Category Archives: Health Law Case Brief

United States v. Caronia – “A Tale Full of Sound and Fury”

By Ara B. Gershengorn
The author appreciates the assistance of Judith Gallant and Maria Amichetti in the preparation of this article.

In December 2012, the U.S. Court of Appeals for the Second Circuit vacated the conviction of Alfred Caronia, a pharmaceutical sales representative, for off-label promotion in a ruling that raised more questions than it answered.   For decades, the phrase “off-label promotion” has struck fear — and confusion — into the hearts of pharmaceutical companies everywhere, especially here in Massachusetts where a thriving life sciences industry operates in close proximity to an aggressive U.S. Attorney’s Office with substantial experience prosecuting healthcare companies for unlawful promotional activities.

Through the years, companies have paid hundreds of millions of dollars to settle both civil and criminal investigations involving off-label marketing.  In July 2012, GlaxoSmithKline paid $3 billion to settle civil and criminal charges relating in part to its unlawful promotion of Paxil and Wellbutrin.[1]  In December 2012, less than two weeks after the Second Circuit’s decision, Amgen agreed to pay $762 million as part of a guilty plea to marketing illegally its drug Aranesp.[2]   Settlements or pleas have come from nearly every major pharmaceutical company, including Pfizer,[3] Warner-Lambert,[4] Serono,[5] Schering-Plough,[6] Bristol-Myers Squibb,[7] Eli Lilly,[8] Cephalon,[9] AstraZeneca,[10] Merck,[11] and Novartis.[12]  Many of these investigations, including those of GSK and Pfizer, have been conducted by the U.S. Attorney’s Office in Massachusetts,[13] and even those pursued in other districts, such as the investigation of Amgen, sometimes received assistance from the federal prosecutors in Boston.[14]  As the Boston Federal District Court judge said at the sentencing of Merck in April 2012 (where she imposed a more than $300 million fine on the company for its off-label promotion and marketing of Vioxx), she had seen a “barrage” of off label marketing cases.[15]

Background on the FDCA

Off-label marketing is typically prosecuted as a violation of the Food, Drug and Cosmetic Act (“FDCA”).[xvi]  The FDCA sets out a regulatory scheme that requires drugs to be approved by the Food & Drug Administration before they may be introduced into interstate commerce.  In particular, the statute provides that “[n]o person shall introduce or deliver for introduction into interstate commerce any new drug, unless an approval of an application, filed pursuant to subsection (b) or (j) of this section is effective with respect to such drug.”[xvii]  A “new drug” is defined in the statute as “any drug . . . the composition of which is such that such drug is not generally recognized, among experts qualified by scientific training and experience to evaluate the safety and effectiveness of drugs, as safe and effective for use under the conditions prescribed, recommended, or suggested in the labeling thereof . . . .”[xviii]

The statute sets out the requirements for the application for a new drug, including reports of investigations into the safety of the drug; the components and composition; the methods used in, and the facilities and controls used for, the manufacturing, processing and packaging of the drug; and the indication of the drug.[xix]  Samples of the drug and the proposed labeling for the drug must also be submitted to the FDA.[xx]  When the FDA approves a drug, the approval is for an “approved” use (or uses), with particular labeling for each use.

Off-Label Use of Drugs

As the statutory scheme makes clear, the fact that a drug is approved and labeled for a particular use does not mean that its actual use is so restricted.  Instead, prescription drugs can lawfully be prescribed by physicians for both “approved” uses and unapproved — or “off-label” — uses.  Title 21 explicitly states, “[n]othing in this chapter shall be construed to limit or interfere with the authority of a health care practitioner to prescribe or administer any legally marketed device to a patient for any condition or disease within a legitimate health care practitioner-patient relationship,”[xxi] and, as the Supreme Court recognized in connection with medical devices, off-label use “is an accepted and necessary corollary of the FDA’s mission to regulate in this area without directly interfering with the practice of medicine.”[xxii]   Nevertheless, the statute also recognizes that “[t]his section shall not limit any existing authority of the Secretary to establish and enforce restrictions on the sale or distribution, or in the labeling, of a device that are part of a determination of substantial equivalence, established as a condition of approval, or promulgated through regulations.  Further, this section shall not change any existing prohibition on the promotion of unapproved uses of legally marketed devices.”[xxiii]  Thus, as the courts have explained: “Although a doctor is free to prescribe drugs for off-label uses, FDA regulations forbid pharmaceutical companies from initiating discussions of such uses with physicians and from marketing a drug for anything other than an FDA-approved use.”[xxiv]

The government typically threads this needle by prosecuting “misbranding,” or “the introduction or delivery for introduction into interstate commerce of any . . . drug that is . . . misbranded.”[xxv]  A drug is “misbranded” if its labeling does not include “adequate directions for use.”[xxvi]  Adequate directions for use are “directions under which the layman can use a drug safely and for the purposes for which it is intended.”[xxvii]  FDA regulations define “intended use” by reference to “the objective intent of the persons legally responsible for the labeling of drugs,” which may be demonstrated by “oral or written statements by such persons or their representatives.”[xxviii]  It is on this misbranding theory that the government has investigated and prosecuted scores of cases, including one against Orphan Medical and its sales representative, Alfred Caronia.

Orphan Medical and Xyrem

The Caronia/Orphan Medical case revolved around the sale and marketing of the drug Xyrem.  Xyrem, manufactured by Orphan Medical, was approved with a first indication in July 2002 as a “central nervous system depressant” to treat symptoms of narcolepsy. [xxix]  It was initially indicated for the treatment of cataplexy (suddenly weak or paralyzed muscles when people who have narcolepsy feel strong emotions). [xxx]  The on-label indication was expanded in November 2005 to include excessive daytime sleepiness (EDS) in people who have narcolepsy. [xxxi]

Xyrem has serious side effects, including “difficulty breathing while asleep, confusion, abnormal thinking, depression, nausea, vomiting, dizziness, headache, bedwetting, and sleepwalking.”[xxxii]  Moreover, the active ingredient in Xyrem is gamma-hydroxybutryate, or GHB, commonly known as the “date rape drug.”[xxxiii]  The FDA required a “black box” warning for Xyrem, the most serious warning placed on medication labels.[xxxiv]

Orphan Medical hired Alfred Caronia in March 2005 as a Specialty Sales Consultant to promote Xyrem.[xxxv]  In July 2005, Caronia started Orphan Medical’s Xyrem “speaker programs” which enlisted physicians to speak to other doctors about the product’s on-label uses.[xxxvi]  Orphan Medical subsequently hired Dr. Peter Gleason, a psychiatrist, as one of its physician speakers.

In the Spring of 2005, the government began an investigation of Orphan Medical focusing on the off-label promotion of Xyrem.  Caronia and Gleason were recorded as they had off-label discussions with Dr. Stephen Charno, a physician cooperating with the government who posed as a potential Xyrem prescriber.  In one of the recorded conversations, Caronia, according to the government, promoted Xyrem for a variety of off-label conditions:

[Caronia]: And right now the indication is for narcolepsy with cataplexy . . . excessive daytime . . . and fragmented sleep, but because of the properties that . . . it has it’s going to insomnia, Fibromyalgia[,] periodic leg movement, restless leg, ahh also looking at ahh Parkinson’s and . . . other sleep disorders are underway such as MS.

[Charno]: Okay, so then so then it could be used for muscle disorders and chronic pain and . . .

[Caronia]: Right.

[Charno]: . . . and daytime fatigue and excessive sleepiness and stuff like that?

[Caronia]: Absolutely.  Absolutely.  Ahh with the Fibromyalgia.[xxxvii]

Caronia was also recorded discussing an unapproved subpopulation for Xyrem with physician-customers.[xxxviii]

In July 2007, the government charged Orphan Medical with misbranding Xyrem, claiming that “ORPHAN sales representatives and medical professionals retained by ORPHAN to speak in support of Xyrem, engaged in a scheme to expand the market for Xyrem by promoting the drug to physicians for ‘off-label’ medical indications, including fatigue, insomnia, fibromyalgia . . ., chronic pain . . ., weight loss, depression bipolar disorders and movement disorders such as Parkinson’s Disease.”[xxxix]  The Company pleaded guilty to felony misbranding, agreed to pay $20 million, and entered into a Corporate Integrity Agreement.

