Supreme Court to hear case challenging FCA suits

The U.S. Supreme has agreed to hear Vermont’s challenge to False Claims Act (FCA) suits against sovereign state entities. Court watchers say the fate of the federal government’s aggressive FCA enforcement efforts under the PATH (Physicians at Teaching Hospitals) initiative will be hanging in the balance of that decision.

"Any state-affiliated health care provider, including teaching hospitals, would be affected," says Rick Robinson, an attorney with Fulbright & Jaworski in Washington, DC. But it all depends on whether it’s a public university or a private university, he adds. Federal investigators could still continue a PATH investigation and even private schools would be responsible to return refund overpayments, he explains. "The distinction is that investigators could not use the False Claims Act in PATH cases involving PATH entities."

"Supreme Court review is relatively rare in civil False Claims Act jurisprudence," says John Boese, an attorney who specializes in FCA cases. There have been only two FCA decisions in the last twelve years and both were decided in favor of the defendants. In this case, the Court will determine whether states are "persons" subject to liability under the FCA, and whether the Eleventh Amendment precludes a private relator from prosecuting a FCA suit against an unconsenting state, according to Boese, of Fried, Frank, Harris, Shriver & Jacobsen in Washington, DC.

The Supreme Court’s review was anticipated, says Boese, in light of the significant split among the Circuit Courts of Appeal following the Fifth Circuit’s ruling in United States ex rel. Foulds v. Texas Tech University, and the D.C. Circuit’s rulings in United States ex rel. Long v. SCS Business & Technical Institute. (See "FCA decisions may lead to Supreme Court showdown," Compliance Hotline, April 19, 1999, p. 1.)

"In Foulds, the court held that that the government has not commenced or prosecuted’ an action within the meaning of the Eleventh Amendment," Boese explains. "In Long, the D.C. Circuit held that states are not persons’ subject to suit under the FCA." But contrary results were reached in the Fourth, Eighth, and Ninth Circuits.

Boese says state entities will have a major victory if the Court agrees with the results in the Long and Foulds decisions but adds that Court’s review is likely to have almost no impact on non-state entities. That’s because immunity might not extend to suits prosecuted against a municipal corporation or other government entity which is not an arm of the state, he says. "Cities and states are treated differently under some of these decisions," explains Robinson. "Typically, cities are not considered to be arms of the state; if a city had a health care clinic that might not be protected by this decision."

Nobody knows where the Court will come out when it decides the case later this year, but both Boese and Robinson note that in the last two terms, the Supreme Court has been very supportive of states rights. That bodes well for providers looking for relief from the FCA.