Category: HealthLaw Blog

By: Martin Merritt, esq.
Past President, Texas Health Lawyers Association
Past Chair, DBA Health Law Section
martin@martinmerritt.com

“Please Tell Me you Didn’t. . . How to Keep Clients Out of the Jailhouse, Poorhouse and Lawyers Out of the Nuthouse” -Blog

As you can tell, I love talking about health law issues, if you have any health law questions or better yet, need to refer a case, just call or drop me an email and I will happily talk.

“It ain’t what you don’t know that gets you in trouble. It’s what you know for sure that just ain’t so. –Mark Twain

At least once a week, I have a client who isn’t a doctor, who has begun setting up an aesthetic medical clinic (weight loss, Botox & Fillers, or an IV Drip Bar). Often, they have attended a seminar where they were told, “all you need is to pay $1,500” and using special “smoke and mirrors,” they will be delivered their own bouncing baby “MedSpa, LLC.”

What could possibly go wrong? It takes a special kind of idiot to try to answer in a 600-word blog, what’s wrong with this? (including tax advice) Or, “which federal agency with three letters on a blue blazer is going to get to them first,” but here we go: (1) why does an LLC need to be a PLLC? (2) why do we elect a Subchapter S-Corp when forming a company like a MedSpa? (3) what happens if we screw this up?

Sole Proprietors, C-Corp’s, Partnerships and LLC’s. If you open a lemonade stand, you are the sole proprietor, or if you get a friend to go in with you, you are a partnership. If anyone chokes on a pip, you and your partner are both personally liable for the claim. There is no limit to your liability. This is how 23 million companies in America operate.

However, if you don’t want to be “stupid for a living,” you can limit your liability as do the 21.6 million people who have formed LLC’s and 1.7 million who operate as C-Corporations.

The formation of a “limited” liability company creates a separate legal entity from the owners. The “limited” part in a name like “Fred & Sons, Ltd.,” doesn’t mean “fancy.” It is a warning: If you do business with them, the owners of Fred & Sons, aren’t liable to pay the debts of the LLC. The reason for this is to encourage people to take risks. You get to follow your dreams, but if the business fails, the dream dies, not the dreamer. Otherwise, no one would try. This creates jobs, at a risk to creditors. Hence, the warning: “Ltd.”

Why do we elect a Subchapter S? When you form an LLC, which limits liability for debts, you still have taxes to deal with. If you don’t elect to be taxed as a Subchapter S, the LLC owner pays income tax plus FICA 15.3% payroll taxes on all of an LLC’s net income up to a maximum limit. You make $100,000, all of it is taxed with FICA.

A Subchapter S election allows the owner to split income into (1) a reasonable wage for active work by the owner, which is subject to income tax and the FICA 15.3% tax, and (2) distributions, which are subject to income tax but not subject to the 15.3% FICA tax. The idea here is that not all of an LLC’s income is due to the active labor of the owner. It is only right that you pay the FICA on your reasonable salary for active involvement but not on the part that is passive income from your investment.

Why do we put the “P” in front of “PLLC”. There is a difference between operating a lemonade stand and practicing a profession. If the company performs a professional service, in states like Texas owners are required to form a “PLLC.” If you click the wrong box and put it on your website, at a minimum, you announce to the world, “you don’t know what you are doing.” Regulators might want to take a look.

How big a screw up this is, depends. It is a “tiny no, no” if the correct type of professionals clicked the wrong “LLC” box when they should have clicked “PLLC.” At worst, they need to correct it.

A middle-sized screw up arises where the “wrong type of person” has gotten it into their heads that they can own a medical practice. In Texas (and some other states), the corporate practice of medicine doctrine (CPoM) forbids anyone who is not a doctor (or mid-level N.P.s or P.A.s) from owning a medical clinic.

If ownership is wrong, everything you do from that point forward is illegal. But, if you do everything else right, hire the correct medical personnel and haven’t killed anyone yet, the medical board doesn’t really have jurisdiction over a license a layperson owner doesn’t posses. Instead, you will likely get a “cease and desist” letter followed up by an injunctive lawsuit by the AG. Any doctor (who got paid to be a Medical director) that talked you into owning your own business named “I Can’t Believe It’s a Med Spa,” does have a license that the TMB can have fun with. And they will!

The “Unauthorized Practice of Medicine” is a big, big screw up because it is a felony. This is where nobody with a proper license evaluated the patient and ordered treatment. First, understand, “what precisely is the practice of medicine” is determined by “what goes on” inside a business, not by “what you call it.” This sometimes gets tricky, as can be seen in the United States” Supreme Court case over “teeth whitening,” in North Carolina Board of Dental Examiners v. FTC. 574 U.S. 494 (2015).

Almost all MedSpa’s (including weight loss clinics, Botox centers and injectable filler spas) would qualify as “practicing medicine.” Even though you can train a monkey to use a syringe, that’s not where the problem is. It is in the “medical judgment” that must happen before the needle goes in—in determining whether the patient is healthy enough to receive an injection of a prescription drug–that requires a medical evaluation by a doctor or at least a mid-level N.P or P.A. In this case, it is a felony both for the injector to treat a patient without a medical exam and the person “aiding and abetting” the unauthorized practice of medicine.