The government also charged David Tucker (a former Orphan Medical sales manager), Gleason, and Caronia with felony misbranding and other criminal violations.  Tucker pleaded guilty to a single felony misbranding count.  In August 2008, the government reduced its charges against Caronia and Gleason to misdemeanors.  Gleason pleaded guilty to one count of misdemeanor misbranding, while Caronia proceeded to trial on counts of misdemeanor misbranding and conspiracy.[xl]

In October 2008, Caronia was tried before a jury and convicted of conspiracy to commit misdemeanor misbranding.[xli]  He was sentenced to one year of probation, 100 hours of community service, and a $25 special assessment.[xlii]

Caronia appealed, arguing that he was convicted for his speech in violation of the First Amendment.  On December 3, 2012, the Second Circuit agreed and vacated his conviction by a 2-1 vote.

Second Circuit’s Decision

In vacating Caronia’s conviction, the majority opinion emphasized that the government had prosecuted Caronia for his off-label promotional speech.  “The government, in its summation and rebuttal, repeatedly asserted that Caronia was guilty because he, with others, conspired to promote and market Xyrem for off-label use. . . .  Thus, the government’s theory of prosecution identified Caronia’s speech alone as the proscribed conduct.”[xliii]

The court drew a distinction between the statutory offenses with which Caronia had been charged of misbranding (or conspiracy to misbrand) on the one hand, and off-label promotion on the other.  The former, the court noted, does not necessarily “criminalize speech,” whereas the latter would.  In order to avoid constitutionally invalidating a federal statute, the court construed the FDCA “as not criminalizing the simple promotion of a drug’s off-label use.”[xliv]  The statute itself, the court held, was not constitutionally infirm because it did not criminalize speech.  A prosecution for off-label promotion, on the other hand, which would criminalize speech, was constitutionally impermissible.

In so holding, the majority relied heavily on the recent Supreme Court decision in Sorrell v. IMS Health, Inc.[xlv]  In Sorrell, the Second Circuit noted, the Supreme Court had held that speech in aid of pharmaceutical marketing “‘is a form of expression protected by the . . . First Amendment.’”[xlvi]  Applying Sorrell, the Second Circuit determined that criminalizing off-label promotion would be both content-based and speaker-based restrictions of speech, meaning that a statute that criminalized off-label promotion would be drawing distinctions and thereby approving or disapproving speech based both on what the speaker was saying (because only on-label promotion but not off-label promotion was permissible) and who was speaking (because only manufacturers are so limited, whereas others, such as doctors, are permitted to discuss off-label uses).  Accordingly, the court found that the restriction was subject to a higher form of constitutional scrutiny.[xlvii]

The court then applied the four-prong test of Central Hudson.[xlviii]  The court found that the first two prongs — that the speech is not misleading and concerns lawful activity and that the government’s interest is substantial — were “easily satisfied.”[xlix]  The speech was not misleading in and of itself,[l] and the government’s interest in assuring drug safety and public health was substantial.  As to the third prong, however, (directly advancing the government interest) the court determined that regulating off-label speech did not directly advance the government’s interest.  To the contrary, the court found that prohibiting manufacturers from conveying truthful information about off-label uses might in fact hamper the government’s interest and “inhibit, to the public’s detriment, informed and intelligent treatment decisions.”[li]  “The government’s construction of the FDCA essentially legalizes the outcome — off-label use — but prohibits the free flow of information that would inform that outcome.”[lii]  Finally, the court found that the fourth prong (narrow tailoring) was also not satisfied.  The restriction consisting of a complete and criminal ban on speech was more extensive than necessary to achieve the government’s interest.[liii]

Because the FDCA defines misbranding in terms of whether a drug’s labeling is adequate for its intended use, the Second Circuit assumed, without deciding, that the government could prove intended use by reference to promotional statements made by drug companies and their representatives.  The court left open the possibility that prosecutors may use evidence of off-label promotion as a means of establishing the intended use of a drug.  Even if this use of evidence of speech were permissible, however, the Second Circuit determined that this was of little help to the government in this case because Caronia was not prosecuted on that basis.  “Rather, the record makes clear that the government prosecuted Caronia for his promotion and marketing efforts. . . .  [T]he government’s summation and the district court’s instruction left the jury to understand that Caronia’s speech was itself the proscribed conduct.”[liv]

After Caronia

The Second Circuit’s decision was quickly hailed by some as a sea change.  The New York Times declared it a “victory” for drug companies.[lv]  Bloomberg’s headline read “U.S., Barred From Prosecuting Off-Label Sales of Drugs.”[lvi]  Thomson Reuters asked “Seismic Fallout from Ruling on Drug Marketing and Free Speech?” and whether a “blockbuster ruling” by the Second Circuit would “turn off the spigot of false claims billions from the pharma industry?”[lvii]  Some waited anxiously to find if the FDA would seek further review of the ruling, either by an en banc court of the Second Circuit or by the Supreme Court.

But almost two months after the decision, on January 23, 2013, the FDA declared that it would not seek further review:

“FDA does not believe that the decision will significantly affect the agency’s enforcement of the drug misbranding provisions of the Food, Drug & Cosmetic Act. The decision does not strike down any provision of the FD&C Act or its implementing regulations, nor does it find a conflict between the act’s misbranding provisions and the First Amendment or call into question the validity of the act’s drug approval framework.”

Although perhaps surprising at first glance, the FDA’s decision not to appeal was actually quite predictable for a number of reasons.  Despite some of the hype immediately following the decision and the dire forecast of the dissent that “the majority calls into question the very foundations of our century-old system of drug regulation,”[lviii] the ruling arguably left in place a number of avenues for prosecution.  First, it left open the possibility that one can be prosecuted for conveying false or misleading information.  As discussed above, the majority opinion noted that the prosecution had not contended either at trial or on appeal that the promotion by Caronia was either false or misleading.  “[O]f course, off-label promotion that is false or misleading is not entitled to First Amendment protection.”[lix]  Thus, after Caronia, the government still can prosecute for false or misleading statements and arguably could claim that a statement that a drug is safe for off-label use could be found to be false or misleading if there is insufficient support (such as studies) to demonstrate such safety.[lx]

Second, the Caronia decision still permits the government to prosecute using evidence of off-label activities as evidence of intent.  The Caronia decision explicitly left open this possibility, although in a footnote, the court questioned how the government would identify criminal misbranding from communications between drug manufacturers and physicians who could prescribe drugs for off-label use.[lxi]

Third, the decision has limited reach.  The Second Circuit covers only Vermont, New York, and Connecticut, and therefore, the court’s decision is binding only on federal courts within those states.  Importantly, the decision does not bind either of two very active U.S. Attorney’s Offices – Massachusetts and Pennsylvania — neither of which, it is important to bear in mind, is limited to prosecuting companies in their own backyard.  Because of the wide reach of companies and their often national, if not global, sales and marketing practices, the U.S. Attorney’s Offices in both Massachusetts and Pennsylvania have prosecuted, and continue to prosecute, companies located across the country and the globe.

While some have contended that the Caronia decision’s limited geographic reach may have been a significant factor in the FDA’s decision to decline further review, it seems more likely that prosecutors, like the FDA itself, will not affirmatively argue that the decision is wrongly decided and should be limited to the Second Circuit, but will instead simply seek to construe it narrowly.  This view was expressed by the U.S. Attorney for the Eastern District of Pennsylvania, Zane Memeger, whose office, along with the District of Massachusetts, has been at the forefront of healthcare prosecutions.  “‘The Second Circuit decision is not binding on other areas, but it can be relied upon for guidance,’ Memeger said. . . . . Memeger said his prosecutors will continue to focus on finding evidence [of] misbranding, which remains illegal, and the more commonly understood term – lying.  ‘There is no right of a company or an individual to make false and misleading statements about the use of a drug,’ Memeger said.  ‘I don’t see a difference in prosecuting our cases as vigorously as we have.  You want to make sure you have proof and not just a simple statement.’”[lxii]

Finally, government prosecutions often involve not only misbranding but other accompanying allegations such as violations of the anti-kickback statute or the alleged filing of false claims neither of which have been narrowed through the Caronia decision.  The U.S. Attorney for the District of Massachusetts, Carmen Ortiz, noted this recently, speaking to attendees at the CBI Pharmaceutical Compliance Congress at the end of January of this year.  Ortiz stated “‘You should not view this decision as a green light to engage in conduct that could be in that gray area that may be covered. . . .   When I think of all the prosecutions we’ve done in my office, I can’t think of any that would be covered by the Caronia decision. . . .  I don’t think you want to test it.’”[lxiii]

This statement of course highlights the conundrum faced by companies that might want to challenge whether they fall into this gray area:  the risks for them, their boards of directors, executives, and shareholders are simply too great to “test it.”  For a time, Par Pharmaceuticals, faced with an investigation in New Jersey, raised a First Amendment challenge in a separate action it brought against the FDA in federal court in the District of Columbia.[lxiv]  Par sought a declaratory judgment that the FDA’s intended use regulations violate the First Amendment and run counter to the FDCA.  But in March 2013, Par reached a settlement with the Justice Department in which Par agreed to pay $45 million; enter into a five-year Corporate Integrity Agreement;[lxv] and, as a condition of the settlement, drop its lawsuit.[lxvi]

Given the extremely high stakes involved with fighting a prosecution and bringing a First Amendment challenge — criminal penalties, shareholder lawsuits, Medicare exclusion — it seems unlikely that any corporate defendants will be willing to find out whether the Caronia decision came in like a lion, but has gone out like a lamb.  For now, such tests will be left to individual defendants, like Alfred Caronia, if to anyone at all.

