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Is Your Physician Pay Data A Trade Secret? Probably Not, Says Recent Court Decision

1.31.19

When a Florida federal court recently rejected a hospital system’s attempt to keep its physician compensation data private, despite a claim that the information constituted a trade secret, healthcare employers across the country were sent a strong and clear message that pay data might not be as protected as you think it is. The decision might come as somewhat of a surprise, given the lengths to which many healthcare employers go to keep their employees’ compensation information out of the public eye. What specifically did the court say, and is there any chance that you could avoid the same fate and keep your pay data private?

Hospital Tries To Cloak Physician Pay Data From Public View

The trouble all started when Angela D’Anna, an employee with Lee Memorial Health System in Southwest Florida, filed a federal lawsuit alleging that the hospital paid illegal fees and financial incentives under improper pay arrangements. She also alleged that Lee Health paid excessive compensation to certain physicians and knowingly submitted false claims to government payers such as Medicare and Medicaid. In essence, her theory was that Lee Health inflated the relative value of the physicians’ work by crediting them with work that was actually being completed by physician assistants and nurse practitioners. 

The complaint and the underlying exhibits supporting her claim were originally filed under seal pursuant to rules of civil procedure, but because the federal court system places a high emphasis on ensuring public access to judicial proceedings and court records, the process of unsealing the case file soon began. In early September 2018, a federal judge unsealed the case file, at which point the information became publicly available.

This alarmed Lee Health because much of the evidence contained within and attached to the complaint included specific compensation information about its physicians, including the exact methodologies used to determine their pay. It immediately filed an emergency motion to reseal certain exhibits, asserting that the file contained “trade secrets” that should be shielded from public disclosure. Under federal law, the four criteria used to determine whether information will be considered a “trade secret” are:

Lee Health argued that the physician compensation information counted as trade secrets under this analysis because the public and its competition could not readily obtain the information. This was due to the strict internal policies the hospital had maintained to prevent the disclosure of such data (including tight controls over what and wasn’t produced as a result of any public records requests). The hospital further argued that it faces a high degree of difficulty when it comes to the recruitment and retention of its physicians, and that the release of this information into the marketplace would place it at a competitive disadvantage.

Court: “It Might Be Confidential, But It’s Not A Trade Secret”

The court disagreed, and on October 16, unsealed the case file. Although the information in question was arguably confidential, the court found that it did not rise to the level of a “trade secret” under applicable law. While it acknowledged that Lee Health took ample steps to protect the data from release, and even ensured that it was only made internally available on a need-to-know basis, the court concluded that it was not clear “that the information at issue represents substantial value to Lee Health or would be particularly valuable to Lee Health’s competitors.”

First, the court pointed out that the data was historical in nature, covering a period of time four years earlier (since the scheme purportedly uncovered by D’Anna took place from 2005 to 2014). Second, the information was somewhat limited in scope; the compensation data covered only a limited number of doctors in a few different specialties.

Most importantly, the court believed that there were other means available for members of the public and Lee Health’s competitors to estimate the physician compensation amounts. More specifically, an individual could look to publicly available Medical Group Management Association (MGMA) reports and derive a comparable estimate. This, in the court’s opinion, reduced the value of the information and led to the conclusion that it was not considered a trade secret under the law. For these reasons, the court ordered the case file to remain open and in public view, and the litigation will continue without the need for such information to be redacted or filed under seal.

Top 10 Lessons To Be Learned

This decision is a good reminder that pay rates for your physicians, and perhaps other employees, will not automatically be considered a trade secret—even if that information is not typically shared outside the company, and even though its disclosure could potentially harm your ability to recruit and retain the most qualified employees. You must take affirmative steps to ensure that your information will be protected before it ends up in court. Below are the “Top 10” tips you can implement to help ensure your organization’s pay information will not meet the same fate as the employer’s in the Lee Health case:

  1. Ensure your organizations’ pay methodologies are distinct from raw payroll data. You are far less likely to be harmed by a competitor discovering what one particular employee is being paid as opposed to how you calculate what salary to offer potential recruits in the future.
  2. Consider hiring a third-party consultant to conduct a salary survey periodically to ensure your compensation levels remain competitive in your industry and geographic market. Any fees associated with such salaries may help to demonstrate the independent economic value associated with your organization’s pay rates.
  3. Limit access to compensation-related information to only those employees who need access to such information as part of their jobs.
  4. Require all employees who will have access to payroll information to execute a separate confidentiality agreement at the outset of their employment.
  5. At the same time, ensure that all such employees also sign a non-disclosure agreement to prevent the unwanted dissemination of information.
  6. Maintain a digital access log and audit trail for any computer systems or files containing employee pay information.
  7. Provide your payroll department with clear guidelines outlining in writing: the circumstances in which it is permissible to disclose pay-related information; identifying all parties to whom that information may be disclosed (e.g., a third-party auditor, a government agency, or the Director of Human Resources); and explaining exactly what information or records should be provided.
  8. Conduct exit interviews with all departing employees, during which they should sign a sworn statement confirming that they have returned all company property in their possession, including any documents and electronically stored information.
  9. Ensure decisions regarding employees’ pay rates or salaries are properly documented and approved by appropriate management and human resources personnel (particularly if an individual’s compensation will be significantly higher or lower than his or her peers’).
  10. Hire an experienced employment lawyer to conduct a compliance audit to identify and correct any issues before they materialize into a lawsuit.

For more information, contact the author at BLondon@fisherphillips.com or 504.592.3888.

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