normal lawsuit works.

The False Claims act works differently because it's primarily designed to incentivize people to come forward with information and to provide that information to the government.

So, the way that the statute works is that if you have information, you, the potential whistleblower, you have information that a particular company is doing something fraudulent that may violate the statute, you do file a complaint in court the way you would a car accident case, except that complaint is filed under seal, which means it's secret, it's not part of the public docket, and you are legally forbidden from giving that complaint to the defendant.

Instead, the complaint is given to the government, to the Department of Justice.

And the Department of Justice has a whole team of lawyers at the main office in Washington, D.C. where I'm sitting today, that's where my office is as well, that is devoted to handling litigation under the False Claims Act.

And so, the complaint goes to the Department of Justice.

And then you also give the Department of Justice whatever evidence you may have to support your allegations in the complaint. That's generally called a disclosure statement.

And that often just takes the form of a memo from your lawyer, a guy like me, to the Department of Justice lawyers, explaining the case and saying, here's the evidence that my client has that supports what we're alleging in this case.

And that can be, you know, documents that the client may have, it may be other witnesses that they can point to who would support their story and so forth.

And then the Department of Justice will start an investigation.

Now, during this whole investigation period, the case remains under seal. It's secret. The defendant does not know they've been sued. And your identity as the whistleblower is also secret for that period of time.

So, the Department of Justice opens an investigation to determine whether or not there is merit to your claim.

And they can do all of the things that the Department of Justice can do to investigate a case. And they have very, very broad powers. They will go out and interview witnesses.

They can issue what are called civil investigative demands, which is basically a subpoena for documents or information that they can serve on a company and say, you know, give us the following documents, give us your files relating to these types of claims or whatever.

And they will often in healthcare cases, be working hand in hand with investigators from the Department of Health and Human Services who work at what's known as the Office of Inspector General.

So maybe folks in your business have heard of HHS org. That's the acronym it usually goes by. But you know, you know, generally you don't want to see an HHS OIG investigator showing up at your door.

That means that they're, they're looking into your business a little bit so that, that, that investigation will go on until it's done. And they often can take many months or even years, often many years to complete.

And then at the end of that investigation, the Department of Justice makes what's called an intervention decision.

If the department thinks that your claim has merits and it's a case they want to pursue,

they will intervene in the case, which means they come in and basically take over the case on behalf of the government.

Or they can decline intervention. They can say, no, we're not going to litigate it. But if they decline intervention, the whistleblower then has the option of just pursuing the case on their own, with their own attorneys, at their own expense, and they can do that. And once that intervention decision is made, that's when the case comes out from under seal. It's no longer secret.

The complaint gets served on the defendant, and at that point it becomes like a regular lawsuit in the sense that the defendant, you know, learns about the case, reads the complaint, can defend itself in court, you know, do whatever it chooses to do in response to the case.

So that's the basic high-level outline of the procedure.

Etienne Nichols: And so, I'm curious. Now, obviously the Department of Justice is a busy place. I'm sure they, they have a lot going on. So, when these things come, come forward or, or when they first present this, this whistleblowing is, what if it comes out that it's not actually, it's not really a problem. There's not really anything that happened. Is there any kind of blowback on the, the whistleblower or any, how does that work?

Jonathan Tycko: Well, the, the department could do a number of things. They can either just as I said, they can either just decline intervention and say, look, we don't want to pursue it, but you, the whistleblower can pursue it on your own if you want.

Although even under that circumstance, the money comes back to the government. Although we should talk a little bit about the flow of money here, because there are financial rewards to the whistleblower if there, if the case is successful.

So, there is a financial incentive, if you will.

But the department does also have the right to just outright dismiss the case. Okay. So, they don't exercise that right often, but when they do, it is usually because they have concluded that the whistleblower's allegations are just flat wrong.

And often because they are suspicious of the whistleblower’s motivations. Like the Department of Justice doesn't want whistleblowers using the False Claims act, you know, to sort of leverage other things that they're after.

You know, so if they think that, if they think the, the whistleblower has sort of bad motive and they think the case has no merit, they do have the authority to just dismiss the case and make it go away.

But that's an authority that they exercise fairly rarely.

Etienne Nichols: Okay, that makes sense.

Jonathan Tycko: Yeah.

Etienne Nichols: So, and I want to talk about the companies and how they can handle this in just a moment. But still, while we're on the whistleblower, you mentioned the flow of money, so I'm curious about that. What can you tell us about that?

Jonathan Tycko: All right, so when. So, when Congress passed this law, and this law in its current version, it has a very interesting history, which I can get into at some point. Yeah.

And it's in its. Because it goes all the way. It goes all the way back to Abraham Lincoln in the Civil War. Wow.

But just let me answer your question. Sure. Yeah. Yeah. So. So, yeah, so the, the flow of money.

So, the, the statute in its current version, which has been on the book since around 1986, has a whistleblower reward provision.

And what that says is that the person bringing the case.

I'm using the word whistleblower, but the technical term under the law is relator.

So, the relator, the person bringing the case who's providing that information to the government, if the case is successful, meaning the government actually recovers money, then the whistleblower is entitled to a percentage of what the government recovers.

So, in cases where the government intervenes and takes over the case on its own and litigates with its own resources, the whistleblower's reward is somewhere between 15% and 25%.

And then if the government declines intervention and the whistleblower pursues the case on their own and is successful and recovers money, that percentage goes up to 30%.

