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April 2006 Archives

By Steven Malanga

Reprinted from City Journal, 3/29/06

New York state has an enormous Medicaid-fraud problem, estimated at billions of dollars a year. To strengthen the state's weak anti-fraud program, the state assembly is pushing a New York version of the federal False Claims Act; the measure would reward whistle-blowers and their attorneys for turning in Medicaid cheats. But that measure can't be the whole answer�indeed, by itself, it could easily create as many problems as it solves.

Fighting Medicaid abuse requires a whole arsenal of weapons�new technologies to sniff out fraud, tougher criminal penalties, and increased oversight of who's allowed into the program.

Because of the power and efforts of trial lawyers like Assembly Speaker Sheldon Silver, the federal False Claims Act (FCA) gets lots of press attention in discussions of how to fight Medicaid fraud. And it has indeed helped U.S. prosecutors uncover some cheats�but it has also promoted abuse.

The law allows whistle-blowers who report fraud against the government to collect up to 30 percent of any money recovered from information they provide.

Prosecutors aided by whistle-blowers have successfully pursued several huge Medicaid-fraud cases using the FCA, resulting in hundreds of millions of dollars in fines and penalties against drug companies and hospital chains for overbilling the program. But tens of those millions went to whistle-blowers and the lawyers working with them on a contingency-fee basis, setting off a flood of further lawsuits.

Since Congress amended the law in 1986, hiking the potential payout to whistle-blowers, suits have grown tenfold, with nearly 70 percent of them involving health-care companies. Since 1986, whistle-blowers have collected a staggering $1 billion.

But the huge potential payoffs invite abuse. In some cases, insiders have let fraud go on for years after detecting it, slowly gathering evidence and then leaving the company to sue.

Then there's the "protection racket" problem. Whistle-blowers, plaintiffs' attorneys, and even government prosecutors increasingly seem to be targeting legitimate businesses�using the threat of the FCA�s steep penalties (which include permanent exclusion from government programs as well as big fines and damages) to coerce companies into settling cases rather than risking a trial verdict that could bankrupt them.

A 1999 Government Accountability Office study criticized several FCA cases. In one, the GAO concluded that hospitals that had already agreed to pay steep fines to avoid going to trial had in fact been improperly accused. The study also found that prosecutors and whistle-blowers targeted some firms for investigation not because they were plausible fraud suspects but merely because they were the biggest contractors in government health-care programs�that is, the deepest pockets for large paydays.

As a result of the investigations, the GAO is now charged with monitoring how federal prosecutors work under FCA.

Plaintiffs' attorneys have helped fuel the fervor for FCA lawsuits. Shortly after Congress amended the FCA in 1986, public-interest lawyer John Phillips, who had lobbied heavily for the new legislation, set up a front group, "Taxpayers Against Fraud," to tout the law�and also set up his own private practice to cash in on the act. His firm has won some $100 million in contingency fees pursuing FCA cases, according to Forbes magazine, and its successes have attracted some 200 more contingency lawyers into the field.

Meanwhile, Taxpayers Against Fraud works the media. Cited dozens of times a year in press stories as an advocate for the FCA, it has successfully encouraged a handful of states to enact their own versions of the legislation�allowing similar suits in state courts, though state prosecutors don't operate under the GAO�s watchful eye. And press accounts on the FCA often quote Taxpayers Against Fraud without mentioning that it isn't a real taxpayer group, just a propaganda instrument of lawyers who benefit from the laws the group promotes.

One danger of the false-claims lawsuit frenzy is that it will distract from the broader work of tracking down Medicaid fraud. Local pol Mark Green�who began his public career working for trial-lawyer ally Ralph Nader, and is now running for state attorney general�last year penned a Times op-ed to lobby for a New York version of the FCA as the remedy for the state's Medicaid woes. Green quoted Taxpayers Against Fraud without mentioning that the group's chairman, Neil Getnick, is a supporter of his election bid and that Getnick's law firm could benefit enormously from a New York state law.

A New York FCA can be one weapon in an arsenal against Medicaid fraud. But it needs sensible provisions to discourage abuse, including limiting the size of whistle-blower awards and requiring that whistle-blowers try to end fraud at their employer before filing suits. The federal law has created open season on legitimate companies and sparked a plaintiffs-bar feeding frenzy. That's not what Congress intended�and no model for New York.

By Theodore Dalrymple

Reprinted from City Journal, 3/6/06

While mass immunization against infectious disease is one of western medicine's great triumphs, it has always given rise to considerable anxiety and opposition. In Britain, for example, opponents of vaccination against smallpox managed for 70 years to sustain a vigorous and popular political movement, as well as a journal with a wide circulation. Supporting them were such ignorant luminaries as George Bernard Shaw and a number of doctors who claimed, among other things, that vaccination caused leprosy, quite apart from outbreaks of the very disease it supposedly prevented.

