Westervelt

LB861

Third District Appellate Court

Video: The changing face of health-care law

The health-care practice has undergone many evolutions. Doug Swill of Drinker Biddle & Reath shares his insights into the practice, how it has changed and why it’s a flourishing area for Chicago lawyers.

And don’t miss this month’s cover story about health-care law.

The Changing World of Insurance Defense and Coverage

By Dan Rafter

Glen Amundsen has heard the complaints: His fellow attorneys bemoan the fact that the economy has made it more difficult to earn a living in the insurance defense and coverage practice.

Their insurance corporation clients expect them to do more while charging less, attorneys working in this practice area say. And they worry that as construction activity has ground to a halt across most of the country, there are fewer insurance defense and coverage cases to go around.

Amundsen, chairman and chief executive officer of Chicago’s SmithAmundsen, has little sympathy.

“In my view, it is harder to be a plumber now than it was 10 years ago. It’s harder to be in the newspaper business than it was 10 years ago. It’s harder to be an electrician now. In fact, it’s harder to do just about anything now,” Amundsen said. “Instead of sitting around complaining, enlightened firms are asking what they can do to prove that they are worth more to their insurance-company clients today than they were last year. The firms who do that are the ones that will fare well even in this economy.”

Amundsen isn’t alone in this view. Attorneys specializing in insurance defense and coverage acknowledge that the weak economy has brought several changes to their industry.

This may come as a surprise to some. Many have considered the insurance defense and coverage industry as one of the most recession-proof areas of the law. People slip, fall and injure themselves whether unemployment is high or low. There are still auto accidents.

But the struggling economy has changed the way insurance companies view their working relationships with outside legal counsel. Insurers want their legal representatives to bill them for fewer hours. They want them to resolve cases more quickly. And they want them to provide extra value for their services.

Like Amundsen, though, many top players in this field aren’t wasting time worrying. Instead, they’re adapting.

And they’re not feeling sorry for themselves for two important reasons: First, that never helps matters. Secondly, insurance defense and coverage is far from the only field of law in which practitioners are struggling with a new economic reality.

“My understanding, from talking to friends of mine who work at firms that don’t do insurance work but instead work litigation for corporate America, is that they are seeing the same things,” said Daniel Litchfield, a partner at Litchfield Cavo.

“There is a fair debate from firm to firm, from issue to issue, whether a particular matter should be part of your overhead and accounted for in the rate you charge, or something that should be seen as a disbursement that should be reimbursed to you by the insurance company client,” he said.

In today’s economy, this is a debate that isn’t likely to end anytime soon.

Watching the pennies

Litchfield said insurance companies, like all businesses today, are trying to cut their costs. This sometimes leads to tensions between insurers and their outside legal teams.

Insurance companies have long requested that the attorneys they hire provide an early case assessment of any claims brought against them. Attorneys provide this assessment to give their clients a basic idea of how much they think the case will cost them to defend, which strategies might be most useful in resolving the case, and how long it will take to close the books on the claim.

These are all estimates, of course. But in today’s economic environment, insurance companies want these estimates to be as accurate as possible, Litchfield said.

For Amundsen, the early case assessment is one of the keys to providing insurance companies with the assurance that their outside legal representation is not overcharging them. At SmithAmundsen, attorneys are required to measure how the ultimate result of a legal case compares to the estimates they provided in the early case assessment phase.

“Every carrier with whom we work has some form of initial suit analysis,” Amundsen said. “They have some document intended to help the management of the company understand the risks and exposures that they are taking on in a given case.

“We try to compare the outcomes three or four years later to what we said in the first case assessment. As simple as that sounds, many firms don’t do that. If you do well at early case assessment, you are showing some real value to the insurance company. Over- or under- reserving cases costs companies money. They don’t like that.”

Showing this real value is more important in today’s economy, Amundsen said. Insurers are under pressure to reduce as many costs as possible. Legal representation is not immune from this cost-cutting mentality.

SmithAmundsen attorneys are encouraged to keep careful track of how long it takes them to close a case. Amundsen said the goal is to keep reducing this time, something that, again, provides real value to insurance firms struggling to control their costs in a challenging economic environment.

“Our effort to keep reducing that number is also a distinguishing factor for us,” Amundsen said. “Most firms don’t do that. They don’t implement policies to help big cases resolve quicker. Most insurance firms think that the longer a case is open, the more it costs and the more difficult it gets. They’re right. Quickly resolving cases is almost always better for the insurance companies. And today, there’s more pressure on legal firms to do that.”

Different cases

Bruce Lyon, a partner with LaBarge, Campbell & Lyon, said the economy has changed the type of insurance cases his firm handles.

The insurance defense and coverage attorneys at LaBarge, Campbell & Lyon are seeing more construction defect cases and not as many construction injury cases, Lyon said. He points to economic pressures as the reason for both of these trends.

“During the whole building boom, there was so much construction going on that you saw more workers and bystanders getting hurt on or near construction sites,” he said. “That’s slowed now, so we’re not seeing as many of these injuries.”

At the same time, the sluggish economy has meant that the owners of single-family houses and condominiums have seen the values of their residences plummet. Many homeowners are actually “underwater”: they owe more on their homes than what the homes are worth.

When this happens, owners are more likely to react negatively to building flaws, Lyon said. And they’re more likely to seek legal action for remedies to sagging foundations and improperly installed plumbing.

“They become more concerned about issues with the quality of construction,” Lyon said. “I have seen a lot of cases where we have claims regarding masonry problems, roofing problems or window problems. And I’m seeing this at various buildings across Chicago. I still continue to see construction injury cases, of course. But I’m just surmising that the fact that there is not as much construction going on means that not as many people are getting hurt on construction sites.”

Of course, certain areas of the insurance and defense coverage industry are nearly recession-proof.

