FCA Whistleblower Lawsuits: How to Protect Your Small Practice from Employee Complaints Under 31 U.S.C. § 3730

The False Claims Act (FCA), under 31 U.S.C. § 3730, empowers whistleblowers, often current or former employees, to file lawsuits on behalf of the federal government when they suspect fraud involving federal healthcare programs. These lawsuits, known as qui tam actions, can lead to substantial government recoveries and significant financial rewards for whistleblowers, but also carry severe legal, operational, and reputational consequences for small practices. This article explains the whistleblower process, identifies common triggers for employee-filed FCA cases, and provides practical, preventive measures for minimizing risk while fostering a compliant workplace culture.

Whistleblower lawsuits under the FCA are not rare anomalies. In fact, the majority of FCA cases are initiated by private individuals rather than government agencies. For small practices, even a baseless claim can be devastating, creating months, or even years, of distraction, legal costs, and loss of patient trust.

Section 3730 of the FCA was designed to encourage individuals with insider knowledge of fraud to come forward. However, these same provisions mean that an overlooked compliance lapse, a dissatisfied employee, or a poorly handled internal complaint can quickly escalate into a full-scale federal investigation. Understanding the mechanics of these lawsuits and proactively safeguarding against them is critical for any practice participating in Medicare, Medicaid, or other federal healthcare programs.

Understanding 31 U.S.C. § 3730 and Whistleblower Provisions

Qui Tam Actions Explained

Section 3730(b) authorizes qui tam actions, where private citizens, called relators, file suits alleging FCA violations on the government’s behalf. The complaint is filed under seal and remains confidential during the government’s investigation phase.

Key steps in the process:

1. Filing Under Seal – The whistleblower’s attorney files the complaint confidentially in federal court, giving the government exclusive time to investigate before the defendant is notified.

2. Government Investigation – The DOJ, often with assistance from HHS-OIG, examines documents, interviews witnesses, and assesses whether to intervene.

3. Decision to Intervene – If the government intervenes, they lead the litigation; if not, the whistleblower may continue independently.

4. Potential Rewards – Successful whistleblowers may receive 15–30% of recovered funds, which can range from thousands to millions of dollars.

Anti-Retaliation Protections

Section 3730(h) prohibits retaliation against employees for lawful acts aimed at stopping or reporting FCA violations. Retaliation can include termination, demotion, reduced hours, harassment, or other adverse changes in employment terms. Employees who prove retaliation may receive reinstatement, double back pay, and damages for emotional distress.

Common Triggers for Whistleblower Lawsuits in Small Practices

1. Fraudulent Billing Practices

• Upcoding – Billing higher-level services than actually provided.

• Phantom Billing – Charging for services never rendered.

• Unbundling – Separating services that should be billed as a single package to increase reimbursement.

2. Mishandling Overpayments

The Affordable Care Act imposes a 60-day deadline to return identified overpayments. Failure to comply can be viewed as knowingly retaining improper funds, triggering FCA liability.

3. Kickback Allegations

Engaging in, or appearing to engage in, prohibited referral arrangements under the Stark Law or Anti-Kickback Statute can lead to FCA claims, even without direct intent to defraud.

4. Ignored Employee Concerns

When internal reports are dismissed without investigation or resolution, employees may turn to federal authorities. This is a leading cause of qui tam filings in healthcare.

A family-owned primary care clinic employed an office manager who discovered consistent up coding for patient visits. She raised her concerns to the practice owner, who dismissed them as “billing strategy.”

Over several months, the manager compiled documentation of repeated code inflation. She then filed a qui tam lawsuit under seal. The DOJ investigated and found:

• 3 years of up coded Medicare claims.

• Over $500,000 in false claims submitted.

• Lack of compliance training for staff despite OIG guidelines.

The practice settled for $1.2 million, including treble damages and civil penalties. The whistleblower received $216,000. As part of the settlement, the clinic entered into a Corporate Integrity Agreement, mandating:

• Quarterly billing audits.

• Semiannual compliance training.

• Creation of an anonymous reporting hotline.

This case underscores how internal culture and lack of policy enforcement can directly translate into legal exposure.

Preventing Whistleblower Claims: Core Strategies

1. Build a Strong Compliance Infrastructure

• Appoint a Compliance Officer (can be part-time).

• Maintain written policies for billing, documentation, vendor oversight, and data handling.

• Review policies annually or after significant regulatory updates.

2. Encourage Safe, Confidential Reporting

• Offer anonymous hotlines or encrypted email reporting options.

• Promote a strict non-retaliation policy in writing and in staff meetings.

• Encourage early discussion of concerns before they escalate.

3. Investigate and Document All Reports

• Treat all concerns as legitimate until proven otherwise.

• Keep a secure record of investigation steps, findings, and resolutions.

• Involve legal counsel when issues may indicate FCA risk.

4. Conduct Regular Internal and External Audits

• Internal audits for high-risk codes monthly.

• Annual external audits to identify overlooked vulnerabilities.

• Implement corrective actions within set timelines.

5. Implement Vendor Oversight Controls

• Require FCA compliance clauses in vendor contracts.

• Perform regular reviews of third-party billing vendors.

• Retain the right to terminate relationships over compliance breaches.

Retaliation claims can arise even when FCA allegations are unfounded.

Best practices:

• Keep investigative duties separate from employment decision-making.

• Avoid changing an employee’s job status during or immediately after a complaint.

• Provide annual whistleblower policy training to managers.

Small practices that cultivate transparency and accountability reduce their whistleblower risk significantly. Leadership should:

• Regularly communicate the importance of compliance.

• Publicly recognize employees who raise valid concerns.

• Share audit results and corrective actions openly when possible.

• Embed compliance goals into performance evaluations.
  

For small practices, FCA whistleblower cases often result from preventable failures in oversight and culture. To reduce the likelihood of becoming a defendant in a qui tam suit:

1. Assign a compliance leader immediately.

2. Perform a full-scale review of billing and documentation procedures.

3. Implement anonymous reporting systems and ensure staff are aware.

4. Audit vendors and third parties for compliance with FCA standards.

5. Document all compliance measures, in court, if it isn’t documented, it didn’t happen.

The investment in prevention, via training, policies, and audits, will always cost less than defending an FCA whistleblower lawsuit and the reputational harm that comes with it.

1. 31 U.S.C. § 3730 – False Claims Act whistleblower provisions.

2. DOJ Civil Division – Fraud Section – Qui tam case process and enforcement guidance.

3. OIG Compliance Program Guidance for Individual and Small Group Practices – HHS Office of Inspector General.