So, these can be very, very large rewards because the amounts that are recovered, particularly in healthcare cases, can be huge.

Anywhere from single digit millions up to single digit billions in some cases, as you might imagine for a fraud involving a pharmaceutical product or, you know, a very large kickback scheme, you know. And so, these cases can get very big very fast. So, imagine a case that sells for $100 million. The whistleblower at the low end is going to get 15 million, at the high end is going to get 30 million.

Now there are a little, it's a little bit like a lottery ticket, though. You don't know at the beginning whether you're ever going to get there.

These are very difficult cases to win and not that many of them come back with a hundred-million-dollar results.

There may be like a few of those each year.

So, the rewards can be very substantial for successful cases. I'll just say that.

Etienne Nichols: Yeah, and so there are a few hundred million. But what, I mean, can you give like a ballpark of how many of these cases are like truly successful per year?

Any idea?

Jonathan Tycko: Well, I do, yeah. I mean, I do have some idea because the Department of Justice collects statistics and they once a year they actually report. The statute requ. Requires, there's a law that requires them to report to Congress sort of a set of statistics about how they're doing under the False Claims Act.

And so, in recent years, there's usually somewhere, I want to say between five and 600 cases filed per year. Now that's not that many. I mean, that's across the entire country.

And it's a, it's a very small fraction of all of the lawsuits that are brought in federal court over the course of the year. So maybe five or six hundred across the whole country every year.

The Department of Justice intervenes in about 20% of the cases.

So that means that they're taking say 100 cases a year roughly, that they're going to intervene in.

In cases where the government intervenes, the government usually wins.

And that's because they don't make that intervention decision until they've already finished their investigation.

So, in cases where they decide to intervene, they usually already have the company nailed at that point.

So those cases, in the vast, vast majority of them, when the government intervenes, they settle quickly. Okay, once in a while somebody will take them to trial, but not often.

So that leaves, you know, let's say 400 cases that the government doesn't intervene in.

And, you know, I would say maybe another 20% of those actually get litigated where the relator will take the case forward. Those are obviously harder to fight and are more hard fought, but some percentage of those are successful as well.

So, you might, you know, let's say, I'm just guessing here, but somewhere between 120 and 150 sort of successful cases a year. So, it's small.

Etienne Nichols: Yeah, interesting.

So, okay, so there's not going to be that many whistleblowers, most likely. But that being said, what about the companies that are maybe fostering some.

We talk about. At the Global Medical Device Podcast, we talk a lot about quality and compliance. Obviously, you have to have compliance or you're not going to have a product that can, that can be marketed.

But also, quality, having a, having a device that is really useful in the field and actually safe and effective and works well. So, kind of that marriage of quality and compliance, quality almost over compliance.

But having a culture where you want your employees to be open and, I don't know, maybe be whistleblowers. How do you, or what have you seen companies doing?

What are best practices for companies?

Jonathan Tycko: Well, I guess what I would say if I was advising a company is I would say you want whistleblowers, but you don't want whistleblowers to go to the government.

Okay, okay. So.

Because once they've gone to the government, usually your internal compliance systems have failed.

In my experience, the whistleblowers who have the best cases are ones who are, they're true company insiders. These are people who are medical professionals, engineers, businesspeople.

They're inside these businesses or they're inside the medical profession. You know, we've represented doctors and nurses and physical therapists, and these are people who, they're not, they're not out to get the, the medical industry. These are people who truly believe in it and they see something happening that they think is wrong.

And often their first response, you know, as it should be, is to raise the issue internally with whoever they think is doing the wrong thing. And if, and if you're an employee of a company that you think is doing something wrong, the, the natural response is to just go to your boss or, you know, go through whatever procedure your company has for addressing, you know, those kinds of concerns.

And I would say a company with a good legitimate compliance process will take those people seriously and will, you know, sort of address their concerns with respect, look into them, explain to the employee, whatever conclusions they reach. I mean, sometimes employees are just wrong.

Not because they're bad people, but just because, you know, particularly in larger companies, employees are often somewhat siloed. They see one thing happening in their job that looks like smoke to them, but then if they saw the bigger picture, they'd realize that actually it's not a problem. Right. And so sometimes they're missing the big picture. So, if that's the case, explain to the employee what the bigger picture is so they understand it.

Don't just ignore them and sideline them, but the ones. So, so I would say, you know, you want to encourage that type of internal whistleblowing. You want to encourage employees to feel comfortable speaking up about their concerns.

You want to take those concerns seriously, and you want to have a communication loop that goes back to the employee that says, hey, we've taken what you said seriously.

We looked into it, we thought about it, here's what we've concluded. Because you want that employee to believe in the company, to not think that the company is up to no good.

Right? Yeah. And often that could be a teaching moment both for the company and for the employee, where it becomes a problem and where employees might call somebody like me.

By then, usually the internal compliance system has failed.

The employee has complained about something and has been ignored, has gotten a response that they think is not really responsive.

Often or in the worst-case scenarios, they sort of feel like they've been retaliated against, they've been sidelined from the project, they've been demoted, they've been, you know, I mean, there's the, you know, the, the scene in, in the, the great movie, you know, Office. What is it? Office Space is that movie where, you know, the poor guy who gets his desk like put in the basement and they all just ignore him and they, and he's not even being paid well.

