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How the Expansion of Whistleblower Protection Legislation is Impacting Qui Tam Litigation in California’s Health Care Industry

Despite, and possibly because of, the federal government’s extensive history developing and implementing a complex web of protections for whistleblowers, California has long been deficient in fortifying its own legislation. No longer dependent solely on such federal legislation such as Dodd-Frank, Sarbanes-Oxley, the Occupational Safety and Health Act, the Federal False Claims Act Section 3730(h), and, most recently, the Patient Protection and Affordable Care Act, California recently expanded its own state protections to embolden a new wave of individuals who are putting a stop to fraudulent government bilking by unscrupulous companies. This new legislation expands upon the protections already set by its federal counterparts to strengthen the shield over those brave individuals who speak up and march. Thus begins a new and better reality, where, now more than ever, members of California’s health care industry are protected from retaliation and are further encouraged to report any and all dishonest activity. The California Department of Justice Office of the Attorney General has a False Claims Unit that is tasked with protecting the state against fraud and financial misconduct.

California has several key laws that protect whistleblowers. In general, the Labor Code Section 1102.5 prohibits retaliation against employees who “blow the whistle” by notifying a government agency on, or refuse to participate in, activity that would violate any laws or regulations in the workplace. Also, Labor Code Section 98.6 prohibits retaliation against employees who file a complaint for labor code violations with the Labor Commissioner or the Department of Fair Employment and Housing, and Labor Code 6399.7 prohibits retaliation against employees for filing a complaint or testifying on occupational safety and health issues. In regard to reporting illegitimate billing, Government Code Section 12653 et al. prohibits retaliation against employees who report to a government entity any fraudulent billing that were improperly submitted for payment to the government. Moreover, Government Code Section 12940(h) prohibits retaliation against employees who oppose discrimination or harassment based on race, religion, color, national origin, ancestry, physical or mental disability, medical condition, marital status, sex, age, or sexual orientation. Most important within the health care industry, the Health and Safety Code Section 1278.5 prohibits retaliation against patients, physicians, nurses and medical staff who whistleblow to the government or its agencies on patient care issues at a healthcare facility. Finally, California has its own Whistleblower Protection Act at Government Code Sections 8547-8547.12 which specifically protects state employees against retribution from reporting waste, fraud, abuse of authority, violation of law or threat to publish health.

On January 1, 2014, Senate Bill (“SB”) 496, together with SB 666 and Assembly Bill 263, significantly expanded protections for whistleblowers by updating Labor Code Section 1102.5. First, SB 496 extends protection to employees who report suspected illegal behavior not only externally to public entities but specifically internally to a person with authority over the employee or to another employee with the authority to investigate, discover or correct the reported activity. This includes not only reasonably-believed violations of state and federal laws but also local laws, rules and regulations. Next, SB 496 holds liable any person who acts on the employer’s behalf and retaliates against any whistleblowing employees engaging in protected activity. The bill also extends protection to employees who not only disclose information but also when the employer anticipates or believes the employee has disclosed or may disclose the information. Finally, SB 496 adds the whistleblower protection to employees regardless of whether disclosing said information is part of their job duties.

The federal Deficit Reduction Act of 2005 (“DRA”) includes a mandatory provision that all entities, such as California medical providers, receiving annual Medicaid payments of at least $5 million must have in place various policies and procedures that address prevention of fraud, waste and abuse. The DRA includes anti-retaliation provisions. Maintaining policy language up to par with the federal government increases the state’s share of False Claims Act Medicaid awards by 10 percent.

The Affordable Care Act (“ACA”) made a substantial impact on California health care entities requiring any entity that received an overpayment to return the overpayment to the government and notify the government agency to which overpayment was returned of the reason for the overpayment. Said return of overpayment must be made within 60 days of the entity’s identification of the overpayment or the date its periodic cost report is due. If the entity retains the overpayment after the proscribed deadline, it may be liable under the False Claims Act (“FCA”) (31 U.S.C. Section 3729.) Further, the ACA amended the FCA where a violation of the Anti-Kickback Statute (42 U.S.C. Section 1320a-7b) now may also violate the FCA. Most important to this topic, the ACA added whistleblower protections (Section 1558) whereby adverse action is prohibited against employees who (1) receive a premium tax credit or subsidy for a health plan, (2) provide information to the employer or the government regarding a violation, act, or omission that the employee reasonably believes to be a violation relating to Title I of ACA, (3) testifies in a proceeding concerning such violation, (4) assists or participates in such a proceeding, or (5) objects to, or refuses to perform, any activity or assigned task the employee reasonably believes to be such a violation.

This year saw an upswing in the number of unsealed health care-related qui tam cases. For example, two related qui tam actions were brought by a private insurer that acts as a federally reimbursed Medicare Part D Plan Sponsor (“PDP”). A provider of pharmacy services to long-term care facilities contracted with the PDP to provide prescription drugs to the PDP’s Medicare Part D beneficiaries. The PDP brought an FCA claim against the pharmacy services provider alleging that it improperly billed the PDP rather than the long-term care facilities for drugs that the facilities prescribed to their patients for off-label purposes. The PDP argued that because the drugs were prescribed for off-label purposes, they were not medically necessary and therefore were not covered by Medicare Part D. Thus, the PDP alleged that the claims that the pharmacy services provider submitted to Medicare (through the PDP) for off-label prescriptions were false claims. The federal government declined to intervene, and the court entered the parties’ Joint Stipulation to Dismiss the case. This showed that whistleblowers can also take the form of a business (i.e. drug plan) rather than the traditional employee.

Another example is a recent settlement of a whistleblower case where Dignity Health returned over $36 million to the federal government. The relator, Kathleen Hawkins, was a former Dignity Health Director of Medical Management. Ms. Hawkins alleged that 13 of Dignity Health’s hospitals knowingly submitted or caused to be submitted claims for payment to the federal government for certain procedures that were billed as inpatient procedures rather outpatient procedures.

In a precedent setting decision, the California Supreme Court permitted a whistleblowing physician to sue before exhausting the internal administrative process. The physician filed a whistleblowing lawsuit under California’s Health and Safety Code Section 1278.5 alleging that the hospital retaliated against him by terminating his staff privileges after he reported substandard performance by the hospital’s nurses. By not requiring the physician to exhaust the long-standing administrative requirement to first prevail in an administrative proceeding to set aside a peer review decision, the Court has made it much easier for health care providers to assert whistleblower lawsuits.

The aforementioned decisions will certainly pave the way for other health care practitioners, contractors, entities and employees to use the assortment of whistleblower protection provisions to report inappropriate medical care or improper submissions of claims for government reimbursement. Increased reporting, or whistleblowing, is a welcomed change, and one that should continue to flourish under a system of accountability, compliance, and transparency.


See http://oag.ca.gov/cfs/falseclaims

U.S. ex rel. Fox Rx, Inc. v. Managed Health Care Associates, Inc., Nos. 2:13cv8433 and 2:13cv6154 (C.D. Cal.)

U.S. ex rel. Hawkins v. Catholic Healthcare West, Inc. et al., No. CV-09-5604-JCS (N.D. Cal.)

Fahlen v. Sutter Central Valley Hospitals, et al., No. S205568 (February 20, 2014.)