Possibly threatening the future of federal healthcare fraud fighting, a federal judge has ruled that states and municipalities can't be sued under the federal False Claims Act, because they do not qualify as "persons" under the Civil War-era law.
If the ruling is followed by other courts, it could throw a huge monkey wrench into national Medicare fraud investigations like Physicians at Teaching Hospitals, or PATH. The three-year-old PATH probe looks at how teaching hospitals bill Medicare for services rendered by residents.
"This would have a significant impact on the PATH initiative because state entities (including state colleges) cannot be sued under the False Claims Act," said John Boese, a defense attorney at Fried Frank Harris Shriver & Jacobson in Washington and a former staffer in the U.S. Justice Department's civil division. "Common lawsuits could proceed, but they don't have treble damages attached, and they can't be brought by whistleblowers."
Two of the four medical schools that have settled PATH audits are public institutions: the University of Pittsburgh and the University of Virginia.
In a 35-page opinion released June 12, U.S. District Judge Denny Chin dismissed a whistleblower lawsuit filed against the city and state of New York, alleging welfare fraud.
The city and state still may be held liable, Chin said. However, Congress did not intend the False Claims Act to be used against state and local government organizations, because any settlements would have to be paid with taxpayer dollars, Chin wrote.
Boese, who was not involved in the New York case, expects the government to appeal.
Last year a federal judge in Minnesota issued a similar ruling in a case in which a whistleblower alleged that the University of Minnesota, a state agency, had committed grant fraud.