“When you get back down to auto, slip-and-fall pedestrian cases, you’re not going to see the economy impact them as much,” Lyon said. “You have the same number of sidewalks out there. You have the same number of cars on the road. You will not see a change in the volume of that type of claim. You may see a drop in construction injury cases, but the activity might just be moving to a different area.”

This movement of business from one area to others has helped the insurance and defense coverage industry weather the recession, Lyon said. The law firms specializing in insurance work haven’t seen the major upheavals that other litigation-based firms have seen in the last year or so, Lyon said.

“You just have to read the pages of the Daily Law Bulletin to see that many large firms have had to lay people off,” Lyon said. “We haven’t seen this as much in the insurance defense business. People are still working.”

This isn’t to say, though, that the economy won’t eventually catch up to the business, Lyon said.

“It may be that we are a little bit more behind the curve,” he said. “We are handling cases that may have happened a year or two before they get filed. We might not see this year’s economic conditions manifest themselves until next year when the cases from this year will be filed. I think people still fall and hurt themselves no matter what the economy is doing. But I’ll be able to better answer the question of how the economy has impacted business in a year or so. Then we’ll see what filings were like in 2010.”

No such thing as recession-proof

Attorneys in the insurance defense and coverage area agreed their field is more resistant to the bad economy than are others. But they stopped short of calling their field recession-proof.

The reason for this is obvious: They’ve noticed a slowdown — not as dramatic as in other areas, but a slowdown nonetheless — since the economy began to struggle.

“We certainly have not seen the kind of changes that have happened in the mergers and acquisitions area or in the real estate law area, but we have seen changes,” said Gordon Broom, a partner with HeplerBroom. “But we haven’t seen the big layoffs that have happened in a number of practice areas. There is no question that filings are down. There is less activity, whether you’re looking at insurance defense or otherwise.”

HeplerBroom hasn’t suffered big layoffs like many other firms. But the firm is not hiring new attorneys at the moment. And when people leave, they are often not replaced, Broom said.

“The fact of the matter is that our business is dependent on the number of lawsuits that are filed,” Broom said. “The recession has affected the number of lawsuits being filed. There are fewer people on construction sites today. There are less people, then, getting hurt and filing lawsuits.”

But the recession isn’t the only thing that has lessened the insurance defense and coverage workload, Broom said. The world is a safer place today. New federal laws govern workplace safety. Officials with the Occupational Safety & Health Administration are strict about enforcing these rules.

This has reduced the likelihood of workplace accidents. It’s hard to argue that OSHA and its enforcement policies haven’t made a difference, Broom said.

“There is a tremendous focus on workplace safety today,” Broom said. “Everybody realizes that the cost of preventing an accident is far less than the damages that the accident might cause. This increased focus on safety, not to mention the economy, has impacted the number of lawsuits being filed today.”

Broom also points to a less obvious change to the insurance defense business: The economy has changed the way juries view injury cases.

You might think that the weak economy would cause juries to award more generous judgments to plaintiffs who have suffered injuries. Broom, though, has seen the opposite.

“Juries today are more conscious of what impact a verdict will have on the employer or corporation,” he said. “They’re more conscious of the impact their judgments may have on other people’s jobs. They are now less sympathetic to giving plaintiffs a larger award. They know that everyone is having a hard time today. The people sitting on that jury may be having just as bad a time as the fellow sitting in the plaintiff’s seat. That has become a factor. Juries don’t want to hurt an employer, and they don’t want their judgments to lead to an employer having to let workers go.”

An uptick?

Although most attorneys say that they’ve seen business in the insurance defense field drop slightly because of the economy, others have reported an increase in certain cases.

Tom Segalla, past chair of the insurance coverage committee of the Defense Research Institute, a trade association serving the defense bar, said he’s seen the number of slip-and-fall cases increase. This traditionally happens when the economy falters, said Segalla, a partner with the Buffalo, N.Y., law firm Goldberg Segalla. Segalla said people are more likely to pursue these cases when money is tight. They’re looking for extra dollars wherever they can find them.

But he sees a bigger change coming to insurance defense in the next several years: He predicts that attorneys in general will see more antitrust and intellectual property claims. They’ll spend more time working on employment cases that focus on discrimination and fair-wage practices.

Segalla sees an uptick in all of these cases as the federal government, led by the Obama administration, gets more involved in regulating corporations, including insurance companies.

“You’ll often see the mix of cases change whenever there’s a political changeover in the country,” Segalla said. “In this case, we’ll see more antitrust cases being filed against corporations. We’ll see more regulatory fines associated with practices going on in the construction industry. And all of this will result in a different kind of caseload for attorneys working in insurance defense and coverage.”

It’s now up to attorneys and law firms to adapt to the many changes that are or will soon be hitting the insurance defense industry, said Litchfield, from Litchfield Cavo. Those who do will find that this industry can be as rewarding as it ever has been.

Firms will now have to pay closer attention to what they are billing their insurance corporation clients, he said. Insurers will certainly be watching expenses more closely than ever, and it’s a trend that may not go away even after the economy improves.

“There has always been in the legal profession in general, and not just for insurance, a wide variability when you get down to the nitty-gritty level of what particular clients and insurance companies will and will not pay for,” Litchfield said. “Will they pay for postage or not? Will they pay for photocopies? And if so, how much per page? Will they pay for your time involved in travel, either in the metro area or more broadly? These procedures vary from company to company. And today, you have to be very specific with your clients in determining up front what will be paid and what won’t be.”

Worrying about this doesn’t pay off, said Amundsen, from SmithAmundsen. Although law firms face challenges on the road ahead, their struggles do not set them apart from many other fields.

“It’s clear to me that insurance companies are trying to reduce overhead and produce the same quality of services for less cost,” Amundsen said.

