How Litigators Tried to Sneak a Pet Earmark into Health Reform

By / 11.23.2009

As the full Senate debate over health care reform legislation finally gets under way following Saturday’s vote, Democratic leaders in Congress should continue fending off special-interest amendments that could be added to what promises to be an enormous piece of legislation. One such provision almost made it into a House committee’s bill earlier this year: a “litigation earmark,” as some in the business community termed it, that had nothing to do with improving America’s health care or cutting health costs but would have opened the door to speculative, mass litigations against American businesses. Alert legislators yanked the amendment, but it could very well sneak into the final bill if progressives are not vigilant.

Health care reform has proven to be challenging to enact and could well stall if this kind of legislative chicanery rules the day. Pharmaceutical companies, personal physicians, and other groups have understood the need for compromise and have offered up important cost savings to help achieve reform. To further cut costs, the president asked his administration and Congress to explore medical liability reform, which the Congressional Budget Office recently estimated could save $54 billion over 10 years. Liability reform is also popular among some Democrats and Republicans needed for the bill’s passage. But expanding liability by creating independent standing for high-dollar, industry-wide lawsuits, as the “litigation earmark” would have done, takes the bill in the exact opposition direction: it would drive up costs – both in the health care industry and throughout the American business community.

The offending act came in July when the House Ways and Means Committee unveiled an 800-page amendment to its health care bill that included a 10-page provision to completely alter the purpose and scope of the Medicare Secondary Payer Act (MSP). The MSP Act is an existing law that is solely intended to punish people who owe Medicare money but have yet to pay their debts. Under the amendment proposed in July, however, the MSP Act would have been transformed to give any freelance lawyer independent standing to file a lawsuit by merely alleging that a company’s product or conduct wrongfully contributed to a condition for which a Medicare beneficiary sought treatment. Moreover, the lawyer would be allowed to aggregate all such claims. The end result would be a mass action for all monies Medicare has spent or will spend on the health care of beneficiaries involving that product or conduct.

A Potential Windfall

The big money potential in these speculative mass Medicare recoupment actions is undeniable. The first targets would likely be product manufacturers, namely makers of cigarettes, guns, alcoholic beverages, sodas, and snack foods, for the health effects of their products, as these industries have been the object of other speculative, industry-wide theories of liability in recent years. Pharmaceutical companies and medical device manufacturers would also be in the cross hairs, as they too have been targeted using similar theories under existing laws.

The reforms could have adverse consequences on America’s health care options. Prescription drugs and medical devices, while providing valuable benefits to consumers, can fail or cause unavoidable side effects for some people, necessitating additional care. If the proposed changes were made, a freelance lawyer could file an expensive mass MSP action focusing on the costs of such treatments without any regard for the practical impact the suit would have. The litigation could raise product costs and limit the availability of medicines and devices for those that benefit from them.

Medicare would be powerless to stop such MSP lawsuits. Because the MSP lawyers would have independent standing, Medicare would have no oversight authority to assure that new MSP suits would be in the nation’s health-care — let alone Medicare’s — interest. The same goes for the allegedly injured beneficiaries. They would not be involved at all, so it would not matter if the beneficiaries believed that the product or conduct did not cause them any harm. The proposed amendments also raise privacy concerns because they require Medicare to turn over patients’ private health records to help the lawyers advance their claims.

Fortunately, a bipartisan group of legislators pulled the amendment from the House Ways & Means Committee’s health reform bill. As a Democrat, I rarely give kudos on civil liability issues to my party’s leadership, but they deserve it for recognizing that such a broad expansion of industry liability has nothing to do with improving health care.

What the Earmark Would Have Done

The idea of using the little-known MSP Act for mass Medicare recoupment suits appears to have been born in the tobacco litigation wars. MSP claims for the costs of treating smoking-related ailments were tried a few years ago as add-ons to existing suits. As Chief Judge Gladys Kessler of the D.C. Circuit wrote, those lawsuits failed because “Congress did not intend the MSP to be used as an across-the-board procedural vehicle for suing” companies.

Rather, the scope and purpose of the MSP Act has always been debt collection, and it should remain so. The law is properly limited to punishing those who do not pay existing debts to Medicare. Once there is a pre-determination that someone owes and has not paid a debt to Medicare, the MSP Act authorizes a private cause of action against the debtor for twice the original debt. If the suit is successful, the claimant gives Medicare the amount of the original debt and keeps the other half as a collector’s fee.

The Ways & Means language, through five core changes, attempted to shift the focus of the MSP Act from debt collection to speculative mass Medicare recoupment actions. The bill:

(1) eliminated the requirement of a pre-existing determination that the defendant owes money to Medicare. This change allowed an MSP action against anyone that might be responsible for costs associated with treatment of a Medicare beneficiary;

(2) authorized actions based on all items and services furnished to all Medicare beneficiaries related to a product or service;

(3) gave standing to anyone, even if not injured, to bring this newly created class-type action. The bill, however, did not provide any class action safeguards to keep the lawsuits in check;

(4) allowed the MSP lawyer to prove causation through generalized evidence, including statistical and epidemiological studies. As a result, the lawyer may never have to show that the defendant caused any beneficiaries’ actual injuries; and

(5) increased liability to include funds Medicare already spent on a beneficiary’s injuries, as well as funds that might be spent in the future and a bounty equal to 30 percent of the recovery.

The Need for Progressive Vigilance

A new effort to change the MSP Act is likely to arise again. Prior to this past July, similar reforms were floated in the Senate Finance Committee in 2007. Both provisions were mislabeled, as one was called a “clarifying” amendment and the other an “enforcement” provision. They also were drafted to look like whistleblower actions.

Progressives should continue to oppose such attempts. Allowing random people to speculatively sue companies for Medicare expenditures violates core tenets of American jurisprudence. The suits do not allege product defect, do not hold a company liable for causing individual harm, and try to get rid of true cause-and-effect liability. Also, by eliminating the requirement of a pre-existing determination of debt to Medicare and lowering the standards for causation, the reforms could lead companies absolved of wrongfully causing anyone’s actual injuries to be held liable nonetheless to the MSP lawyers.

When President Obama addressed the nation to rally Americans behind health care reform, he challenged those in the health care system to put America’s needs above their self-interests. Putting the client’s interest above others can be a virtue for lobbyists and lawyers, but cynically attempting to use reform legislation to push through a litigation provision having nothing to do with health care is an unwelcome move. Today’s debate is about improving our health care system and reducing costs. Progressives in Congress should remain vigilant and continue to put America’s health care first.