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Federal Court Holds State Hospitals Immune from Whistleblower Retaliation Claims Under False Claims Act

State hospitals, including state university hospitals, have generally been treated as immune from privately prosecuted suits under the federal False Claims Act (FCA). However, are they also immune from individual claims under the FCA’s whistleblower provision? In Gentilello v. University of Texas Southwestern Health Systems, a Texas federal district court says they are. 

The Federal False Claims Act and State Hospitals

The FCA imposes civil liability upon any person who presents a false or fraudulent claim for payment or approval to the U.S. Government. The FCA also authorizes individuals to sue for FCA violations on the government’s behalf in what is known as a “qui tam” action. Finally, the FCA permits individuals to assert private causes of action on their own behalf for whistleblower retaliation.

In general, hospitals that obtain reimbursement for services through Medicare and Medicaid are subject to the FCA, but “state” hospitals are immune from qui tam actions under the U.S. Supreme Court’s decision in Vermont Agency of Natural Resources v. United States ex rel. Stevens, 529 U.S. 765 (2000). However, that decision did not specifically address whether states and state agencies are similarly immune from private retaliation claims under the FCA.

Since the decision in Vermont Agency of Natural Resources, plaintiffs have occasionally attempted to pursue qui tam actions against entities that appear to be state agencies, arguing that the entity at issue should not be treated as a state agency based on the facts. In arguing that a state university hospital is not a state agency in the context of a qui tam action, a plaintiff might ask the court to take into account such factors as whether a judgment against the hospital would be paid by the state, whether the state appoints the directors or officers of the hospital, and whether the hospital is treated as a state agency under the state’s own law.

In Gentilello, the plaintiff took the argument one step further, asserting that the health system was not immune from the anti-retaliation provisions of the FCA.

The University of Texas Southwestern Health System Case

The plaintiff in the case was a tenured professor of surgery, holding an endowed position as Distinguished Chair in Trauma and Surgical Care, and chairman of one of the divisions at the University of Texas Southwestern Medical Center at Dallas. The plaintiff allegedly learned that teaching physicians with the medical center’s department of surgery were failing to adequately supervise surgical residents in certain surgeries but that the hospital was nevertheless billing Medicare and Medicaid as if attending teaching physicians adequately supervised the care of patients. The plaintiff claimed that when he brought these wrongful practices to the attention of his supervisor, the medical center retaliated against him by demoting him from both of his positions.

In 2008, the plaintiff filed suit against the medical center alleging that false or fraudulent claims were made to the government and that he was retaliated against in violation of the FCA. In 2011, the plaintiff, the medical center, and the federal government entered into a settlement resolving Dr. Gentilello’s qui tam claims. 

After the settlement, the plaintiff continued to pursue his personal claim for retaliation, and the medical center moved to dismiss, arguing that as a state entity it was not subject to suit.

In opposing the motion to dismiss, the plaintiff did not dispute that the medical center was a state agency, but instead argued that the FCA’s whistleblower retaliation provision authorized individual actions against state agencies. The court rejected this argument, holding that a federal statute should only be interpreted as authorizing a private cause of action against a state where Congress has made “its intention unmistakably clear in the language of the statute” and that the applicable provision of the FCA makes no such clear statement subjecting states to suit. Applying Vermont Agency of Natural Resources, the court dismissed the plaintiff’s claim.

The court further held that, even if the FCA did authorize suits against state entities, such claims would still be barred based on the state’s sovereign immunity under the Eleventh Amendment to the U.S. Constitution.

This decision is significant for state hospitals, including state university hospitals, facing whistleblower retaliation claims under the FCA because its holding supports a complete defense to such claims.

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