In an analysis of an Illinois court ruling in a qui tam matter, Phillips & Cohen associate Emily Stabile explains why the case could be a landmark for future whistleblower litigation, while making the case for empowering whistleblowers to help fight widespread fraud. Ms. Stabile’s article is published in the Coalition Against Fraud’s Journal of Insurance Fraud in America, and is republished here with permission of Coalition Against Fraud.
The Illinois Supreme Court recently handed down an opinion involving the Illinois Insurance Claims Fraud Prevention Act that has significant implications for the future of that whistleblower statute and similar approaches to insurance fraud that other states may want to explore.
The court reaffirmed that the Illinois anti-fraud law allows any individual who has personal, non-public information about fraudulent private insurance claims to sue, in the name of the state, those who submitted the false claims and to recover damages and penalties.
In its opinion issued Nov. 19, the court also held that the state itself did not need to suffer a monetary loss in order for a whistleblower to be able to bring a case and collect a reward as provided under the statute.
The Illinois Insurance Claims Fraud Prevention Act (740 ILCS 92/1 et seq.) is one of two state false claims laws that encourage individuals to blow the whistle on fraud against private insurers. The other such law is California’s Insurance Frauds Prevention Act (Cal. Ins. Code 1871), after which the Illinois law was modeled.
Because insurance fraud harms the public, the funds recovered through whistleblower cases go to the state. Whistleblowers receive rewards that are paid from those funds. Both laws also provide whistleblowers protection against employment retaliation.
The Illinois and California laws are modeled in some ways on the extremely successful U.S. False Claims Act, which has recovered more than $45 billion for the federal government, and similar state laws. The key difference is that the false claims acts authorize whistleblowers to bring lawsuits to recover funds on the government’s behalf only in cases involving fraudulent claims against the government—not against private insurers.
The whistleblower in the Illinois Supreme Court case, State of Illinois ex rel. Leibowitz v. Family Vision Care LLC, was a former employee of Family Vision Care, an optometry practice located in Illinois.
The lawsuit alleged that the defendant, Family Vision Care, had submitted false or fraudulent claims for reimbursement to a private insurer, Vision Service Plan.
The insurer reimbursed claims made only by optometry practices owned and controlled by optometrists. The lawsuit alleged Family Vision Care submitted claims that did not meet that requirement as the optometry practice was owned by a medical practice management company that in turn was owned by a private equity firm.
Because Family Vision Care had intentionally falsely represented that it was owned by an optometrist, the lawsuit alleged, the claims it submitted to Vision Service Plan were false or fraudulent under the Illinois Insurance Claims Fraud Prevention Act.
The state Supreme Court’s opinion answered two key questions that are crucial to future insurance fraud cases: Who may be a whistleblower, and what kinds of injuries to the state from fraud — such as non-monetary harm — can be pursued by whistleblowers under the Illinois Insurance Claims Fraud Prevention Act?
The Illinois statute provides that an “interested person” may file a lawsuit under the statute. Family Vision Care argued that the whistleblower did not have “a personal claim, status, or right capable of being affected by the controversy,” as the optometry practice put it, so she could not be considered an “interested person” who is authorized to file a lawsuit under the statute.
The insurance company that was allegedly defrauded was the only “interested person” that could bring such a lawsuit, Family Vision Care said.
The state Supreme Court soundly rejected Family Vision Care’s interpretation of the Illinois law. The statute does not define “interested person,” and the court found nothing in the law indicating that the term was limited only to those individuals with a personal stake in the fraud. In fact, there are several instances where the statutory language suggests otherwise.
The court concluded that the statute’s only prerequisite for being an “interested person” is “the disclosure of material evidence of wrongdoing and involvement in the litigation.” A broad definition of who may act as a whistleblower and file a lawsuit — anyone with credible evidence — is consistent with the law’s purpose of protecting the public from insurance fraud.
If the court had adopted the defendant’s interpretation, it would have severely limited the law’s effectiveness. Whistleblowers with information about fraud against insurance companies are often employees or customers of the fraudster, not the insurance companies, which may be unaware of the fraud.
The court also resolved another important question about the fraud law raised by Family Vision Care: whether the state could assign its authority to a whistleblower only to pursue civil claims for monetary damages suffered by the state.
Family Vision Care said the whistleblower statute does not allow Illinois to assign an individual the right to enforce non-monetary injuries to the state, meaning the injury suffered by a state from the violation of its criminal laws.
