Courts Disagree on the Meaning of “Public Disclosure”

Chicago – The False Claims Act places several restrictions on a person’s ability to pursue a qui tam case on behalf of the government. One of these restrictions is known as the “public disclosure bar”. The definition of public disclosure was recently addressed in the case of United States, et al. v. Whipple, et al.

In Whipple, the plaintiff alleged that the defendant hospital violated the False Claims Act by knowingly submitting false of fraudulent claims to Medicare and other federally funded health care programs. The relator alleged that the hospital submitted fraudulent claims for inpatient care which should have been billed as outpatient, observation services for same day surgery claims, inpatient admissions for renal-dialysis claims, and for carotid artery stenting without authorization. The relators asserted that he discovered these frauds while working for defendant in 2006.

The relator also claimed that he was unaware of a government audit and investigation against defendant for improper billing of Medicare by defendant. In fact, the government opened an administrative investigation in February 2008 which was resolved in September 2009 after defendant refunded $477,140.42 to the government.

In October 2010, the relator disclosed his suit to the U.S. and filed his suit in March 2011, with the government declining to intervene a year later.

Defendant moved to dismiss the complaint claiming the court lacked subject matter jurisdiction because the allegations were publically disclosed. The False Claims Act states that no court shall have jurisdiction over a qui tam action that is: “based upon the public disclosure of allegations or transactions [1] in a criminal, civil, or administrative hearing, [2] in a congressional, administrative, or [GAO] report, hearing, audit, or investigation, or [3] from the news media, unless the action is brought by the Attorney General or the person bringing the action is an original source of the information.” 31 U.S.C. 3730(e)(4)(A) (1986)

While original source is defined as an individual “who has direct and independent
knowledge of the information on which the allegations are based and has voluntarily provided the information to the Government before filing an action under this section which is based on the information.” 31 U.S.C. 3730(e)(4)(B) (1986).

The district court decided that it needed a more developed factual records and limited discovery to for that purpose. The district granted the motion to dismiss and this appeal followed.

In determining whether the public disclosure bar applied the Court of Appeals first looked to whether there was a public disclosure through one of the list entities in the False Claims Act, and second whether the allegations in the case were based upon the public disclosure. Even if both of these elements are met, a relator may still proceed with the action if the relator qualifies as an original source. An original source as defined above.

The Sixth Circuit, first looked to whether there was a public disclosure. For a public disclosure that must have been, a disclosure to the public and, second the disclosure must have revealed the same fraudulent activity as alleged in the relator’s complaint. The disclosure had to be sufficient to put the government on notice of fraudulent activities, and must lead to as least an inference of fraud.

In this case, an anonymous tip in 2006 to a fraud hotline started the ball rolling and a private contractor conducted an investigation on behalf of the government. In September 2009, the defendant submitted a refund check to the government for $477,140.42

The central question the court addressed was meaning of the term public disclosure. All of the circuit courts which have addressed this phase have reached one conclusion, except for the Seventh Circuit. The Supreme Court has not specifically address the issue but stated that the phrase should be interpreted consistently with the plain meaning of the text. The Seventh Circuit interpreted public disclosure to include the disclosure of the alleged fraud to a competent public official with managerial responsibilities for that claim. All of the other circuits require a disclosure to be to someone outside of the government, reasoning that it would not be a public disclosure if the disclosure was only to the government since the government is not the public.

The Sixth Circuit concluded that the disclosures made to the private entity used by the government to investigate the claims made from the anonymous source were not public and did not constitute a public disclosure. The district court’s dismissal of the case was reversed and the case was remanded.

For more information on the False Claims Act, visit Rosenblatlaw.com.