A set of laws somewhat “observed in the breach.” It isn’t until something goes wrong, or a complaint is filed by a competitor, disgruntled employee, (or patient who was trying to get freebie extra treatment she felt she was owed), that the Medical Board gets involved. The first sign you are doing it wrong, which is a beacon to a competitor trolling for complaints, is the “LLC” structure when it should be a PLLC. You are just asking for it. But understand, it doesn’t matter that the motive of the complaining party might be, if you get any of this wrong, you will still be just as screwed.

By: Martin Merritt, esq.
Past President, Texas Health Lawyers Association
Past Chair, DBA Health Law Section
martin@martinmerritt.com

“Please Tell Me you Didn’t. . . How to Keep Clients Out of the Jailhouse, Poorhouse and Lawyers Out of the Nuthouse” -Blog

On September 11, 2001, eighty percent of police and firefighters who died in the attack did not have a will or estate planning documents, such as a “living will” or “directive to physicians.” Bradley and Bank of America recruited volunteer Dallas Bar Association attorneys who provided these much needed basic estate planning documents to Dallas Police Officers in a pro bono event held yesterday, on the anniversary of 9/11.

As you can tell, I love talking about health law issues, if you have any health law questions or better yet, need to refer a case, just call or drop me an email and I will happily talk.

FedEx charged me $250 last month, in a scheme to defraud passport applicants (in my opinion) into thinking that FedEx can deliver applications to the US Passport Office (they can’t). So, I decided to do the only thing I know how to do, put pen to paper and tell you about it and see if I am wrong.

Highway Robbery. In the pioneer days of this country, farmers in the mid-west harvested their crops and then built rafts to float their produce down the Mississippi River to market in New Orleans. Then, they walked back, up the Natchez Trace, sometimes all the way to Illinois.

The term “Highway” originated with the Romans, who would pile dirt from ditches to make roads high enough to remain dry and easily passible. The term eventually came to mean any pathway that was the best way to get from one place to another. Which is what the Natchez Trace was, in my home state of Mississippi.

It didn’t take long for thieves along the Natchez Trace, called “highwaymen,” to figure out that people with money would be walking right past them on a predictable path. All these thieves had to do was hide and wait. And this is where we get the term, “highway robbery.”

FedEx Passport “Smart Service.” Highway robbery also refers to any excess profit earned at the expense of unwitting customers. Here is what happened when it came time to renew my passport. I asked my office manager to help me. She said FedEx can do it for about $250 plus the official fee charged by the US State Department.

I asked, “why do we need to pay FedEx $250?” And she responded, “they give you shipping labels to send your old passport and the application to the Passport Office.” So we paid the fee and we got our shipping labels, but used the wrong form.

When I got to the FedEx office, the lady at the counter informed me we had the wrong form, and would need to go back to the “smart service” website and do it all over again. I told her, “I also have the correct application I got from the US Passport website (just to be safe, I always try to anticipate problems). “So, you can just ship it from here?”

She replied, “No, the U.S. passport office address is a P.O. Box and FedEx can’t ship to a P.O. Box.” “Okay,” I asked (in a tone I am not proud of), “why am I paying FedEx $250 to ship someplace you cannot deliver?”

So I then looked closely at the address of the U.S. Passport Office on my application and the address on the FedEx Labels. And I looked back at the lady. The Passport Office is in Irving, Texas—15 miles from my front door. The FedEx shipping labels were for some company in Florida that FedEx calls a “partner.”

Near as I can tell, the $250 FedEx “smart service” pays to ship my old passport 1,312.4 miles in the wrong direction to a company in Florida, who would then (I presume to cover up the fact that FedEx can’t deliver passport applications), goes to the post office in Florida to mail my passport application 1,312.4 back to a Texas address, which is 15 miles from me.

I took my application to the post office in Dallas, where it cost me $9 to send a Priority Mail envelope to Irving. Which I share with you now, as a public service warning. That “Smart Service” seems to be anything but “smart.”

I worry about this country. Sure, we don’t have to float our produce down the Mississippi on rafts, but there certainly seem be highwaymen waiting on the path wherever we need to go, who have so little fear from consumer protection laws, that they don’t even need to “hide.”

Martin Merritt, J.D., Ole Miss Law ’86. Martin tried over 500 healthcare law cases to jury verdict, judgment or ALJ administrative law decision. He has been selected to the 2024 D Magazine “Best Lawyers in Dallas” List, Texas Monthly’s “Texas Super Lawyers” and U.S. News and World Reports “Best Lawyers in America,” is Past President of the Texas Health Lawyers Association, Past Chair of the Dallas Bar Health Law Section and State Bar of Texas award-winning author, has published books from the ABA, and published hundreds of articles on matters related to health law and legal ethics in the Federal Lawyer, the Texas Bar Journal and many trade publications. If you have a question or need to make a referral, Martin can be contacted at his office in Dallas, Texas. Email at Martin@MartinMerritt.com

As you can tell, I love talking about health law issues, if you have any health law questions or better yet, need to refer a case, just call or drop me an email and I will happily talk.

U.S. District Judge Ada Brown of the Northern District of Texas set aside the FTC’s ban on non-competes and held that it shall not be enforced or otherwise take effect nationwide as to all employers, not simply the parties.

