ABA Health eSource
July 2010 PPACA Special Edition

The False Claims Act: Analysis of the Recently Expanded Legislation on Qui Tam Actions and Related Impact on Whistleblowers

By Brian G. Santo, Esq., Pittsburgh School of Public Health, Rockville, MD / Pittsburgh, PA

Author

INTRODUCTION

The False Claims Act (FCA) was established to elicit help from private citizens to fight fraud, permitting people to sue in the name of the United States and collect a portion of the recovery the government obtains.  From 1996 through 2005, the government has recovered over $9 billion in fraudulent Medicare and Medicaid payments from qui tam actions (a private citizen, or relator, filing a complaint on behalf of the government). 1   However, initiating a federal health care whistleblower qui tam action proved challenging for a relator due to several factors, including the FCA’s “Public Disclosure Bar.” This bar eliminates actions that are not in the public interest by strippinging a court of subject matter jurisdiction when the relator’s action is “based upon” specific types of public information unless the relator can prove that he or she is the “original source” of that information. 2

The Patient Protection and Affordable Care Act of 2010 (PPACA) alleviates this jurisdictional impediment by narrowing the definition of what constitutes publicly disclosed information, expanding the scope of the “original source” exception to the Public Disclosure Bar, and providing a more flexible standard to the original jurisdictional prohibition. These changes are apt to result in a significant increase in the overall number of qui tam complaints and qui tam complaints that survive motions to dismiss brought under the FCA's Public Disclosure Bar. 3   In turn, the various motivations for whistleblowers to bring suit, and the related personal and professional tribulations associated with instituting qui tam actions will persist.

EXPANSION OF THE FALSE CLAIM ACT

On March 23, 2010, President Obama signed into law the Patient Protection and Affordable Care Act, Pub. L. 111-148, 124 Stat. 119. The legislation contains several provisions extending the reach of the False Claims Act, 31 U.S.C. §§ 3729-33.  This expansion reverses the recent judicial trend toward limiting FCA qui tam actions. 4

The stricken language of the FCA contained a jurisdictional prohibition on qui tam actions based on “publicly disclosed” information, unless the individual bringing suit qualified under the “original source” exception. Thus, where allegations of fraud had been publicly disclosed in a state criminal or civil action, administrative proceeding, or through the news media, the suit was dismissed. 5  

The PPACA employs several methods to expand the FCA’s scope and weaken the Public Disclosure Bar. First, the PPACA eliminates the absolute jurisdictional bar in favor of affording the Department of Justice with discretion over public disclosure dismissals. 6   As amended, the FCA now states that "the Court shall dismiss an action or claim under this section, unless opposed by the Government, if substantially the same allegations or transactions alleged in the action or claim were publicly disclosed." 7

The PPACA also narrowed the definition of what constitutes publicly disclosed information. Broadening the area of potential liability for defendants further, the FCA now bars only those actions based on disclosures from federal sources or the news media. 8 Reversing what was the law in several circuits, the PPACA allows qui tam relators the power to initiate lawsuits based on information in state and local government publications. 9 Specifically, under the new law, a whistleblower suit cannot be barred unless “substantially the same allegations or transactions were publicly disclosed” in: (1) “a Federal criminal civil or administrative hearing in which the government or its agent was a party;” (2) “a congressional, [GAO], or other Federal report, hearing, audit, or investigation,” or (3) “from the news media. 10

Finally, the PPACA expanded the scope of the original source exception. Before amendment, the FCA permitted whistleblowers to bring qui tam actions based on public disclosures only if the relator had "direct and independent knowledge" of the information and provided it to the government before filing suit. 11 Under the new law, a qui tam relator simply must contain "knowledge that is independent of and materially adds to the publicly disclosed allegations . . . ." 12   The relator's allegations can now be based on secondhand information, provided those allegations add to the information already contained in the public sphere. 13 Ultimately, the pool of potential plaintiffs qualifying as an "original source" increases, as lawsuits may be brought by relators who can add anything material to publicly available information.

IMPLICATIONS FOR WHISTLEBLOWERS

In the 1990s, the Department of Justice increased efforts to combat healthcare fraud by focusing on false claims to the Medicare and Medicaid programs. 14 The number of litigation and financial recoveries related to healthcare grew quickly, mostly among qui tam actions. In 2009, 76 percent of new healthcare fraud enforcement actions were initiated by whistleblowers. 15 Thus, the effectiveness of the qui tam model depends on the willingness of whistleblowers to come forward.

Whistleblowers cite various motivations for instituting qui tam actions. In a recent study conducted at Harvard Medical School and the Harvard School of Public Health experts interviewed 26 whistleblowers involved in 17 separate federal qui tam cases against pharmaceutical manufacturers settled between January 2001 and March 2009. 16 These interviews identified four central motivations or themes for relators bringing suit.