That's how whistleblowers often feel like they've just been sidelined, and their desk has been put in the basement, proverbially. I mean, we're all working from home now, so I guess in their own basement. Right. And, and that's when they're going to start looking for a lawyer or reaching out to the government.

So, I guess the advice that I would give to a, to a company in this business in the healthcare space is, you know, part of your compliance program should be a sort of explicit procedure for raising concerns internally and then taking those seriously.

Don't just view it immediately as an HR problem.

You know, I think a lot of times Companies get into trouble when it's like, oh, somebody's complaining.

Now it's an HR problem. We gotta deal with this person instead of just listening to what they're saying.

Etienne Nichols: Yeah, yeah, yeah. In my experience, that has.

And I've not had a lot of experience with that, but I have seen some complaints, internal complaints, about, you know, are we doing this safely? And they didn't feel like they were.

And exactly like you said, they almost, you know, are just an HR threat. Almost.

I'm curious what your experience is then. You say people, when they get to that point, they. That's when they maybe reach out to you when it. Well, maybe two different directions, you know, in the one case.

Well, maybe they have a case, and you start building that case, I assume anonymously. Or maybe they don't really.

How do you.

Or is it possible to reintegrate them into the company?

What does that look like? Any. Any thoughts on either of those scenarios?

Jonathan Tycko: Yeah, I mean, well, we. We get calls literally daily from. From people who want to talk to us, and, you know, only a small sliver of those end up as filed cases.

Etienne Nichols: Yeah. With the number you said. Yeah, yeah.

Jonathan Tycko: I mean, so we.

We as lawyers have our own vetting process where we talk to the client, listen to what they have to say, do some legal research, and. And often we will tell them, no, you.

You don't really have a case here. Or at least you don't have a. You don't have a case under the False Claims act, which is what we can help them with.

I mean, there are other types of compliance concerns.

I mean, you had mentioned sort of quality issues, like, let's say you've got a concern that the product may have a defect or something like that. That. That. That could harm a patient down the road.

That. That. That's a serious concern, but it's typically not one that translates easily into the False Claims act realm, which is more about financial fraud.

So sometimes we just have to tell them, look, there's really nothing we can do for you.

What those people do after we tell them that, I don't know. I mean, some of them are still employed. Some of them have already left and are just kind of moved on to other things.

There are situations where the False Claims act whistleblowing kind of gets wrapped up in other employment concerns, because sometimes you will have an employee who is already feeling unhappy about their employment situation for some other reason.

They're just. They. They're in conflict with their supervisors. They feel like they're being discriminated against.

For some reason, what, whatever the reason may be.

And so there, there, there are situations where there may be other employment specific issues that we could help them try to resolve with their employer. But that's not the, the guts or the focus of what we do.

Etienne Nichols: Yeah. And I'm assuming when it's that situation, it's not necessarily a successful False Claims act case, I'm assuming.

Jonathan Tycko: I don't know.

Yeah, well, that's right. So, I mean, to, to have a successful False Claims act case, you have to have a claim under the False Claims act, which, which requires some very specific types of wrongdoing, and you have to have the right evidence to support that, to show that it's actually occurring and so forth. So. Which I'm happy to get into talking about any as much of that detail as you want.

Etienne Nichols: Yeah, I was actually going to say I didn't know if you wanted to give, like, I don't know, I'd be interested to hear one of your experiences and one of the cases you've gone through with that, if you could share.

Jonathan Tycko: Yeah, oh, absolutely. Well, so should I give like this, the 32nd kind of interesting story of the false claims? Absolutely.

Etienne Nichols: Let's hear.

Jonathan Tycko: I think this kind of, it's, it's kind of like a fun little bit of history, but it also, I think, helps people understand what the statute is really about. Okay. So, the very first version of this statute was passed during the Civil War.

And lawyers often actually refer to the False Claims act as Lincoln's Law. That's sort of what it became known as.

The, the law was intended originally to dress, address what people used to call war profiteering.

This was the troops would be out in the field or on a march somewhere going off to battle.

And back in those days, you had to sort of provision the troops on the move.

You didn't have a whole big bureaucracy like the Department of Defense does now. So, you have a group of soldiers, they're heading off to battle. Along the way, they need supplies.

Right. They need food, they need a place to stay. They need whatever kind of other supplies they need.

And so the problem that the government was facing is that they would be faced with companies that they viewed as war profiteers, people that were trying to take advantage of the fact that these troops were often sort of in desperate circumstances and they would sell them very like subpar goods or they tell them it was one thing and it wouldn't actually be that thing when it showed up.

So, there was a lot of fraud and a lot of cheating that was Being perpetrated on the, you know, on the Union side of.

Etienne Nichols: Yeah, I never would have thought of that, but yeah, that makes sense.

Jonathan Tycko: And so, to deal with that, Congress passed, and Lincoln signed into law the, the first version of the False Claims act, which basically says, look, you can't commit fraud when you're engaged in business dealings with the government.

And you would have thought that that was sort of just obvious and you didn't really need a statute to say that. But, but, but they passed the statute then. It was on the books for many, many years. And then in 1986, it was substantially amended.

And I, and I should say, you know, because politics gets into everything these days. This is a statute that has had really strong bipartisan support from the beginning.

Some of the, its most ardent supporters are Republican senators.

Really neither side of the political spectrum, you know, supports cheating the government out of money because the government needs that money to do all sorts of things. You might argue about what it should do with that money once it has it, but no, but nobody thinks people should be stealing money from the government.

