In a mixed ruling for healthcare providers, the U.S. Supreme Court last week upheld a person's right to file a fraud lawsuit on behalf of the federal government, but it said that right doesn't extend to suing a state.
The 7-2 decision is good news for states and, consequently, many public hospitals, which would be immune from whistleblower lawsuits as state-run institutions.
The ruling is bad news for private hospitals and providers generally because it affirmed a person's right to file a whistleblower lawsuit under the federal False Claims Act.
Several provider groups, including the American Hospital Association, had hoped that the high court would use the case to strip individuals of that right and reduce the number of costly healthcare fraud cases against their constituencies.
The Supreme Court seemed to invite the question of the extent of an individual's rights last November when it requested briefs 10 days before agreeing to hear oral arguments in a particular case (Nov. 29, 1999, p. 4).
Seizing that opportunity, the AHA and the U.S. Chamber of Commerce filed amicus briefs asking the high court to reject the right of individuals to sue on behalf of the government. They argued that individuals suffer no injury and, thus, lack standing to sue. They said the False Claims Act questions the separation of powers between Congress and the president.
But in its opinion, which dealt with a whistleblower lawsuit against the state of Vermont, the high court said individuals clearly can sue in federal court on behalf of the U.S., pointing to legal doctrine dating back to 13th century English common law. The court said whistleblowers don't have to suffer personal injury as long as the government was injured, because the individual is acting as an agent of the government.
"We believe . . . that adequate basis for the relator's suit for his bounty is to be found in the doctrine that the assignee of a claim has standing to assert the injury in fact suffered by the assignor," said Justice Antonin Scalia, who wrote the seven-page majority opinion in the case. "The FCA (False Claims Act) can reasonably be regarded as effecting a partial assignment of the Government's damages claim."
Healthcare lawyer Stuart Gerson with Epstein, Becker & Green in Washington said the ruling will hearten whistleblowers and their lawyers.
"Hospitals and other healthcare providers and organizations can look forward to a continued flood of qui tam cases and the expense and difficulties that creates," said Gerson, a former U.S. Justice Department official.
Although the issues in the Supreme Court case affect providers, this was not a healthcare lawsuit. In his 1995 suit former state lawyer Jonathan Stevens sued the Vermont Agency of Natural Resources, alleging it had submitted false claims by inflating salary and wage expenses to the U.S. Environmental Protection Agency to obtain larger federal grants than it was entitled to.
The state argued it was immune from such lawsuits because it does not meet the legal definition of a "person" under the False Claims Act and is protected under the 11th Amendment of the U.S. Constitution.
A U.S. District Court in Montpelier, Vt., denied the state's original motion to dismiss Stevens' suit in May 1997, ruling that an individual has standing to sue a state under the act.
The state of Vermont appealed, and in December 1998, the 2nd U.S. Circuit Court of Appeals in New York City upheld the lower court's decision, ruling that a state can be a "person" under the False Claims Act. Vermont appealed to the U.S. Supreme Court.
In overturning the 2nd Circuit, the high court ruled that individuals can file False Claims Act suits but not against states. The motion to dismiss was granted.
Healthcare attorney Edward Hopkins with Broad & Cassel in West Palm Beach, Fla., predicted the decision would create a new round of litigation. Public hospitals will try to use that immunity to challenge whistleblower fraud cases against them, he said.