“I’ve seen that they’ve had layoffs internally. That makes it harder for the people who remain to accomplish the work they need to do. But that is ‘Welcome to America,’ lately. I don’t think that is endemic or unique to insurance companies.”

Health-Care Law: A Practice that Has a Far Reach

By Sherry Karabin

It has been more than 40 years since major health-care legislation, in the form of Medicare, took effect. The federally funded health insurance program, which began in 1966, not only changed the face of health care for Americans but it altered the legal field as well.

“Besides Social Security that came into being in 1935, the greatest piece of social legislation in the last 100 years has been Medicare,” said Miles Zaremski, principal at Northbrook-based Zaremski Law Group. “Medicare has been the springboard for social legislation to protect the health-care needs of citizens in the country.”

Zaremski, who started working in health law more than 35 years ago, has witnessed tremendous changes over the years. When he first started practicing, he said, “It wasn’t even recognized as a career specialty. Now it’s not only a mainstream area, it intersects everything.”

For those lawyers already in the field, many find themselves helping their clients navigate their way through increased federal regulations and compliance actions that have been expanding since Medicare.

The American Recovery and Reinvestment Act of 2009 brought with it revisions to the federal False Claims Act and stricter privacy and security regulations, putting more institutions at risk of being slapped with violations.

The federal government is also enlisting private companies to audit institutions to discover overpayments and underpayments.

In addition, physician practices and health care providers must take extra care to ensure in structuring their business arrangements to meet the requirements of the Stark law, which governs the practice of physicians referring Medicare patients to entities in which they have a financial interest.

Illinois nursing homes and extended-care facilities are also facing the wrath of officials as they crack down on safety, fraud and abuse.

The type of clients being represented is also changing. Many firms are doing more work for life sciences companies, including pharmaceutical, biotechnology and medical device manufacturers that find themselves under increased scrutiny by the government. In other cases, attorneys are assisting these entities with patent and corporate matters.

As the need for health law services continues to expand, one company has opened its doors, promising clients more efficient billing arrangements along with a different approach to handling the increased regulatory environment.

Law schools, too, are adapting with expanded offerings designed to meet a growing interest among students who see a bright future in health-care law.

With health-care reform on the horizon, Zaremski said, “The U.S. may be entering yet another historic time when health-care for many more millions of Americans will become a reality in terms of access and affordability. If the length of legislation to reform health care is any indication [1,900-2,100 pages], there will be an even greater need for health-care attorneys to understand and interpret implementing regulations.”

Chicago Lawyer spoke to health-care attorneys here to get their perspectives on the field now and what the future may hold.

Increased federal regulations

James Riley, national health practice chair at McGuireWoods, said the area has grown substantially over the last several years, partially due to the large number of federal and state regulations being imposed on clients. “There has been an increased focus on compliance in the last 10 years,” said Riley, “and we have been developing plans for our clients in response to these changes.”

According to Riley, the firm has expanded its government, regulatory and criminal investigations practice. “Most providers are serious in their efforts to comply with regulations, but it is a complex environment and there are many opportunities for people to misstep and in turn [they] need assistance when the government comes knocking on their doors.”

Kevin Ryan, a partner in the health law practice at Much Shelist, also finds himself spending a lot more time on regulatory matters, which he said are “far more complicated today,” than when he started in the field 22 years ago.

Ryan is now dealing with a lot of Stark law-related matters. On Oct. 1, a new set of revisions took effect, with the rules expected to make it more difficult for doctors and other entities providing health services to do joint ventures built around the services.

“I’m a lot busier than I was partly because of this,” Ryan said. “Each revision requires an analysis of ventures involving health-care providers and physicians. Many of the deals that were in compliance prior to October now need to be restructured. I’m working with clients to ensure compliance.”

During the last year and a half, Ryan said more deals between health-care providers have not made it to closing, partially because of the economy, but also due to the increased regulations. Construction of health-care institutions has also declined.

However, Ryan said, things may be turning around, as he has noticed “a renewed interest from clients looking to do deals and transactions.”

Robert Neiman, Much Shelist health-care and litigation practice partner, said he has observed a growing trend by the federal government to encourage and reward whistleblowers to report perceived misconduct.

The American Recovery and Reinvestment Act, which became law on May 20, imposes a host of new compliance obligations on institutions, including changes to the federal False Claims Act that expand the definition of what a claim entails and make it easier for the U.S. Department of Justice to investigate and bring suits against companies and entities receiving or paying money to the federal government.

The act also resulted in stricter privacy and security regulations for the Health Insurance Portability and Accountability Act (HIPAA), which requires health-care providers to protect consumers’ health and personal information.

The new rules now state that anyone handling such information, including third-party vendors, must comply or face penalties. The changes also require entities to alert authorities when a breach has occurred, and mandate audits by the U.S. Department of Health and Human Services of HIPAA-covered companies to enforce rules and investigate complaints.

Penalties for such breaches are higher and individuals can now report HIPAA violations to either HHS or their state attorney general. If either brings a suit for the violation and recovers money, the whistleblower is eligible to receive compensation from the government.

“Health-care providers need to be prepared for even more investigations, even if they are doing everything right,” Neiman said.

Fredric Entin, a Polsinelli Shughart shareholder, said he is busy helping clients prepare for the newly implemented Medicare Recovery Audit Contractor program, in which the federal government enlists the help of private companies that will be compensated on a percentage basis, to audit health-care institutions in an effort to discover overpayments and underpayments.

“These contractors have the clear economic incentive to go after hospitals and physicians,” Entin said.

The program is being expanded to all 50 states no later than 2010 and is already in effect in most. Illinois is one of the few in which it is not. However, Entin said, it would probably be operational in Illinois by early 2010.

In the meantime, he advises hospitals and physician groups to take advantage of this time before the RAC program is operational to engage in critical self-audits.