So, in 1986, it got amended to add this what we call Ki tam provision that makes it easy for citizens to come forward with information and really incentivizes that type of coming to the government with information because it's really the only way or the major way that the government learns about these frauds.

The government can bring a false claim to that case without a whistleblower. If it just thinks it's being defrauded on its own, it can bring that case. But the vast, vast, vast majority of the cases that the government brings is because of whistleblowers because of that 1986amendment.

So, all right, so what are the types of cases that somebody in the medical device field might, might see?

I can kind of give some examples, I think. Yeah, let's hear it and talk about some of the cases I've been involved with.

So, I think one way to think about this is kind of the life cycle of a product, because I think everywhere along the way there is risk that, that some kind of fraud could occur.

So, you know, often early in the life cycle of a product, there's going to be some requirement to seek FDA approval, some, some type of approval depending on the type of product.

Right. I think pretty much anything in the medical industry may go through some type of FDA approval process.

If you commit fraud in that FDA approval process, you're violating all sorts of laws.

But if that product is approved and then, say, the Medicare system ends up paying for that product later.

Okay.

That may give rise to False Claims act liability.

That's called the fraud on the FDA theory.

This is, this is sort of a.

Kind of a hot topic in False Claims act law right now. Yeah, the courts, the courts have been a little split on when they allow that because it's a little bit sort of like removed from the actual financial claim.

It's so early in the process. But there have been some courts, and the Department of Justice certainly supports these types of cases where if a company is actually committing fraud on the.

They're lying about their product. There's, There's. They submit falsified data to prove efficacy.

That. That can actually get you in trouble under the False Claims Act.

Etienne Nichols: So then, so quick question about that, since we're in that. So, if that happens, I mean, the removal. It does seem pretty extreme to me. But I mean, if, if it.

It also makes sense. So, I could. I guess I can see both sides. It makes sense that it's split. If that happens, what kind of financial impact does that have on the original company?

Jonathan Tycko: Yeah, great question.

Right, so. Because the. Often the original company is actually not the one receiving money directly from the government. Right?

Yeah.

So, the, the, the False Claims act basically has, I would say, two main categories of wrongdoing at a high level of generality. One is sort of submitting false claims to the government, and that would be if you had a direct billing relationship with the government program.

So, if you're a provider, you're a doctor's office, you're a hospital, and you are submitting claims directly to Medicare and being paid on those claims, you, if those claims are false, you just didn't do the thing you said that you did.

For example, that's a violation.

But there is also a second sort of level of violation which is called causing liability if you cause someone else to submit a false claim.

So how does that play out in the medical field? Well, in the FDA fraud on the FDA context, one of the rules of Medicare is that Medicare will only pay for approved products.

Okay.

So, if you have obtained your approval fraudulently, the argument would go that when some. Somebody else submit, let's say a hospital submits a claim for the use of your product that you have caused the submission of a false claim, because part of that claim is the implicit representation that that is an approved product.

And if the approval has been obtained by fraud, the argument would go, you have caused the submission of a false claim.

Okay, so that's, that's kind of the fraud on the FDA Theory.

Then when you get into, so let's say you've gotten your product approved and now you're, now you want to market the product.

This is where most companies get into trouble in the, in the device field.

It's in the marketing of the products.

So, there's a couple of things you got to be really careful about.

One is there's a law called the anti-kickback statute that applies to basically all financial transactions in the healthcare world. And the anti-kickback statute says that you cannot offer something of value in exchange for somebody to purchase something that is going to eventually be charged to Medicare.

So, you can't bribe a doctor to use your device, you can't bribe a hospital to buy your device.

Etienne Nichols: I remember, I remember this because this was one of the big deals when we would go visit doctors and visit things, you know, you're not buying them lunch, you're not doing anything, we're just going to talk.

Jonathan Tycko: That's.

Etienne Nichols: Yeah, Yep, yep.

Jonathan Tycko: And so exactly. So, like what counts as a kickback? This is the big issue in this area of law. What is a kickback?

And the rules are surprisingly strict.

You know, PE companies in the, the medical industry are held to a much higher standard than, you know, if you're just selling auto parts, you know, to a garage.

You do that, you could take the, you could take the, the guy who owns the garage to lunch, you can buy him a truck, and you know, whatever you want to do, I mean that's just considered kind of normal business practice. You just gotta build in your network and spreading goodwill. Well, in the healthcare industry, the rules are super, super strict.

And yeah, if you, if you worked in the sales function of any major pharmaceutical or medical device company, you have undoubtedly been trained on the anti-kickback statute and given very, very specific guidance about what you can and can't do when you're dealing with providers or people who might buy your product.

Right. Yeah, but still every year lots of cases brought under the statute. And if you violate the anti-kickback statute, that's almost like a per se violation of the False Claims Act.

So even though your company isn't the one submitting the claims, you kind of get tagged with all of those claims.

Oh, and by the way, the False Claims act has treble damages. So, you sell a million dollars’ worth of your product, you're on the hook under the False claims Act for 3 million.

So, the numbers get really big, really fast.

Wow. So many of the biggest cases that have ever been brought and settled by the Department of Justice under the False Claims act were kickback cases. I was involved in a case that settled for $350 million.

Wow.

It was a case that involved sort of a, a wound healing product. It was sort of an artificial skin, if you will, that a company had developed.

