Court Ruling Could Massively Curb Health Care Litigation: What Behavioral Health Operators Should Know

A Florida federal court ruling issued last month could lead to a “massive sea change” in what lawsuits can be brought against behavioral health companies.

That is the interpretation of Gregory Jones, a principal at the law firm Polsinelli’s Los Angeles office, who represents health care companies, including in False Claims Act (FCA) cases.

FCA deputizes whistleblowers to file lawsuits against companies that fraudulently, or simply erroneously, bill the government for services rendered. These include hundreds of cases each year against health care providers that seek Medicare or Medicaid reimbursement.

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However, a ruling by Florida Judge Kathryn Kimball Mizelle found that the False Claims Act’s statute deputizing an individual to act on behalf of the executive branch is unconstitutional.

Mizelle is the judge in a case brought by a physician, Clarissa Zafirov, who in 2019 filed a lawsuit against Florida Medical Associates and four other medical care providers. Zafirov alleged that the companies misrepresented patients’ conditions to the U.S. Centers for Medicare & Medicaid Services (CMS).

Under FCA, Zafirov brought these claims on behalf of the federal executive branch, even though no government official tapped her to litigate her allegations. Mizelle ruled that Zafirov never attained the “proper appointment” from an executive branch official to bring her case.

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According to Jones, the defendants in the case, and the judge, were spurred by Supreme Court Justice Clarence Thomas. In a case last year, U.S., ex rel. Polansky v. Executive Health Resources Inc., Thomas issued a dissent questioning the constitutionality of FCA deputizing an individual to represent the executive branch.

“[Mizelle] was a former clerk of Justice Thomas, so she’s basically taking a page from her mentor,” Jones said. He added that Mizelle’s 53-page ruling is a “very thoughtful, detailed, thorough analysis of the False Claims Act.”

Zafirov will likely appeal the ruling, Jones said, moving the case to the U.S. Court of Appeals for the 11th Circuit. If the 11th Circuit upholds the ruling, the lawyer explained, it could next go to the Supreme Court, since Mizelle’s decision conflicts with multiple federal courts of appeal.

Indeed, the FCA’s whistleblower statute has survived numerous past legal challenges, Jones said.

Meanwhile, the number of cases and penalties under FCA has steadily increased.

According to the U.S. Department of Justice (DOJ), government and whistleblowers were party in 2023 to 545 settlements and judgments, the most ever in a single year. FCA litigations can result in defendants playing treble damages plus a penalty, which individual whistleblowers may collect a portion of.

The vast majority of these cases were filed by plaintiffs like Zafirov and not expressly deputized by the federal government. Last year, $2.7 billion in settlements and judgments came from FCA cases, with $1.8 billion in judgments specifically against the health care industry, the DOJ reported.

Most of the larger penalties were not against behavioral health providers, though Rite Aid Corporation and Endo Health Solutions Inc. faced adverse judgements for excessively prescribing opioids. With that said, behavioral health companies do face FCA cases with some degree of frequency.

Also, in September, Acadia Healthcare (Nasdaq: ACHC) agreed to pay $19.85 million to resolve allegations related to FCA that it knowingly billed for medically unnecessary behavioral health services and endangered patients.

Generally, though, FCA claimants are “more focused right now on large hospital systems and other types of providers that are subject to reimbursement rules that fall into a gray area,” according to Jones.

Even so, some of these gray areas affect behavioral health.

Nathaniel Weiner, Jones’ colleague at Polsinelli, noted that as the behavioral health industry has grown up, it has faced increased scrutiny.

“Anecdotally, there have been more cases than in the past,” Weiner said.

Unclear is whether Mizelle’s ruling would reverse that trend. For now, Jones said, it bears watching if other federal judges adopt her position.

And if the Supreme Court were to uphold Mizelle’s ruling, Jones anticipates action from Congress or the White House.

“There would definitely be some kind of massive attempt to fix that because of the number of dollars that are recovered by the government each year,” Jones said.

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