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Posted: 08/15/2014 | Share This Post

Health Care Entities Need to be Forward-Looking When Producing Documents to the Government

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In a recent decision with relevance to health care entities, the United States District Court for the Southern District of Illinois held that attorney work product produced to a government agency in response to subpoena is not protected from discovery in a subsequent lawsuit by a third party relator.  United States of America, ex rel James Garbe, et al. v. K-Mart Corporation, No. 3:12-cv-00881-MJR-PMF, 2014 WL 2218758 (S.D. Ill. May 29, 2014).

The Court considered whether attorney work product created in the context of an Office of the Inspector General subpoena issued to defendant K-Mart was subject to production in a false claims qui tam case against K-Mart. In 2009, the OIG issued a subpoena to K-Mart relating to an investigation into possibly improper claims that K-Mart had submitted to Medicare. In responding to the subpoena, attorneys for K-Mart created and produced a subset of transactional data in an easier-to-understand format. K-Mart also secured a confidentiality agreement with the OIG that proprietary business information would be protected.

Presumably unbeknownst to K-Mart, a relator filed the present False Claims Act qui tam action against it under seal in 2008, in which the relator alleged claims based on K-Mart’s generic drug pricing program. The relator moved to compel production of the subset of transactional data that K-Mart had produced to the OIG in response to the 2009 subpoena. K-Mart argued that the data was attorney work product and should be protected from production to the relator under the theory of selective waiver, which holds that disclosure of privileged information to the government as a third party waives the privilege only with respect to the government.

The Court rejected K-Mart’s selective waiver argument and held that K-Mart must produce the data, explaining that, “the Seventh Circuit Court of Appeals does not look favorably upon the selective waiver doctrine.” The Court found that in the present case, “both the federal government and Relator are adversaries of K-Mart under essentially the same circumstances” and that “K-Mart should not be permitted to ‘pick and choose’ to which adversary it waives work product protection and [to] which adversary [it] does not.”

The Court went on to note that almost every other circuit has rejected the selective waiver theory and that, “while some cases promote the use of confidentiality agreements to selectively preserve work product protection, the express terms of the federal rules do nothing to encourage this practice.” Against this backdrop, the Court found that:

With federal law existing in this formulation, K-Mart made a strategic calculation: did the potential risk of waiver of work product protection outweigh the potential benefit it would receive by appearing cooperative with the federal government? K-Mart concluded that the potential benefits outweighed the risk. It now seeks to withhold the same information it produced to an adversary from another adversary.

Finally, the Court found that the policy reasons for disallowing selective waiver in the case outweighed the reasons for allowing it. The Court noted that the privilege and work product doctrines exist to permit an attorney to prepare a client’s case in confidence, not to foster full and frank conversation with the government. As such, the Court found that the work product at issue was not protected from disclosure.

Impact and Lessons. The Southern District of Illinois’ most recent analysis of the selective waiver theory, combined with other recent decisions rejecting the theory, clarifies that the theory should not be relied upon when making decisions as to how to respond to government inquiries. See, e.g., Rivera v. Allstate Ins. Co., No. 10-C-1733, 2013 WL 2903491 (N.D. Ill. June 14, 2013). While at least one prior decision from the Northern District of Illinois, Lawrence E. Jaffe Pension Plan v. Household International, Inc., 244 F.R.D. 412 (N.D. Ill. 2006), indicated that selective waiver may be upheld at least where the party and the government agency had agreed that privilege would not be waived, the K-Mart decision clarifies that even that situation cannot be counted on to protect the disclosing entity.

The disapproval of the selective waiver theory puts health care entities in a difficult position when faced with a government investigation into their practices. On the one hand, the entity wants to make its case to the government, which will often include assistance from – and work product created by – attorneys. On the other, the K-Mart decision demonstrates that if the entity chooses to disclose the favorable work product to the government, it is also likely to be subject to disclosure in other third party lawsuits.

The takeaway from the K-Mart decision is that, when responding to a government inquiry or subpoena, the entity should operate under the assumption that anything that it provides to the government will no longer be considered protected and may be subject to disclosure in subsequent litigation. When faced with a government inquiry where turning over attorney work product may be useful, the entity must make a strategic decision as to whether the current benefit of providing the work product to the government outweighs the potential risk presented by possibly having to turn over that work product in a subsequent lawsuit by another party.

Entities such as health plans, managed care organizations and other third-party payers should also keep this landscape in mind when responding to requests from government agencies for assistance with investigations into conduct of a third party, such as a provider. While the entity will usually want to cooperate with these requests, it should use caution and thoroughly review the information that it is producing to ensure that it is not unwittingly producing privileged communications or attorney work product that could cause problems down the road (for example, when the providers sue).