Whistle While You Work: How the False Claims Act Amendments Protect Internal Whistleblowers

Sunday, January 15th, 2012 at 6:28 am by John T. Nicolaou

John T. Nicolaou, Whistle While You Work: How the False Claims Act Amendments Protect Internal Whistleblowers, 2011 Colum. Bus. L. Rev. 531.

Fraud on the federal Medicare and Medicaid programs is pervasive. Due to the complexity of federal billing protocols in the healthcare context, evidence of fraud is frequently hidden within an organization, “buried in mountains of paper or digital documents.” Because law enforcement officials will always be outsiders to organizations in which fraud is occurring, insiders who are willing to blow the whistle provide the most effective way for outsiders to learn that wrongdoing has occurred.  For instance, without the cooperation of inside whistleblowers, how could government investigators discover that an orthopedic center regularly claims reimbursements for the most expensive form of pre-operation visit, when in reality, the visits at issue took only five minutes or less? Likewise, how could investigators learn that a hospital fraudulently billed for hospitalization services for heart transplant patients who had no objective medical need for such treatments? These types of healthcare fraud require inside knowledge not only of the relevant paper trail, but also of the true medical condition of the patients or the actual services rendered that only an inside witness could have.

Given these challenges, the civil False Claims Act (hereafter referred to as “the False Claims Act,” “the Act,” or “the FCA”) is structured to prevent and detect fraud on federal healthcare programs and on the federal government generally. The False Claims Act forbids any person from knowingly making false or fraudulent claims on the public fisc. Actions under the sections forbidding fraud are often referred to as “FCA fraud claims.” Unlike other anti-fraud statutes, the FCA contains unique procedural devices that actively enlist private citizens with inside information in the fight against fraud. Under the current version of the Act, both private citizens, also known as “qui tam relators,” and the Attorney General of the United States may file civil actions on behalf of the federal government. If any case originally filed by a qui tam relator succeeds, the relator and the government split any recovery, which can include treble damages and civil penalties for each false claim.

But even with the monetary incentive of a contingent share of any recovery, potential whistleblowers often face a difficult choice between reporting their concerns to federal attorneys or keeping quiet. Most whistleblowers with inside information are also employees of the defendant, such that they often risk termination whenever they expose their employer to FCA fraud liability or otherwise undermine their employer’s efforts to defraud the government. To counteract these obstacles to whistleblowing, Congress added a retaliation provision when it revised the FCA in 1986. This provision holds defendant employers liable for any retaliation against a plaintiff employee “because of lawful acts done by the employee on behalf of the employee or others in furtherance of an action under” the FCA fraud provisions, including “investigation for, initiation of, testimony for, or assistance in an action filed or to be filed.” Courts frequently refer to the statutory prohibition of such forms of retaliation and actions thereunder as “the FCA retaliation provision” and “FCA retaliation claims,” respectively. This Note focuses on recent amendments to the retaliation provision.

While the 1986 retaliation provision improved the lot of many employees, it has largely failed to protect the employees most likely to possess relevant inside knowledge of fraudulent activity, namely, the internal compliance employees who monitor the propriety of company billing practices as part of their primary job duties.  Despite judicial willingness to include internal reports and investigations of fraud within the scope of protected activity under the broad language of the 1986 retaliation provision’s “in furtherance” clause, courts have relied on the provision’s legislative history to infer a rigorous employer notice requirement never mentioned in the statutory text. To prove their employer had notice of their protected activity under the 1986 provision, corporate compliance employees must show that they engaged in extraordinarily adversarial conduct that would have affirmatively rebutted the employer’s presumption that they were performing their regular job duties.  Under this onerous notice standard, some courts have denied corporate compliance employees protection under the statute, even when the defendant employers clearly retaliated against these employees because they reported concerns regarding potentially fraudulent and illegal billing practices.

In response to these and other limiting judicial interpretations, the authors of the 1986 FCA amendments introduced legislation in 2007 to better carry out the legislative intentions behind the 1986 FCA amendments. Amidst growing concerns regarding fraud on new government programs, such as the Troubled Asset Relief Program and President Obama’s healthcare reform initiative, the 111th Congress proved quite receptive to the proposed amendments. After seriously considering the proposed amendments as one cohesive legislative act, Congress eventually enacted most of the proposed amendments piecemeal as components of three omnibus acts: the Fraud Enforcement and Recovery Act of 2009 (FERA), the Patient Protection and Affordable Care Act of 2010 (PPACA), and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. This series of bills amended the FCA retaliation provision in two ways. First, FERA altered the retaliation provision to protect “[a]ny employee, contractor, or agent” against retaliation “because of lawful acts . . . on behalf of the employee, contractor, or agent or associated others in furtherance of other efforts to stop 1 or more violations” of the FCA. Next, the Dodd-Frank Act further altered the text to protect employees, contractors, or agents against retaliation “because of lawful acts done by the employee, contractor, agent or associated others in furtherance of an action under this section or other efforts to stop 1 or more violations” of the FCA.

While the text of the 2010 retaliation provision and accompanying legislative history clearly indicate an intent to broaden coverage in some respects, it is less clear whether the expansion of protected activity to include “acts . . . in furtherance of . . . other efforts to stop 1 or more violations” of the FCA will actually protect the internal compliance employees whom the 1986 provision frequently excluded, because the statutory text still fails to address the employer notice requirement that frequently barred their retaliation claims in the past. If read to effect no change in the knowledge requirement, the 2010 provision will hardly change the law, despite evidence of its drafters’ intent to extend protection to internal compliance employees. At the same time, an unduly broad interpretation of protected activity could empower corporate compliance employees to flout reasonable reporting channels and procedures implemented by well-meaning employers.  Bypassing such channels and procedures may actually undermine the FCA’s goal of preventing fraud by injecting poisonous adversarialism where good faith cooperation would better cure a company’s improper billing practices.

Given the delicate balance at stake, courts must carefully construct a standard of employer knowledge that incorporates congressional intent to expand the scope of the retaliation provision to protect inside whistleblowers’ internal investigations of, and refusals to participate in, fraudulent activity.  An ideal interpretation of the knowledge requirement would direct companies that assume relatively high risks of FCA fraud liability to adopt compliance procedures requiring cooperation with whistleblowing employees while also encouraging employees to report and resolve their concerns internally before they resort to costly litigation or otherwise undermine the legitimate objectives of well-meaning employers. Part II of this Note criticizes the judicial interpretations of the 1986 retaliation provision to which the 2010 retaliation provision responded. Part III analyzes the potential readings of the protected activity and knowledge requirements of the 2010 retaliation provision. Ultimately, Part III conceptualizes proof of organizational knowledge under the 2010 retaliation provision by giving defendant employers the affirmative defense of proving that they implemented reasonable reporting procedures which the plaintiff unreasonably failed to use. If the defendant carries its burden in this regard, it will defeat the allegation that it knew the plaintiff had engaged in protected activity. If the defendant fails to carry its burden, however, the plaintiff need only show that the defendant had knowledge of the allegedly protected conduct, not of its protected nature or nexus with FCA litigation. This standard best accommodates the legitimate concerns of all interested parties while still effectuating the greater statutory purpose of detecting and preventing fraud.

Author Information

J.D. Candidate 2012, Columbia University School of Law; M.A. Northwestern University School of Communication; B.A. Vanderbilt University College of Arts and Sciences.