Ara Beth Gershengorn is a partner with Foley Hoag LLP with a practice focused on government investigations, data security and privacy, and complex civil litigation.  Ara has represented a variety of companies and officers in criminal, civil, congressional, and regulatory investigations against allegations involving whistleblower actions, such as the federal False Claims Act, healthcare fraud, including off-label promotion, kickbacks, and product safety, and antitrust, environmental crimes, and securities fraud.  Prior to joining Foley Hoag, Ara was an Assistant United States Attorney, where she successfully prosecuted federal criminal trials and conducted investigations of health care fraud, securities fraud, tax crimes, and education fraud.


[1] See “GlaxoSmithKline to Plead Guilty and Pay $3 Billion to Resolve Fraud Allegations and Failure to Report Safety Data,” Department of Justice (“DOJ”) Press Release, July 2, 2012.

[2] See “Amgen Inc. Pleads Guilty to Federal Charge in Brooklyn, NY.; Pays $672 Million to Resolve Criminal Liability and False Claims Act Allegations,” DOJ Press Release, December 19, 2012.

[3] See, e.g., “Justice Department Announces Largest Health Care Fraud Settlement In Its History,” DOJ Press Release, September 2, 2009; see also DOJ Press Release, “Pfizer Agrees to Pay $55 Million for Illegally Promoting Protonix for Off-Label Use,” December 12, 2012.

[4] See “Warner-Lambert to Pay $430 Million to Resolve Criminal & Civil Health Care Liability Relating to Off-Label Promotion,” DOJ Press Release, May 13, 2004.

[5] See “Serono to Pay $704 Million for the Illegal Marketing of AIDS Drug,” DOJ Press Release, October 17, 2005.

[6] See “Schering to Pay $435 Million for the Improper Marketing of Drugs and Medicaid Fraud,” DOJ Press Release, August 29, 2006.

[7] See Bristol-Myers Squibb to Pay More Than $515 Million to Resolve Allegations of Illegal Drug Marketing and Pricing,” DOJ Press Release, September 28, 2007.

[8] See “Eli Lilly Agrees to Pay $1.415 Billion to Resolve Allegations of Off-Label Promotion of Zyprexa,” DOJ Press Release, January 15, 2009.

[9] See “Pharmaceutical Company Cephalon to Pay $425 Million for Off-Label Drug Marketing,” DOJ Press Release, September 29, 2008.

[10] See “Pharmaceutical Giant AstraZeneca to Pay $520 Million for Off-Label Drug Marketing,” DOJ Press Release, April 27, 2010.

[11] See “U.S. Pharmaceutical Company Merck Sharp & Dohme to Pay Nearly One Billion Dollars over Promotion of Vioxx®,” DOJ Press Release, November 22, 2011.

[12] See “Novartis Vaccines & Diagnostics to Pay More Than $72 Million to Resolve False Claims Act Allegations Concerning TOBI,” May 4, 2010; see also “Novartis Pharmaceuticals Corp. to Pay More Than $420 Million to Resolve Off-label Promotion and Kickback Allegations,” DOJ Press Release, September 30, 2010.

[13] See supra, n. 3 (“The criminal case is being prosecuted by the U.S. Attorney’s Office for the District of Massachusetts and the Civil Division’s Consumer Protection Branch.”); supra, n. 5 (“This case was handled by the Justice Department’s Civil Division and the U.S. Attorney’s Office for the District of Massachusetts.”).

[14] See supra n. 4 (listing attorneys from offices including the District of Massachusetts).

[15]  See “U.S. Pharmaceutical Company Merck Sharpe & Dohme Sentenced in Connection with Unlawful Promotion of Vioxx,” DOJ Press Release, April 19, 2012.

[xvi] 21 U.S.C. § 331(a), et seq.

[xvii] 21 U.S.C. § 355(a).

[xviii] 21 U.S.C. § 321(p).

[xix] 21 U.S.C. § 355(b).

[xx] Id.; see also http://www.fda.gov/Drugs/DevelopmentApprovalProcess/HowDrugsareDevelopedandApproved/ApprovalApplic ations/NewDrugApplicationNDA/ (visited 4/10/2013).

[xx] 21 U.S.C. § 396.

[xxi] 21 U.S.C. § 396.

[xxii] Buckman Co. v. Plaintiffs’ Legal Comm., 531 U.S. 341, 350 (2001).  The statement in Buckman has been applied to drugs as well as devices.  See, e.g., In re Neurontin Marketing and Sales Practices and Products Liability Litigation, 2010 WL 3169485 (Aug. 10, 2010), at * 4 (stating that “Doctors are permitted to prescribe drugs off-label” and indirectly citing Buckman).

[xxiii] 21 U.S.C. § 396.

[xxiv] United States ex rel. Carpenter v. Abbott Laboratories, Inc., 723 F.Supp.2d 395, 398 (D. Mass. 2010); see also United States ex rel. Poteet v. Lenke, 604 F. Supp. 2d 313, 316 n.3 (D. Mass. 2009) (“the federal government discourages off-label prescription use by imposing FDA restrictions on the dissemination of information about potential off-label therapies and by restricting Medicaid from reimbursing health care providers for off-label uses.”)

[xxv] 21 U.S.C. § 331(a).

[xxvi] 21 U.S.C. § 352(f).

[xxvii] 21 U.S.C. § 201.5.

[xxviii] 21 C.F.R. § 201.128.

[xxix] Caronia, 703 F.3d at 155.

[xxxi] Xyrem Medication Guide,  http://www.xyrem.com/images/Xyrem_Med_Guide.pdf (visited 4/11/2013).

[xxxii] Caronia, 703 F.3d at 155.

[xxxiii] Id.

[xxxiv] 21 C.F.R. § 201.57(c)(1); see also New Jersey Carpenters Pension & Annuity Funds v. Biogen Idec Inc., 537 F.3d 35, 42 (1st Cir. 2008) (describing the black box warning as the “strictest warning the FDA can require”).

[xxxv] Caronia, 703 F.3d 155-56.

[xxxvi] Caronia, 703 F.3d at 156.

[xxxvii] Id.

[xxxviii] Caronia, 703 F.3d 156-57 (“Caronia stating that “there have been reports of patients as young as fourteen using it and obviously greater than sixty-five.  It’s a very safe drug” when the black box labeling indicated that Xyrem’s safety and efficacy were not established in patients under 16 years and that the drug had “very limited” experience among elderly patients).

[xxxix] United States v. Orphan Medical, Inc., U.S.D.C., Eastern District of New York, Cr. No., 07-531 (ENV), docket entry 6 (Information) (July 7, 2007).

[xl] Caronia, 703 F.3d at 158.

[xli] Caronia, 703 F.3d at 159.  Caronia was acquitted of the other charges.

[xlii] Caronia, 703 F.3d at 160.

[xliii] Caronia, 703 F.3d at 158, 159.

[xliv] Caronia, 703 F.3d at 160.

[xlv] Sorrell v. IMS Health, Inc., 131 S. Ct. 2653 (2011).

[xlvi] Caronia, 703 F.3d at 161-62 (quoting Sorrell, 131 S. Ct. at 2659, 2667).

[xlvii] See Caronia, 703 F.3d at 161-63.

[xlviii] Central Hudson Gas & Elec. Corp. v. Pub. Serv. Comm’n of N.Y., 447 U.S. 557, 563-64 (1980).  Central Hudson established a four-prong test used in determining whether commercial speech is protected by the First Amendment.  See id. at 566.  (1) The speech must not be misleading and must concern lawful activity; (2) the government interest must be substantial; (3) the regulation must directly advance the government interest; and (4) the regulation must be narrowly drawn and may not be more extensive than necessary to serve the interest.”  Id.

[xlix] Caronia, 703 F.3d at 165.

[l] The court noted that the government was not contending either at trial or on appeal that the speech was misleading or false.  See id. n. 11.

