Challenge to Attorney General’s “Outsourcing” of Consumer Protection Suits Against Nursing Homes Fails in PA

In GGNSC v. Kane, decided January 11, 2016, the Pennsylvania Commonwealth Court rejected a challenge by owners and operators of long-term care facilities to the use of a private law firm to investigate and pursue claims based on alleged improper billing, contracting and marketing practices.  The ruling was 6 to 1, with the lone dissenting judge not filing an opinion.

In the challenge, begun as a declaratory judgment action, the Facilities contended the investigations were “not based on any material consumer complaints,” but were instead based on efforts by the law firm (Cohen Milstein) to generate lawsuits in Pennsylvania and other states. In Pennsylvania, beginning in 2012, the Pennsylvania Office of Attorney General signed a contingent fee agreements with the Cohen Milstein law firm, which has a history of pursuing class action suits in business and consumer protection areas. The Court permitted the Pennsylvania Health Care Association, a trade group for some 450 long-term care providers in the state, to join the Facilities’ challenge as a petitioner.  

In July 2015, the Facilities’ challenge was “overtaken” by a Consumer Protection Law enforcement lawsuit filed by the Pennsylvania AG against two GGNSC facilities and 12 Golden Living nursing homes. Cohen Milstein was listed as counsel representing the State.  Some of the Facilities’ original arguments for blocking the Cohen Milstein investigatory actions became moot after the consumer protection suit was filed or could be addressed in the enforcement suit, according to the Commonwealth Court decision.  (Other states have also contracted with Cohen Milstein to bring nursing home cases, including New Mexico.) 

However, the Facilities continued to argue that only the Pennsylvania Department of Health (DOH) had “authority” to investigate or pursue litigation regarding quality of care.  The Commonwealth Court disagreed:

Any investigation or enforcement action initiated by OAG is directly related to “unfair or deceptive acts or practices” purportedly committed by the Facilities with respect to the staffing levels at their facilities.  As a result, while minimum staffing levels may be regulated by DOH for health and safety purposes, any representations, advertisements or agreements that the Facilities made with their residents with respect to staffing levels, whether in accord with those required by statute or regulation or not, may properly be enforced by OAG through its authority conferred by the Administrative Code and the Consumer Protection Law. Such action is proper under the foregoing statutes and does not constitute any impermissible administrative rulemaking regardless of whatever evidence OAG uses to establish a violation, including any type of staffing model.  What OAG is seeking to enforce is the level of staffing that the Facilities either represented, advertised, or promised to provide to their residents and not what level OAG deems to be appropriate for the care of such residents.

Further, the Commonwealth Court ruled the Facilities “lacked standing” to challenge the OAG’s use of a private law firm to investigate or prosecute the claims under the Administrative Code or the Consumer Protection Law, citing the Pennsylvania Supreme Court’s similar ruling in Commonwealth v. Janssen Pharmaceutica, Inc. in 2010, a suit  about alleged off-label drug prescriptions, pursued with the assistance of contracted outside counsel. 

The outsourcing of state claims for consumer protection suits raises interesting issues.  Such financial arrangements with outside law firms may be especially attractive to states in terms of risk/reward potentials, as the private firms typically agree to fund all or a portion of litigation costs for the class-action-like suits, with lower contingent fee percentages (10 to 20%) than you would see when such a firm handles suits on behalf of  private plaintiffs.  The option could be attractive to financially-strapped states or “embattled” state prosecutors such as the Pennsylvania AG.

Companies, particularly health care companies, have organized efforts to resist what they see as “abusive” lawsuits generated by private law firms.  As one industry-focused report argues here, private firms lack a proper “public” perspective, failing to take into account the impact on business development, while also arm-twisting companies to extract settlements, arguing this comes at a high-dollar cost to the state’s residents.