Global tax services giant, Ryan LLC, filed suit within hours of the FTC announcing a Rule banning non-competes which was to take effect September 4, 2024 in Ryan LLC, et al., v. Federal Trade Commission.

It is Ryan’s story, so I will let them tell it:

• “Today we prevail in protecting the very foundation of innovation that drives our economy from the overreach of the FTC in its misguided mission to invalidate millions of employment contracts,” said Ryan Chairman and CEO G. Brint Ryan. “Non-competes serve as a cornerstone of mutual trust between employer and employee. As a champion for our clients and business owners nationwide, Ryan stands proud in the role we’ve played to protect businesses’ intellectual property and ongoing investment in employee training and skill development.”
• Ryan’s lawsuit, filed within the hour after the FTC promulgated its ban on non-competes, challenged the FTC’s authority to issue such a rule, which imposes an extraordinary burden on business owners seeking to protect their IP and to retain talent within the professional services industry. The U.S. Chamber of Commerce, Business Round Table, Texas Association of Business, and Longview Chamber of Commerce joined the case shortly after it was filed, along with a vast array of organizations that filed briefs supporting Ryan’s position.
• In her ruling, Judge Brown concluded that “the text and the structure of the FTC Act reveal the FTC lacks substantive rulemaking authority with respect to unfair methods of competition” and that “the Rule is arbitrary and capricious because it is unreasonably overbroad without a reasonable explanation.” She emphasized “the role of an administrative agency is to do as told by Congress, not to do what the agency think[s] it should do.”
• “Judge Brown’s ruling preserves the economic freedom of businesses and their employees to enter into non-compete agreements,” said John Smith, Ryan Chief Legal Officer and General Counsel. “They play a vital role in safeguarding intellectual property and innovation, building trust within businesses, and investing in training their people.”

Judge Brown rejected the FTC’s argument that the court ruling should only apply to the parties, holding that the ban applies nationwide to all employers. Meaning, employers can ignore the FTC rule (for now).

(You can cut and paste their press release address at https://ryan.com/about-ryan/press-room/2024/ryan-lawsuit-succeeds-in-striking-down-ftc-ban-on-non-compete-agreements/).

Martin Merritt, J.D., Ole Miss Law ’86. Martin tried over 500 healthcare law cases to jury verdict, judgment or ALJ administrative law decision. He has been selected to the 2024 D Magazine “Best Lawyers in Dallas” List, Texas Monthly’s “Texas Super Lawyers” and U.S. News and World Reports “Best Lawyers in America,” is Past President of the Texas Health Lawyers Association, Past Chair of the Dallas Bar Health Law Section and State Bar of Texas award-winning author, has published books from the ABA, and published hundreds of articles on matters related to health law and legal ethics in the Federal Lawyer, the Texas Bar Journal and many trade publications. If you have a question or need to make a referral, Martin can be contacted at his office in Dallas, Texas. Email at Martin@MartinMerritt.com

Will the “Peasants” Revolt Against the FDA?

As you can tell, I love talking about health law issues, if you have any health law questions or better yet, need to refer a case, just drop me an email and I will answer it.

“Its a wonderful life.” In a 1946 Frank Capra Christmas movie, an angel must earn his wings by helping Jimmy Stewart’s character realize his life has value, after rich and greedy business interests have bankrupted him and ruined his life, when all he wanted to do was help people.

The movie ended happily, “every time a bell rings, an angel gets his wings.” This jingle has a very dark history, which is why I bring it up in reference to weight loss drugs like Ozempic and Mounjaro.

Martin Luther & The Efficacy of Indulgences. In 1517, a Catholic monk and professor of theology named Martin Luther, nailed his Ninety-Five Theses, or Disputation on the Power and Efficacy of Indulgences to the door of a cathedral in Wittenberg, Germany. What had disturbed Martin Luther, was the Church’s corrupt practice of selling “indulgences” to the faithful.

The church collectors claimed that the souls of loved ones needed to be “purged” of sins, before they would be permitted to enter heaven (hence the word, “Purgatory”):

“As soon as a coin in the coffer rings, the soul from purgatory springs.”

This angered Martin Luther, who knew something the peasants didn’t. The Bible, written in Latin (which Germans didn’t speak, as Voltaire observed in 1756, “the Holy Roman Empire was neither holy, Roman, nor an empire”), contained no mention of a “Purgatory.” A secret the Church kept by prohibiting the Bible from being published in a language Germans understood.

Luther’s 95 Theses were not the first challenge to the Church, but were aided by the invention of the printing press. When the peasants found out they had been defrauded, they revolted and things got ugly. (See, The Protestant Reformation, Henry the Eighth, The Spanish Inquisition, Northern Ireland, etc.).

How the FDA similarly works to keep the public in the dark, isn’t a secret, but will require explanation. I will use two of my own case files, which were a lot of fun.

Tilton vs. Richardson, 6 F.3d 683 (10th Cir. 1993.) The Rev. Robert Tilton was a Dallas televangelist who used sent out little squares of material he called “prayer cloths.” He claimed these magical bullshit cloths were the secret to God’s healing the sick. If the faithful rubbed the cloth on a sick loved one, sent in a donation along with a prayer request, then Tilton would touch the cloth and pray. God just might intervene with a miracle, for a price.