[li] Caronia, 703 F.3d at 166.

[lii] Caronia, 703 F.3d at 167.

[liii] Caronia, 703 F.3d at 167-68.

[liv] Caronia, 703 F.3d at 161 (emphasis in original).

[lv] See, e.g., Katie Thomas, “Ruling Is Victory for Drug Companies in Promoting Medicine for Other Uses,” NY Times, Dec. 3, 2102

[lvi] Margaret Cronin Fisk, “U.S. Barred From Off-Label Sales of Drugs,” Bloomberg News,  http://www.bloomberg.com/news/2012-12-04/u-s-barred-from-prosecuting-off-label-sales-of-drugs.html

[lvii] Allison Frankel’s On the Case, “Seismic Fallout from Ruling on Drug Marketing and Free Speech?” December 4, 2013, Thomson Reuters News & Insight, http://newsandinsight.thomsonreuters.com/Legal/News/2012/12_-_December/Seismic_fallout_from_ruling_on_drug_marketing_and_free_speech_/.

[lviii] Caronia, 703 F.3d at 169 (Livingston, J., dissenting).

[lix] Caronia, 703 F.3d at 166.

[lx] In United States v. Harkonen, Nos. 11-10209, 11-10242 (9th Cir. March 4, 2013), 2013 WL 782354, submitted to the Ninth Circuit Court of Appeals mere days after the Caronia ruling and anxiously watched in the aftermath of Caronia, the Ninth Circuit upheld, in an unpublished decision, the conviction of a physician charged with wire fraud for issuing a fraudulent press release on the purported survival benefits of Actimmune.  Harkonen had claimed that the press release expressed a scientific view and that he should be protected under the First Amendment, but the court found that his statements were not protected by the First Amendment because the jury had determined that the press release was fraudulent.

[lxi] Caronia, 703 F.3d at 162 n.10.

[lxii] David Sell, “Philly U.S. Attorney: Caronia court decision won’t impact pharma prosecutions (locally, for now),” Feb. 12, 2013, http://www.philly.com/philly/blogs/phillypharma/Philly-US-Attorney-says-court-decision-wont-impact-drug-prosecutions-for-now.html.

[lxiii] Erica Teichert, “Drug Misbranding Investigations Remain Top Priority: DOJ,” Jan. 29, 2013,  http://www.law360.com/articles/411149/drug-misbranding-investigations-remain-top-priority-doj.

[lxiv] Par Pharmaceutical, Inc. v. United States, District of Columbia, District Court, No. 11-cv-01820.

[lxv] “Par Pharmaceuticals Pleads Guilty and Agrees to Pay $45 Million to Resolve Civil and Criminal Allegations Related to Off-Label Marketing,” DOJ Press Release, March 5, 2013, http://www.justice.gov/opa/pr/2013/March/13-civ-270.html.

[lxvi] Letter dated January 3, 2013, from Office of the U.S. Attorney for the District of New Jersey to John Nassikas, et al., re: Plea Agreement with Par Pharmaceutical, http://pharmarisc.com/wp-content/uploads/2013/03/Par-Pharmaceutical-Plea%20Agreement-1.pdf.

 

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Health Law Case Brief: Metroplex Pathology Associates v. Horn

By Patrick Kilgore

In Metroplex Pathology Associates v. Horn,[1] the Massachusetts District Court interpreted whether two physicians violated certain confidentiality and non-competition clauses within their respective employment contracts.  Ultimately the Court denied plaintiff Metroplex Pathology Associates’ (“Metroplex”) motion for a preliminary injunction restricting defendant physicians Thomas Horn and Lisa Cohen—as well as their employer MGPO Dermatopathology Associates (MDA)—from engaging in activities allegedly prohibited by Horn and Cohen’s respective employment agreements . The court determined that Metroplex was unlikely to succeed on the merits because it could not show that the defendants had in fact violated any provisions of their employment agreements with Metroplex, and suggested that the non-competition and non-solicitation provisions of the employment agreements may even be unenforceable under Mass. Gen. Laws ch. 112 § 12X [2].

Metroplex alleged that that Cohen and Horn signed employment agreements as part of the 2007 sale of their practice to Caris Diagnostics, Inc.  Under the terms of his employment, Cohen agreed not to disclose any confidential information[3] to third parties—for five years following termination. The agreement also included a non-competition provision stating that Cohen could not “directly or indirectly take any action that results or may reasonably be expected to result in owning any interest in, leasing, operating, managing, extending credit to, or otherwise participating in the business (including without limitation, as a medical director, contractor, or consultant) of a Competitor in the Restricted Area” for two years following the agreement.[4] This provision, however, explicitly allowed Cohen to be employed on a salaried basis limited to the review and interpretation of dermatopathology slides.  Finally, Cohen agreed not to solicit employees of Carisfor two years after termination of the agreement.[5]

Similarly, Horn’s employment agreement prohibited him from disclosing the identities of Caris’ referring physicians to third parties, as well as attempting to solicit certain parties associated with Caris from terminating their relationships with the company for one year following the termination of the agreement.[6]

Cohen and Horn each left Caris to join MDA in 2011..[7] Horn, who joined MDA before Cohen, claimed that he was not aware that Cohen was planning on joining MDA until her hiring was announced. Both Cohen and Horn contended that their roles at MDA were limited to comply with the restrictions imposed by their previous employment agreements. Specifically, the defendants claimed that Cohen has played no role in the operation or management of MDA, and that all marketing and solicitation was handled by an employee who did not report to or interact with Horn or Cohen. [8]

The Plaintiffs, successors in interest to the physicians’ contracts, alleged that: (a) Horn and Cohen, along with MDA, operated a new dermatopathology practice in breach of the confidentiality, non-solicitation, non-competition, and non-disparagement provisions in their respective contracts; (b) Horn and MDA wrongfully hired several former employees, including Cohen; and (c)  MDA improperly used Horn’s and Cohen’s names, images, and biographical information on its marketing and promotional materials and is directly soliciting Metroplex’s clients using confidential information provided by Cohen and Horn.[9]

The district court denied Metroplex’s request for an injunction on the basis that the plaintiff could not show that Horn or Cohen had violated their respective employment agreements. The court noted Metroplex bore the burden of showing a substantial likelihood of success on the merits, observing that “if the moving party cannot demonstrate that he is likely to succeed on his quest, the remaining factors [considered for a preliminary injunction] become matters of idle curiosity.[10]”  The district court determined that Metroplex did not present evidence that either doctor disclosed or used confidential information obtained from Caris, solicited any of Caris’ employees, or solicited any of Caris’ clients.  Each physician joined MDA independently of the other, and without encouraging other parties to leave Metroplex.   The court further found that Cohen’s contract with Metroplex explicitly permitted her employment by MDA for the purposes of reviewing and interpreting dermatopathology slides.

On a broader policy note, the court ultimately questioned whether the non-competition and non-solicitation provisions of Cohen’s contract were valid, observing that “M.G.L. c. 112 § 12X renders void and unenforceable ‘any restriction of the right of [a physician] to practice medicine in any geographic area for any period of time after the termination’ of an employment relationship.[11]” In a footnote, the court rejected Metroplex’s assertion that § 12X should be read narrowly to cover only physicians who deal directly with patients and not doctors who—like Cohen and Horn—work in a lab.[12]

Patrick Kilgore is a 2012 graduate of Boston University School of Law and a member of the BBA. He is currently works for Boston University Technology Development and is joining the Chicago firm Rakoczy, Molino, Mazzochi, Siwik LLP in May.


[1]Metroplex Pathology Assoc. v. Horn,  2013 WL 22197 (Mass. Dist. Ct. 2013).

[2] Mass. Gen. Laws ch. 112 § 12X  states that “[a]ny contract . . . with a physician . . . which includes any restriction of the right of such physician to practice medicine in any geographic area for any period of time after [] termination . . . shall be void and unenforceable with respect to said restriction. . . .”

[3] “Confidential information” included the identity of Caris’ customers and personnel as well as company business and marketing plans. Metroplex at 1.

[4] Metroplex Pathology Assoc., 2013 WL 22197, *1­ (Mass. Dist. Ct. 2013).

[5] See id.

[6] See id. at *2.

[7] See id.

[8] See id. at *3.

[9] Id.

[10] New Comm Wireless Servs., Inc., v. SprintCom, Inc., 287 F.3d 1, 9 (1st Cir.2002).

[11] Metroplex, WL 22197, at *4.

[12] See id. at *4 n.7.

