A federal court in New Jersey has permitted a defendant in a False Claims case to defend itself on the grounds that the whistleblower/ex-employees breached their employment agreements by using and disclosing confidential company information. The Defendant, Boston Scientific Neuromodulation Corp. (“Boston Scientific”) is a medical device manufacturer. While in Boston Scientific’s employ, the whistleblowers signed employment agreements which, among other things, required them to maintain the confidentiality of company information. The whistleblowers ultimately brought suit against their former employer, alleging that the company submitted claims to Medicare and Medicaid which were false for numerous reasons, including that Boston Scientific concealed defective equipment, that claims did not have underlying physician orders establishing medical necessity, and that the company promoted “off-label” use of the equipment. The government declined to intervene in the case.

Boston Scientific responded to the Complaint with its own counterclaims for violations of the whistleblowers’ employment agreement, alleging they impermissibly “took, disclosed, and then published” confidential patient claims data and proprietary business information. The whistleblowers sought to dismiss the counterclaims on the grounds that restricting the disclosure of the documents evidencing false claims would frustrate the underlying policy considerations of the False Claims Act. The Court nevertheless sided with Boston Scientific, saying that the breach of contract defense was adequately pleaded at this early stage in the case. It is important to note, however, that the ruling merely allows the breach of contract claim to remain as a potential defense, and the Court did not opine as to whether the defense would ultimately succeed. More important, the Court provided no analysis as to whether or under what circumstances such a defense would be appropriate without undermining the public policies behind the False Claims Act. Based on this and other recent decisions, healthcare industry employers should consider using employment agreements which strictly prohibit employees from using patient information and confidential employer information other than in the course of their job performance, and from retaining copies of any such information or disclosing it. This is especially important for employees in management, billing, and similar areas which give them access to information that would support a False Claims Act case. A court may ultimately conclude that the employment agreement does not provide the employer with a defense, but, without an appropriately drafted agreement, there is no possibility of such a defense.