I got involved as a defense lawyer when several plaintiff’s lawyers sued Tilton for fraud, after NBC news ran a story showing that the prayer cloths were thrown in the trash after the money was removed at a bank. Tilton never touched them. He then sued my clients in a precursor to an Anti-SLAPP suit (Tilton claimed the Plaintiff’s lawyers were conspiring under 42 USC §1985 to infringe on Tilton’s 1st Amendment rights).

The 10th Circuit ruled that §1985, known as the “Ku Klux Klan Act,” was not meant to protect white preachers and threw out Tilton’s case. However, in the original case, the Texas Supreme Court in Tilton v. Marshall, 925 S.W.2d 672 (Tex.1996), ruled that the Plaintiffs could not sue Tilton for damages, because the faithful could not prove the element of “causation” (that God would have answered their prayers, had Tilton actually prayed as promised.)

State v. Valerie Saxion, Inc., 450 S.W.3rd 602 (Tex.App—Ft. Worth 2014). Although Robert Tilton’s “magical bullshit prayer cloths” might arguably have been considered a “medical device” requiring FDA approval, it wasn’t until Valerie Saxion started selling healing vitamins, that the FDA and The Texas Attorney General got involved.

Valerie Saxion was a bubbly television host on the world’s largest Christian Television network, TBN’s Alternative Health program. She began telling listeners that Selenium, which is a mineral next to Sulphur on the Periodic Table, helps prevent prostate cancer and that’s why God made it. She just happened to sell a line of vitamins containing Selenium. (She had also never heard of the FDA.)

The Consumer Protection Division of the Texas Attorney General’s office sued to silence her under the FD&C Act. There is another old saying:

When the law is against you, pound the facts.
When the facts are against you, pound the law.
When both are against you, pound the table.

Which is what I did when I argued Valerie Saxion’s case before the 2nd Court of Appeals in Fort Worth. There was no question she violated the FD&C Act. So, I countersued Gov. Greg Abbott, who was the AG at the time, for a declaratory judgment that the State of Texas can’t censor Valerie Saxion’s teaching about God’s plan when he created Selenium. (We lost.)

The FDA. Unlike Robert Tilton’s “magical bullshit cloths,” Valerie Saxion sold something the FDA did regulate. Her vitamins became “drugs” the minute she mentioned the word “cancer.” The FDA regulates drugs, for safety and “efficacy” (meaning “effective,” the word used by Martin Luther’s 95 Theses about “indulgences” 1512). Sellers of vitamins can sell Selenium with a label “Supports Prostate Health,” but will be put out of business if the seller mentions any disease, like “cancer.”

The uninitiated might think the FDA only exists to protect the public. It would be too simplistic to say they don’t care at all. However, like the Church in 1512, the FDA cares about saving people for a price.

The FDA is funded by taxpayers but is influenced, if not corrupted, by fees paid by big pharma, under a system the public doesn’t understand. When big pharma plays by FDA rules, it receives a governmental monopoly in exchange for paying the $1 billion price tag to get a drug through the patent and FDA approval process. In turn the FDA becomes the attack dog for its paymasters.

Weight loss drugs. One exception, which happened recently with weight loss drugs, occurs when the FDA approved manufacturer can’t keep up with demand. Because the manufacturer can’t lose profits on drugs it can’t make, the FDA allows generic copies to be compounded, as long as a drug is listed on the FDA drug shortage list.

What this also means is that there can be an unlimited, inexpensive supply of an FDA approved life-saving weight loss drug, that no one is allowed to sell. At least not inexpensively. This is true, even though the public suffers:

“Every time big pharma’s coffers ring, another soul from weight-loss purgatory springs.”

South Park did a masterful job lampooning this absurd state of FDA affairs in “The End of Obesity,” where Eric Cartman explained why he couldn’t get a prescription for Ozempic, “Rich people get Ozempic, and poor people get a prescription for listening to ‘Lizzo’ body positivity records.”

Martin Merritt, J.D., Ole Miss Law ’86. Martin tried over 500 healthcare law cases to jury verdict, judgment or ALJ administrative law decision. He has been selected to the 2024 D Magazine “Best Lawyers in Dallas” List, Texas Monthly’s “Texas Super Lawyers” and U.S. News and World Reports “Best Lawyers in America,” is Past President of the Texas Health Lawyers Association, Past Chair of the Dallas Bar Health Law Section and State Bar of Texas award-winning author, has published books from the ABA, and published hundreds of articles on matters related to health law and legal ethics in the Federal Lawyer, the Texas Bar Journal and many trade publications. If you have a question or need to make a referral, Martin can be contacted at his office in Dallas, Texas. Email at Martin@MartinMerritt.com

I took a deposition last week in a Trade Secrets case involving physicians, compounding pharmacies and the weight loss drug, Mounjaro®. As the corporate representative paused to think up an answer, I started watching the planes take off and land at Love Field from my 49th floor window. I began to think about the story of Albert Einstein’s “E=MC2.

I have seen a big jump in trade secrets cases, as non-competes are set to become illegal September 4. These claims really are all over the place, in part, because people don’t know what a trade secret is.

