NEW ORLEANS – In a recent concurring opinion, U.S. Circuit Justice James Ho of the Fifth Circuit (based in New Orleans) discussed what he sees as constitutional problems with whistleblower lawsuits. Justice Ho’s opinion arises out of a whistleblower lawsuit in Texas against a rehabilitation hospital owned by Encompass Health Corp. The lawsuit is filed by a former sales rep who alleges that the hospital submitted false claims to Medicare.

Justice Ho says that whistleblowers (relators) cannot constitutionally step into the shoes of the government to bring whistleblower cases. According to Justice Ho: “They presume to represent the United States government in federal court, and to defend the interests of the United States Treasury against fraud. But like federal civil servants, they are neither appointed by, nor accountable to, the President.”

Justice Ho’s criticism of whistleblower lawsuits follows similar criticism by other federal justices.

Governmental agencies (e.g., Department of Justice, Office of Inspector General, CMS) do not have the capacity to identify most fraudulent arrangements taking place in the health care space. As a result, the agencies “subcontract out” investigations to the private sector. By “private sector,” I mean whistleblowers…also known as relators.

A whistleblower is normally an existing or former employee of a health care provider. The whistleblower concludes that his/her employer is engaging in fraudulent activities. For example, if the employer is paying kickbacks to referral sources, then the claims (to a federal governmental agency), arising out of the kickbacks, become “false claims” in violation of the federal False Claims Act (“FCA”).

In a perfect world, the employee will take his/her concerns to the employer’s Compliance Officer who will, in turn, investigate and resolve the matter. This is what occurs most of the time. On the other hand, the employer may instead hire an attorney who specializes in filing whistleblower lawsuits. The employee (whistleblower) will provide documentary evidence of the employer’s alleged wrongdoing to the attorney.

• The attorney will file a federal lawsuit against the employer. The lawsuit will be in the name of the whistleblower…and in the name of the United States.
• The lawsuit will go “under seal,” meaning that the defendant (the health care provider) is not aware of the lawsuit.
• A civil Assistant United States Attorney (“AUSA”) will oversee an investigation of the allegations set out in the lawsuit. If the civil AUSA concludes that the whistleblower lawsuit has merit, the Department of Justice will “intervene” and take the lawsuit over. This is usually when the defendant becomes aware of the existence of the whistleblower lawsuit.
• Because the penalties under the FCA can be massive, defendants usually reach settlements with the Department of Justice. The whistleblower will normally receive 15% to 20% of the settlement.
• Whistleblower lawsuits are civil, not criminal, actions…meaning nobody goes to prison. However, many federal criminal cases arise out of civil whistleblower lawsuits. In investigating the allegations (while the lawsuit is under seal), if the civil AUSA concludes that the defendant’s actions cross the line into the criminal realm, the civil AUSA will bring in a criminal AUSA to determine if criminal charges should be brought against the defendant.

It is the above scenario that is coming under criticism by Justice Ho and others…the criticism being that whistleblowers do not have the legal right represent the United States in these types of lawsuits. For now, whistleblower lawsuits are the “law of the land.” But it will be interesting to see if future court rulings chip away at the legality of such lawsuits.

Jeffrey S. Baird, JD, is chairman of the Health Care Group at Brown & Fortunato, PC, a law firm based in Texas with a national healthcare practice. He represents pharmacies, infusion companies, HME companies, manufacturers, and other healthcare providers throughout the United States. Baird is Board Certified in Health Law by the Texas Board of Legal Specialization and can be reached at (806) 345-6320 or [email protected].