Hidden in the sweeping health care legislation signed into law March 23, 2010 are two amendments that could significantly increase the number of whistleblower-driven lawsuits in the federal courts. On March 21, 2010, when the House passed H.R. 3590, the “Patient Protection and Affordable Care Act,” adopting the Senate’s version of the bill, it also adopted amendments narrowing the “public disclosure bar” to qui tam actions whistleblowers file under the civil False Claims Act (FCA) and declaring certain violations of the health care Anti-kickback Statute to violate the FCA regardless of the truth or falsity of any claim. The combination significantly alters the balance struck—from 1986 until now—between ensuring that only true whistleblowers can pursue FCA litigation on behalf of the federal government and protecting defendants and the United States against parasitic lawsuits.
Amendment to the FCA’s Public Disclosure Bar
Until now, the “public disclosure bar” (31 U.S.C. § 3130(e)(4)) has been a tool used both by defendants and the Department of Justice to ward off frivolous FCA lawsuits in which the Department of Justice has elected not to intervene in bounty-hunting claims on the United States Treasury being pressed by tag-along relators who file suit based on information gleaned from the public domain. Under the existing bar, courts lack jurisdiction over whistleblower lawsuits based on allegations or transactions that are publicly disclosed in a criminal, civil, or administrative hearing, a congressional, administrative, or GAO report, hearing, audit, or investigation, or from the news media, unless a whistleblower (a) has “direct and independent knowledge” of fraud and (b) timely reports it to the Government.1
Section 10104(j) of H.R. 3590 repeals this jurisdictional bar and replaces it with a new public disclosure defense that is substantially narrower. This legislation significantly reduces the utility of what had been a frequently invoked jurisdictional defense. Significantly, the amendment is NOT limited to FCA cases concerning health care programs – the amendment weakens the public disclosure bar for every defendant facing a qui tam case involving ANY federal program.
The provision’s most significant changes are as follows:
- First, it eliminates “public disclosure” as a jurisdictional defense, reducing its status to that of any other defense and thus eliminating, among other things, the presumption that a defendant should be permitted to institute focused, initial discovery to determine whether a relator is a true whistleblower and, as such, whether the court has jurisdiction over the case after the United States declined to pursue it.
- Second, instead of barring actions “based upon” publicly disclosed allegations, the new standard only bars actions and claims if they disclose information that is “substantially the same” as previously disclosed “allegations or transactions.” This language will likely generate considerable litigation over the degree of similarity, or the number and materiality of distinguishing features, a relator must add to avoid dismissal.
- Third, it pointedly excludes state proceedings and private litigation from the list of proceedings that qualify as “public” for disclosure purposes. While its predecessor included no such qualification, the new provision specifies that disclosures in (a) “Federal criminal, civil, or administrative hearings,” (b) “in which the Government or its agent is a party” constitute public disclosures. By carving out disclosures through, for example, state administrative reports and private litigation, the law encourages bounty-driven relators— and their attorneys—to troll the public domain for allegations or transactions in state reports or private litigation as a basis for an FCA suit. The statute now clearly authorizes bounty-hunters who suffer no injury of their own to pursue costly litigation and stake a claim to recoveries obtained by government attorneys.
- Fourth, relators no longer need possess direct and independent knowledge of publicly disclosed allegations and transactions to satisfy the “original source” exception to the bar. The new provision requires only that they (a) disclose information to the Government before the public disclosure or (b) have knowledge that is “independent of and materially adds to” the public disclosure, and provide that information to the Government before filing a claim. This language is also likely to be subject to extensive litigation, and again to permit those who are not true whistleblowers to seek bounties and impose the high costs of litigation on defendants.
- Fifth, the new public disclosure bar will subject the Department of Justice to intense lobbying by relators and their attorneys by empowering the Government to veto any decision to dismiss a case based on a public disclosure. Under the new provision, a court shall dismiss an action “unless opposed by the Government.” In effect, the statute authorizes the Department of Justice to step aside (i.e., decline to intervene) and hire a relator and his or her attorney to litigate claims on behalf of the United States based not on inside information but on publicly disclosed allegations of fraud.
Fortunately, for those who are targeted by these suits, the new public disclosure bar cannot apply retroactively to claims that were submitted to the Government, or to qui tam cases that were filed, before the new law’s effective date. See Hughes Aircraft Co. v. United States, 520 U.S. 939 (1997) (holding that the 1986 amendments did not apply retroactively because the amendments eliminated a defense to a qui tam suit and therefore changed the substance of the existing cause of action for qui tam defendants). As Hughes explained: “The extension of an FCA cause of action to private parties in circumstances where the action was previously foreclosed is not insignificant. As a class of plaintiffs, qui tam relators are different in kind than the Government. They are motivated primarily by prospects of monetary reward rather than the public good.” Id. at 949. By narrowing the circumstances in which the public disclosure bar will apply and result in dismissal of a qui tam claim, the new standard for the public disclosure bar—like the 1986 amendments at issue in Hughes—eliminates a defense to a qui tam action and thus substantively alters the qui tam cause of action. As in Hughes, applying the new standard retroactively to claims that have already been submitted or in cases that were filed before the new standard was enacted would impermissibly revive some FCA causes of action that would have been barred under the prior law. This sort of legislative change is substantive and subject to the presumption against retroactive application.
Amendments to the Health Care Anti-Kickback Statute
In addition to narrowing dramatically the scope and application of the public disclosure bar, the new act also significantly broadens liability under the FCA. The extent to which violations of the AKS can be pursued and penalized under the FCA has produced significant litigation in recent years, and while the Government has succeeded in establishing the FCA as a remedy in some cases,2 some courts have recognized the theory remains dependant on a false or fraudulent representation of compliance with the AKS.3 Section 6402(f)(1) of H.R. 3590 seeks to overcome the requirement of proof of a false or fraudulent statement by amending the AKS to declare that claims “includ[ing] items or services resulting from a violation” of the AKS are actionable under the FCA. The amendment poses a clear threat of litigation, and the risk of new liability, to parties like hospitals, laboratories and dialysis facilities, who submit claims for bundles of goods and services, but have no knowledge that their claims “include” items ordered “as a result” of kickbacks paid to the ordering physician.
After a yearlong debate between and among the legislature and executive, the courts will now weigh in on the new health care legislation. These changes to the public disclosure and antikickback provisions virtually guarantee that relator-driven FCA litigation of declined cases will continue to increase and impose high costs on defendants.