Part of the problem is people get confused– just because something (like a formula) “formula”) is on a statutory list of things that “might” be a trade secret, it doesn’t mean that the formula “is” a trade secret, if it doesn’t fit the rest of the definitions. Namely, it must be have some economic value because it is a “secret.” Unlike a patent, trademark, or an FDA approved drug, nobody in the government examines and preapproves a “trade secret” as valid IP claim.

Worse, trade secret litigation is often framed less by logic, and more by anger on the part of the litigant who yells the loudest or has the biggest “stick.” (See, also “arguing through vehemence,” or “argumentum ad baculum)”.

Which leads to some fun depositions like last week. Particularly in areas like MedSpas, Weight Loss and Botox Centers; which were once were the sole province of doctors, but are now rife with amateur neo-entrepreneurs:

“Q: So. . . do you think the practice of medicine is a trade secret?”

“Q: Are you saying that how doctors prescribe an FDA approved drug is your trade secret?”

And so, that’s how I came to be staring out the window watching the airplanes take off and land.

What Does “E=MC2” have to do with Patents, FDA Drugs and Trade Secrets? Admittedly, I know as much about the science of patents and the FDA approval process, as a horse knows about a road map. But like any good horse, with a little prodding I know enough to eventually get where I need to go.

Albert Einstein developed his “E=MC2” theories of relativity while working in a Swiss patent office in 1902 examining clock patents. Patents are how inventors keep others from copying their ideas. Clocks weren’t new in 1902, but trains which go fast (and the need to catch one on schedule) were.

While it was simple in the early days of trains to determine how much time it would take for a train to go from New York to another town, it was anybody’s guess what “local time” might be for passengers waiting at the station when the train arrived.

The problem lies in how the sun works. Noon occurs, and for that matter, any time ante meridiem or post meridiem, at different times in every town, as we travel east or west. Solar noon in New York happens earlier than solar noon in Cleveland. Which is a problem for making efficient train schedules people can count on. Anyone who figured out the answer could get rich from the patent.

And that’s what Einstein was doing in the patent office in Switzerland. People were trying to get official recognition or a “patent” on their ideas to synchronize distant clocks. Einstein had a little extra brain bandwidth than your average patent examiner, and used it to imagine what would happen to the speed of light, if it came from one of those moving trains. Would it go faster? If not, why not? Any physicist can fill a chalkboard with calculations, but it takes true genius to make all of it fit on your thumbnail, like “E=MC2”.

The train schedule problem was eventually solved when somebody got the more practical idea of using time zones, “why don’t we just ‘ballpark’ it?” And that’s how the planes at Love Field takeoff and land on time. We use time “zones” instead of precise solar time, which is a great idea, but also worth nothing.

The idea of “time zones” wouldn’t be a trade secret however, because it only has economic value, by not being a “secret.” It’s like the “Heimlich” maneuver— a good idea that only works, because everybody knows about it.

A Few other observations about patents, FDA approval and trade secrets:

(1) Patents are not a “secret.” The word “patent” as a noun, means the right to exclude others from copying the design, which shares the same root as the adverb “patently” (meaning “open, obvious.”) A patent application is a “claim,” to an invention of something “new and useful.” The formula or process is published. “What’s in it” or “how it works,” is not a secret.

(2) Patents are easier to get, harder to enforce. The government doesn’t enforce patents simply because a patent is granted. The government usually will raid warehouses to enforce an IP law only if there is some other intellectual property law involved, like the Lanham Act (trademark, “fake Rolexes”) or offending the FDA (“misbranding” or labelling violation.)

(3) Patenting a drug is just the first step to market. While the FDA could approve a drug without a patent, it costs too much for a seller to obtain FDA approval for a drug or device without a patent. Someone else could just copy it. Usually only patented drugs are worth the trouble. Then, the FDA takes over to determine if drug is also safe and effective, what instructions and warnings must come with the drug. But once approval is granted, the FDA will enforce exclusivity, including compounding generic versions.

(4) Compounding or off label prescribing. The FDA does not regulate doctors. If a doctor in his medical judgement, decides an FDA approved drug is safe and effective for another illness, he can prescribe the drug “off-label.” (Think, “Ivermectin” for COVID). The doctor is answerable to the medical board which may consider this a form of “Complimentary Alternative Medicine,” for which there must be written patient “informed consent,” after proper disclosures and warnings.

(5) Things get out of hand sometimes, even when everybody follows the rules. I handled dozens of Ivermectin Texas Medical Board complaints last year, after doctors were bombarded by patients who demanded Ivermectin as a prophylactic against COVID. While Ivermectin worked (it won a noble prize for medicine because it saved lives as an anti-parasitic in poor countries), it wasn’t covered by insurance unless the patient actually had parasites, which was the FDA approved use.

Doctors were legally able to prescribe Ivermectin for off-label use, but when the patient went to the drug store, the pharmacy billed insurance, who paid the claims, thinking the doctor had prescribed the drugs for rare parasite infections. Insurance paid and paid, until so many claims began piling up, that insurance began to wonder “how is it that everybody suddenly has this rare parasitic infection?”

The natural conclusion was that the doctors must be committing “fraud,” so Insurance filed complaints with the medical board against the doctors for healthcare fraud. Turns out, the doctors had no idea how insurance was billed by Walgreens or CVS. Even where the doctors told the patients not to claim the drug on insurance, they did it anyway.