And they had a very, I guess I would say, loosey goosey sales policy. They, they gave their salespeople just big budgets and said, go sell this stuff, basically.

Etienne Nichols: Yeah.

Jonathan Tycko: And what, you know, and then, and then the salespeople were working on commission. And so of course, what, what ends up happening is that they're spreading this money around in all sorts of ways they shouldn't have been doing it.

And they got caught and ended up settling for 350.

Etienne Nichols: 350.

Jonathan Tycko: Yeah, it was a, it was a big case, and a lot of the big cases are, are kickback cases.

So definitely be careful about that.

The other area where I've seen medical device companies get into trouble is in what, you know, what I, what I'd call either prior authorization or medical necessity documentation situations. Okay.

So, I can. I'll give you another example from a case that, that I worked on. This was a company that sold electric wheelchairs.

And electric wheelchairs are paid for by Medicare and they're quite expensive, multiple thousands of dollars.

So, Medicare had a rule that said, we will only pay for an electric wheelchair if a doctor specifically writes a note saying that, you know, other forms of assistance are insufficient. So not only that the electric wheelchair would be helpful to the patient, but that a regular wheelchair is not good enough, that a walker is not good enough. So, they had to write a very, very specific note. And if the doctor hadn't written that note, then the electric wheelchair was, was considered not medically necessary.

And Medicare will only pay for medically necessary devices.

And so that documentation of medical necessity was important to this product. So, the company that was at issue in this case was a company that was, they were sort of more of a middleman that was selling these products.

And they would, they had sort of almost like a boiler room operation where they would, they would sort of call people and say, hey, would you like an electric wheelchair?

And then they would go to the doctor and work with the doctor on the documentation.

And that is hard to do because doctors are busy. Yeah. So, they would sometimes just get a note back from the doctor saying, yeah, I think this person would, would do well with an electric wheelchair.

And the company knew that that note wasn't good enough. So, they were literally like whiting out, cutting and pasting doctor's notes.

And pasting new notes in and then like refaxing the notes to themselves so they would have a document in the file that had the right language that the doctor had never actually written.

That turned into a criminal case because that. That was so obviously fraudulent and there was. It was so obvious that there was intent there that the DOJ went after the.

Some of the folks in that company criminally. And the company also ended up paying,

I can't remember the exact number, 12 or 15 million dollars in. In false claims.

Etienne Nichols: That's a really. That's a really good point. So, the company itself, they're prosecuted, but the. The individuals that did that were prosecuted as in criminal case.

That's. That's important to note because, you know, I. Working as a manufacturing engineer, product development engineer, regulatory, whatever it is, I think it's. I sometimes think we forget that we may be on the hook for what we do within that company.

And I don't know. Can you touch on that a little bit more? How does that work?

Jonathan Tycko: What, what.

Etienne Nichols: Where are the. Where are the boundaries for that person?

Jonathan Tycko: Sure.

Yeah. It's a good question.

So actually, in both of the cases that I talked about, there were individual criminal prosecutions. In the big kickback case as well. Okay.

What I would say is that at least under. So, the False Claims act is a civil statute, but there is a criminal analog.

And the difference between civil liability and criminal liability is often how strong the evidence of intent is.

Okay. So, if you are an individual at a company and the Department of Justice thinks that it has evidence that you intentionally are committing fraud, you know that what you're doing is illegal, and you were in sort of a position of authority at the company. I think that's important because often the whistleblowers themselves are breaking the law, and that's how they find out about it. Right. They're like, oh, I'm out there spreading all this money around at the doctor's offices.

I don't think that's legal. But they're the ones who go to the government, so they often. They almost never get prosecuted. But if they have a boss at the company who is telling them to do that and knows that what they're doing is wrong, the Department of Justice will go after those people criminally under the criminal part of the False Claims Act.

Okay. And then you're looking at, you know, not only financial penalties, but jail time. Yeah, yeah. So, it's often sort of, how strong is the evidence of intent and also how, you know, in the cutting and pasting case that I mentioned it was just so obvious.

Yeah, there was no, you know, you know, some of these cases, they can kind of be in gray areas and sometimes the companies can say, well, you know, we kind of thought that what we were doing was okay, you know, even if not really.

But, you know, but there was no excuse for that. There was no, like, legitimate explanation for why you might have been cutting out the doctor's notes, writing in new notes, faxing it back to yourself and then sticking that in the file.

So, like, in that case, the government almost really had no choice. They're like, well, we kind of have to go after these people criminal, criminally. And they did.

Etienne Nichols: Yeah, good documentation practice. You know, that's, that's like way beyond GDP, but that's, that's.

Jonathan Tycko: Yeah. So, you.

Etienne Nichols: Yeah, go ahead.

Jonathan Tycko: No, no, if you had a question, go ahead.

Etienne Nichols: Yeah, I do have a question. So, we, we talked a little bit. I don't know if we completely covered. I ca, I may have steered you off a little bit, but we were talking about that case where a medical device company may have developed something, but they submitted it to the FDA and got approved with some kind of fraud in there.

But then we have, you know, Medicare maybe using that, and then it becomes part of the, this fraud act, so. Or the Anti-Fraud Act.

What is the potential penalty for that for that medical device company that did the original fraud with the FDA? What, what, what could that potentially look like?

Jonathan Tycko: Well, I mean, obviously the FDA has its own enforcement authorities and there are lots of laws that make it illegal to make, to commit fraud on the FDA. Totally putting aside, the False Claims Act.