“Not only is there an opportunity to be prepared for the RAC audits, but the recent amendment of the federal False Claims Act, making it a violation to retain payments that the provider knows or should know they are not entitled to keep, has raised the stakes for identifying overpayments,” Entin said. “Self-auditing and if necessary, repayments, self-disclosures, and remediation significantly mitigate the exposure to recoupment or government enforcement.”

Entin said there is an increasing trend to tie payment to quality of care. The medical home is one model that incorporates payment for quality.

When the idea was introduced by the American Academy of Pediatrics in 1967, “medical home” referred to the creation of a central location for archiving the medical records of a child. Today it’s known as the Patient-Centered Medical Home and is designed to provide comprehensive primary care by putting the patient’s primary care physician in charge of coordinating services for all the patient’s needs and paying the doctor fees for doing so.

Although no such models exist in Illinois, Entin said he has received inquiries from physicians and physician groups interested in participating.

Richard Raskin, chair of the Chicago health-care practice group at Sidley Austin, said all the increased regulatory activity is keeping attorneys at his firm very busy, so much so that they have not felt the economic downturn. But, he said, the type of clients being targeted by the government is changing.

“Over the last five to 10 years, we have seen a strong shift of emphasis toward enforcement actions against drug and medical device manufacturers,” Raskin said.

“A lot of the Medicare and Medicaid enforcement issues that physicians and hospitals long faced are now front and center for life sciences companies that years ago were less reliant on government business and less heavily regulated,” he said.

Raskin said the firm handles a lot of false claims suits and he expects the number of antitrust actions to rise, as the Obama administration has made it clear that it will be stepping up its investigations of several sectors.

In addition to the new federal regulations that health-care clients are facing, McDermott Will & Emery partner Michael Peregrine said the Internal Revenue Service is also cracking down. “The IRS gives tax-exempt status to nonprofit institutions and there has been a dramatic increase in enforcement and oversight regarding governance and executive compensation.”

Nursing homes and long-term care facilities

Firms also handle issues related to the state’s geriatric facilities. Much Shelist’s Neiman said the violent acts by felons and the mentally ill who reside in geriatric facilities have recently taken center stage in Illinois.

“The state is defending lawsuits seeking to force the state to provide funding for less restrictive, community-based facilities for mentally ill patients, but is simultaneously facing criticism for allowing mentally ill residents to live in more restrictive geriatric long-term care facilities. The state doesn’t have the money to do some basic things, let alone money to improve what already exists. Something has to give,” Neiman said.

Polsinelli Shughart shareholder Daniel Reinberg also discussed the problems these facilities face. While the state has always played an active role, he said, there have been a growing number of enforcement actions against these institutions involving safety and fraud and abuse issues. The former assistant U.S. Attorney in Chicago said these actions, combined with a general trend of increasing government investigations into fraud and compliance, have been keeping him very busy.

“It used to be that settlements would occur where hospitals were fined, but now the government is prosecuting individual executives. Oftentimes these executives are hit with fines or may face jail time. In other cases they are being excluded from the Medicare and Medicaid programs, which is a kind of death sentence in this field,” Reinberg said.

Polsinelli shareholder Matthew Murer is also handling compliance matters for long-term care facilities and senior housing complexes.

“I act as an outside general counsel for clients and whenever a community is doing strategic planning, joint ventures and even hiring they need to be sure they are complying with government regulations and policies,” Murer said.

Murer, who has practiced for over 15 years, said he handles more litigation and civil disagreements than before.

He also noted that there is a big push by labor unions to get more involved in senior housing and long-term care.

“Our firm spends a lot of time dealing with negotiations and campaigning,” Murer said.

With baby boomers growing older, he said it will be a real challenge to find enough infrastructure and money to care for them.

“The baby boomers changed just about everything in our culture. We’re going to see that same effect on long-term care, including more individualized and lifestyle-oriented care,” Murer said.

Client shifts — the wave of the future

Regulatory and compliance changes are far from the only differences in health law today. Many lawyers have seen their clients evolve as well.

For instance, in the beginning of his career, Zaremski said he represented institutional interests in professional liability cases, but these days he works with a lot more individuals and groups, handling commercial disputes, including peer review matters, exclusive contracting in health care, and regulatory issues.

Zaremski said Chicago has always been a mecca for health-care attorneys because it serves as the headquarters for so many pharmaceutical companies, medical societies and professional associations. He said he expects this trend to continue on an even larger scale as health-care reforms create a greater need for legal services.

Riley said he has also noticed a client shift. The McGuireWoods national health chair said that while attorneys continue to represent larger hospitals and health-care systems, they do a lot more work for pharmaceutical companies and medical device manufacturers that have been the focus of government investigations over the last several years.

“Several years ago, the life sciences area began expanding within our firm, with attorneys representing medical device, pharmaceutical and biotechnology companies in matters ranging from Medicare/Medicaid compliance to patent and antitrust issues,” Riley said.

He said lawyers also represent pharmaceutical companies as they seek FDA approval and government reimbursement for new services and devices they are offering.

Riley said he believes several health-care reform proposals will translate into new opportunities for the firm.

“In the 1990s we dealt with a lot of accountable-care type organizations that were responsible for the overall care of beneficiaries and disease management organizations. With health-care reform, these organizations will make a comeback.

“We also see opportunities for assisting clients in establishing telehealth facilities and helping them comply with the confusing reimbursement regulations in the area,” Riley said. Telehealth facilities use telecommunications technology to deliver services.

Barnes & Thornburg health-care chair Mark Rust, who also is managing partner of the Chicago office, said the firm deals with an increasing number of clients that are looking to combine. As a result, he said, attorneys handle much more governance and management matters for a wide array of clients ranging from large physician groups to hospitals and clinics.