As you can tell, I love talking about this, if you have any health law questions or better yet, need to refer a case, just drop me an email and I will answer it.

Next week, I will conclude the topic, with a discussion how the FDA works with states attorneys general Consumer Protection Divisions to protect the interests of big pharma.

If I were stranded on a desert island and given one set of books, I would take Will and Ariel Durant’s The Story of Civilization. In 11 volumes, the father daughter team interpret 2000 years of human behavior in a way that provides living context, “why we do what we do,” in a way readers can hold in their minds decades after reading.

The first volume brilliantly distills in one phrase, what must have been like for mankind to transition from hunter gatherers to farmers and merchants– “fear did not enter the heart of man, until he began to plan for the future.”

This phrase, explains why I love the Durants’ work, and why some people are more comfortable spending every penny they earn, accumulating no wealth at all; while those who do are often more miserable. If we don’t accumulate wealth, we don’t have to worry about keeping it.

Deus ex machina— Jesus “in a syringe.” A little over two years ago, Ozempic®, Mounjaro® and Zepbound® burst onto the scene, as a redeemer of sins, salvation could be had for a price (just a little “pinprick,” and there would be no more “ahhhhhh . . .”)

(Yes. I know, I have had too much coffee on a Saturday morning, when I use Latin and Pink Floyd’s The Wall in the same sentence.)

What’s the problem? When a drug manufacturer like Eli Lilly either invents a new drug (or buys the license from someone who did), it can gain “exclusivity” for its stockholders (the people who saved money, rather than spent it all and want to protect it).

If “Eli Lilly” sounds like a Civil War character, interestingly, he was. The company was founded by a real life pharmacist and colonel in the Union Army who was captured and imprisoned by Confederates during the Civil War.

One way to gain exclusivity for stock holders, is to patent the drug, which Eli Lilly did to gain exclusivity for Mounjaro® and Zepbound®. Patents can last for up to several decades, but there are shenanigans that can extend the patent. (See, “The Mounjaro Patent Thicket,” at Greyb.com)

The other way to protect shareholder’s is to gain FDA “exclusivity” which can be granted, even to generic drugs, but usually for a shorter period of time. (See, “Exclusivity and Generic Drugs: What does it Mean? FDA.gov/GenericDrugs.)

While a US Patent is only enforceable by the patent holder, the FDA enforces compounding restrictions under Section 503A of the FD&C Act. (See, “Compounded Drug Products That Are Essentially Copies of a Commercially Available Drug Product Under Section 503A of the Food Drug and Cosmetic Act, Guidance for Industry at FDA.gov.”) Often the FDA will pay states Attorneys General to do the enforcing through Consumer Protection Divisions.

FDA Shortage list. There was only one problem, while Eli Lilly patented salvation in a syringe, it couldn’t make enough of the stuff to keep it in stock. In such a case, the FDA publishes a “drug shortage” list. (Just Google it.) Eli Lilly’s Tirzeptide had been on the list for obvious reasons, but on August 2, Lilly announced that it had plenty in stock, and to protect shareholders, you can imagine what happened next.

Kirkland Ellis to weight loss centers: “Cease and Desist.” And so it came to pass that my client, a Nurse Practitioner operating a weight loss clinic in an “itty-bitty” East Texas town (pop. of 1,239) eceived a “cease and desist” letter from Kirkland Ellis (an international law firm with more offices than we can count on our fingers and toes).

The letter was a simple “Cease and Desist” on the basis of the FDA Drug Shortage list, and not made on the basis of a Patent violation, could be, because it sounds scarier to invoke the FDA as protector of big businesses like Lilly. (Don’t know.)

It is a story for another day (meaning I need to make a “Part II”), how the FDA and US Patent Office work with State Attorneys General Consumer Protection Divisions to protect massive profits for Eli Lilly, over consumers. So many stories to tell. (More to come!)

“Please Tell Me you Didn’t. . . How to Keep Clients Out of the Jailhouse, Poorhouse and Lawyers Out of the Nuthouse”

I just got off the phone with one of dozens of clients I represent from coast-to-coast (literally Temecula California to Raleigh, North Carolina), over what is called an “SIU recoupment insurance audit” which is part of a continuing war on doctors by insurance companies.

Although “SIU” stands for “Special Investigations Unit,” I like to call them “Spanish Inquisition Units,” because they blow in like the 1970’s Monte Python’s “Spanish Inquisition” television skit, demanding the production of documents relating to a small number of patients. There is no advanced notice and no time to prepare to produce the documents.

Because “nobody expects the Spanish Inquisition,” these SIU agents almost certainly will find fault in the documents which they then extrapolate across all the clinic’s claims. This lack of Due Process is designed to be patently unfair, calling to mind another famous quote, this time from a real-life cleric:

“If you give me six lines written by the hand of the most honest of men, I will find something in them which will hang him.

–Cardinal Richelieu, French Cleric and Statesman (1585–1642)

An SIU “recoupment audit” is a post-payment review of a certain number of patient charts (usually 29), to determine whether a service was “medically necessary.” Medical necessity doesn’t simply mean that the item or service was valid, but also that “necessity” is documented in the chart. If the chart is missing some required language, a signature, or receipt, or anything else is out of place, then the entire claim is deemed medically “unnecessary,” regardless of the patient’s need for the service.

