In a pending False Claims Act (“FCA”) case stemming from alleged violations of the physician self-referral law (the “Stark Law”), 42 U.S.C. § 1395nn, and the federal Anti-Kickback Statute (“AKS”), 42 U.S.C. §1320a-7b, the United States District Court for the Middle District of Georgia has granted the plaintiff-relator’s motion to compel the production of privileged attorney-client communications. (Barker v. Columbus Regional Healthcare System, Inc. et al  4:12-cv-108, No. 67). In his August 29, 2014, Order, District Court Judge Clay Land found that although the defendant does not intend to rely on attorney-client communications or to assert an “advice of counsel” defense, the health care system nevertheless impliedly waived the attorney-client privilege by simply denying that it knowingly violated the law. While the Order is not binding on other courts, Judge Land’s ruling suggests that any time a defendant denies knowledge of engaging in illegal conduct, it may impliedly waive the attorney-client privilege. This theory could have significant, far-reaching implications for the privilege in health care fraud cases.

Background: Barker ex. rel. United States v. Columbus Regional Healthcare System
In May 2012, whistleblower Mr. Richard Barker, administrative director of the John B. Amos Cancer Center (“JBACC”), filed a qui tam action against JBACC, the Columbus Regional Healthcare System (“CRHS”), The Medical Center, and Regional Oncology of Columbus (“ROC”), alleging a longstanding practice of submitting false and fraudulent claims to government payors in violation of the FCA. Among other things, the complaint alleges that:

• JBACC physicians systematically engaged in upcoding by billing for higher-acuity services than were actually provided;
• JBACC routinely billed federal payors for services provided by uncredentialed, mid-level practitioners, improperly billing for these services as incident to physicians’ services;
• Agreements between CRHS and ROC were not commercially reasonable, and took into account the volume or value of referrals to CRHS, in violation of the Stark Law and the AKS;
• CRHS—through subsidiary Columbus Radiation Oncology Treatment Center (“CROTC”)—intentionally overpaid Dr. Thomas J. Tidwell’s Cancer Treatment Center in order to induce Dr. Tidwell to refer patients to CRHS and to prevent a competitor from purchasing the business; and that
• After the fraudulent sale, Dr. Tidwell continued to work for CROTC, and both CROTC and Dr. Tidwell submitted claims for reimbursement to federal health care programs that falsely certified compliance with the Stark Law and the AKS.

To prevail on claims under the FCA, the plaintiff-relator must establish scienter: that is, Mr. Barker had to prove the defendants knowingly submitted false claims to government payors with the intent to violate the law. CRHS contends that it did not knowingly violate the law; that its allegedly illegal actions were undertaken in good faith; and that the plaintiff, therefore, fails to make out a prima facie case under the FCA.

To prove that CRHS was well aware of the illegality of its actions, the plaintiff sought to compel the production of nearly 200 attorney-client documents pertaining to (i) the sale of the Tidwell Cancer Treatment Center and (ii) to the compensation agreements between ROC and JBACC. The motion to compel argues that, by asserting an affirmative defense of good-faith compliance with the Stark Law and AKS, the defendant has raised the issue of its knowledge of the law and has, therefore, impliedly waived the attorney-client privilege.

CRHS opposed the motion on four separate grounds, arguing that that it did not waive the attorney-client privilege because: 1) it is not raising an advice of counsel defense; 2) it is not relying on communications with its attorneys; 3) it has not sought to introduce the lawfulness of its conduct into the litigation, but merely denies the plaintiff’s assertions that its conduct was unlawful; and 4) given the highly regulated state of the health care industry, legal guidance and candid attorney-client communication is of paramount importance to health care providers, and the implied attorney-client privilege waiver should be narrowly construed in this context.

While acknowledging the importance of the issues CRHS raised regarding the attorney-client privilege, the court, nevertheless, held that all of its arguments, with the exception of the proposed health care industry exception, were considered and rejected by the Eleventh Circuit Court of Appeals in Cox v. Administrator U.S. Steel & Carnegie (17 F.3d 1386, 11th Cir. 1994). As to the industry-wide exception, the court noted that it was without power to create such a policy and was duty-bound to apply Cox as written.

In Cox, union members sued their union and their employer under various laws, including the federal Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1964(c). The union members asserted that their union representatives and employer had engaged in an illegal kickback scheme, granting union negotiators pension enhancements in exchange for steep concessions from the union. The resulting agreement, they contended, was highly advantageous to the employer and was financed at the expense of union employees.

The employer argued that it had not engaged in illegal activity; by so arguing, the District Court found—and the Eleventh Circuit affirmed—that the employer waived its attorney-client privilege. The Eleventh Circuit explained that while the employer did not raise an advice of counsel defense or rely on any privileged attorney-client communications, its claim of good-faith compliance with the law “necessarily implicates all of the information at its disposal when it made the decision.” (Cox at 1418). The court reasoned that the attorney-client privilege is a shield, not a sword, and that justice would be ill served by allowing the employer to cherry-pick the communications that best served its interests while concealing potentially incriminating documents behind a veil of privilege. Thus, the court held that when a defendant asserts a good-faith belief that its conduct was lawful, it injects the issue of its knowledge of the law into the case, and thereby waives the privilege.

CRHS argued that the Cox waiver was inapposite, because CRHS did not intend to affirmatively assert the lawfulness of its conduct, but sought only to deny the essential elements of the plaintiff’s claim. In other words, CRHS argued that it had not affirmatively injected its knowledge of the law into the matter; it merely denied advance knowledge that its conduct was unlawful, thus vitiating the plaintiff’s FCA claim.

The District Court flatly rejected this argument, stating in a somewhat conclusory fashion that CRHS “does not plan simply to argue that Plaintiff failed to carry his burden of proof [but rather] intends to explain fully why its conduct was not knowingly and intentionally unlawful.” (Barker, 4:12-cv-108, No. 67 at 9)  By going beyond mere denial, the court said that CRHS waived the attorney-client privilege. Finding that fairness supported the plaintiff’s motion to compel, the court ordered CRHS to produce all communications with its attorneys relating to whether the sale of the Tidwell practice or the remuneration agreements with ROC would comply with the AKS or the Stark Law.

Implications
Although the Court’s decision is not binding, its application of the Cox waiver to FCA claims may have broader ramifications if it is persuasive in future FCA cases. In any FCA case, the threshold issue is whether the defendant submitted a false or fraudulent claim; the immediate corollary issue is whether the defendant knew that the claim was false. Thus, in cases where the question is whether the defendant knowingly submitted a false claim, the Order suggests that a mere denial of knowledge will suffice to waive the attorney-client privilege as it relates to the events in question. As a practical matter then, the upshot of the Order is that where a defendant refutes the scienter element, the privilege appears preemptively waived.

The attorney-client privilege has long existed to encourage “full and frank communication between attorneys and their clients [thereby promoting] broader public interests in the observance of law and administration of justice.” (Upjohn Co. v. United States, 449 U.S. 383, 389 (1981)). As CRHS’ attorneys noted, the privilege is particularly important in the increasingly regulated health care sector, where providers must regularly confer with counsel to conform their conduct to the law.  Finding a waiver on the facts in Barker, the court has called into question the extent to which the privilege will apply in future FCA cases. This uncertainty ill serves the underlying rationale for the privilege for, as stated by the Supreme Court, an “uncertain privilege… is little better than no privilege at all.” (Upjohn at 393).