“Large physician groups are attempting to increase their size so they have more of a seat at the table in controlling their financial and management destinies, which are being increasingly impeded by managed-care companies,” he said. “Radiologists, cardiologists etc., who might not have considered merging five years ago now see doing so as their only option as managed-care companies continue to reduce reimbursements.

“Such mergers are subject to many federal regulations that must be closely obeyed since there are anti-self referral, antitrust and other issues related to the way these groups combine,” Rust said.

According to Rust, “Fewer deals are getting done because of financing problems and the degree of uncertainty over what health-care reform will bring. During the last five years, Chicago has seen an increasing consolidation of hospitals and more physician groups selling out to hospitals or becoming employees.”

Like other firms, McDermott Will & Emery has increased its services to life sciences companies. In addition, partner Kerrin Slattery said many of the community-based hospitals and small stand-alone hospitals have been combined into larger systems. Both she and Michael Peregrine said there has been a major shift in how legal services are being allocated.

“Over the last five to seven years, companies are relying more on their in-house attorneys for less complex matters in an effort to save on costs and enlisting the firm to do more regulatory, executive compensation and transactional work that is beyond the expertise of the in-house staff,” Peregrine said.

At Polsinelli Shughart, the science and technology law group has expanded rapidly and now includes more than 40 lawyers and scientists who specialize in handling the unique needs of biotechnology, chemical, food science, pharmaceutical, technology and new media companies. In August, the firm began a 10-year contract with the National Institutes of Health that may be worth up to $87 million.

Teddy Scott, Jr., a shareholder in the intellectual property group, oversees the patent prosecution work for the NIH. He routinely manages and leverages patent portfolios and handles the licensing of new products

“Our group has grown tremendously over the past few years,” Scott said. “The biotechnology industry has matured. Fifteen years ago biotechnology companies were mainly startups. They have now grown and have sophisticated legal needs that run the gamut. Pharmaceutical companies have also moved into the biotech area.

“Our life sciences group includes attorneys from all different disciplines to accommodate needs that range from patent and regulatory to corporate,” Scott said.

Re-inventing health-care law services

The explosion of changes and growth in health-care law is one of the main reasons principals Kathryn Roe and Jack Rovner started The Health Law Consultancy. The firm, which opened in September, boasts a new business model that helps clients contain costs by charging on a project-by-project basis versus the traditional billable hour standards.

“We wanted to be part of leading the changes, instead of following them,” said Roe, who has been in the field for almost 20 years.

Rovner said the firm encourages clients to look beyond the inconvenience of some of the changes and focus on the underlying reasons. For instance, he explained that medical identity theft is on the rise, whereby health insurance information is stolen and used to purchase services.

“Given the increasing threat of medical identity theft to health insurers and their members, strategic thinking would suggest that a health insurer evaluate potential identity theft vulnerabilities that may be present in its business processes, and then adopt solutions for managing them,” Rovner said.

“That is the policy change message and the public concern underlying the Federal Trade Commission’s identity theft Red Flags Rule [which requires certain businesses and organizations, including many doctors' offices, hospitals and other health-care providers to develop a written program to spot warning signs of identity theft]. That policy and public concern are real, even if the Red Flags Rule is deemed not to apply to the business,” he said.

Rovner said he believes one of the biggest changes to come in the industry will be in the adoption of information technology.

“It will allow for better coordination of care and eliminate redundancies,” he said. “It will also provide researchers with meaningful ways to collect and better disseminate data directly to providers.”

Rovner said financial incentives are built into the economic stimulus bill for Medicare and Medicaid providers that digitize health records. “Companies need to digitize health records much the way that the financial services sector has done so that one day just as you can take money from any ATM, doctors will have the same type of access to patient information.”

Law school curriculum changes

Attorneys are not the only ones adapting to the evolving health-care field. Area law schools are also making adjustments.

Megan Bess, assistant director of the Beazley Institute for Health Law and Policy at Loyola University Chicago School of Law, said the school has revised its curriculum, adding a few new offerings this year, including an administrative law and health-care regulations class.

“There is also a greater focus on teaching new litigation techniques,” she said, “including mediation and alternative dispute resolution and more emphasis on helping students understand business and finance issues in the health-care industry.”

In addition, Bess said more students are expressing an interest in intellectual property and patent law, which she said is connected to the growing work in the life sciences area.

Adjunct law professor Elaine Zacharakis Loumbas said she recently revamped her Life Sciences, Research and the FDA course at Loyola to include more cutting-edge topics.

“Life-sciences companies are developing personalized and unique therapies to treat patients that will revolutionize medicine, such as developing cures for cancer at the molecular level.

“These companies are seeing increased competition abroad, but it is not always healthy competition. For example, certain countries do not prohibit or adequately regulate the production of counterfeit drugs and these products can enter the stream of commerce with potentially disastrous effects,” said Zacharakis Loumbas.

She said the recent class changes have increased the number of students taking the course by about 40 percent.

Zacharakis Loumbas also teaches Health Information Privacy at Loyola and at The John Marshall Law School.

“Health care is a highly regulated field, but the electronic transmission of information across borders is highly unregulated and creates complicated jurisdictional issues,” she said.

Nanette Elster, director of the Health Law Institute at DePaul University College of Law, said she noticed an increased interest from first-year students who want to take more health-related course offerings, including her Biotechnology, Bioethics and the Law class.

“Advances in biotechnology and the life sciences are reshaping when life begins, how life is lived and when life ends. Developments such as the ventilator, in vitro fertilization, organ transplantation, gene therapy, and now stem cell therapies challenge long-held perceptions of the intersection of law, medicine and society,” Elster said.

She said the class examines the relationship of these changes and many of the dilemmas facing attorneys who are handling these issues.

“Students can get a certificate in health law and I think that exemplifies how popular the field has become,” Elster said.

