February 21, 2013

Blaming the Whistleblower – Court Rejects Novel Defense to False Claims Act Charges

By Gordon Schnell

It would seem on its face to be a rather brazen approach to defending a False Claims Act lawsuit.  A healthcare company is charged with defrauding Medicare by billing it for medications the company never provided its patients.  The company not only denies the wrongdoing.  It goes one step further by arguing that, if there were any such misconduct, it was the whistleblower’s fault by not alerting the company soon enough about the fraudulent practice.  Too clever for its own good?  Not for DaVita, Inc., one of the country’s largest providers of kidney dialysis.  That is exactly the argument the company made in defending against a recently unsealed False Claims Act case brought by several of the company’s care providers.  The only problem for DaVita is that the judge overseeing the action was not persuaded with this novel, if doughty defense.  He saw it as nothing but a legal ploy for indemnification from any potential liability under the anti-fraud statute.

The complaint against DaVita charged it with deliberately wasting dialysis medications to extract hundreds of millions of dollars in gratuitous Medicare payments.  The company allegedly dispensed the medicines in a way that maximized the amounts discarded, knowing that Medicare would treat it as “unavoidable waste” and pay for all of it.  So, with the iron drug Venofer for example, DaVita supposedly shied away from giving 100-milligram doses even though the drug only came in 100-milligram vials.  Instead, it provided more frequent 25-milligram doses and disposed of the remaining 75 milligrams each time.  The company apparently took a similar tact with the vitamin D drug Zemplar, requiring 6-microgram doses to be filled with 10-microgram vials (instead of with two 3-microgram vials).  According to the lawsuit, DaVita’s plan in all of this was to boost its Medicare billings by dispensing the largest quantities of medications it could, even though it meant pouring large portions of them down the drain.

DaVita, of course, maintains that it did nothing wrong.  But it also has taken the unprecedented position that, to the extent foul play was involved, the lead whistleblower should take the heat because he never brought it to the company’s attention.  Apparently, the whistleblower – a nephrologist who served as the medical director of several DaVita clinics – was contractually obligated to notify DaVita of any legal violations of which he or his staff became aware.  In failing to do so (and reporting the violations directly to the government instead), DaVita argued that the whistleblower breached his employment contract and should be held responsible for any resulting liability on the part of the company.  In the order he issued last week, Judge Charles Pannell in Atlanta federal court flatly rejected DaVita’s argument, zeroing in on the circular reasoning on which it was premised:

In order to prove that [the whistleblower] Alon Vainer breached the contract by not informing [DaVita] about violations of applicable law, [DaVita] would have to first prove that such violations actually occurred.  If these violations occurred, then [DaVita] would be liable for them.

Judge Pannell saw DaVita’s legal sleight-of-hand as a misdirected claim for indemnification, something that is barred by the False Claims Act.  The judge did not stop there.  He stressed the devastating policy implications of permitting this kind of blame-the-whistleblower defense.  It “would have a chilling effect on the FCA’s goal of encouraging whistleblowing on perpetrators of fraud against the federal government . . . and would imperil the government’s ability to detect, punish, and deter fraud.”  It is difficult enough for whistleblowers to step forward given the enduring isolation and retaliation with which so many have to deal.  Adding into the mix the whistleblower’s own potential exposure for failing to report internally within the company likely would be too much to bear for all but the most rash or reckless.  While Judge Pannell has yet to decide on DaVita’s ultimate liability here, at least he has made one thing crystal clear – blaming the whistleblower is not going to fly.

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