More Whistleblowing Means More Worries for Employers

by Foley & Lardner LLP
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If you are an employer in the health care or defense industry, in addition to compliance with the panoply of employment laws you must adhere to, employers must also be attuned to their exposure to whistleblower claims under the federal False Claims Act (FCA). There has been a veritable explosion of recent FCA whistleblowers bringing major actions against health care organizations. Under the FCA, individual whistleblowers, called “relators,” bring lawsuits alleging that some entity, often their employer, has somehow defrauded the federal government by either overcharging or misspending federal money. As an incentive to would-be FCA relators, the government is willing to share monies it recovers. Relators usually receive between 15 and 25 percent of any recovered damages.

FCA claims are not just being brought against health care organizations. Companies who contract with the military or other government spending programs, including pharmaceutical companies, have all been the subject of huge multi-million dollar settlements. These settlements have, in turn, resulted in major payments to the original whistleblowers. The FCA, just like most employment laws, also contains an anti-retaliation provision. In the event an employer disciplines or discharges a “relator” in retaliation for bringing an FCA suit, in addition to sharing in the financial recovery for the government, the relator is entitled to double damages plus attorney fees in addition to reinstatement.

FCA compliance for health care organizations is in some ways being impeded by the trend of more physicians giving up their independent practice and becoming actual employees, rather than independent contractors. According to a recent New York Times article, “[t]oday, about 60 percent of family doctors and pediatricians, 50 percent of surgeons and 25 percent of surgical subspecialists — such as ophthalmologists and ear, nose and throat surgeons — are employees rather than independent contractors, according to the American Medical Association.” As health care organizations increasingly employ physicians, another federal law, known as the Stark Act, complicates compliance issues and increases the chance of a potential whistleblower action under the FCA. The Stark Act restricts physicians’ ability to refer patients to service providers like medical labs, physical therapy practices, radiologists, and medical equipment providers if the referring doctor has a financial interest in the service provider. Thus, if an employee, like a physician, receives a financial incentive to refer patients to an entity that the referring physician—or his or her employer—has a financial interest in, the arrangement must be carefully reviewed to insure Stark Act compliance.

If you are an employer in an industry that receives federal funds or that does business directly with the federal government, all your employment actions must be carefully scrutinized. You must be able to demonstrate that compensation is at “fair market value,” and that no salary is being used to incentivize an illegal purpose. At a minimum, all employment and compensation arrangements should be in writing. Employee expenses devoted to gifts, meals and other nonmonetary compensation must be carefully monitored. Like all other areas of employment law, prioritizing the training of management and providing meaningful avenues of internal reporting of potential violations, followed by prompt investigation, is the best preventive medicine.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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