Liability under the False Claims Act (FCA) can result in potentially enormous payouts to individuals, and sometimes to companies, who alert the government to allegations of healthcare fraud. The payouts to the whistleblower (or relator), which can be as much as 30% of the proceeds of the action or settlement, do not always attract those with valid claims (31 U.S.C. § 3730). While many FCA qui tam actions are brought by relators in the good-faith belief that claims were submitted to the government in violation of the law, others may be driven by greed and without evidentiary support. But because of the highly punitive nature of the damages and civil monetary penalties in the statute and the enormity of the potential recoveries, sometimes far more than the actual loss to the government, any FCA lawsuit can turn into a bet-the-company case. FCA lawsuits can have particularly dire consequences for family-owned businesses and to communities where quality senior care is hard to come by. It is this reality which provides both relators and the government with extraordinary leverage, often forcing defendants into settlements for monetary sums far in excess of what any actual exposure should be based on the law and the facts. Both the government and experienced relator’s counsel understand this reality all too well. Facing a mandatory penalty scheme and restricted only by the less than certain bounds of constitutional permissibility, courts struggle to define when a penalty is excessive in violation of the Eighth and Fifth Amendments.
One federal court recently, on its own motion to show cause, directly took on the fundamental unfairness and inappropriateness of the significant leverage provided to plaintiffs under this punitive scheme (U.S. ex rel. Jehl v. GGNSC Southaven LLC et al, No. 3:19-cv-0091, 2021 WL 2815974 (N.D. Miss. Jul. 6, 2021)). There is not a bright-line rule for determining the constitutionality of the amount of a judgment under the FCA, but defendants have challenged judgments under the Eighth and Fifth Amendments of the Constitution with varying degrees of success over the years. Jehl is a notable case in favor of skilled nursing facility defendants.
In Jehl, the United States District Court for the Northern District Court of Mississippi, without prompting, ordered the relator in an FCA case to show cause as to why he was entitled to treble damages and significant civil penalties for services rendered by an allegedly unlicensed nurse in a supervisory position. In his claim, the relator alleged that a nurse supervisor employed by the defendant in its Southaven nursing home was unlicensed and that, as a result of the licensing violation, claims submitted to the government for all services she supervised were false. In submitting its claims, the defendant certified that the healthcare services provided were in compliance with the law and regulations, which would, according to the relator, include the proper licensing of its nurses.
Given the “crippling” nature of mandatory penalties and treble damages associated with the FCA, the court stated that it is advisable “to consider whether the FCA’s strict and rigid damages scheme renders it an unsuitable vehicle to address the alleged licensing or regulatory violation at issue in a particular case” (Jehl, 2021 WL 2815974, at *9). In ordering the relator to show cause as to why the case should not be dismissed, the court reasoned that “it appears that calculating damages unrelated to actual harm or injury may present a potential unfairness, or even absurdity, in the law,” especially given that the nurse’s “licensing status had no actual impact on patient care” (id. at *2-3). The court was reluctant to grant the mandatory damages under the FCA because the damages were “difficult to reconcile with any considerations of proportionality and fairness” (id. at *2). Importantly for the senior care industry, the court noted that “if FCA plaintiffs with even factually weak claims are able to threaten nursing homes with staggering sums in mandatory penalties in the event that liability is found by a jury, then this will give them great leverage to compel settlements on unjust terms” — in this case, for what the court considered a new cause of action (id. at *4). In the court’s view, minor licensing issues should be resolved by state and federal regulatory agencies because the remedies under the FCA are “too strong medicine” (id. at *6).
The Jehl court’s approach to side-step FCA liability altogether by indicating that any violation should be resolved by the administrative process as opposed to the courts for what it perceives as minor misconduct is a novel approach to addressing the overwhelming impact of mandatory damages and civil penalties under the FCA. The judge who issued the foregoing opinion recused himself due to friendship with the relator’s counsel, leaving resolution of the show cause order with another judge. In his recusal order, the court declared that he was still “completely undecided regarding whether this case should go to trial or not” (Jehl, No. 3:19-cv-0091 (Doc. 314) (N.D. Miss. Aug. 12, 2021)).
It is possible that, rather than resolve the show cause order, the court may grant the defendant’s pending motion for summary judgment based upon evidence that the nurse was, in fact, licensed throughout her employment with defendant. In any event, the court’s show cause order is nonetheless reflective of a concern that the enormous leverage wielded by the government and relators, especially in FCA cases involving a high volume of smaller claims, is simply fundamentally unfair to defendants. The parties are still briefing the issue. We will continue to track the Jehl case because it is one of the first cases in which a federal court has so directly and openly addressed these important issues.