To resolve this argument, the court looked to a U.S. Supreme Court ruling, Vermont Agency of Natural Resources v. United States ex rel. Stevens, 529 U.S. 765 (2000). In that case, Vermont challenged the right of a whistleblower to sue a state agency under the False Claims Act, since it was the United States that was allegedly defrauded — not the whistleblower. Generally, an individual must suffer an injury, such as a monetary loss or physical harm, in order to bring a lawsuit.
The U.S. Supreme Court held that the government can assign to whistleblowers the power to bring a claim on its behalf under the False Claims Act to redress an injury to the federal government and, importantly, did not require that the injury be a monetary one.
Therefore, the Illinois Supreme Court said, a whistleblower lawsuit under the Illinois Insurance Claims Fraud Prevention Act did not need to involve monetary harm to the state — mere breach of the state’s laws was enough.
The court also rejected Family Vision Care’s characterization of the statute as providing for criminal, not civil, penalties. The purpose of civil penalties is to remedy the harm suffered, while the purpose of criminal penalties is to punish the offender and deter further crimes.
The Illinois law allows the state to collect civil penalties if the insurance fraud provisions of its criminal code are violated. But the law does not give whistleblowers the power to prosecute those violations under the criminal code, a power only the state holds.
As the court affirmed, the Illinois Insurance Claims Fraud Prevention Act provides for civil as opposed to criminal penalties, the state could assign to a whistleblower its interest in pursuing those civil penalties.
Like the Illinois Insurance Claims Fraud Prevention Act, many whistleblower laws allow whistleblowers to file civil cases that are premised on violations of a criminal statute and to collect civil penalties. For example, the federal Anti-Kickback Statute, which is a criminal statute prohibiting kickbacks involving medical treatment and services for federal healthcare patients, may be enforced through the federal False Claims Act, which provides civil liability for submitting claims for payment that violate the prohibition on kickbacks.
The Illinois Supreme Court affirmed the appellate court’s ruling, which had reversed dismissal by the trial court of the whistleblower’s lawsuit against Family Vision Care. The case will be returned to the trial court for further proceedings to determine Family Vision Care’s liability.
The state Supreme Court decision was a win for whistleblowers as well as for the taxpaying public. Insurance fraud, whether perpetrated on private insurance companies or government programs, harms everyone. It causes higher premiums and smaller coverage limits. It also drains significant sums from companies and the government.
The FBI has estimated that the cost of insurance fraud to the government — not including healthcare fraud — totals approximately $40 billion every year.
With insurance fraud apparently on the rise, other states should look to the Illinois and California experiences as they evaluate how to battle it. While dozens of states have false claims acts that offer a remedy for fraud suffered by the government, particularly Medicaid fraud, they also would benefit from whistleblower laws that encourage individuals to pursue cases involving private insurance.
Many fraud schemes cheat both government programs and private insurers. A healthcare company that double bills patients, for example, might double bill all of its patients without regard to their insurer.
Neither the Illinois nor the California law has received much attention, so their full potential is unrealized. But that is starting to change in California, where the law in recent years has yielded significant recoveries for the state.
For example, the California Department of Insurance recovered $46 million in a 2013 settlement with the Sutter Health hospital system to resolve allegations brought by a whistleblower that Sutter violated the California Insurance Fraud Prevention Act by double billing patients for anesthesia services.
In 2015, pharmaceutical company Warner Chilcott entered a $23.2 million settlement with the California Department of Insurance over allegations brought by a whistleblower that the company violated the law by paying kickbacks to doctors and falsifying prior authorization forms.
And just last year, the California Department of Insurance recovered $24 million from pharmaceutical company AbbVie after a whistleblower filed a lawsuit alleging that AbbVie violated the law paying kickbacks to induce sales of one of its drugs.
Because the law provided these whistleblowers with a means to pursue their claims on behalf of the state, millions of dollars were returned to California’s treasury and further harm to consumers was prevented.
States that lack similar laws may miss out on valuable information from whistleblowers with knowledge of fraud. Enacting statutes similar to those of California and Illinois would give states another powerful tool to combat fraud and to make use of insiders’ knowledge to assist with investigations. Millions of dollars that are currently lost to fraud schemes on private insurers could be reclaimed to the benefit of states, insurers and their insured.
By upholding the right of all whistleblowers with information about fraud to bring claims under the Illinois Claims Fraud Prevention Act, the court strengthened whistleblowers’ critical role in fighting fraud.
About the author: Emily Stabile is an associate with Phillips & Cohen LLP, a law firm that has represented whistleblowers for more than 30 years.
Read the article on the Coalition Against Fraud’s website.
About the author
