FCA decisions may lead to Supreme Court showdown

Two recent appellate decisions sharply limit the ability of the federal government to bring qui tam suits under the False Claims Act (FCA) and cast serious doubt on the legitimacy of the federal government’s aggressive FCA enforcement efforts under the PATH (Physicians at Teaching Hospitals) initiative.

John Boese, an attorney who specializes in FCA cases, says these rulings will have a major impact on health care organizations that receive federal funding by severely restricting FCA cases against states and state entities.

The two decisions are at odds with three other recent circuit court decisions, and several legal observers believe that makes a showdown in the Supreme Court inevitable. "I don’t how the Supreme Court can turn this one down because they have such a clear conflict in the circuits," says Boese, of Fried, Frank, Harris, Shriver & Jacobson in Washington, DC.

Rick Robinson, an attorney with Fulbright & Jaworski in Washington, DC, agrees: "I think we’ll see that happen because you have a split over something which involves core issues of federalism." Robinson says the two appellate decisions are extremely important because they insulate states from the threat of triple damages and civil monetary penalties under FCA. "Nobody is saying states don’t have to return overpayments," he adds. "The argument is that it’s not appropriate for the feds to try to punish state governments."

Boese says the decisions in the 5th Circuit and DC Circuit represent the first time state defendants have won at the appellate level by arguing that states are not "persons" under the meaning of the FCA and that the Eleventh Amendment precludes suits by whistle-blowers against state entities.

The 5th Circuit case involved a former resident at Texas Tech University who alleged that the university submitted claims to Medicare and Medicaid falsely certifying that staff physicians had supervised services performed by residents. The plaintiff also filed a claim under the FCA saying she suffered retaliation for her whistle-blowing activities.

The district court concluded the university could be sued even though the government had elected not to intervene. But on March 29, 1999, the 5th Circuit reversed that decision, holding that the Eleventh Amendment bars qui tam suits against state entities when the government declines to intervene.

Three days later, the DC Circuit ruled on the same basic issue. In that case, a former employee in the audit branch of the New York State Department of Education alleged that the State of New York had conspired to conceal fraudulent claims to the federal government. This time, the DC Circuit ruled that states are not "persons" subject to suit under the FCA. "While the court didn’t address this issue explicitly, the clear implication of its ruling is that even the Federal Government may not sue states under the FCA," says Boese.

Ivy Baer, an attorney for the American Association of Medical Colleges in Washington, DC, agrees that the split among the circuit courts makes a Supreme Court ruling likely.

"We are hoping that we get a good decision that is widely applicable for our state institutions," says Baer. "If the Supreme Court decides not to take this then we are left with four separate Circuit Court decisions, which really doesn’t tell us much of anything."