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Wave of Whistleblower Suits Predicted Over Virus Relief Aid

June 1, 2020, 9:36 AM

Money meant to save hospitals and health systems from collapse during the coronavirus pandemic is likely to ensnarl some providers in high stakes litigation.

The Department of Justice is already cracking down on small businesses that fraudulently obtained and misused federal loans provided by the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Attorneys say health-care providers are next in line to be scrutinized.

In addition to criminal charges, providers will likely see a wave of civil lawsuits accusing them of either taking a bailout they didn’t need or frivolously spending the money they got. But the government won’t be the only one pursuing cases under the False Claims Act, a law that was enacted during the Civil War to combat fraud against federal programs. Whistleblowers will be on the lookout for fraud and abuse too, health lawyers say.

“Every health-care provider who received this money and kept it will be susceptible to allegations,” said Albert Shay, a partner at Morgan Lewis & Bockius LLP, who represents health-care providers.

One whistleblower attorney, Erika Kelton, a partner at Phillips & Cohen LLP, says she’s already had inquiries from potential whistleblowers related to how the coronavirus relief funding is being spent.

“People want to make sure the money goes to what it should be going to,” Kelton said.

“With this much money being distributed throughout our economy, there will be fraud and abuse. That is just the history in any kind of crisis spending,” she said.

Terms and Conditions

The CARES Act provided $175 billion for hospitals and other health-care providers fighting Covid-19. The Department of Health and Humans Services has allocated the bulk of the initial money to Medicare providers, a decision that critics say left out providers that accept Medicaid and serve the poorest populations.

Providers that received relief via direct deposit have 45 days to sign an attestation confirming they received the money and agree to the terms and conditions, which specify the money can only be used to prevent, prepare for, and respond to the coronavirus and to reimburse recipients for health-care-related expenses or lost revenues that are attributable to coronavirus.

“The payments have to be dedicated to either expenses the hospital incurred in preparing or caring for Covid patients or to offset revenue lost due to Covid,” said Shay, who has been fielding questions from clients about how to document expenses and reductions in revenue.

“I fear there are some folks out there who may not appreciate their obligation to comply with the terms and conditions,” he said.

The HHS warned when it announced additional allocations of CARES Act funding on April 22 that “there will be significant anti-fraud and auditing work done by HHS, including the work of the Office of the Inspector General.”

A spokesperson for HHS said the agency doesn’t currently have any enforcement actions against providers for misuse of CARES Act funds. The HHS Office of Inspector General announced May 22 that it is auditing the way the department doled out the first $50 billion in provider relief money. The OIG said it will seek to determine whether HHS controls ensured the payments were correctly calculated and disbursed to eligible providers.

Taxpayer Dollars

The Justice Department last year recovered $3 billion in settlements and judgments from civil cases involving fraud and false claims against the government. Of that, $2.6 billion was related to matters that involved the health-care industry, including drug and medical device manufacturers, managed care providers, hospitals, pharmacies, hospice organizations, laboratories, and physicians, the agency said in January.

The False Claims Act allows whistleblowers to pursue cases even if the Justice Department decides not to intervene, and they can be lucrative for those who do. Under the law, violators can be ordered to pay triple the amount in damages. If the government intervenes, the whistleblower is entitled to 15% to 25% of the amount recovered. If the government declines to intervene in the action, the whistleblower’s share increases to 25% to 30%.

“That could be an incentive for people who felt there was something improper,” said Habib Ilahi, a partner at Stinson LLP and former federal prosecutor with the fraud section of the Justice Department’s Civil Division.

Providers might not intentionally misuse funds. Some health law attorneys say the terms and conditions tied to the funding are vague, which can lead to confusion over whether the money is being used correctly.

“How are providers supposed to distinguish whether expenses or lost revenue are attributable to Covid or some other cause?” Ilahi asked.

“There could be a decrease in a particular type of patient or there could be a variety of other reasons why you have lost revenue other than the coronavirus,” he said.

Ilahi also noted that under the terms and conditions, Covid-19 relief funding can’t be used to reimburse expenses or lost revenue if that money can be reimbursed by another source.

The HHS said it encourages and the statute allows the funds to be used to pay and maintain staff, purchase necessary equipment, improve treatment protocols and how patients are cared for, and support other activities focused on maintaining capacity.

The HHS spokesperson told Bloomberg Law that additional guidance on how the funding can and should be used is coming soon.

Meanwhile, Kelton disagrees with defense counsel claims that the funding terms are ambiguous.

“None of these requirements are unclear, unreasonable, or onerous,” she said. “After all, these are taxpayer dollars and those who receive them should be accountable.”

To contact the reporter on this story: Lydia Wheeler in Washington at

To contact the editors responsible for this story: Fawn Johnson at; Brent Bierman at