Health Law Case Brief: Louise Morrison v. Dr. Julian Harris, Director, Office of Medicaid

Author: Patrick C. Cento, Esq.

In Morrison v. Harris, the Massachusetts Superior Court reinforces the discretionary authority of agency hearing officers in the adjudication of disputes regarding financial eligibility for Massachusetts Medicaid (“MassHealth”) benefits.  Specifically, the decision, authored by Associate Justice Curran, confirms this administrative discretion with respect to agency determinations of the value of services rendered to MassHealth applicants by family members prior to an application for MassHealth benefits.  Compensation to such family members for care provided can, as happened here, be classified as “impermissible transfers,” and limit eligibility for MassHealth.  The opinion holds that this administrative discretion extends, at least in part, to the methodology of calculating the value of services, as well as to the underlying determination of the fair market value of the care provided, including whether family-provided care is skilled or unskilled labor.

Factual and Procedural Background

In 2003, an aging Louise Morrison moved into a rental unit within the home of her daughter, Lisa Ohlson.[i]  Between 2003 and 2006, Ms. Ohlson provided certain housekeeping and custodial services to her mother.[ii]  In 2006 Mrs. Morrison was diagnosed with Alzheimer’s disease and the scope of services provided increased.[iii]    On September 5, 2007, Mrs. Morrison and her daughter entered into a “Care Employment Agreement,” under which Ms. Ohlson would act as a caretaker for her mother in exchange for regular monthly payments of $750 for rent, and $14,904 for “services described in this agreement.”[iv]  Mrs. Morrison made these payments from September 2007 until July 2008, though Ms. Ohlson continued to provide services to her mother until June 2009, at which point Mrs. Morrison was admitted to a nursing home.[v]

After being admitted to the nursing home, Mrs. Morrison applied for MassHealth long-term care benefits, and on September 28, 2009, MassHealth denied her application on the basis of financial ineligibility.[vi]  Specifically, MassHealth cited Mrs. Morrison’s transfer of $155,536 between September 2007 and July 2008 as constituting “impermissible transfers for less than fair market value under 130 Code Mass. Regs. § 520.018.”[vii] In particular, 130 CMR 520.018, states that MassHealth will deny an application for nursing facility services if that resident transfers “countable resources” (i.e., financial resources) for less than fair market value during a look-back period.[viii]            Mrs. Morrison then requested and received a hearing with the Office of Medicaid Board of Hearings, at which Ms. Ohlson and her husband testified and gave evidence that payments from Mrs. Morrison to Ms. Ohlson were in exchange for services provided and that the hourly rates for such services were at the same rates charged by adult care companies providing similar services.[ix]  On March 24, 2010, the hearing officer denied Mrs. Morrison’s appeal in part and approved it in part, finding that the transfers for services were disqualifying transfers, but that the rent payments were permitted transfers.[x]

On April 23, 2010, Mrs. Morrison filed a complaint for judicial review in Massachusetts Superior Court under G.L. c. 30A § 14, and a motion for judgment on the pleadings.[xi]  In its opinion on June 10, 2011 (the “2011 Superior Court Decision”), the court allowed in part and denied in part Mrs. Morrison’s motion, recognizing that the contract between Mrs. Morrison and her daughter was valid and that Ms. Ohlson had provided valuable services.[xii]  The court vacated the hearing officer’s determination and remanded the matter for the purpose of determining the fair market value of Ms. Ohlson’s services and the appropriate eligibility date based on the value of those services.[xiii]

After allowing Ms. Morrison and MassHealth to submit new evidence on the issue of fair market value, and denying a motion by Mrs. Morrison to reconvene the hearing, the hearing officer issued a remand decision reducing the impermissible asset transfer to $59,403.68 and a disqualification period of 217 days.[xiv]  This determination was made using the wages paid to unskilled caregivers employed by MassHealth under the Personal Care Attendant program, rather than using the rates paid to professional home caregivers offered by Ms. Morrison.[xv] Ms. Morrison appealed this decision, alleging that the Office of the Medicaid Board of Hearings’ estimation of the value of services Ms. Ohlson provided to her was arbitrary and capricious and an abuse of discretion.[xvi]

The Court’s Decision

The Court noted the standard of review under G.L. c. 30A, § 14, including the fact that the Court may affirm, remand, set aside, or modify the agency decision if it determines that the rights of any party may have been prejudiced because the agency decision is unconstitutional, in excess of the agency’s authority, based upon an error of law or unlawful procedure, unsupported by substantial evidence, or arbitrary or capricious, an abuse of discretion, or otherwise not in accordance with law.

The Court then addressed Mrs. Morrison’s first contention: that the calculations used by the hearing officer in determining the fair market value of Ms. Ohlson’s services contravened the 2011 Superior Court Decision and as such, are arbitrary, capricious, and unsupported by substantial evidence.

The 2011 Superior Court Decision indicated that Ms. Ohlson provided the services from September 2007 until Mrs. Morrison’s admission to the nursing home in 2009 and that, from the second month’s payment to the final payment, the payments can be viewed as payments for services rendered in the previous month.  The hearing officer on remand, however, excluded Ms. Ohlson’s September 2007 hours when calculating the total value of her services.  Mrs. Morrison argued that this exclusion was an abuse of discretion by the hearing officer because it violated the 2011 Superior Court Decision.  The court observes that “[w]hile the hearing officer’s calculation may have misinterpreted the direction of the prior Court decision, the impact on the total value is de minimis (and actually in Mrs. Morrison’s favor).”[xvii]  In footnote 4 of the opinion, the court points out that to follow Mrs. Morrison’s logic and include the value of services rendered in September 2007, the hearing officer would be required to include the value of compensation for hours of service rendered in July 2008 (which were not actually included, as there was no compensation in August 2008).  Given the difference in the relative value of services rendered in September 2007 and July 2008, such a calculation would actually overvalue Ms. Ohlson’s services and result in an additional 7 days of ineligibility for Mrs. Morrison.  The court definitively states that such a slight aberration in the hearing officer’s methodology, and one benefiting Mrs. Morrison, does not rise to the level of an abuse of discretion.[xviii]

Mrs. Morrison’s second argument was that the hearing officer’s use of the Personal Care Attendant program rates in estimating the fair market value of Ms. Ohlson’s services was unsupported by substantial evidence and contrary to MassHealth regulations.  The court cites MassHealth regulations indicating that fair market value is based upon an estimate of the “prevailing price” at the time of the transfer and indicates that the “only question . . . is whether there is substantial evidence that the value assigned to Ms. Ohlson’s services by the hearing officer is a reasonable estimate of the value based on the prevailing price” at the time.[xix]  The court states that while “Ms. Ohlson may offer services beyond those of a completely unskilled provider, it is also undisputed that she has no certification or education that would qualify her as a nurse or care provider.”[xx]  Accepting the hearing officer’s determination that Ms. Ohlson was more akin to an unskilled home care provider than a provider at a commercial home health services company, “the Court defers to the discretionary authority and expertise of the agency charged with making [the] determination.”[xxi]

Lastly, the court dismisses Mrs. Morrison’s argument that by not reconvening the hearing for further testimony upon remand, her procedural due process rights were violated.  The court noted that on remand, there “was no real factual issue considered” because the number of hours of services provided to Ms. Morrison by her daughter was accepted; and according to the court, the “only matter to be decided” by the hearing officer on the remand was “how to properly value those services.”  The court determined that because Mrs. Morrison was given the opportunity to submit evidence on this issue, she was afforded due process of law, and it was within the hearing officer’s administrative authority and discretion to make a determination based upon the evidence presented regarding the value of the services and deny Mrs. Morrison’s request to reconvene the hearing.

Patrick Cento is a 2012 graduate of Boston University School of Law, and preparing to begin a position as an attorney with the City of New York Human Resources Administration in the Medical Insurance and Community Services Administration (MICSA) Division.  Since graduating from law school, Patrick has worked as a law clerk for Brookline District Court Judge Mary White, as a legal fellow at the City of Boston Law Department, and has been active in the New Lawyers Section of the Boston Bar Association.  He is admitted to the Massachusetts Bar and is awaiting admission in New York. 


[i] Morrison v. Harris, 2013 WL 424883 at *1 (Mass. Super. Jan. 5, 2013).

[ii] Id.

[iii] Id.

[iv] Id.

[v] Id.

[vi] Id.

[vii] Id. at 2.

[viii] 130 C.M.R. §520.018(B) (2009).

[ix] Morrison v. Harris, 2013 WL 424883 at *1 (Mass. Super. Jan. 5, 2013).

[x] Id. at 2.

[xi] Id. at 2.

[xii] Id.

[xiii] Id.

