State Attorneys General Focus on Consumer Protection in Healthcare

Health Update

The relatively high expense of the U.S. healthcare system compared to other nations is well known and documented. Spending on pharmaceuticals in the U.S. is almost twice that of the next closest nation, and costs for a hospital stay are nearly four times higher than in the country coming in second. While it is similarly well known that American families have high spend levels, a new milestone was recently passed. The average American family now spends more on healthcare than on taxes.

A statistic like this will inevitably attract the attention of elected officials. While a cynic might attribute such interest to a bit of jealousy on the part of our officials that someone is taking more money than the government, the burden of high healthcare costs is something that their constituents are going to put front and center on their agendas. Healthcare is once again assuming its quadrennial significance in the presidential campaign, but it bears noting that healthcare also has received considerable attention in recent months from state attorneys general.

The Two Main Theories Driving UDAP Cases

While not usually involved in the budgeting and policymaking processes of the healthcare system, attorneys general have tremendous power to engage in these spaces through their “parens patriae” litigation powers. Attorneys general have been involved in antitrust matters in regard to hospital mergers and generic drug pricing, but they also have been heavily engaged in utilizing consumer protection statutes prohibiting unfair and deceptive acts and practices (UDAP).

UDAP cases center around two main theories. The first, unfair practices, is a theory which has three factors. There is harm to the consumer, the harm is not reasonably avoided by the consumer and there is no countervailing business interest which outweighs any consumer harm. Traditionally this has proven a difficult theory to advance as the last provision—the cost/benefit analysis—usually adds a significant evidentiary challenge.

The second theory, involving deception, is usually much cleaner. UDAP statutes related to deception usually do not require any scienter on the part of the actor, and this removes the need to prove knowledge and/or intent of the deceptive quality of the statement or act. Further, UDAP statutes allow for deception to apply when a reasonable consumer could be misled by the statement or act. The deceptive representation need not be literally false; cases are replete with examples of accurate statements nevertheless being presented in such a way as to create an overall net impression that would deceive a reasonable consumer. Lastly, UDAP statutes, when prosecuted by attorneys general, usually do not require any harm. This is a significant departure from consumer cases where, as is typical of almost all litigation, damages of some kind are the gravamen of standing for any lawsuit.

Examples of Recent Cases

A recent example of a UDAP case based on deception involves an action resolved this past April with the Washington attorney general. The case involved surgical mesh, which was designed to assist with conditions affecting weakened or damaged pelvic tissues and muscles. The mesh was to be inserted where it would integrate with the tissue and add needed support. The complaint alleged that some of the devices deteriorated, causing considerable health risks and, for some, a major reduction in quality of life.

While at first blush this might seem to be a products liability case, the theory used by the attorney general centered on deception. Specifically, the allegation was that the manufacturer was aware of the potential shortcomings of the devices, and failed to properly advise the doctors to whom it was marketed. The physicians, in turn, were unable to properly evaluate and advise their patients on the associated risks of the products. The settlement resulted in a payment to the Washington attorney general of $9.9 million.

Similarly, in a $120 million settlement with 47 attorneys general, a deception theory was used to prosecute a claim involving hip implants. In this case, the allegation was that the product was advertised as having a low fail rate. Furthermore it was alleged that the manufacturer had knowledge of higher rates of failure than had been marketed and that the marketing materials were not updated to reflect this knowledge.

While the settlement figure is quite large in this case, of no less significance is the fact that considerable terms were put in place for the marketing of future products. For example, going forward, health claims have to be substantiated by scientifically trained personnel, disclosures must be made of any financial connection between the manufacturer and the party making or substantiating any claim, marketing claims have to be updated as new information is made available, a program has to be implemented to review pertinent complaints and issues surrounding products and their marketing, and complaints have to be reviewed on an ongoing basis. All of these conditions will impose additional costs. Most importantly, they can provide the basis for a violation of the agreement, which opens up the door to yet more financial sanctions and injunctive terms.

Lastly, while not a traditional UDAP action, the following example still falls within the ambit of consumer protection theories. Several state attorneys general filed a Health Insurance Portability and Accountability Act (HIPAA) action in federal court in Indiana in relation to a data breach. While the case involved the unlawful accessing of the data of 3.5 million patients by hackers, what makes this case stand out is that it is the first time state attorneys general have taken advantage of the enforcing authority granted to them under the provisions of HIPAA. States have long been active in the data breach world, both from enforcement of security lapses which result in a UDAP action and from enforcing their own state’s data breach notification laws. In this case, however, the state took the unusual step of proceeding in federal court under HIPAA. In addition to a payment of $900,000, the defendants in this case have had to agree to detailed standards for data security and submit to a third-party auditor.

Conclusion

As the above three cases illustrate, state attorneys general are active players in today’s healthcare industry, and are willing to use consumer protection statutes in aggressive and innovative ways to address what they perceive to be violations of the law. It should be noted that many of these cases were bipartisan in nature. When it comes to consumer protection issues, attorneys general often put political partisanship to the side. This is not to say politics is left out of the equation; far from it. As elected officials, state attorneys general are responsive to consumer complaints as they know that if those complaints remain unaddressed, consumers may remember that in the voting booth.

As noted at the outset of this article, if the average family is spending more on healthcare than on taxes, it can be assumed that attorneys general will be as focused on healthcare costs as all other elected officials. In a sign of both the importance of this issue to attorneys general and its bipartisan nature, there was a conference this past June in Omaha, Nebraska, hosted by Republican Attorney General Doug Peterson and attended by his fellow Republican Derek Schmidt of Kansas, as well as Democrats from states such as Iowa, Illinois and Minnesota. The entire focus of the conference was on the role of attorneys general in the healthcare industry. The refrain from every speaker, including attorneys general, was that this issue is too important for any elected official to ignore. Accordingly, if past is prelude, there is every reason to believe that attorneys general will only increase their use of UDAP statutes in the healthcare industry.