Eleventh Circuit Holds Objectively Reasonable Belief of Fraud Required for Protection Under FCA Retaliation Provision

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The Eleventh Circuit recently clarified the standard for deciding whether a plaintiff has engaged in a protected activity for purposes of successfully pleading a False Claims Act (“FCA”) retaliation claim. In Simon ex rel. Florida Rehabilitation Associates, PLLC v. HealthSouth of Sarasota Limited Partnership, No. 21-11618, 2022 WL 3910607 (11th Cir. Aug. 31, 2022), Dr. Emese Simon alleged that her employer, HealthSouth, submitted fraudulent claims to the government involving the allegedly fraudulent diagnosis of disuse myopathy. She also alleged that HealthSouth ultimately constructively discharged her due to her complaints about the allegedly false diagnosis. After Dr. Simon’s allegations of fraudulent billing were dismissed, the district court granted summary judgment for HealthSouth on Simon’s retaliation claim. It found, and the Eleventh Circuit agreed, that Simon could not show that she had an objectively reasonable belief that HealthSouth was violating the FCA, as necessary to recover for a claim of FCA retaliation.

Dr. Simon was an attending physician with admitting privileges in HealthSouth Sarasota Hospital. She alleged that HealthSouth encouraged her and other physicians to diagnose patients with disuse myopathy, representing to them that it was a diagnosis that counted toward meeting the requisite patient mix to qualify for funding under 42 C.F.R. § 412.29(b)(2), which establishes payment conditions for inpatient rehabilitation facilities (“IRFs”). Dr. Simon alleged that she believed that this was a fraudulent diagnosis and complained verbally to HealthSouth about it over multiple years. Subsequently, HealthSouth investigated the diagnosis, and later secured the expert report of a former president of the American Academy of Physical Medicine & Rehabilitation, a rehabilitation physician with 51 years of practice, who opined that disuse myopathy is a histologically and clinically accurate and appropriate diagnosis. Dr. Simon admitted diagnosing patients with disuse myopathy for a period of months while at HealthSouth, but explained that she did so in response to pressure. She further admitted that physicians could have a difference of opinion on the diagnosis. Simon alleged that when she complained about the internal directive and refused to diagnose patients fraudulently, HealthSouth constructively discharged her by threatening, demoting, and investigating her, as well as by limiting her admitting privileges and restricting the assignment of her patients to her. Two months after HealthSouth terminated Dr. Simon’s position as part-time medical director, Dr. Simon requested and was granted medical leave. She did not return once her leave was complete and allowed her admitting privileges to expire.

Dr. Simon brought an action alleging multiple acts of fraud against HealthSouth, as well as her FCA retaliation claim. The government intervened for purposes of settlement of her fraud claims, which were dismissed with prejudice. Dr. Simon persisted with her FCA retaliation claims, alleging that she had engaged in protected conduct by objecting multiple times before her constructive discharge to HealthSouth’s practice of falsifying diagnoses, such as disuse myopathy, so that patients could be admitted to meet the hospital’s 60% rule for IRF claims.

Under the FCA, an activity is “protected conduct” if it is in furtherance of FCA litigation or other efforts to stop FCA violations. 31 U.S.C. § 3730(h)(1). A plaintiff who, like Dr. Simon, argues that her conduct was in the form of “other efforts” to stop an FCA violation must show that she had an objectively reasonable belief that her employer violated the FCA to establish that she engaged in protected activity. The Eleventh Circuit explained that, in order to file under the False Claims Act, whether in a qui tam or a retaliation action, an employee must suspect that her employer has made a false claim to the federal government. Acknowledging Dr. Simon’s subjective belief in the illegitimacy of the disuse myopathy diagnosis, the court reasoned that she had not established that disuse myopathy was not a valid condition such that it was a false claim to submit billing based on it for government reimbursement. Examining other physicians’ belief in the legitimacy of the diagnosis and Dr. Simon’s own admitted use of the diagnosis (which she never said was false or fraudulent), the court concluded that Dr. Simon’s opinion did not establish that the judgments of other doctors who diagnosed disuse myopathy — or any claims based on those doctors’ judgments — were false for purposes of the FCA. Thus, her claim of FCA retaliation failed.

The Eleventh Circuit’s decision helps clarify the objective standards employees must satisfy for their complaints to be considered “protected conduct” under the retaliation provisions of the FCA. Employers with concerns about internal complaints and potential retaliation litigation should seek legal advice before taking adverse employment actions against their employees.

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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