Late last month, the Sixth Circuit issued a decision in United States ex rel. Whipple v. Chattanooga-Hamilton County Hospital Authority, a False Claims Act case against a hospital for fraudulent Medicare and Medicaid claims, and held that internal government disclosures in previous investigations do not trigger the “public disclosure” bar of the FCA.

In 2006, an anonymous tip spurred a government investigation of the Hospital Authority (d/b/a Erlanger Medical Center). Health and Human Services’ Office of Inspector General opened a formal administrative investigation into the matter in 2008. Thereafter, Erlanger retained Deloitte Financial Advisory Services to perform an internal audit, and after Deloitte uncovered improper billing practices, Erlanger voluntarily refunded the government nearly $500,000 and the administrative investigation closed. Then, in 2010, Whipple disclosed his qui tam claims to the government. After he filed a complaint in 2011, the government refused to intervene, and Erlanger moved to dismiss the action.

Erlanger contended, and the district court agreed, that the government’s knowledge of Erlanger’s improper billing during the government’s administrative investigation constituted “public disclosure” for purposes of the FCA. The FCA’s public disclosure bar forbids jurisdiction over qui tam actions based on allegations publicly disclosed through a government hearing, a congressional or GAO audit or investigation, or by the news media. In reversing the district court and holding that the FCA “does not bar jurisdiction over qui tam actions based on disclosures of allegations or transactions to the government,” the Sixth Circuit joined a strong majority of its sister circuits that have held likewise. The Seventh Circuit stands alone as the only federal appeals court to have held that public disclosure “includes the disclosure of an alleged false claim to a competent public official who has managerial responsibility for that very claim.”

The Sixth Circuit also rejected Erlanger’s claims that limited third-party knowledge of the improper billing constituted public disclosure for purposes of the FCA’s bar. First at issue was AdvanceMed, the government’s Safeguard Contractor monitoring Medicare fraud and abuse in Tennessee, and which conducted the initial investigation into Erlanger. As to AdvanceMed, the court held that because they were acting for the government and had incentive to keep the information confidential, their knowledge did not amount to “public disclosure.” As to Deloitte, Erlanger’s third-party internal audit service, the court held that they, too, had incentive to keep their knowledge private and so their knowledge did not constitute a “public disclosure” under the FCA either.

This decision not only allows Whipple’s case to move forward on remand, but also clearly sets the contours of the FCA’s public disclosure bar. With at least five other circuits (as cited by the Sixth Circuit in its opinion) on the side of “limited” public disclosure, there might not be a race to SCOTUS to settle this split. However, at least in the majority of jurisdictions, mere prior government knowledge of FCA fraud is not sufficient to bar these types of qui tam actions.