[xiv] Id.

[xv] Id.

[xvi] Id. at 3.

[xvii] Id.

[xviii] Id.

[xix] Id. at 4.

[xx] Id..

[xxi] Id.

Health Law Case Brief: Rabelo v Nasif

By Anna Gurevich

On December 27, 2012, the Massachusetts Superior Court, Worcester recognized that a cause of action based on “negligent credentialing” could be brought against Massachusetts hospitals.  In Rabelo v. Nasif et al., 30 Mass.L.Rptr. 547 (2012), the plaintiff, Julio Rabelo, sued defendants Ronald Nasif, M.D. (“Dr. Nasif”), Milford Regional Medical Center, Inc. (“Milford Regional”), and Parkway Orthopedics and Sports Medicine, Inc., for medical malpractice.[i]  The plaintiff specifically alleged that Milford Regional negligently credentialed Dr. Nasif, and the hospital subsequently filed a motion to bifurcate and stay all discovery on that claim until the medical malpractice claim against Dr. Nasif was adjudicated.  Ultimately, the court denied the defendant hospital’s motion to stay discovery on the negligent credentialing claim, and reserved for a decision by the trial judge the part of the hospital’s motion to bifurcate the negligent credentialing claim from the medical malpractice claim against the defendant doctor.

The court first noted that although Massachusetts had not explicitly recognized claims for negligent credentialing, it would recognize such an action where a hospital grants privileges to an unqualified physician, even though the physician is not an employee or agent of the hospital.  In coming to this conclusion, the court drew a comparison to the recognized causes of action for negligent retention and negligent hiring.[ii]  The court expressed that under those doctrines, many jurisdictions find that “liability exists on the part of the employer entirely independent of the employer’s liability under the principles of respondeat superior.”[iii]  Specifically, the court noted that a special relationship between the employer and the customer may imply an employer’s duty to safeguard those customers from incompetent or dangerous employees.[iv]  The court further noted that a key consideration in determining whether a special relationship exists is whether the defendant could reasonably foresee that it was expected to act affirmatively to protect the plaintiff from incompetent or dangerous employees, and that the failure to do so could reasonably cause harm to the plaintiff.[v]  The court reasoned that because hospitals can reasonably foresee that they are expected to protect patients from incompetent or negligent surgeons, and that failure to do so will likely cause harm to the patients, the hospital is therefore bound by this special relationship.[vi]  The court thus recognized a cause of action for negligent credentialing in the context of physicians with hospital privileges.

The court next deferred defendants’ request to bifurcate the trial with respect to the claim of negligent credentialing, noting that bifurcation is solely within the discretion of the trial judge.[vii]  The court expressed that the law generally disfavors bifurcation, as it results in extended adjudication and greater expense to the litigants.[viii]  The court did note that although in some cases there may be grounds for bifurcation where a party can show that adjudicating claims together might be prejudicial,[ix] Milford Regional did not make any such arguments for prejudice.[x]

Last, the court denied the part of Milford Regional’s motion to stay discovery on the negligent credentialing claim.  First, the court noted that information relating to the hospital’s negligent credentialing of Dr. Nasif might be valuable to the plaintiff’s malpractice action against him.  Second, the court held that discovery and admission of that information would not be prejudicial to the claim against the hospital.[xi]  The court further noted that any information related to negligent credentialing would have been created before the occurrence of the event that formed the basis of the medical malpractice claim against Dr. Nasif.[xii]  Thus, discovery on the negligent credentialing claim may in fact produce information prejudicial to Dr. Nasif in the underlying malpractice claim.

Anna Gurevich is a third year law student at the Boston University School of Law, where she is a writer on the American Journal of Law and Medicine. She received her undergraduate degree from New York University.


[i] Rabelo v. Nasif et al., 30 Mass.L.Rptr. 547 (2012). The claim additionally named two unknown defendants, John Doe and Jane Roe.

[ii] A claim for negligent hiring requires that the plaintiff allege (1) that the person whose action forms the basis of the complaint was an agent or employee of the defendant; (2) that the agent or employee came into contact with the public during the course of the employer’s business; (3) that the employer failed to use reasonable care in selecting, supervising, or retaining that agent or employee; and (4) that the failure to use such reasonable care proximately caused harm to the plaintiff.  Rabelo v. Nasif et al., 30 Mass.L.Rptr. 547 (2012) (citing Limone v. United States, 497 F.Supp.2d 143, 233 (D.Mass. 2007)).

[iii] Rabelo, 30 Mass.L.Rptr. at 547 (citing Foster v. Loft, Inc., 26 Mass.App.Ct. 289, 290 (1988)).

[iv] Id. at 548.

[v] Id. (citing Coughlin v. Titus & Bean Graphics, Inc., 54 Mass.App.Ct. 633, 639 (2002)).

[vi] Id.

[vii] Id. (citing Dobos v. Driscoll, 404 Mass. 634, 645 (1989)).

[viii] Id.

[ix] In Shilling v. Humphrey, 916 N.E.2d 1029, 1036 (Ohio 2009), the court bifurcated the claims of negligent credentialing and medical malpractice where the defendant doctor argued that it would be prejudicial not to. Specifically, the doctor argued that any evidence related to past problems with his conduct that was admitted in the negligent credentialing claim against the defendant hospital might prejudice the doctor in the medical malpractice claim.

[x] Rabelo, 30 Mass.L.Rptr. at 548.

[xi] Id. at 549.

[xii] The court draws a parallel to staying discovery in unfair insurance settlement claims, where discovery is usually stayed to protect the claim-related work product of insurers from being admitted into the trial of the underlying claim (citing to Kai v. Kim-Son, Appeals Court No. 98-M-65 (Feb. 11, 1988)).

Health Law Case Brief: Boston Medical Center Corporation v. Secretary of EOHHS

By Andrew P. Rusczek

On September 14, 2012,[1] the Supreme Judicial Court of Massachusetts (the “Court”) denied an appeal brought by Boston Medical Center Corporation (“BMC”), Boston Medical Center Health Plan, Inc. (“Health Plan”), Holyoke Medical Center, Inc. (“Holyoke”), Quincy Medical Center, Inc. (“Quincy”), and Brockton Hospital, Inc. (“Brockton” and collectively, “Plaintiffs”) of decisions by the Superior Court to deny the Plaintiffs’ claims against the Secretary of the Executive Office of Health and Human Services (“EOHHS”) regarding MassHealth payment rates.[2]  After denying each of the Plaintiffs’ claims, the Court advised the Plaintiffs that the proper forum for seeking redress with respect to MassHealth payment rates is the political arena, not the courts.

This brief first discusses the hospitals’ claims, then discusses Health Plan’s claim, and finally discusses the claims common to all Plaintiffs.

Claims Asserted by Plaintiff Hospitals

As explained further below, the Plaintiff hospitals claimed that by setting unreasonably low MassHealth payment rates, EOHHS had violated state law, violated the contract that it had entered into with each hospital, violated federal Medicaid regulations, and unlawfully taken the hospitals’ property.

The hospitals asserted that MassHealth payment rates set by EOHHS violated Massachusetts law because the payment rates did not compensate the hospitals for the reasonable costs of providing medical care to MassHealth enrollees.  The hospitals are all disproportionate share hospitals.  Under M.G.L. ch. 118E, § 13F (the “Statute”),[3] MassHealth payment rates for a disproportionate share hospital must equal the hospital’s revenue requirements for providing care to MassHealth enrollees.  These payment rates must take into account costs such as the hospital’s reasonable operating, capital, and working capital costs, reasonable costs of depreciation of plant and equipment, and reasonable costs related to medical practice and technology changes.[4]

The Court held that the doctrine of sovereign immunity barred the hospitals’ claims that the MassHealth payment rates did not equal the hospitals’ reasonable costs as required by Massachusetts law.  The Statute neither waives the doctrine of sovereign immunity nor provides the hospitals a private right of action.  In support of this finding, the Court noted that it would be “complex and difficult” for the Court to review a hospital’s payment rates set by EOHHS and to determine whether the hospital’s costs are “reasonable” in accordance with the Statute.

The hospitals also argued that EOHHS had violated its contract with each of the hospitals when it set payment rates that did not comply with the Statute.  The payment rates that a hospital receives from MassHealth are set forth in that hospital’s contract with EOHHS.  EOHHS generally has the authority to revise payment rates or other terms set forth in a MassHealth hospital contract as it determines necessary upon thirty days’ notice to the hospital.[5]  The rates at issue in this case were set by EOHHS in December 2008 in a Request for Applications for payment year 2009.[6]  The Plaintiff hospitals argued that although EOHHS was authorized to set and even to revise each hospital’s payment rates under the contract, EOHHS could not choose payment rates that did not comply with the Statute.  The Plaintiffs argued further that by choosing payment rates that did not comply with the Statute, EOHHS had violated the contract.  The Court, however, held that the doctrine of sovereign immunity bars this contract claim just as it bars the hospitals’ claim that EOHHS directly violated the Statute.

