Dishonest State Hospitals May Be Liable Under the False Claims Act

For years, would-be whistleblowers shied away from suing state hospitals under the federal False Claims Act. This timidity was primarily due to a 2000 U.S. Supreme Court decision, which held that state agencies could not be sued by qui tam relators. Recently, however, several circuit court decisions have clarified the reach of this decision, particularly as it applies to state-created corporations, including state-created hospitals.

Most recently, the Fourth Circuit Court of Appeals confronted this issue in a case involving state-created student loan companies. The lower court had blindly applied the Supreme Court ruling and had dismissed the qui tam action with little analysis. The appellate court, however, vacated and remanded the decision and stressed that the court must determine whether the corporations are truly under state control.

The Fourth Circuit joined the Fifth, Ninth, and Tenth Circuits in blessing qui tam actions against state-created entities that, in effect, compete on the private market. Deciding factors include the following:

  1. Will a judgment against the entity be paid by the State?
  2. Does the State appoint the directors or officers of the entity?
  3. Is the entity involved in governmental functions?
  4. Is the entity treated as a state agency under the state law?

The answers to these questions will tend to drive the answer to whether a particular entity is truly a state agency. For many entities, including hospitals affiliated with state universities, the answers open the door to Medicare fraud qui tam actions.

For more information about qui tam law and healthcare fraud, contact Nolan & Auerbach, P.A.