An obscure Vermont whistleblower case before the U.S. Supreme Court could do for healthcare providers what the American Hospital Association and other provider trade groups have so far failed to accomplish: It could get rid of the federal False Claims Act.
Since a 1986 amendment expanded the reach and financial incentives of the Civil War-era law, hospitals and other healthcare providers and organizations have faced more than 1,400 whistleblower suits and paid more than $1 billion in settlements.
Healthcare lawyers said the Supreme Court is unlikely to find the 136-year-old law unconstitutional but overturning it would greatly hinder government healthcare fraud enforcement.
Leonard Homer, a healthcare defense lawyer with the Baltimore office of Ober, Kaler, Grimes & Shriver, said throwing out the False Claims Act would relieve the healthcare industry of a tremendous financial burden.
"It would eliminate a dark cloud off the healthcare industry horizon. Right now there are so many opportunities for error within the complex billing systems of Medicare that there is great concern knowledgeable employees will seize upon every error of a repeat nature and sue," Homer said. "And if the Supreme Court holds that states cannot be sued under the False Claims Act, it would make a big difference to public hospitals and state academic medical centers, which would be protected from those suits."
Lawyers said the U.S. Justice Department, which prosecutes federal healthcare fraud, relies heavily on whistleblowers, known by the legal term "relators," for evidence, inside knowledge and case referrals. That could dry up if the highest court in the land overturns the 1863 law allowing private citizens to sue on behalf of the government.
On Nov. 29, the Supreme Court heard oral arguments in a nonhealthcare whistleblower lawsuit challenging the act. Lawyer Jonathan Stevens, who had been hired by Vermont's Agency of Natural Resources to oversee compliance with federal environmental grants, sued the state in 1995, charging it defrauded the federal government by inflating wages and salaries in grant programs.
The main issues at stake in the case-whether a state is protected from whistleblower lawsuits because of sovereign immunity and whether a state can be sued as a person under the act-had been scheduled to be discussed.
But in a surprising departure from tradition, the justices expanded a relatively narrow case to a major test case. The Supreme Court requested briefs from lawyers on an issue peripheral to that case but central to the False Claims Act: whether private citizens have standing to sue for the government.
In last week's oral arguments Justice Antonin Scalia appeared to lead the attack on the law, legal experts said. But the justices, who are expected to render a decision in the case before June 2000, appear deeply divided on the issue.
Health lawyer Stuart Gerson, who headed civil litigation for the U.S. Justice Department and attended the hearing, said there's no apparent consensus among the justices.
"It's clear to me that when they got up there a majority of justices were looking for a way not to deal with this," said Gerson, who now practices in Washington at Epstein, Becker & Green. "It's a very difficult issue, and it can't be determined along normal conservative-liberal lines."
The AHA and the U.S. Chamber of Commerce jointly filed a friend of the court brief supporting the state and calling for the law to be overturned. It argued separation of powers issues but conceded that many of its members "are frequently subjected to litigation that private citizens bring against them under the False Claims Act."
San Francisco healthcare lawyer Stephen Meagher of Phillips & Cohen, said such a ruling could devastate government efforts to protect Medicare and Medicaid. Meagher said while the government could continue to pursue cases under the act, without the whistleblowers it would lack important allies and information.
Meagher represents two whistleblowers suing Columbia/HCA Healthcare Corp. and Quorum Health Group. "If the court finds this unconstitutional, it will drive a hole through the statute," he said. "It would be open season for fraud."
Sen. Charles Grassley (R-Iowa), one of the authors of the 1986 amendment to the False Claims Act, said that if the Supreme Court weakens or overturns the False Claims Act, "the winners will be those who would commit fraud. The losers will be the taxpayers."
Malcolm Sparrow, author of License To Steal: How Fraud Plagues America's Health System, said efforts like the AHA's brief imply that the healthcare industry opposes any government fraud-fighting efforts. "This is the latest attempt to gut one of the most effective weapons the government has to fight fraud," he said.