The United States Supreme Court Closes the Door on “Opportunistic” Whistleblowers Who Get Their Information From FOIA Requests

On May 16, 2011, the U.S. Supreme Court ruled that False Claims Act (FCA) cases brought by whistleblowers who base their allegations on information found in records released by federal agencies pursuant to a Freedom of Information Act (FOIA) request are subject to the “public disclosure” bar. The FCA’s public disclosure bar generally prohibits private parties from bringing whistleblower actions based on “the public disclosure of allegations or transactions in a criminal, civil, or administrative hearing, in a congressional, administrative, or Government Accountability Office report, hearing, audit, or investigation, or from the news media.”

In the case at issue, Schindler Elevator Corp. v. United States ex rel. Kirk, a former employee of Schindler Elevator Corp., Daniel Kirk, filed a whistleblower action against Schindler alleging that Schindler violated the FCA by submitting false claims for payments under its federal contracts, which claims included what Kirk alleged were false certifications of Schindler’s compliance with the Vietnam Era Veterans’ Readjustment Assistance Act of 1972, which required Schindler to report certain data about how many of its employees were “qualified covered veterans” within the meaning of that statute.

To support his claims, Kirk included records his wife had received from the Department of Labor (DOL) in response to her FOIA request. The Supreme Court held that the DOL’s written response to the FOIA request “constitutes a ‘report’ within the meaning of the FCA’s public disclosure bar.”

The Supreme Court’s decision received mixed reactions. According to those who applauded the Supreme Court’s decision, this decision is the right one because it will prevent “opportunistic” whistleblowers who have no personal knowledge of the fraud they allege from benefiting financially under the FCA’s whistleblower provisions (which provide for the whistleblower to receive a share of the Government’s recovery). Others, including Justice Ginsburg who wrote the dissenting opinion, said the ruling will weaken the FCA as a weapon against fraud on the part of government contractors.

While this case does not involve health care providers, the ruling is still relevant as it will also affect who can bring whistleblower cases against health care providers who participate in federal health care programs, including the Medicare and Medicaid programs. However, it is not clear what effect this ruling will have on future FCA cases, as the Patient Protection and Affordable Care Act (PPACA) amendments to the FCA gave the Department of Justice the right to oppose the dismissal of a lawsuit filed by a whistleblower based on the public disclosure bar. The PPACA amendments were not retroactive, however, so this ruling would certainly apply to cases filed prior to PPACA’s effective date, March 23, 2010.

The lesson to be learned from the Schindler case is that hospitals and other health care providers who file reports or submit data to the federal (or state) government should ensure that the data is complete and accurate so that there is nothing to worry about even if the reports or data are released to a third party pursuant to a FOIA request or other request for information.

Seventh Circuit Holds that Anti-Kickback Statute is Violated “If Part of the Payment Compensated Past Referrals or Induced Future Referrals”

The second case affirms what other circuits have held, that if one purpose of an arrangement between a health care provider and a potential referral source is to induce referrals, then the Anti-Kickback Statute is violated. In United States v. Roland Borrasi, the Seventh Circuit upheld the defendant, Dr. Borrasi’s conviction for conspiracy to commit health care fraud and several counts of violating the Anti-Kickback Statute.

Dr. Borrasi was the owner of Integrated Health Centers, S.C. (Integrated), a corporate group of health care providers who worked primarily at nursing homes and hospitals. Dr. Borrasi and Integrated entered into a number of arrangements with Rock Creek Center, L.P. (Rock Creek), an inpatient psychiatric hospital, including a medical directorship, a lease of office space, and an arrangement pursuant to which Rock Creek paid for Integrated’s secretary, and other arrangements, which the Government argued were sham agreements to disguise bribes being paid to Integrated and Dr. Borrasi by Rock Creek in exchange for referrals of hospital and nursing home patients to Rock Creek’s hospital.

The evidence at trial showed that Dr. Borrasi was not expected to perform any duties despite being named Service Medical Director of Rock Creek and that other Integrated personnel were placed on Rock Creek’s payroll, given fake titles and job descriptions and asked to submit false time sheets. During the time period at issue in the case, 1999-2002, Rock Creek paid Dr. Borrasi and Integrated $647,204.00. The evidence presented at trial showed that Dr. Borrasi referred 484 Medicare patients to Rock Creek during just 2001. There was also a recorded conversation presented at trial in which Dr. Borrasi admitted to referring patients to Rock Creek in exchange for “free money” from Rock Creek.

The Seventh Circuit affirmed Dr. Borrasi’s criminal conviction, rejecting Dr. Borrasi’s argument that he must be found ‘not guilty’ if the primary motivation behind the remuneration was to compensate him for bona fide services. Rejecting Dr. Borrasi’s position, the Court held that “if part of the payment compensated past referrals or induced future referrals, that portion of the payment violates [the Anti-Kickback Statute].”

While the conduct at issue in this case was particularly blatant and egregious, this case should serve as a reminder to hospitals and other health care providers to ensure that their reason(s) for entering into an arrangement with a party who is a past, present, or future referral source has nothing to do with the referrals from the party. As this case shows, even where (arguably) legitimate services are provided, if even one purpose of the arrangement is related to referrals, the remuneration may be tainted and the arrangement may be found to violate the Anti-Kickback Statute. Negotiations with referral sources should focus solely on the business need at hand and should never take into consideration the ability of one of the parties to generate referrals for the other party.