Medicare Compliance & Reimbursement

The harsh penalties of the powerful False Claims Act can be levied against a wider range of health care organizations than you might think.

In a March 10 ruling, the U.S. Supreme Court settled a vexing FCA dilemma that had federal appeals courts at odds with each other — and certain health care facilities puzzled over whether whistleblowers could use the draconian law against them. The question at issue: Are local governments — a category that includes city- and county-run health care organizations — legitimate targets for FCA cases.

The answer, in a nutshell, is yes. The case under high court review, styled Cook County, Illinois v. U.S. ex rel Chandler (No. 01-1572), involves alleged grant fraud in a federally funded program run by an affiliate of Cook County Hospital in Chicago. Cook County maintained that since, in an earlier decision, the Supreme Court had concluded that state governments are immune from the FCA, local governments should be protected too.

The Supreme Court, however, declared that local government entities do in fact fall within the scope of the law. “Local governments are commonly at the receiving end of all sorts of federal funding schemes and thus no less able than individuals or private corporations to impose on the federal fisc,” says the opinion, penned by Justice David Souter.

Moreover, the fact that local governments are generally immune to punitive damages didn’t help Cook County, even though the Supreme Court itself has held that the FCA’s damages provisions are essentially punitive.

That’s because, despite their punitive elements, the damages provisions — which empower the government to collect as much as three times the amount it lost to fraud — also serve a “remedial” function, the opinion says. For example, they allow the government some compensation for investigative costs — and they provide a sharper spur to whistleblowers.

Lesson Learned: City- and county-run health care facilities should make no mistake about it: They are vulnerable to whistleblower suits under the False Claims Act.

To see the opinion, go to http://www.supremecourtus.gov/opinions/02pdf/01-1572.pdf.