Okay, but under the False Claims Act, I mean, the government's theory in those cases is that the, the falsification of the information that was provided to the FDA has caused, let's say, Medicare to pay for this device when it is, you know, say, used in a medical procedure.

Yeah, you know, an orthopedic implant or something like that. Let's just say that could use that as an example.

So that, so you've gotten this, you've gotten this device approved by the FDA.

A hospital now buys that device, it gets implanted in a surgery, and now as part of the cost of that surgery, Medicare is going to pay for that device.

The Department of Justice would take the position that the fraud on the FDA was causally related to its, to the government's ultimate payment under Medicare for that product.

So, in theory, you would be on the hook for all the money that Medicare has spent over the years buying that product. I mean there's a statute of limitations, but it's pretty broad.

Six years. So, the Department of Justice go back six years.

They would take the position that it's, it's all of the money that the government has spent on buying that product. In a case like that, I think so the.

Multiplied by three because it's treble damages.

Wow. Plus, civil penalties. I mean, so. Yeah, let's put it this way. You don't want to do this and get caught by the Department of Justice because you, you, it will not be worth it to you. You will end up paying just enormous sums of money to make the case go away.

Yeah.

Etienne Nichols: Okay. No, that makes, I think that fully answers that question. So that's great.

Any other case or did you have any other thoughts? And I'm sure there's other, yeah, I'll.

Jonathan Tycko: Mention one other, one other thing sort of again, kind of thinking through the life cycle of the product, you've got the approval process, you've got marketing. I think a lot of danger in marketing and a lot of, a lot kickback cases involve, you know, marketing and sales practices.

And then there is direct contracting with the government. So, a lot of medical devices get purchased directly by a government agency.

It could be, for example, the VA system.

Yeah. If you're, the VA system is, has its own payment system and at VA hospitals, the hospitals have direct purchase agreements with the manufacturers or sellers of whatever medical devices or products are going to get used at the VA hospitals.

So now you're, now the company could find itself in a direct contractual relationship with the government where the government itself is directly buying sort of wholesale quantities of the product.

So again, in that situation, there's all kinds of things that can go wrong.

It could be bid rigging; it could be some sort of fraud in the billing for the product.

It could be some kind of fraud in connection with how the product is priced.

Because there are, you know, rules about, about what prices companies can charge for certain products to the government.

And then there are, there's a whole other trap which is set aside contracting. So, there is a lot of government contracts are quote, unquote, set aside for small businesses of various sorts.

And so, there's a lot of fraud in connection with companies claiming that they're small businesses when they're really not, claiming that they're a veteran owned business when they're really not.

So that kind of fraud. So, there's, there's a whole kind of different types of fraud that can occur in the direct contracting relationship that a company might have with a federal government agency.

So, I think that kind of covers the waterfront again, all the way from approval all the way up to that sale of the product. There's at different stages; there are different things that could go wrong that could subject the company to false claims act liability.

Etienne Nichols: That's really interesting and I really appreciate the, well, if I go back to the beginning when you were talking about Abraham or yeah. Lincoln's Law and the history of that, that really helps it make sense to me a lot more than maybe if I didn't have that story.

But, and I don't know if you want to touch it might get too detailed. But some of the, some of the definitions about what profiteering or the price, different differentiation is whether you're dealing with the government or someone else. What are some of the, the issues there as far as the very detailed.

Jonathan Tycko: Part that, I mean, this, this gets really into the weeds and it's, and it's like the rules around these things are very specific to different types of products.

But I'll just kind of give you one example. There's been a lot of litigation over what's called average wholesale pricing. This is something that affects more, more pharmaceuticals, I would say, than devices.

Okay. Although maybe there's something equivalent in the device world. I'm not sure there could be.

But, but there, you know, I'll try to give the simple version. There are certain type, there are certain types of contracts that a pharmaceutical company could enter into to sell pharmaceuticals to the government or to Medicare beneficiaries where the, the pharmaceutical company is required to disclose to the government the price that it sells the product for in the open market because the government doesn't want to, doesn't want to pay more than private customers are paying.

And so, there are these rules about these disclosures have to be made when the pharmaceutical company is say, negotiating a contract with the government.

And so there have been cases where companies have been alleged to have committed fraud in the pricing data that they've given the government in order to induce the government to pay a higher price than they otherwise would have.

Etienne Nichols: Yeah, that makes sense. I, I, I can see people who maybe, just maybe they've not direct dealt directly with the government. They think, oh, they've got a big budget, you know, we can, we can just bump it up a little bit.

Yeah, that's bad territory.

Jonathan Tycko: Yeah, yeah, yeah.

Etienne Nichols: I, I really appreciate you explaining the life cycle. That helps a lot. You know, when companies are developing a product, of course you should be focused on not only compliance, but building a quality product and when it, when it doesn't, I don't know how many of us consider that, the fact that it may be downstream years from now when Medicare is paying for those devices, that's, that's really valuable.

The marketing, the sales. I think a lot of companies, they talk through those things, but maybe they don't recognize the impact that it could potentially have. And then finally the very end, you know, the, the actual sale to the government, if you work directly with them, that's really, really valuable.

Any other recommendations or advice you might have for medical, either medical companies or medical device companies, or the actual engineers and quality people who are working within those companies. Any other advice you might have?

