Qui tam Relators and State Entity Hospitals

In 2000, the United States Supreme Court held that states cannot be sued in a private action under the False Claims Act. Vermont Agency of Natural Resources v. United States ex rel. Stevens, 529 U.S. 765, 787-88 (2000). Since then, some FCA defendants have sought to evade FCA liability by arguing that they qualify as a state entity. Most notably, in the healthcare fraud arena, state university hospitals and health systems have argued that they are per se immune to qui tam actions.

Most of the circuits have now danced with this issue. All of these courts have determined that the Eleventh Amendment’s “arm-of-the-state analysis” should be applied in the determination of whether such an entity is a state agency and, thus, not a “person” within the purview of the FCA.

Synthesizing the various decisions, courts have assessed the following arm-of-the-state factors:

  • the degree of state control over the entity;
  • the way in which the entity is described and treated by its enabling legislation and other state statutes;
  • how state courts have viewed the entity;
  • the functions performed by the entity; and
  • whether the entity is separately incorporated.

When it comes to state university hospitals, most courts have found that the factors weigh in favor of state immunity. However, as healthcare has evolved in recent years, state university hospitals may be increasingly viewed as entities openly competing on the private market. If so, the arm-of-state analysis might go the other way.

This point was emphasized by the Eleventh Circuit, which reduced its arm-of-the-state analysis to a succinct rule: “When … an entity is privatized and is structured to achieve financial independence from the state entity which owns it, we will not disregard its structure merely because the state retains proprietorial title to its asset.” U.S. ex rel. Sikkenga v. Regence Bluecross Blueshield of Utah, 472 F. 3d 702, (11th Cir. 2006).

In short, would-be whistleblowers should not forego contacting an experienced qui tam attorney simply because they work for a state university hospital or county health system. After a thorough analysis, the university, in fact, might be a reachable by a False Claims Act qui tam action.

More information for whistleblowers is located at the Nolan Auerbach & White website.