On March 23, 2010, President Obama signed into law the healthcare overhaul bill, known as the Patient Protection and Affordable Care Act (“PPACA”). The PPACA will result in an expansion of government-funded healthcare. An additional focus of the PPACA is on rooting out and deterring billing fraud by healthcare providers. Even prior to the expansions contemplated by the PPACA, estimates for the amount of fraud on the Medicare system have been as high as $80 billion per year (although it is also widely recognized that no good measure exists, and that these estimates cannot be specifically documented). One aspect of the anti-fraud provisions of the PPACA is an amendment to the False Claims Act that limits the scope of the so-called “public disclosure bar.”
The “public disclosure bar” is a defense that can be raised by a defendant in a False Claims Act qui tam lawsuit. A qui tam lawsuit is one brought by a member of the public, but in the name of the government. Qui tam lawsuits under the False Claims Act are typically brought by company insiders or others with unique access to information that is not already known to the government. The person who brings the lawsuit is known, in False Claims Act jargon, as a “relator.” A successful relator receives, as his or her reward for bringing the case, a share of the money recovered for the government. That share is typically between 15% and 30%.
However, the False Claims Act’s public disclosure bar prevents would-be qui tam relators from profiting off of disclosures of fraud that have already been exposed, and that have reached the public domain. Thus, courts have traditionally had the power, under the public disclosure bar, to dismiss qui tam cases based upon fraud that has already been publicly disclosed. What counts as “public disclosure,” however, has been a hotly-contested issue.
The PPACA changed the public disclosure bar in many respects to the benefit of both qui tam relators and the government. The public disclosure bar previously barred courts from considering qui tam lawsuits that were “based on” allegations of fraud already publicly disclosed through a variety of avenues—including state, federal and administrative proceedings, hearings, audits, or investigations. In this fashion, the old public disclosure bar problematically discouraged insiders or other persons who may have had similar, but substantively different knowledge of fraudulent allegations from exposing the new important information to the government. The new public disclosure bar only bars actions and claims if they disclose information that is “substantially the same” as the previously disclosed allegations or transactions, thus providing incentives for persons who have different allegations to come forward and expose the fraud.
Perhaps most importantly, unlike the old bar, the new public disclosure bar does not consider information disclosed in state and private proceedings to be “publicly disclosed.” Now, under the PPACA amendments to the False Claims Act, information is considered publicly disclosed only if it is disseminated in federal proceedings, reports, hearings, audits, or investigations. And with respect to federal criminal, civil or administrative trials and hearings, the government must actually be a party to the proceedings where the information is disclosed. (As with the previous version of the statute, any information disclosed through news media is still considered “publicly disclosed.” Thus, actions based on information that is substantially the same as news media reports will continue to be barred.)
The PPACA also broadens what was previously the single exception to the public disclosure bar, called the “original source” exception. Under the previous version of the False Claims Act, an action based upon information that was “publicly disclosed” was not barred if the person had “direct and independent” knowledge of the information underlying the allegations. Now, the original source exception covers two types of whistleblowers. First, a person who disclosed the information to the government before it was publicly disclosed can still proceed with a lawsuit based under the False Claims Act. Second, a person who has knowledge that is “independent of and materially adds to” the publicly disclosed allegations or transactions, and who has provided the information to the government before filing a lawsuit under the False Claims Act, is excepted. While the exact meaning of these terms will likely be the subject of interpretation by the courts, it is clear that they are intended to broaden the “original source” exception.
Finally, the amendments to the False Claims Act included in the PPACA for the first time give the government considerable discretion in deciding whether a case otherwise barred by the publicly disclosure may still go forward. Under the previous version of the law, the bar was considered “jurisdictional,” which meant that a court was required to dismiss a qui tam case if it fell within the public disclosure bar. Under the new version, the government may oppose dismissal of the case, even if it falls within the public disclosure bar, and thus permit the qui tam lawsuit to go forward. This gives the government the ability to assess the circumstances, including how the dismissal of the qui tam relator’s case will affect the government’s ability to fully prosecute the case.
The re-worked public disclosure bar should have the effect of encouraging the disclosure of actual fraud, while still limiting rewards to persons who are the first to make the government privy to the specific allegations. This is a positive development in False Claims Act law, and will help protect the public fisc from fraud on the Medicare system that, by all accounts, costs taxpayers billions of dollars each year.