Jonathan Tycko: I mean, one thing I would say is that sometimes the companies that get into trouble are more in the startup phase. I mean, certainly even the biggest pharmaceutical companies get caught doing this kind of stuff.

So don't get me wrong, but it's often the companies that are kind of earlier stage companies that are maybe about to experience a lot of growth because they've, they finally developed the product, right, that is going to, that is going to be the big seller for them.

And now they're about to go from being a relatively small company to a company that, that is going to have to engage in like a big sales process right there.

Those are, I would say, moments of risk for companies often because sometimes the, the founders or the people running those companies, they may view compliance as kind of a cost sink, you know, like, like something that they kind of have to do a little bit of, to say they do it, but they don't really want to spend a lot of money.

Etienne Nichols: It's holding us back.

Jonathan Tycko: Yeah, it's holding us back. Or they're even like worried about having too many compliance people around because they're afraid of what they might be told. Right.

And so, you know, all I would say is I think that if, if your goal is to kind of have a sustainable company that's going to be around for a while in the healthcare industry, you just have to accept the fact that you're in a highly, highly, highly regulated business and you can't just put the blinders on when it comes to compliance.

You have to take it seriously.

And part of that has to be a culture that is accepting of internal discussion of problems. I mean, I guess at a high level of generality, that's how I would put it.

So, I think that is kind of like a moment of danger for companies when they're like about to explode.

The founders might be thinking, oh, we're about to finally get our big payday.

And so, you know, the last thing they want to hear from somebody is like, whoa, whoa, whoa.

Don't forget we need a compliance program, and we have to train our salespeople under the kickback statute. It's like, ah, I don't want to hear about that.

And then you end up with a $350 million judgment and you're in jail.

So. So that. That's a moment of danger. You know, take. Take compliance seriously. It. It is a. Compliance is often seen as just a cost. It's not a profit center, but it kind of is.

I mean, you. You know, if you're looking to build a sustainable company, you gotta do it in a way that is compliant.

Because, like I said, you don't want your employees calling John Tycko.

You know, it's like, so something has gone wrong by the time that that call happens.

Etienne Nichols: Yeah, let them listen to them on a podcast, but don't let them call them. Absolutely.

Jonathan Tycko: Right.

Etienne Nichols: That's great. And I should bring that up, actually, because you have a podcast, the Garrulous, Garrulous Gavel. I'm not sure if I pronounced that right. Do you want to mention it?

Just talk about it real quickly?

Jonathan Tycko: Yeah, no, I'd be happy to. Yeah. Yeah, no. Well, this was sort of my pandemic project. When. When the pandemic hit and, you know, like. Like every other business, our law firm kind of kind of went offline for a little while.

And, you know, one effect of the pandemic was that the court systems really shut down.

Really, for, like, the first few months of the pandemic, the judges just went home and like, closed their. Locked their doors.

And so, you know, there are a lot of kind of old, you know, old. Old folks didn't want to get Covid. And so, they all. They all just kind of went home and, you know, you know, remember when we thought the pandemic was just going to be over in a couple of minutes?

That was the world we were in early 2000. And so, I mean. I'm sorry, 2000. 20. 20. Right. And so, the legal system kind of shut down. The judges all went home, the Department of Justice lawyers’ kind of went home.

The investigators that they rely on, I mean, just the whole system kind of put the brakes on.

So, there was a period of time when honestly, like, the legal practice just a lot of things that just got. The deadlines got extended and everything just kind of slowed down for a while, and I was looking for something new to do And I had started listening to a lot of podcasts because I started just, like, taking my daily walks. I wasn't going into the office anymore.

I was like, what am I saying? You know, and. And I was like, oh, sorry about that.

Etienne Nichols: Go ahead.

Jonathan Tycko: No, as I was saying, so I. So, I just started taking walks and listening to podcasts and thinking, oh, you know, maybe this could be something I could do.

So, yeah, so I. So, I started a podcast called the Garrulous Gavel. And you can search for that on iTunes or any of your favorite podcast apps or on the web, and you'll find us.

And what it is, is it's me interviewing other lawyers.

I don't talk in the podcast about what I do. I'm just kind of playing the role you're playing here of, like, the interlocutor trying to talk to other lawyers.

And, you know, I found through 30 years of lawyering that through my network, I knew a lot of people that were doing really interesting things. And I. And I've tried to find guests who are doing things that are interesting, not just to other lawyers, but to. To people as a whole, because I think a lot of people have an interest in trying to understand the legal system and what lawyers do, and it can be a little impenetrable at times.

So, I find people that have really interesting cases or really interesting practices, and I try to get them to explain that in a way that is accessible to people.

And then. And then, you know, we also just get into some personal stories. I sort of asked them to. To tell us a little bit about why they got into law, how they became a lawyer, what kind of their journey was as a lawyer.

And then I always save the last five or 10 minutes at the end of the podcast to just have them tell us some kind of, like, funny or interesting story about their personal life.

So, we've had people talk about, you know, funny destination weddings, strange hobbies that they have, you know, you know, weird, weird habits that they've developed. And so, it's just, you know, just something totally off base just to kind of keep it. Keep it light and interesting. So, you know, it's kind of grown over time.

I think we've done 15 episodes now, took a little bit of a summer hiatus, kind of dive back into it in the fall, but it's out there. So, you know, if any of your listeners are just kind of interested in hearing some fun, interesting stories about the law world, give it a listen.

