Legislative and Regulatory Update | Legal and Regulatory Compliance

Supreme Court Narrows Whistleblower Law

Legislative and Regulatory Update | Legal and Regulatory Compliance

Supreme Court Narrows Whistleblower Law

A Supreme Court decision affects whistleblowers in for-profit companies; those working for not-for-profits are protected by other statutes.

Publicly held healthcare organizations may see their exposure to whistleblower claims reduced because of the Somers decision.

A recent Supreme Court decision, Digital Realty Trust, Inc. v. Somers , received considerable attention in compliance circles because it changes the rules relating to “whistleblowers” in for-profit companies. The court ruled that to be protected from retaliation under the Dodd-Frank Act (Pub. L. No. 111-203), whistleblowers must report alleged violations of securities law to the Securities and Exchange Commission (SEC), not merely to their employer or another agency. This is contrary to a broader interpretation previously adopted by the SEC’s regulations and some courts.

Publicly held healthcare organizations—investor-owned hospitals, pharmaceutical companies, and medical device manufacturers, for example—may see their exposure to whistleblower claims reduced because of the Somers decision. But whistleblowers are still somewhat protected by the Sarbanes-Oxley Act of 2002 (Pub. L. No. 107-204), and shrewd informants can still garner full protection under Dodd-Frank if they know to report to the SEC. Thus, the practical effect of Somers may be limited.

A Reminder: Retaliation is Illegal

For all healthcare organizations, whether for-profit or not, Somers serves as a reminder of the importance of strengthening internal compliance programs and dealing appropriately with reports of possible misconduct. Because most employees report misconduct out of loyalty to their employer and not for reasons of personal gain, they should be encouraged to report and be rewarded for doing so rather than made to suffer adverse consequences.

Somers should also prompt employers to recognize that there are many statutes other than Dodd-Frank and Sarbanes-Oxley that protect whistleblowers from retaliation. For hospitals, the most obvious one is the False Claims Act (FCA), which protects people from being “discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against” because of lawful acts they may have done while trying to prevent FCA violations (31 U.S.C. §3730(h)).

There are similar anti-retaliation provisions in the Occupational Safety and Health Act for reporting OSHA violations [29 U.S.C. §660(c)], in other federal statutes that apply to particular industries, and in many states’ laws. California, for example, has anti-retaliation provisions in its Labor Code and Health and Safety Code. Section 1278.5 of the H&S Code protects healthcare facility employees from retaliation for reporting matters affecting patient safety and states that no healthcare facility shall discriminate or retaliate against any person who has "presented a grievance, complaint, or report to the facility, or the medical staff of the facility, or to any other government entity."

Whistleblower Cases can be Difficult and Expensive

A major lawsuit involving Halifax Health in Daytona Beach, Florida, demonstrates how difficult and costly these cases can be. In 2008, a Halifax employee raised concerns about the legality of certain contracts between the hospital and some of its medical staff. When those issues were not resolved through internal channels, she filed a qui tam (whistleblower) lawsuit under the False Claims Act. The case was pending for nearly six years before finally being settled for more than $100 million and costing the hospital many millions more in legal fees. 

The hospital denied any wrongdoing, and the employee apparently suffered no overt retaliation due to her lawsuit (she stayed on the job), but she was quoted in local media as feeling that she had been shunned by her co-workers. “People I used to interact with all the time won’t even acknowledge me in the hallway,” she said in an interview in 2014. It is not difficult to imagine the disruption that occurred in the workplace and the damage to Halifax’s reputation as a result of the case and its publicity.

Learn from Other Examples

One of the larger true retaliation cases involved a whistleblower who was fired for reporting what he considered illegal sales tactics and kickbacks by a medical device company. A Los Angeles jury awarded him more than $25 million in 2017. And in 2014, a UCLA physician received a $10 million verdict after he was terminated for raising concerns about some of his colleagues’ financial ties to medical-device makers and other companies. 

A Connecticut case in 2011 involved an OSHA violation: failure to respond to a tuberculosis exposure. The healthcare facility improperly fired the employees who reported the incident, and the case was settled by payment of lost wages and neutral letters of reference for the terminated employees.

A New Jersey jury in 2013 unanimously awarded $2.1 million in punitive damages to a hospital lab technician after finding that his employer retaliated against him, in violation of New Jersey’s anti-retaliation law, for having reported “improper blood bank staffing and management procedures.” And in 2015, a Washington State jury awarded $1.4 million to a hospital billing manager who was terminated after reporting possible Medicare fraud.

Understand Key Takeaways

The vital lesson from these cases is that there are protections for whistleblowers, and it is illegal and potentially costly to retaliate against them for reporting suspected legal violations. Whether they are protected by Dodd-Frank, Sarbanes-Oxley, the False Claims Act, or any of the various other state and federal nonretaliation statutes, whistleblowers can and often do file suit if they believe they have been discriminated against for “doing the right thing.” Employers must proceed with caution and with the advice of experienced legal counsel.

J. Stuart Showalter, JD, MFS, is a contributing editor for HFMA.

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J. Stuart Showalter

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