Holyoke, Quincy, and Brockton additionally asserted that EOHHS had violated the implied covenant of good faith and fair dealing by imposing unreasonably low payment rates in violation of the Statute.  The Court did not agree with this position and instead found that EOHHS could not have acted in bad faith or engaged in unfair dealing simply by not proposing higher payment rates as the hospitals had agreed to accept the payment rates set forth in their MassHealth contracts.

The Court also rejected the hospitals’ claims that the payment rates violated federal Medicaid regulations and that the hospitals had a private right of action to challenge the rates under the supremacy clause.  Under federal Medicaid laws, a state Medicaid plan (such as MassHealth) must “assure that [Medicaid] payments are consistent with efficiency, economy, and quality of care and are sufficient to enlist enough providers so that care and services are available under the plan at least to the extent that such care and services are available to the general population in the geographic area.”[7]  The Plaintiff hospitals argued that by imposing unreasonably low payment rates, EOHHS had failed to ensure that the rates were consistent with efficiency, economy, and quality of care and that the rates were sufficient to ensure adequate access to care.  Because these federal Medicaid laws do not provide a private right of action, the hospitals argued that EOHHS’s rate setting process and payment rates were preempted by the supremacy clause of the United States Constitution.  The Court, however, held that the hospitals could not “sidestep” the lack of a private right of action by claiming a violation of the supremacy clause.  Further, even if the hospitals could bring a claim under the supremacy clause, the claim would be invalid due to the Commonwealth’s sovereign immunity.

Finally, the hospitals claimed that the unreasonably low payment rates represented a taking without lawful compensation.  Article X of the Massachusetts Constitution’s Declaration of Rights[8] and the Fifth and Fourteenth Amendments to the United States Constitution[9] prohibit the unlawful taking of private property.  While the Court agreed that the inadequacy of a regulated price can give rise to an unlawful taking when a property owner is legally required to engage in a price-regulated activity, the Court also noted there can be no unlawful taking when the property owner is not legally required to engage in the price-regulated activity.  The Court recognized that “it would be difficult, perhaps impossible,” for the hospitals to survive financially if they refused to participate in MassHealth.  But the Court nonetheless found that the hospitals did have a choice to participate in MassHealth and their participation was ultimately voluntary.  As a result, the hospitals’ claim that the low payment rates constituted an unlawful taking was unsuccessful.

Claim Asserted by Plaintiff Health Plan

Health Plan’s principal claim was that EOHHS had failed to increase its capitation rates for fiscal year 2009 by $84.6 million as was required by the 2006 Massachusetts health reform legislation (the “Act”).[10]  The Act required EOHHS for fiscal years 2007, 2008, and 2009 to reimburse certain hospitals operated by BMC and the Cambridge public health commission “at levels consistent with their net supplemental payments of $287,000,000 in fiscal year 2006.”[11]  In fiscal year 2009, EOHHS was required to meet this requirement by “allocating $160,000,000 in net supplemental payments from the Commonwealth Care Trust Fund and by increasing actuarially sound rates to the maximum extent allowable and eligible for financial participation, including the balance from other financing mechanisms.”[12]  Of the $287 million, BMC and Health Plan were to receive two-thirds, or $191.3 million.  EOHHS did make a lump-sum payment of $106.7 million to BMC in fiscal year 2009.[13]  Health Plan argued that EOHHS was obligated to pay the remaining $84.6 million to BMC and Health Plan “by increasing . . . to the maximum extent allowable” the capitation rates that Health Plan received for MassHealth enrollees.  EOHHS, however, had not raised Health Plan’s capitated rates for 2009 as Health Plan claimed the Act required.

EOHHS refuted Health Plan’s interpretation of the Act.  Under EOHHS’s interpretation, EOHHS was not required to make $287 million in supplemental payments in fiscal year 2009, but rather was only required to ensure that the total payments that Health Plan received from EOHHS from all funding sources (including capitation payments, the lump-sum payment of $106.7 million, and “other financing mechanisms”) was “consistent with” the 2006 supplemental payments.

Without resolving the parties’ dispute regarding the proper interpretation of the Act, the Court held that Health Plan’s claims were barred by the doctrine of sovereign immunity as the legislature did not provide a private right of action with respect to these provisions of the Act.

Claims Asserted by All Plaintiffs

The Court found against the Plaintiffs with respect to all of their common claims.  The Court held that the Plaintiffs were not eligible to recover costs of services provided to MassHealth enrollees under a theory of quantum meruit because a party cannot recover under a theory of quantum meruit when a valid contract sets forth the obligations of the parties.[14]  The Court also found the Plaintiffs’ claims with respect to certiorari, mandamus, and declaratory judgment to be invalid.

Andrew P. Rusczek  is Counsel in the Boston office of Verrill Dana LLP. Andrew provides regulatory, transactional and compliance advice to a broad range of health care clients, including hospitals, health systems, academic medical centers, physician practice groups, and pharmaceutical and medical device manufacturers.  Andrew has particular experience with respect to hospital mergers and affiliations, federal and state health care reform and accountable care organizations, HIPAA and HITECH, fraud and abuse laws, medical staff matters, and human subjects research compliance.  Andrew earned his J.D. and Master of Bioethics from the University of Pennsylvania and his B.A. from Bowdoin College. 


[1] See Boston Med. Ctr. v. Sec’y of EOHHS, 463 Mass. 447 (2012).

[2] The Superior Court cases were brought as separate actions, the first by BMC and Health Plan and the second by Holyoke, Quincy and Brockton.

[3] At the time of the Court’s decision, the applicable requirements were found in M.G.L. ch. 118G, § 11(a).  These requirements were relocated to M.G.L. ch. 118E, § 13F by the Massachusetts health care cost containment law approved in August (2012 Mass. Acts ch. 224).

[4] M.G.L. ch. 118E, § 8A.  Each hospital’s payment rates are unique to that hospital and are calculated based in part on that hospital’s “casemix index.”  The hospital’s casemix index represents the relative cost of providing care to the hospital’s patients and takes into account factors such as patients’ diagnoses, procedures, illness severity, age, and payment source.  By using a hospital’s casemix index to calculate the hospital’s payment rates, EOHHS is able to ensure that hospitals with patients in especially poor health or with more complex medical needs receive higher relative rates of payment.  See Boston Med. Ctr., 463 Mass. at 451–52.

[5] See Boston Med. Ctr., 463 Mass. at 451–53.

[6] A hospital must agree to accept the payment rates under the Request for Applications when it enters into a MassHealth contract with EOHHS.  See id. at 451.

[7] 42 U.S.C. § 1396a(a)(30)(A).

[8] Mass. Const. pt. 1, art. X.

[9] U.S. Const. amend. V, amend. XIV, § 1.

[10] 2006 Mass. Acts ch. 58.

[11] Id. § 122.

[12] Id.

[13] See Boston Med. Ctr., 463 Mass. at 466.

[14] The Court dismissed each Plaintiff’s argument that it had no valid contract with EOHHS for rate year 2009.

Health Law Case Brief: Commonwealth v. Dung Van Tran

By Margaret Schmid, Esq. 

Massachusetts General Laws Annotated chapter 233, section 20B establishes a privilege for communications between a patient and a psychotherapist “relative to the diagnosis or treatment of the patient’s mental or emotional condition.” The purpose of the privilege is to “protect justifiable expectations of confidentiality that people who seek psychotherapeutic help have a right to expect.”[1] In Commonwealth v. Dung Van Tran, the Supreme Judicial Court of Massachusetts (“SJC”) further clarified its interpretation of the psychotherapist-patient privilege.