These SIU auditors will then extrapolate the errors found in the 29 claims across the entire universe of a provider’s claims, which magically both puts money back in the pocket of the insurance company and give the patient the service for free. Due Process be damned.

In one of the worst examples, I received this week, with a provider had just received a $750,000 “claw back” demand from the SIU of a Medicaid HMO for payments for IV infusion drugs for poor patients with rare diseases. The audit found that documentation of receipt of the drugs by the patient was insufficient, some “box” wasn’t checked, even though the medical chart, the patient and the medical staff all agree that the patient received the drugs intravenously. You could line up the pope and a convent of nuns as witnesses, and it doesn’t matter to the SIU.

So I have to go in and try to win an appeal or arbitration award to reverse the finding of the SIU bureaucrats. Which sadly, brings me to my final literary reference:

The Oxford Dictionary defines “bureaucrat,” as “an official in a government department, in particular one perceived as being concerned with “procedural correctness” at the expense of people’s needs.

“Please Tell Me you Didn’t. . . How to Keep Clients Out of the Jailhouse, Poorhouse and Lawyers Out of the Nuthouse”

Would you like to help Dallas police officers with simple wills, and estate planning on 9/11?

The Dallas Bar Probate section is calling for volunteers to help Dallas Police Officers with Wills, Medical Powers of Attorney, Directive to Physicians, etc. All you need is a laptop and four hour’s time.

Here is the post that went out to the Probate Section:

“For the past two years, Bank of America has coordinated an estate planning activity on 9/11 for first responders in different parts of the country. Bradley Arant Boult Cummings, LLP, a national law firm with 13 offices and 650 lawyers has joined in on the coordination.

This year, the project has been expanded to other locations, including Dallas. As a member of the DBA Probate, Trusts & Estates Section, you are invited to volunteer a four-hour block of time (12:00 p.m. – 4:00 p.m.) on Wednesday, September 11, 2024 at Dallas Police Department Headquarters at 1400 Botham Jean Blvd., Dallas 75215 in preparing simple wills and five advance planning documents for active members of the Dallas Police Department — Medical Power of Attorney, Directive to Physicians, HIPAA authorization, Durable Power of Attorney, and Declaration of Guardian. (The project may be expanded to other first responders next year if all goes well.) Note that interested police will be advised that it will not be possible to assist people with large or complicated estates, those with special needs children, those disinheriting certain close relatives (e.g., spouse, biological or adopted child, etc.), or those who want to set up sophisticated trusts.

“Police officers who respond to an emailed DPD flyer that they would like estate planning assistance will complete a questionnaire in advance of September 11 to facilitate document completion. All of the documents will be fillable in Word. A volunteer lawyer will be asked to review the questionnaire with a police officer and complete the documents through signature by the end of two hours. (It is anticipated that each lawyer will devote two hours to each of two police officers.) BofA and Bradley will supply lawyers, witnesses, notaries, and printers so that at the conclusion of a session, an officer can leave with completed documents.

“If you volunteer, the only things you will be asked to bring with you will be your talented brains and laptops. You will not leave with any documents. It will be made clear to the police officers that a volunteer’s services will conclude and their cases will be closed when they leave the event. You will leave with what you came in the door with and knowledge that you have helped someone who is at risk of being in harm’s way on a daily basis in his/her job.

“Now, estate planners are used to spending time with clients before drafting and finalizing wills and related documents. Thus, a two-hour period seems very short to go from start to finish. The process has worked, however, in other parts of the country, so it should be possible to do it here.

If you would like to be a volunteer at the four-hour 9/11 event, please let me know via email at pjmiller@airmail.net as soon as you can and, in any event, by August 15, 2024. So that you will know what will be involved, I will then email you a copy of the DPD flyer that is to be sent to police officers, the advance questionnaire, the fillable documents, and instructions to be given to officers when they leave the event.

Thanks so much for reading this and being willing to help in this commemorative activity!

Best,

Paula Miller

“Please Tell Me you Didn’t. . . How to Keep Clients Out of the Jailhouse, Poorhouse and Lawyers Out of the Nuthouse”

As a healthcare lawyer, almost everything my clients do is potentially illegal. I have a lot of sleepless nights worrying about how to protect them. Frankly, most days I feel more like I am fighting a battle to put out dumpster fires at an abandoned Circuit City parking lot, than practicing law.

If you have similar nightmares, I found a remedy. Go have lunch with a criminal defense lawyer of the stature of Dallas’ Bob Hinton, whom I have discovered is a legitimate Texas treasure. I met him last month while he was presenting at a Dallas Bar Association Trials Skills CLE, then asked him to lunch.

Holy cow! Bob has some stories to tell, with his baritone mixture of Tennessee and Texas accents, he honestly makes you feel like “everything is going to be alright,” even though he is talking about capital murder-for-hire cases, dating back to the 70’s and “Racehorse” Haynes.

Bob’s stories are his to tell, not mine. I can only tell you, one hour talking with Bob, and my healthcare “dumpster fires” seem to burn a little less incandescently.

