Striking major provision of qui tam lawsuits could hurt efforts to reduce fraud
There is little doubt that fraud, waste, and abuse (FWA) is rampant in the American healthcare system. FWA ranges from gross inefficiency and poor use of healthcare resources all the way to outright illegal activity. In between there are all sorts of over-utilization and excessive testing.
Outright fraud is up to 10% of our entire healthcare expenditures each year. FWA is likely up to 25%. With national healthcare expenditures expected to hit $5 trillion in 2024, up to $500 billion each year is fraud and $2.5 trillion is combined fraudulent, wasteful, or abusive spending.
That is what makes the recent U.S. District Court of the Middle District of Florida decision on so-called qui tam lawsuits (I will call them qui tams from here on) very troubling. Federal Judge Kathryn Kimball Mizelle ruled last month that whistleblowers cannot file False Claims Act (FCA) lawsuits on behalf of the federal government. Admittedly the decision is different from five other decisions on the legality of qui tam provisions. But if the decision is upheld at the appellate level or by the Supreme Court, it could quell qui tam lawsuits in the future.
What is a qui tam lawsuit?
The FCA penalizes healthcare organizations for submitting inaccurate claims to Medicare, Medicaid, and other government payers. Qui tam, which comes from a longer phrase, is Latin for “who as well for the king as for himself” or “in the name of the king.” The concept goes back hundreds of years. In this case it allows an individual to file a lawsuit individually as well as in the name of the government alleging illegal behavior by an individual or firm under the FCA. For coming forward and reporting such fraudulent behavior, the so-called “whistleblower” would be awarded a percentage of any settlement or award on victory. This can be up to 30%. There are both state and federal qui tam statutes. In federal law, qui tams date back to the Civil War period. Parallel statutes and similar ones cover fraud in other areas of government.
Many of the lawsuits center on Medicaid and Medicare program fraud. The government collected over $2.68 billion in FCA settlements in 2023. Healthcare was over two-thirds of that amount or $1.82 billion.
What did the Florida district judge say?
These lawsuits proceed in court whether or not the government directly intervenes in the case with the individuals. Judge Kathryn Kimball Mizelle decided in the Florida district court case that relators pursuing FCA cases essentially act as officers of the United States and must be appointed by the president under the appointments clause of the Constitution. The appointments clause has become a focal point of court decisions of late in many areas. As an example, cases in federal court challenge whether preventive services mandates are legal under the Affordable Care Act (ACA) because members of various agency task forces deciding what should be included in benefits free of charge are not appointed by the president.
Mizelle cited a 2023 dissenting opinion authored by Supreme Court Justice Clarence Thomas that raised doubt about the constitutionality of qui tams. But again, five other courts upheld qui tams as constitutional. At any rate, it appears the issue could be ripe for the Supreme Court to dissect in the near future.
The pros and cons of qui tams
On one hand, healthcare entities argue that qui tams are used by disgruntled employees to file frivolous claims. These companies spend millions of dollars defending themselves in court. They argue these individuals are looking for a million-dollar payoff and businesses are forced to concede whether allegations are true or not. The government can decline to intervene in a qui tam case, which it does about 75% of the time. This may give us a glimpse at how strong these cases are. The DOJ can ask courts to dismiss FCA complaints if they have no merit. But that does not always happen.
Some also complain that qui tams lead to healthcare entities being convicted on nebulous issues due to sensationalistic headlines and a lack of understanding of the tenets of law. This can happen whether or not the government intervenes.
On the other hand, qui tams have shown to reveal truly fraudulent behavior by healthcare entities. The government has intervened in these fraud cases and they might not otherwise have been aware of. Billions have been recovered over the years and an argument can be made that tens of billions have been saved over time because of qui tams. The fraud could have continued for years before being discovered by the government if at all. The secret to qui tams also is the insider information that these whistleblowers have. Again, it could take years for that information to become public and allow government authorities to investigate and intervene. Such qui tams also protect current employees who filed them from retaliatory actions by their employers.
Further, the threat of qui tam lawsuits would seem to ensure that healthcare companies have strong fraud prevention and monitoring programs, to take reported fraud and misconduct seriously, and to even self-report fraud and misconduct.
What could the Florida case mean if upheld?
Qui tams have proliferated over the years. The theory on why qui tams are important is that the government cannot adequately monitor for, investigate, or prosecute all allegations of fraud.
In essence, if the Florida case is upheld, individuals can no longer file on behalf of the government. As I note this could have a chilling effect on future filings to root out fraud in the healthcare system. The number of whistleblower lawsuits could be reduced and the incentive for reporting such fraud lessened. It could weaken the fraud-prevention regulatory paradigm in healthcare and beyond.
Opponents of qui tam argue that governments can still investigate fraud. But we know that governments have limited budgets and resources. They do not have access to all the information whistleblowers do. And generally, government has done a poor job across the board in rooting out and prosecuting such misdeeds.
What will happen next?
The Florida district court decision likely will be appealed to the 11th Circuit and then it could go to the Supreme Court if upheld there. Or, even if it is overruled, it could go to the high court. In the interim, qui tams could face major scrutiny around the nation by judges and lead to more decisions on both sides of the issue.
My view
While controversial, my view is that qui tams are an important mechanism to root out fraud and illegal activity in healthcare and beyond. Reform may be needed in some cases to stop truly frivolous lawsuits. But with FWA representing such a huge amount of healthcare spending, qui tams should not be reined in entirely. After all, they have worked in common law for centuries.
#fwa #healthcare
— Marc S. Ryan