As health-care law continues to evolve, lawyers and law professors said they expect even more changes. With some type of health care reform expected to pass, more regulations are all but a given, and as innovative technologies and treatments become more the rule than the exception, life sciences companies are likely to enlist even more help from attorneys. Law schools too are preparing to accommodate an even greater number of students with an interest in all aspects of the field.

Slattery, of McDermott, said if comprehensive reforms are passed, she expects them to “change the way health-care facilities deliver services in general and therefore the landscape of legal services sought and delivered will also change.”

Financial Services: SEC Sends a Message

By Jim Eccleston
Shaheen, Novoselsky, Staat, Filipowski & Eccleston

A recent enforcement action by the Securities and Exchange Commission clearly sends the message that branch managers at financial services firms must be vigilant in supervising their financial advisers in order to protect investors. A branch manager who fails to do so will face sanctions. Let’s consider the recent matter involving Banc of America Investment Services, Inc. and its branch manager, Virginia Holliday.

Preliminarily, financial services firms must supervise employees through effective, established policies and procedures that reasonably are designed to detect and prevent violations of the securities laws. In addition, firms are required to conduct ongoing monitoring and review of activities to ensure that supervisory systems and procedures are adequate. Branch managers in particular must reasonably discharge their duties. When a branch manager suspects that an adviser is engaging in improper activity, he or she must respond reasonably. For example, the SEC has found that a branch manager cannot discharge his or her supervisory obligations merely by relying upon the unverified representations of the advisers being supervised. That is because, “Red flags and suggestions of irregularities demand inquiry as well as adequate follow-up and review.”

This enforcement action arose out of BAI’s and Holliday’s failure to supervise Brent Lemons, a former BAI financial adviser. Between May 2005 and May 2007, Lemons was able to misappropriate $1.3 million from BAI customer accounts primarily by liquidating their variable annuities, and all during the time in which BAI had placed Lemons on “heightened supervision.”

Lemons’s fraudulent scheme took advantage of the manner in which customers’ annuity holdings typically are reported. That is, unless annuity providers have made special arrangements, annuity holdings normally do not appear on a customer’s monthly statement from the financial services firm (here, BAI). Instead, customers typically receive statements showing their annuity holdings directly from the annuity providers.

Accordingly, to perpetrate his scheme, the SEC found that Lemons typically faxed notices to annuity providers directing them to liquidate all or a part of his customers’ annuities and then to deposit the proceeds in the customers’ bank accounts. Lemons then withdrew the cash from the customers’ bank accounts using pre-signed withdrawal slips. Lemons then persuaded Bank of America tellers to give him the funds.

To hide his scheme, the SEC found that Lemons provided his customers with manually prepared statements that falsely summarized their holdings. Again, because certain variable annuities were not listed on his customers’ monthly account statements from BAI, Lemons “was able to mislead his customers about the true value of their annuities though his manually prepared statements.”

The SEC found several problems with the way Holliday failed to supervise Lemons. First, Lemons had been the subject of four customer complaints at his former firm. Yet, apart from soliciting his responses to those customer complaints and receiving a customer questionnaire about those complaints prepared by the former firm, Holliday did nothing else.

Second, the SEC faults Holliday for not complying with BAI’s policies and procedures with respect to the review of incoming correspondence and the review and approval of outgoing correspondence.

Third, Holliday failed to recognize the importance of the first two customer complaints that were received while Lemons was placed on heightened supervision. The SEC notes that if an adviser at BAI receives a customer complaint while on heightened supervision, the branch manager is required to determine an appropriate course of action, including termination of employment. However, the SEC found that Holliday failed to re-evaluate whether to terminate Lemons. In fact, the SEC found that Holliday “neither reviewed the Tyler branch office’s mail or faxes nor inquired about the Tyler branch office’s correspondence procedures with the branch office employees who handled correspondence.” Consequently, “she did not discover that the Tyler branch office only sent some of Lemons’ incoming and outgoing correspondence to the OSJ [supervisor] for review.”

Fourth, with respect to the first complaint, the SEC determined that Holliday failed to reasonably investigate it. The SEC wrote that although Holliday agreed to review the complaint and claimed to have reviewed documents, she failed to review certain other documents and failed to notice the similarity between the complaint that she was reviewing and the four other complaints.

Fifth, the SEC likewise found that Holliday failed to reasonably investigate a second complaint about Lemons. The SEC emphasized that at the time of these two complaints, Lemons had succeeded in misappropriating only about $250,000 from his customers, and that reasonable supervision could have detected the fraudulent scheme. The SEC order censures and fines BAI for its supervisory failures. Owing to the egregious supervisory failures of Holliday, the SEC orders that she be barred from association in any supervisory capacity (subject to reapplication after one year).

Diversity in Practice: What Does Post-Racial Mean?

By Arin Reeves

Post-racial. The term is dominating conversations on diversity and inclusion and has become an obligatory aspect of nearly every conference, seminar and workshop on diversity.

If you Google “post-racial,” you get 8.5 million hits, most of which were posted after 2007. The term, though around for years, gained traction during the 2008 presidential campaign, and we have now heard about Obama as a post-racial president, America entering a post-racial era, the new realities of post-racial politics and post-racial workplaces.

The term has become part of our daily dialogues on racial and ethnic diversity, but what does it really mean? The dictionary definition of “post-” as a prefix leads us to interpret post-racial as “after racial” or “subsequent to racial,” which suggests that we should think of post-racial as what exists when we have done away with race.

But none of the articles or conversations suggest that we have gotten rid of or are preparing to get rid of race as a social category.

So what do we really mean when we refer to Obama or our nation or our workplaces as post-racial?

At a recent large conference of legal employers, I informally started asking lawyers of all races what the term “post-racial workplace” meant to them.