“The Problem with Eric,” is a story that is in the public domain, so I can talk about it, by Katy Vine and Ana Worrel published in the July 2024 issue of Texas Monthly. Which I should mention, is a magazine with stories so good that this isn’t even the lead story of the month. Here are the highlights which illustrate how the FBI catches bad guys:

(1) A guy named Eric Maund, heir to an Austin auto dealership fortune (worth $40 million)
(2) Cheated on his wife in 2020
(3) With a “world’s oldest professional” (the profession is “old,” not the woman)
(4) Whose boyfriend didn’t know the woman was a “professional,”
(5) Until he found out the horrifying truth, after digging through the woman’s phone logs
(6) Which boyfriend then decided to “protect her honor,”
(7) By attempting to blackmail Eric the millionaire ($25,000, or he would tell Eric’s wife.)
(8) Eric, in response, did what seemed like a good idea to him, and hired Charlie Sheen’s former bodyguard to “eliminate” the couple.
(9) A bodyguard who was fired by the actor, for being “too crazy,” even for Charlie Sheen. (What could possibly go wrong?)

How the FBI caught the “bad guys.” The lawyer in me is less interested in the lurid details of the crime and more interested in how the FBI figured it out. The double murder-for-hire took place in the vehicle of one of the victims, in Nashville. The FBI found the deceased boyfriend’s phone, and then ran a search through the victim’s Pinger text messages, and found some items which quickly identified Erik as a “person of interest.”

The FBI then were able to secretly run a warrant on Erik’s iCloud phone and bank accounts, to discover that Erik had wired $150,000 to the bodyguard, on the day of the murders. What stuck out to me, in the article, however, is the quote from the FBI Agent:

“[B]y 2021, we had done everything we knew to do covertly. . . there were no more bank records to search. There were no more phone records to obtain. There was no more iCloud data to gather.”

So, they then began approaching witnesses, some of whom wore a wire and that is how they got confirmation they had the bad guys.

How the government investigates clients. Many of my clients want to know if the FBI is tapping their phones, after receiving a simple document subpoena. Are they following the client around? Is a lapel flower actually a microphone? How do they go through bank accounts? How do they investigate?

Well, the good news, is you don’t have to guess. The government doesn’t do anything without publishing precisely how they will go about their jobs on FBI websites and DOJ Criminal Resource Manuals. The FBI will usually work quietly at first, then get louder as the case nears indictment.

It also matters whether the crime involves serious risk of bodily harm, or purely white-collar, non-violent offenses. The former being more likely to justify more intrusive techniques.

Civil Investigative Demands and Civil Discovery. Sometimes, the government will conduct parallel civil and criminal cases. This is typically where I get involved. It is not unusual to receive a False Claims Act request for production, while a secret grand jury is also investigating the same issue. Once I learn there is a criminal case, I will typically bring in one of my criminal bar colleagues to help out and see if we can figure out what is going on.

Bank records. “Following the money,” has been a meme since Watergate. How they go about this depends on the facts. There is a “Right to Financial Privacy Act,” on which the DOJ has published some 90 sections in the Criminal Resource Manual, starting at Sec. 401 and continuing through Sec. 488. The Act prohibits Government authorities from gaining access to, obtaining copies of, or the information contained in the financial records of any customer from a financial institution unless access is permitted by one of the exceptions to the Act, such as a grand jury subpoena, or is accomplished by one of the methods provided by the Act: (1) customer authorization; (2) administrative summons or subpoena; (3) search warrant; (4) judicial subpoena; or (5) a formal written request.

“Knock and Talks.” The FBI classifies people as “Targets, subjects and witnesses.” Sometimes, the FBI will just go “knock and talk” to people, often employees of a target, who have some relation to the target, but are not the intended target. If they can get this person to give them information voluntarily, or produce records, these may form the basis for other subpoenas and warrants.

Cooperating Defendants. Sometimes, the FBI will contact a lower-level target, to see if he will cooperate in exchange for credit toward a lesser sentence.

As described in the Texas Monthly “The Trouble with Eric” article, the FBI got as far as it could, investigating Eric Maund with “covert” investigations into bank accounts and iCloud accounts, then recruited informants who wore a wire.

“Wiretaps.” Typically, not used in healthcare and most white collar cases. The FBI has a “Frequently Asked Questions” page, which states that agents can’t simply tap phones at will. Wiretapping is used rarely, only in more serious cases:

“Wiretapping is one of the FBI’s most sensitive techniques and is strictly controlled by federal statutes. It is used infrequently and only to combat terrorism and the most serious crimes. Title 18, U.S. Code, Section 2516, contains the protocol requiring all law enforcement officers to establish probable cause that the wiretaps may provide evidence of a felony violation of federal law. After determining if a sufficient showing of probable cause has been made, impartial federal judges approve or disapprove wiretaps. The approving judge then must continue to monitor how the wiretap is being conducted. Wiretapping without meeting these stringent requirements and obtaining the necessary court orders is a serious felony under the law.

Grand jury subpoenas. These typically issue after the investigation has been going on for a while, and are either directed toward businesses for documents, or witnesses who must appear and testify.

Key takeaway: “Never lie to the FBI.” While clients have a right to remain silent, once they start talking, it is a very bad idea to lie to the FBI. In fact, “obstruction” is a separate crime which can snare people who aren’t the original bad actors. The older the investigation, the better the chance investigators already know the answers to most of the questions, anyway.