Etienne Nichols: Yeah, I was listening to a little bit before in preparation for this podcast, I saw things like sports law, even cryptocurrency. And I love that you're putting the human side to lawyers, because we joked about that when we first got on and.

But sometimes people don't want a lawyer in their life until they need one, and that's kind of a mistake because then it's, you know, you're kind of scrambling. So, I mean, one person, he told me, one of my mentors early on said, hire slow, fire fast, and keep a lawyer on retainer. So very valuable people to have in your life no matter what.

But.

So, you mentioned in your podcast, the last five minutes you talk about this may be a silly story or something from their personal life. We don't typically do that on this podcast, but since we have you from your podcast, do you mind doing that for.

Maybe if someone from your podcast comes over to listen to ours and they hear your episode, maybe they'd like to hear that.

Jonathan Tycko: What's. What.

Etienne Nichols: What do you have one?

Jonathan Tycko: Oh, man, oh, man. You put me on. Put me on the spot.

Well, you know, like, I, like we often talk about, you know, what are people's kind of personal interests outside of the law? Like, what are the things that they're interested in?

So.

Well, so, you know, one of the things that I, that. That has always been an interest of mine over the years has been theater, live theater.

And, you know, I kind of like, tried out for the High School Musical when I was. When I was a kid. I got a part in the Wizard of Oz as a flying monkey.

Oh, wow.

That was the beginning of my interest. But, but as I, as I kind of got older, one of the things that I got into was theater investing.

I had a friend from law school who became a theater producer in New York, and she would occasionally approach me and say, hey, you want to put a little money into this Broadway show? You know, which is. Which is an even worse investment than cryptocurrency.

Yeah, it's like, if you like investing in Broadway shows, you know, the movie the Producers, I mean, that. It's pretty close to that. It's pretty much like just setting money on fire.

But. But there's also something fun about it. So, the first show that she. She approached me about was Pee Wee Herman. Remember Pee-wee Herman?

Well, you know, he had a little fall from grace. We don't have to go into all the details of that. Story. But he had his little fall from grace and then he tried to make a comeback, a sort of a successful comeback.

This was about 10 years ago.

And he. And his launch was that he did a Broadway version of the Pee Wee Herman show live on a Broadway theater.

Etienne Nichols: I did not know this.

Jonathan Tycko: And he brought back all the original cast of his kids show, which was always like a kids show with kind of an adult edge to it. Right.

And he put it on the Broadway stage and really did it for adults. Like, it was really like an adult version of the, of the Pee-wee Herman show. So that was the first show that, that she had me invest in.

And the real reason you invest in Broadway shows is so that you get invited to the opening night party.

So, I went up there with my wife and my two daughters who were sort of young at the time.

And, you know, and so we were at this party and just Pee Wee Herman's there and like all of his like B list celebrity friends at this party at a.

At a place in New York. So. And I've done a few other shows over the years, probably have like barely broken. Even when, when my friend approaches me for more money, I usually say no, but, but, but once in a while I'm like, oh, that would be, it would be fun.

I got, I've got to meet Sigourney Weaver. We, we invested in a show where she was one of the stars.

Got. There's. I have a picture backstage with Sigourney. So, it's, you know, that's been kind of like a fun little side hobby of mine.

Etienne Nichols: Well, I would say that probably right there, just having those, those party stories, it may be worth the investment itself.

Jonathan Tycko: Yeah. I mean, I don't know. I mean. Yeah. So that if you have to justify it in your mind, that's the way to do it. Now, of course, if you had like invested in Hamilton, you know, then.

But like those, those shows come by like, you know, once a year. There's maybe like one show that actually makes money for, for the investors.

Etienne Nichols: Most of them don't, but that is great. You're the first person I've ever heard of who invested who that. I didn't even know that was a thing. That's so great.

Jonathan Tycko: Hey, if you want to get into it, I've got, I got somebody. I got somebody I can introduce you to.

Etienne Nichols: I'm sure she's not going to say anything on recording.

Jonathan Tycko: She's always looking for new marks.

Etienne Nichols: Man, this is great. Well, Jonathan, how can people find you?

Yeah. Do you want to tell them how they can find you, and then we'll go ahead and wrap it up.

Jonathan Tycko: Yeah, sure. I mean, you can find me on the web. Jonathan Tycho. My last name is spelled T y c k o.

Fraudfighters.net fraudfighters.net is our website where we talk about all things whistleblowing. So, if you want more information about the substance that we've talked to today, there's a lot of discussion on that website.

We have a blog, information about all the different whistleblower statutes and how they work.

So that's a great resource for anybody who's just looking for information about whistleblowing. And certainly, you can connect with our firm through that website.

And Garrulous Gavel is my podcast. Again, search for that and you'll. You'll find me there.

Etienne Nichols: Awesome. This is great. Thank you so much, Jonathan. And we'll put those links in the show notes, so those of you who are listening, definitely check that out.

And great. Thank you so much for being on the podcast, Jonathan. I look forward to seeing other podcasts that you have going on and hearing what you're. What you're doing.

Thank you so much.

Jonathan Tycko: Yeah, thanks for having me. It's been fun.

Etienne Nichols: All right, we'll see you later. Thanks for tuning in to the Global Medical Device Podcast. If you found value in today's conversation, please take a moment to rate, review, and subscribe on your favorite podcast platform.

If you've got thoughts or questions, we'd love to hear from you. Email us at podcast@greenlight.guru.

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