Many racial and ethnic minorities perceived the term as a negative one that connoted a premature end to their workplaces’ efforts to achieve racial equity.

As one Hispanic man said, “Post-racial doesn’t mean that we don’t still have racial inequality. … It just means that we aren’t going to talk about it anymore.”

An African-American woman laughed and said that “post-racial means that since a black man is in the White House, all talk of racial disadvantage has officially come to an end.”

Whites, on the other hand, generally perceived the term to be a positive indicator that racial issues did not dominate our perspectives of one another to the extent that they used to.

“Post-racial means that we don’t look to race to form opinions about each other anymore,” was one response. “It means that we can finally move on to discuss other things like socioeconomic status or religion,” was another. Some whites, however, felt that the term was a “convenient excuse to stop doing what people did not want to be doing anyway.”

Although my study was neither formal nor scientific, the answers anecdotally indicated that an individual’s race did inform his or her definition of “post-racial.” Though many whites viewed post-racialness as a desirable destination, most racial and ethnic minorities believed that the term denigrated what they considered to be positive aspects of their identities.

As many legal workplaces use the start of a new year to reevaluate and rearticulate their diversity missions and objectives, it is important to root our efforts in the reality that race or ethnicity is a critical aspect of individual and community identity, for whites and racial and ethnic minorities alike. Even as we strive to decrease the impact of race in how we view one another, we need to acknowledge race in order to transcend it.

Although whites are about 70 percent of the U.S. population (and only about 50 percent of the cities with the largest legal markets), they are 78 percent of all law students and 89 percent of all lawyers. Whites are also 85 percent of all federal judges and 94 percent of partners at large law firms. The election of a black president was progress, but it did not create any real changes in workplaces generally, or in the legal profession specifically.

Further, recent studies by the Law School Admissions Council and the National Association of Law Placement have found that instead of the percentage of racial and ethnic minorities increasing in law school and the legal profession, the percentage is actually declining because of the economic downturn. If our profession does not yet look like our general population, is it even possible for us to talk about our workplaces as post-racial?

In defining a workplace (or society or individual) as “post-racial,” we set up race as an impediment that needs to be overcome or a nuisance that needs to be removed instead of as a cultural identity that needs to be recognized and respected.

If we deem our workplaces to already be post-racial, we view the current overrepresentation of whites at every level as natural, instead of as an artificial consequence of racial privilege.

Diversity efforts have to separate a presidential election from progress in the workplace and communicate that a post-racial world is not the ideal; a “post-racial bias” world is.

We have to work to ensure that, in each of our workplaces, one’s race cannot statistically predict one’s career trajectory, compensation or long-term success. We need to insist that we don’t have to leave our racial identities behind in order reduce racial biases. The economic uncertainties make all this harder to do even as they make our efforts more necessary than ever.

My wish for this new year is that we advance to the “post-post-racial” conversation that allows us to get back to work on real diversity and inclusion.

Clifford’s Notes: The Role of Cameras

By Robert A. Clifford
Clifford Law Offices

A public hearing was held in federal district court in Champaign on Sept. 15, 2009, on a final consent decree in a school racial discrimination case. The issue was of great interest to the community, so local reporters asked to cover the hearing live.

U.S. District Judge Joe Billy McDade reportedly agreed to allow television cameras to cover the hearing in which various parties were permitted to comment on the consent decree to settle the case. Lawyers from the local newspaper, The News-Gazette, moved to intervene and successfully argued that the paper should also be permitted to bring in its own video and still cameras once McDade allowed the hearing to be open to the television media.

On Sept. 15, “at least four video cameras, two audio recorders and one still camera” recorded the hearing, according to The News-Gazette. The judge later wrote that because of the “considerable interest in the case by the Champaign community over the past seven years … I wanted the widest possible dissemination of the hearing.”

Although a 1996 resolution of the 7th Circuit Judicial Council adopted the national Judicial Council’s ban on cameras in the courtroom, McDade wrote in an apology to the court: “At the time, I erroneously thought that I had the authority to waive [Local] Rule [83.7] because of the great public interest.” He found out from Chief Judge Frank Easterbrook that he could not.

Easterbrook set the record straight in a memorandum opinion to the Judicial Council of the 7th Circuit and held that 7th Circuit policy supercedes local court rules. In part, he said, “[McDade] stated that he had believed that he could grant an exception to the local rule, but that he now realizes that this belief was mistaken. Whether or not a single district judge is permitted to grant exceptions to a given local rule, no judge may disregard the Judicial Council’s resolution.” In Re Complaint Against District Judge Joe Billy McDade, No. 07-09-90083 (7th Cir. Jud. Coun., Sept. 28, 2009, slip op. at 2). In response, McDade apologized and accepted responsibility for violating the court rules.

There is talk that cameras may be allowed in some courtrooms, but for now, 7th Circuit Court Rule 55 prohibits photography and broadcasts of the Court of Appeals’ proceedings. Federal rules also forbid camera coverage of criminal cases. Fed. R. Crim. Pro. 53. The constitutionality of that rule was upheld in U.S. v. Kerley, 753 F.2d 617 (7th Cir.1985).

Easterbrook went further in his opinion on the Champaign issue: “The role of cameras in the courtroom is a subject of ongoing debate in the legislative and judicial branches, and among members of the public. People of good will advocate photography and broadcasts; other people of good will think that cameras would have ill effects. No matter what one makes of these contentions, once the Judicial Conference of the United States and the Judicial Council of the 7th Circuit have adopted a policy, a judge must implement it without regard to his own views.” In Re McDade, at 1-2.

Supreme Court Justice Sonia Sotomayer said publicly in her confirmation hearings that her experiences involving cameras in the courtroom have been positive. She replaced retiring Justice David Souter, who said in 1996, “The day you see a camera come into our courtroom it’s going to roll over my dead body.” On Nov. 5, Sen. Arlen Specter (D-Pa.) introduced a resolution on the Senate floor urging the Supreme Court to permit television coverage of its open proceedings.