In Commonwealth v. Dung Van Tran, the defendant entered the apartment inhabited by his estranged wife and children, poured gasoline in such a manner that it landed on himself, one of his children, and the children’s caretaker, and set the gasoline on fire.[2]  The defendant was indicted and convicted by a Massachusetts Superior Court jury on charges of armed assault with intent to murder, aggravated assault and battery by means of a dangerous weapon, assault and battery by means of a dangerous weapon, arson of a dwelling, and armed home invasion.[3]

On appeal, the defendant argued that the trial court judge erred by admitting evidence of prior bad acts and by admitting privileged statements made by the defendant to a psychiatrist.[4]  The defendant also argued that the evidence at trial was insufficient to support his convictions for armed assault with intent to murder, aggravated assault and battery by means of a dangerous weapon, assault and battery by means of a dangerous weapon, arson of a dwelling, and armed home invasion.[5]

Following a transfer of the case on its own motion, the SJCconcluded that the trial court judge did not err in admitting evidence concerning the defendant’s prior bad acts arising out of the defendant’s hostile relationship with his estranged wife.[6]  The SJC held that it was within the trial court judge’s discretion to decide that the challenged evidence was relevant to establish the defendant’s motive and intent.[7]

The SJC did, however, find that the trial court erred in admitting statements made by the defendant to his psychiatrist.[8]  At trial, the defense theory was one of excuse; the defendant testified that while he intended to commit suicide in his estranged wife’s apartment by self-immolation, injury to anyone other than himself was purely accidental.[9] To cast doubt upon the defendant’s stated intent and to call into question the defendant’s frame of mind, the Commonwealth argued that Tran had “essentially testified that he was ‘not thinking rationally at the time’ due to a ‘suicidal ideation,’” and thus, the psychotherapist-patient privilege should yield in the interest of justice.[10]  The trial court judge found the Commonwealth’s argument to be persuasive and permitted the defendant’s psychiatrist to testify as a rebuttal witness regarding the defendant’s actual, specific intent.[11]

On appeal, the SJC disagreed and ruled that the “Commonwealth may not introduce against a defendant statements protected by the psychotherapist-patient privilege, on grounds that the defendant himself placed his mental or emotional condition in issue, unless the defendant has at some point in the proceedings asserted a defense based on his mental or emotional condition, defect, or impairment.”[12]  The SJC concluded that, “lack of intent does not, without more, suffice to put in issue a defendant’s mental or emotional condition.”[13]

Finally, the SJC considered the defendant’s argument that the evidence presented at trial was insufficient to support his convictions for the charged crimes.[14]  Without taking into consideration the psychiatrist’s improperly admitted testimony, the court concluded that the evidence was sufficient to support each of the convictions.[15]  However, since the convictions of armed assault with intent to murder rested directly upon the psychiatrist’s improperly admitted testimony concerning the defendant’s intent, the case was remanded for a new trial on those indictments.[16]  The SJC affirmed the remaining convictions.[17]

Margaret Schmid is an attorney working for Donoghue, Barrett, & Singal, P.C.  Prior to working for Donoghue, Barrett, & Singal, Ms. Schmid interned at Massachusetts Executive Office of Health and Human Services.  She also worked for the U.S. Department of Health and Human Services, Office of the General Counsel, Public Health Division during her third year of law school.  Ms. Schmid received her law degree from The Catholic University, Columbus School of Law in Washington, D.C., where she was a Note and Comment Editor on the Journal of Contemporary Health Law and Policy.  She received her undergraduate degree from Kenyon College. 


[1]   Commonwealth v. Clancy, 524 N.E.2d 395, 397 (Mass. 1988).

[2]  972 N.E.2d 1, 4 (Mass. 2012).

[3]  Id. at 5.

[4]  Id.

[5]  Id.

[6]  Id. at 8; The defendant’s estranged wife testified to the defendant’s abusive behavior toward her and defendant’s threats to kill her and their children within weeks of the fire.  Id. at 5.

[7]  972 N.E.2d at 13.

[8]  Id. at 12.

[9]  Id. at 11.

[10]  Id. at 10.

[11]  Id at 12.; The psychiatrist testified that the defendant stated that he intended “to take [his daughter] with him.”  Id. at 10.

[12]  972 N.E.2d at 12; essentially, the mere desire to commit suicide is not enough to place one’s mental or emotional condition in issue.

[13] Id. at 11 (citing Commonwealth v. McLaughlin, 729 N.E.2d 252 (2000)).

[14] Id. at 13-14.

[15]  Id.

[16]  Id. at 17.

[17]  Id.

Health Law Case Brief: Tartarini v. Dep’t. Mental Retardation

By Devin Cohen

In Tartarini v. Dep’t. Mental Retardation, 972 N.E.2d 33 (2012), the Massachusetts Appeals Court invalidated the Department of Developmental Services’ (the “Department”) definition of “mental retardation,” as used for public benefit determinations.  The Court held that the Department’s regulatory definition was inconsistent with the statutory requirements of Massachusetts law.

Mass. Gen. Laws ch. 123B, §1 defines “mentally retarded person” as a “person who, as a result of inadequately developed or impaired intelligence, as determined by clinical authorities as described in the regulations of the department is substantially limited in his ability to learn or adapt, as judged by established standards available for the evaluation of a person’s ability to function in the community” (emphasis supplied).  The Department’s regulations defined “mental retardation” as “significantly sub-average intellectual functioning existing concurrently and related to significant limitations in adaptive functioning,” and noted that “mental retardation manifests itself before age 18” (emphasis supplied).[1]  The regulations then defined “significantly sub-average intellectual functioning” to mean “an intelligence test score that is indicated by a score of 70 or below as determined from the findings of assessment using valid and comprehensive, individual measures of intelligence that are administered in standardized formats and interpreted by qualified practitioners.”[2]

Paula Tartarini, the plaintiff in this case, applied for benefits with IQ test scores of 71 at age 18, 69 at age 40, and 71 at age 42.  The Department employed its definitions of “mental retardation” and “significantly sub-average intellectual functioning,” and determined that Tartarini’s IQ score of 71 at age 18 was higher than the regulatory threshold of 70 and that her adaptive functioning did not meet the eligibility requirements of the rule.[3]  Therefore, she was denied benefits.  The Superior Court judge, applying a deferential standard of review, affirmed the Department’s decision.  Tartarini brought suit against the Department alleging that it over-reached its legislative mandate by setting the definition of “significantly sub-average intellectual functioning” at an IQ of 70 or below and failing to mention any clinical authorities or established standards upon which its determination rested.

The Massachusetts Appeals Court, in an opinion authored by Judge Sullivan, reversed and remanded the Superior Court’s decision, finding that the Department’s regulations could not “by any reasonable construction be interpreted in harmony with the legislative mandate.”[4]  The court held the regulations invalid on the grounds that they failed to “describe the clinical authorities upon which the clinical judgments regarding intelligence are made [for mental retardation determinations],” contrary to the statutory requirements of Mass. Gen. Laws ch. 123B, §1.[5]

The Department argued that it should be given the discretion to choose which clinical authorities to rely upon, and that the term “clinical authority” can have a dual meaning, referencing professionals either outside of the Department or inside the Department itself.  The Department claimed that it had identified relevant clinical authorities, as required by statute, by requiring internal professional experts to review benefits determinations.  Judge Sullivan responded by noting that first, the Department itself had acknowledged in regulations and memorandums to the Superior Court that “clinical authority” refers to external professionals, and second, that the Department’s wavering position on whether an IQ score of 70 was an absolute ceiling to determining eligibility in all cases undercut its reliability, and consequently, its justification for deference.[6]  Judge Sullivan then concluded that regardless of whether the Department was entitled to use internal professionals as clinical authorities, the “standardized tests described in the regulations are measurements of intelligence or adaptive abilities; they are not clinical authorities.”[7]

Devin Cohen is an associate in the law firm of McDermott, Will, & Emery and focuses his practice on general health law.  Devin has been a member of the BBA since he was admitted to the Massachusetts bar in 2012.  More information about Devin’s practice and interests is available at: http://www.mwe.com/Devin-Cohen/.  


[1] 115 Mass. Code Regs 2.01 (2006).  The statute additionally defined “adaptive functioning” to include “independent living/practical skills, cognitive, communication/conceptual skills, and social competence/social skills.” Tartarini, 972 N.E.2d at 35.

[2] Tartarini, 972 N.E.2d at 34.

[3] The regulations required that mental retardation manifest before age 18.  As a result, the hearing officer largely ignored Tartarini’s IQ score at the age of 40 and 42.  Id. at 35.

[4] Tartarini, 972 N.E.2d at 36 (quoting Dowell v. Comm’r. of Transitional Assistance, 677 N.E.2d 213 (1997) (quoting from Berrios v. Dep’t of Pub. Welfare, 583 N.E.2d 856 (1992))).

[5] Tartarini, 972 N.E.2d at 37, fn 5.

[6] Id. at 38; The Department initially argued that an IQ of 70 did not establish a ceiling for benefits eligibility.  However, once Department experts and hearing officers applied an IQ of 70 as a ceiling for benefits eligibility, the department changed it’s contention to conform with such application.

[7] Id.