Immunization fears have swept through the western world ever since. The dangers of immunization have sometimes appeared more real to the parents of young children than the dangers of traditional killers such as diphtheria, measles, and whooping cough. Even the best scientific evidence never seems completely to refute the scare stories in the public mind: it is as if something had programmed most people to believe that there could be no smoke without fire.

In his enthralling The Cutter Incident: How America's First Polio Vaccine Led to the Growing Vaccine Crisis (Yale University Press), Paul Offit, professor of pediatrics at the University of Pennsylvania, tells the story of a genuine disaster caused by mass immunization�a disaster that was, however, embedded in an overall medical and scientific triumph: the elimination of polio from much of the world.

The incident was historically important not only because of the children damaged, but because it led to a legal ruling that subsequently inhibited pharmaceutical companies from developing and manufacturing vaccines. If America now routinely has a shortage of vaccines, it is in part the long-term consequence of the Cutter Incident.

The basic research to produce a polio vaccine took place under the auspices of a voluntary association, the National Foundation for Infantile Paralysis, which organized the famous March of Dimes. The foundation oversaw and funded more research on polio than did the rest of the world put together.

It was the foundation that carried out the first field trial of Jonas Salk�s vaccine and established that the vaccine (which contained polio virus killed by formaldehyde) was safe and effective. It was the largest medical trial ever conducted, involving more than 400,000 participants. It seemed that polio, which at the time terrorized parents (my best friend was one of the last children in Britain to contract it, and my parents spent several weeks in dire fear that I had suffered infection also) was about to go down to defeat.

At this point, the foundation withdrew and handed over its project to the government. Five companies received licenses to produce the vaccine, including the Cutter Company of California. The licensing authority, the Laboratory of Biologics Control, also issued instructions about how to produce the vaccine, but unfortunately those instructions proved in two respects less stringent than those that the foundation had issued prior to the first trial of the vaccine. The foundation had stipulated that the manufacturers should report any difficulties in eliminating live virus from their vaccine, and also that they should be able to produce 11 successive lots of vaccine without live virus in it. The Laboratory of Biologics Control made no such stipulation.

The Cutter Company, the smallest of the five producers, followed the instructions to the letter, which proved insufficient to guarantee the vaccine's safety. The company also made a couple of unfortunate technical mistakes, for which in the then current state of knowledge one could not blame it, with the result that live virus survived in some of its vaccine. Seventy thousand of the immunized experienced the transient flu-like symptoms of mild polio, 200 wound up paralyzed by polio, and 10 died because of it.

In the modern world, when tragedy strikes, can tort be far behind? The plaintiffs' lawyer was Melvin Belli, then the most famous and flamboyant tort lawyer in America. The trial outcome was in a sense a draw, rather than an outright victory for the plaintiffs, but it established a principle that would be nearly fatal to the production of vaccines.

The trial established beyond reasonable doubt that Cutter had not been negligent. But the judge stated�as a matter of law, so that the jury was powerless to disagree�that the company was liable for damages, even if it had done nothing wrong, simply because its product had harmed its recipients. This principle of absolute liability soon found itself defended in legal journals on the grounds that a large company was best able, via its insurance, to distribute the costs of risks among all the relevant parties, and society as a whole would benefit from the arrangement.

Quite apart from its repugnance to natural justice, this principle has been disastrous to the manufacture of vaccines. It opened the way for huge claims against the manufacturers. Since the courts are often cavalier in their complete disregard of scientific evidence, awarding huge damages against companies not only innocent of any negligence but whose products have done no objectively demonstrable harm, it is not surprising that pharmaceutical companies have largely withdrawn from the vaccine market. For them, the potential profits are small, and the risks great. SmithKlineGlaxo, for example, one of the world's largest vaccine producers, withdrew its safe and effective vaccine against Lyme disease because of the expense of defending it against speculative tort actions of no merit.

Offit suggests a sensible remedy: an extension of the powers of the National Vaccine Injury Compensation Program, to the exclusion of all tort litigation surrounding vaccines. Unless a remedy of this sort applies, he says, the sectional interest of a small group of people, the tort lawyers, will continue to inflict damage upon public health.

The Cutter Incident is an absolute model of its genre. It is so tautly written that it reads like a good thriller, such that one is eager to find out what happened next. Offit conveys the science with admirable clarity, and he presents the philosophical and legal issues simply but without simplification. It is the best kind of medical history.



Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute

Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.