Most common of the themes concerned integrity, as 11 of 26 relators reported that the unethical transgressions of their company drove their decision to file suit. 17 Less common (7 of 26 relators) of a reason involved altruism, as relators attempted to prevent the fraudulent behavior from posing risks to public health. 18 Some whistleblowers (7 of 26) characterized their action in reporting the fraud as a sense of duty to bring criminals to justice. 19 Finally, 5 of the 26 relators cited self-preservation. 20 They stated that blowing the whistle constituted a mechanism to protect themselves, as they feared their fraudulent behavior would be discovered and would result in legal consequences for them. Interestingly, all interviewees stated that the financial reward offered had not motivated their participation in the qui tam lawsuit. 21 , 22

However, multiple concerns inhibit the willingness of whistleblowers to institute qui tam actions. Foremost among these concerns is the intense workload and pressures placed on relators. Whistleblowers often spend thousands of hours on cases, which may typically be drawn out for several years. 23 Moreover, relators frequently must collaborate with the Department of Justice (DOJ) in unnerving or difficult circumstances, such as meeting in remote locations or being wire-tapped. 24

The associated professional and personal toll the litigation process places on whistleblowers serves as another significant concern for potential relators. Many insiders report being subjected to pressures by their company in response to their complaints. Although the FCA prohibits retaliatory action against whistleblowers, many relators continue to receive demotions or terminations. 25 Consequently, many insiders experience dire financial consequences from losing their job and subsequent inability to obtain employment because of the stigma associated with blowing the whistle. Beyond the professional implications, relators in the Harvard study stated associated personal difficulties, including severe marital strain, divorces, and stress-related health problems. 26

CONCLUSION

The aforementioned changes to the FCA will likely result in a significant increase in the number of qui tam complaints.  With the related personal and professional difficulties associated with instituting qui tam actions expected to continue, measures should be taken to alleviate relator concerns. For example, increased resources could be allocated to ensure organizational leaders refrain from retaliatory actions, or increasing penalties for abuse of the anti-retaliatory FCA provisions. Further, reduction of the duration of the investigative process would reduce the stress placed on relators. Ultimately, the government should take steps to ease whistleblower concerns, as qui tam fraud and abuse cases will likely continue to play an essential role in helping control and deter illegal healthcare activities.
1 Aaron S. Kesselheim and David M. Studdert, Whistleblower-initiated enforcement actions against health care fraud and abuse in the United States, 1996-2005, Ann Intern Med, 149:342-349 (September 2, 2008).
2 Robert Salcido, The Public Disclosure Bar of the False Claims Act, Andrews Publications (2002).
3 Joshua T. Buchman and Peter M. Schutzel, Health Care Reform: Legislation Expands False Claims Act, Whistleblower Cases Expected to Increase, McDermott Newsletters, March 31, 2010. Accessed at http://www.mwe.com/index.cfm/fuseaction/publications.nldetail/object_id/a3520977-8f8a-4b5b-a83d-26ada4315a1d.cfm.
4 Gibson, Dunn & Crutcher LLP, U.S. Health Care Reform Legislation Significantly Expands the False Claims Act, April 2, 2010. Accessed at: this link.
5 Buchman, supra note 2.
6 Gibson, supra note 3. See The Patient Protection and Affordable Care Act at H.R. 3590 § 1303(j)(2).
7 The False Claims Act, 31 U.S.C. 3730(e)(4)(A) (2010).
8 Gibson, supra note 3.
9 Id.
10

The Patient Protection and Affordable Care Act, H.R. 3590 §1303(j)(2).
11 Id.
12 The False Claims Act, 31 U.S.C. § 3730(e)(4)(B) (2010).
13 Buchman, supra note 2. See The Patient Protection and Affordable Care Act, H.R. 3590 §1303(j)(2).
14 Kesselheim, supra note 1.
15 Civil Division, U.S. Department of Justice. Fraud statistics. October 1, 1987 – September 30,2009. Accessed at www.taf.org/stats-fy2006.pdf.
16 Aaron S. Kesselheim, David M. Studdert, & Michelle M. Mello, Whistle-Blowers’ Experiences in Fraud Litigation against Pharmaceutical Companies, N Engl J Med, 362;19 (May 13, 2010).
17 Id.
18 Id.
19 Id.
20 Kesselheim, supra note 14.
21 Id.
22 Under the FCA, relators may receive 15 to 25% of the recovery amount. The government sets the total relator share and then divides the amount among the relators. Thirteen of the 26 interviewees in the Harvard study, for example, received between $1 million and $5 million. Id.
23 Id.
24 Kesselheim, supra note 14.
25 Kesselheim, supra note 1.
26 Kesselheim, supra note 14.

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