Whistle-blower provision is called unconstitutional

Case could de-fang False Claims Act

An appeals court decision out of Texas could take the wind out of the whistle-blower provision of the False Claims Act if it is upheld later this month.

The ruling means access personnel who suspect their employers of defrauding the Medicare program soon may have less incentive to take action against them in court. On the other hand, the decision could curtail the filing of such lawsuits when they lack adequate foundation or come from less than honorable motives.

A three-judge panel of the Fifth U.S. Circuit Court of Appeals in Houston has ruled unconstitutional a federal statute that allows uninjured whistle-blowers to file fraud suits on behalf of the government. The decision was made in regard to a lawsuit a former nurse filed against St. Luke’s Episcopal Hospital in Houston.

The nurse, Joyce Riley, alleged there was massive Medicare fraud at the hospital, and she sued under the qui tam provision of the 1863 False Claims Act, which allows citizens to bring a suit on behalf of the government against a company or entity the citizen believes has committed fraud. That provision, which Congress strengthened in 1986, also allows individuals to claim up to 25% of money recovered from fraud cases, even if the government does not intervene in the suit or take criminal action. Qui tam is often used in whistle-blower cases.

In the November ruling, Judges Jerry Smith and Harold DeMoss Jr. concluded the law infringes on the executive branch’s power to protect government interests. Judge Carl Stewart dissented.

"This ruling pierces the aura of invincibility surrounding qui tam suits," says William J. Boyce, a partner in Houston-based law firm Fulbright & Jaworski. "It’s a wake-up call that there are real concerns about suits of this nature," adds Boyce, who represented St. Luke’s in the case.

Neil McCabe, a professor at South Texas College of Law, said the decision will have a tremendous impact if it is upheld when the full court hears the case the week of Jan. 18.

"These lawsuits have been around since before the turn of the century," he said, and to strike down a law with that long a history "would be monumental if it is upheld."

Such suits could still be filed, McCabe said, but they would be dismissed if the government did not intervene.

The Fifth Circuit panel’s departure from several precedents by other circuits makes the case ripe for review by the Supreme Court, he said.

"The [qui tam] provisions permit a private citizen to sue on behalf of the government, even though the attorney general — perhaps because he believes that institution of the action is inimical to the government’s interests — has decided not to pursue the claim," Judge Smith wrote. "This power removes from the executive branch the prosecutorial discretion that is at the heart of the president’s power to execute the laws."

The 42-page decision was issued in a 1994 lawsuit filed by Riley, a nurse in the heart transplant unit at St. Luke’s. Riley claimed the hospital and others conspired to defraud the Medicare program by unnecessarily admitting patients and needlessly upgrading the level of services.

U.S. District Judge Kenneth Hoyt threw out the lawsuit in 1997, saying Riley was an uninjured party and had no standing to recover "bounties" on government money that has been lost to fraud. He went on to state that Congress has no right to create standing for an uninjured party to file suit, nor does it have the power to give to an individual the right of the executive branch to pursue a fraud claim in the government’s behalf.

In a statement following the ruling, attorney Boyd Smith Jr., who assisted Boyce in defending St. Luke’s in the suit, said the decision is the most important False Claims Act ruling ever rendered by a circuit court. If the decision holds, "every single qui tam case in which the government intervenes should be dismissed," Smith said. The judges’ opinion places the responsibility to fight fraud on the government, he said.

Attorneys for the hospital said the way the law is written creates an incentive for "bounty hunting." But in his statement, plaintiff attorney Jim Perdue said the decision is flawed because attorneys for the Justice Department have said the action is appropriate. "The judicial branch says the law violates the executive branch’s right, but the attorney general has argued we have a right to go forward," he said. "That seems absurd to me."

Judge Stewart also found the majority opinion illogical. He wrote in his dissenting opinion that qui tam lawsuits give the attorney general an opportunity to maximize department resources by not requiring her staff to file a civil or criminal complaint for every perceived violation of law.

Stewart said Congress neither usurped the authority of the executive branch, nor created a conflict in the separation of powers doctrine when it wrote the law. "I submit that when the government declines to intervene in a qui tam action, it has delegated its own law enforcement authority," Stewart wrote.

Riley contended that she had uncovered evidence that hospital officials allowed an unlicensed doctor to practice medicine as part of a scheme to defraud the government on Medicare claims. Her lawsuit also claimed that the officials conspired to move heart transplant patients to intensive care units sooner than necessary, thus inflating hospital profits.

Defense attorneys said Riley’s allegations were untrue.