Fraud and False Claims/Privacy

Counties Are Persons Under the FCA and Substance Abuse Records are Protected from Discovery - U.S. ex rel. Chandler v. Cook County, Ill., 277 F.3d 969 (7th Cir.  2002)

This is a false claims act (FCA) case against Cook County, Illinois for misusing federal grant money that supported a research program involving drug-dependent pregnant women.  The case has two significant holding: one relating to punitive damages against counties under the FCA; and the other the discovery of records covered by the federal privacy statutes for drug and alcohol treatment records.  Everyone dealing with the FCA or with control of federally protected alcohol and drug abuse records should review this case.

Cook County argued that it was not a person for the purposes of the FCA, based on Vermont Department of Natural Resources v. United States ex rel. Stevens, 529 U.S. 765 (2000) which found that states were not persons within the definition of the FCA.  Cook County further argued that if it was a person subject to the FCA, then the traditional common law bar on punitive damages against counties should obviate its liability for treble damages and/or statutory penalties under the FCA.  After a careful analysis of the FCA and the recent case law, the Court found that Cook County was a person under the FCA.  The court then turned to the common law bar on punitive damages.  It did find that this was recognized in precedent cases involving other federal laws, including the ADA and certain cases under 42 USC 1983, but that these were based on a policy analysis of the purpose of the damages under the statute and the effect on the county.  The court found that much of the purpose for the punitive damages under the FCA is disgorgement of improperly spent funds, and that the county and its citizens were the beneficiaries of these improperly spent funds.  Based on this analysis, the court found that the county was subject to punitive damages under the FCA.

Plaintiff in this action sought discover of redacted patient records to document her charges.  These were unsatisfactory and trial court entered an order allowing the plaintiff to see the complete records of many patients.  Defendant argued that this violates the federal privacy protections for alcohol and drug abuse records.  Interesting, since there is no common law physician-patient privilege against disclosure of information in court, the only limits on disclosure in federal court cases are those imposed by specific statutes.  Until the passage of the federal laws protecting alcohol and drug abuse records, patient records were freely available in federal actions such as antitrust cases and Medicare/Medicaid fraud prosecutions.  (Subject to reasonable rules on protecting patient privacy, consistent with the needs of discovery.)  These laws provide:

"Federal law restricts the disclosure of information obtained 'in connection with the performance of any program or activity relating to substance abuse education, prevention, training, treatment, rehabilitation or research' conducted by the United States or with federal money. 42 U.S.C. sec. 290dd-2. Disclosure is permitted with patient con sent, 42 U.S.C. sec. 290dd-2(b)(1), or '[i]f authorized by an appropriate order of a court of competent jurisdiction granted after application showing good cause therefor, including the need to avert a substantial risk of death or serious bodily harm,' id. sec. 290dd-2(b)(2)(C). 'In assessing good cause the court shall weigh the public interest and the need for disclosure against the injury to the patient, to the physician-patient relationship, and to the treatment services. . . . [T]he court, in determining the extent to which any disclosure of all or any part of any record is necessary, shall impose appropriate safeguards against unauthorized disclosure.' Id. sec. 290dd-2(b)(2)(C)."

The court recognized that patient records can contain both protected and unprotected information and that statute only prevents disclosure of the protected information.  Before the court can allow the disclosure of confidential information, the patients must be notified and given an opportunity to consent or to objected to the order.  If the patients consent, then disclosure must be made.  If the patients do not consent, then the court may only order disclosure in these circumstances:

"(1) The disclosure is necessary to protect against an existing threat to life or of serious bodily injury . . . (2) The disclosure is necessary in connection with investigation or prosecution of an extremely serious crime, such as one which directly threatens loss of life or serious bodily injury, including homicide, rape, kidnapping, armed robbery, assault with a deadly weapon, or child abuse and neglect; or (3) The disclosure is in connection with litigation or an administrative proceeding in which the patient offers testimony or other evidence pertaining to the content of confidential communications. 42 C.F.R. sec. 2.63(a)."

The court found that none of these apply to plaintiff's case so the court must redact all confidential communications before releasing records to the plaintiff.  As this case demonstrates, while these laws may provide useful protection for patient confidentiality, they it very hard to investigate or prosecute cases against drug treatment programs.