The False Claims Act’s "Original Source" Rule: Courts Made It Tough

On March 7, 2010, ABC Nightline reported that Hospitals and doctors are
defrauding Medicare to the nightmarish tune of $60 billion dollars a year. See
Medicare Fraud Costs Taxpayers More Than $60 Billion Each Year.

As an attorney representing whisteblowers who report fraud against Medicare,
I see more than my share of outrageous schemes to steal money from a program
designed to provide medical care to older Americans.

In 1986, in an effort to address the rampant fraud in Medicare and other
programs, Congress reinstated important parts of a century-old statute
called the False Claims Act. See 31 U.S.C. § 3171, et seq. The Act
had been weakened in the first half of the Twentieth Century, and so Congress
revitalized it. I am writing blog entries about a new case out of the
7th Circuit Court of Appeals,
U.S., ex rel. Goldberg v. Rush University Medical Center, No. 10-3785 (7th Cir. 5/21/12).

In order to understand the case, you need some background about the False
Claims Act and the prior rulings by the 7th Circuit. The False Claims
Act encourages whistleblowers who know about fraud against the Government
to come forward. The Act provides job protection for whistleblowers who
are fired or who face retaliation in the workplace because they try to
report the fraud to the Government. Additionally, the whistleblowers are
entitled to a percentage of what the Government recovers as a reward for
helping the Government to recover the money in the first place.

When Congress expanded the statute, it was hopeful that it could stop the
massive fraud by defense contractors by encouraging whistleblowers to
come forward. As Medicare grew, fraud against Medicare became a more and
more important part of the problem. Now the sheer dollar cost of fraud
against Medicare — by hospitals and by doctors and by medical equipment
suppliers — has overtaken fraud by defense contractors, and by an
overwhelming amount.

In order to make sure that the whistleblower actually provided “value
added” to the equation, Congress included a provision that whistleblowers
could not get a percentage of the Government’s recovery if the whistle
already had been blown. In other words, if the Government already knew
about the fraud, i.e., if it had been “publicly disclosed”,
then the whistleblower had not been helpful, and so the False Claims Act
limited or eliminated the recovery the whistleblower could have.

The courts, including the Seventh Circuit, interpreted this exception very
broadly, and in favor of the companies accused of fraud. For example,
the Seventh Circuit decided that:

[T]he 1998 GAO report and similar public documents disclose that billing
for unsupervised work by residents was an industry-wide practice. This
led [the 7th Circuit] to hold that an allegation that a particular teaching
hospital had billed for residents’ unsupervised work was “based
upon” that disclosure, and that only an “original source”
of the information could pursue qui tam litigation.

Goldberg, No. 10-3785 at 3, referring to
United States ex rel. Gear v. Emergency Medical Associates of Illinois, Inc., 436 F.3d 726 (7th Cir. 2006).

The Seventh Circuit’s ruling made it more difficult for whistleblowers to
report Chicago fraud against Medicare, or fraud in any other location, and still keep their jobs. In my next
whistleblower blog entry, I will discuss recent decisions by the Seventh
Circuit, which hears cases about fraud against Medicare in Illinois, as
well as Medicare fraud in Indiana, and Medicare fraud in Wisconsin.