Cameras regularly cover the president’s activities. C-SPAN covers the House and Senate. The Supreme Court releases transcripts of oral arguments within hours after arguments have concluded, and in high-profile cases, it releases time-delayed audiotapes of its proceedings.

In state court, Illinois Supreme Court Rule 63(A)(7) governs judicial conduct regarding cameras in courtrooms. In an effort to expand access to the courts, the Illinois Supreme Court recently announced that, starting in November, audio recordings of appellate court oral arguments will be available on its website the day following each argument. In the Illinois Supreme Court, oral arguments are taped and posted on its website.

But before any changes to telecasting judicial action are made on a state or federal level, much deliberation and thought will be involved. Certainly, if cameras present a distraction to the proceedings, they will not be allowed.

In a July 23, 2009, letter, the Judicial Conference of the United States reiterated its strong opposition to the use of cameras in federal trial court proceedings for very valid and specific reasons, including privacy concerns of witnesses and victims, possible increased drama because of the presence of cameras and a possible “chilling effect” of avoiding a trial because of camera coverage.

An arguably self-serving poll taken in September by C-SPAN showed that 61 percent of American voters support cameras in the courts. As technology improves, it is an issue that the courts need to continue to research so that, in the end, justice is achieved for all parties, the dignity of the system is maintained, and the public’s trust and confidence in the judiciary is improved.

Closing Argument: It Started With a Room

By Michael D. Monico
Monico, Pavich & Spevack

The American Board of Criminal Lawyers customarily conducts its annual meeting in the hometown of its president. As I had the privilege to hold that title this past year, the lively roundtable discussions of legal issues and the formal dinner took place in Chicago in October 2008.

I chose to conduct the Saturday and Sunday morning events at Northwestern University School of Law’s Lincoln Hall.

Lincoln Hall is the most impressive classroom at the law school. Occupying space in the old building on Chicago Avenue between the Magnificent Mile and Lake Michigan, you can almost hear the echoes of parliamentary arguments made in the House of Commons, which was the model for the classroom. On one wall hangs a large painting of its namesake, our 16th president. Flat, wooden seats with tall, erect backs arranged horseshoe-style descend from the rear to the front of the classroom on three sides, all facing a well at the bottom.

There used to be a chalkboard at the room’s north end, behind a long desk, and from behind that desk and in front of that chalkboard sat or stood some professors whose stature was equal to the room. When Jon R. Walz taught evidence and Jack Heinz taught criminal law they “worked the well,” walking and gesturing, entertaining and enlightening.

I told members who attended our meeting about Walz and Heinz, and how important they were — along with Lincoln Hall — to what I decided to do in life.

Students at the law school met at Lincoln Hall in the spring of 1970 to discuss the bombing of Cambodia and the killing of four Kent State students who were protesting the war. We voted to close classes. I recall driving to Northwestern’s Evanston campus and noticing that students had ripped out the wrought iron fencing that bordered Sheridan Road, using it to barricade the street. It has been gone ever since.

I also associate Lincoln Hall with the Chicago Seven trial. In one of life’s unfortunate quirks, the assignment wheel for that case pointed to the Honorable Julius Hoffman. The trial became the best show in town. Self-proclaimed “yippies,” including Abbie Hoffman (no relation to the judge) and Jerry Rubin, along with peace activist David Dellinger and others, were indicted for causing rioting at the 1968 Democratic National Convention. William Kunstler, a seasoned New York lawyer, was lead counsel for the defense.

One day Kunstler spoke to our evidence class in Lincoln Hall. He was provocative, witty and charismatic. It might have been the day I decided to become a trial lawyer.

I participated in the Judson H. Miner Moot Court Competition at Lincoln Hall in my third year. In the semifinal round there were five judges — four acting state court judges and James R. Thompson, then U.S. attorney and soon-to-be Illinois governor. After the competition, I was invited to apply at the prosecutor’s office.

I spent four and a half years in the U.S. attorney’s office, from March 1973 to September 1977. In those days, assistants stayed only three or four years and then left, usually to do civil work at one of the law firms, though a few went on to practice criminal defense law at boutique firms. In those days, most large firms did not practice criminal defense.

Sitting in Lincoln Hall in October 2008 led me to reflect on how much has changed. Since 1977, salaries for assistants have grown, and the size of the office has grown, too. Assistants stay longer. And when they leave, a fair number join large, predominantly civil law firms that also do some criminal defense work. Criminal law is no longer rare in large firms, a concession to the fact that more corporations are being investigated and more white-collar crimes are being indicted than ever before.

In the 1970s, assistants were not concerned with sentencing, as they are today. The judge, not the government, wielded the power to determine how long a defendant might spend in jail. A person who went to trial might even receive probation. You might go to federal court and see a bench trial. Government lawyers rarely insisted on a jury trial when the defense had waived.

Back then, although winning was important to the prosecutor, it did not mean getting the longest sentence possible. No one was heard saying, “The best sentence is the biggest sentence.” No doubt the Federal Sentencing Guidelines altered the dynamics of the process.

In 1987, the guidelines introduced “charge-based sentencing,” giving prosecutors power to influence sentences as never before. Attaching numerical values to crimes, aggravating factors and mitigation ensured that no guilty pleas would be resolved without painstaking attention to the guidelines.

They may now be advisory, but they remain strongly influential. The number of lawyers and judges who practiced before the guidelines were introduced is dwindling. Thus, their effect remains powerful, as evidenced by the United States having more people in prison than any other country in the world.

Significant events of scholarship, protest and government — Lincoln Hall has seen them all. It has taught generations the importance of fairness and the rule of law.

It should teach us today that the best result is the fairest.

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