Originally published in Atlanta Hospital News
In the wake of the changes made to the False Claims Act (the "FCA") by the Fraud Enforcement and Recovery Act ("FERA") and the Patient Protection and Affordable Care Act (P.L. 111-148) as amended by the Health Care and Education Reconciliation Act of 2010 (together, the "Healthcare Reform Law"), the recent focus of the healthcare community has been on the significantly increased potential for FCA allegations and liability. With such changes as the elimination of the presentment clause and specific intent requirements, the expansion of those qualifying as original sources of fraud allegations, and the additional liability for reverse false claims, providers are facing an unprecedented level of vulnerability to such claims.
One interesting recent development in the FCA. On August 23, 2010, a federal district court in Ohio granted a provider's motion to dismiss and compel arbitration in an FCA suit brought by the provider's former Chief Operating Officer ("COO"). See Gilchrist v. Inpatient Medical Services, Inc., Case No. 5:09-CV-02345-SL (N.D. Ohio August 23, 2010). Specifically, the court determined that an arbitration in the COO's employment agreement with the provider was enforceable and applicable to the retaliatory discharge claim brought by the COO pursuant to the FCA. Id.
Facts of the Case. Defendant Inpatient Medical Services, Inc. ("IMS"), a provider of specialty physician staffing services for hospital and in-patient medical facilities hired Plaintiff, Tony Gilchrist, in February of 2008 as its COO. As part of his employment, Gilchrist executed an employment agreement which contained the following arbitration clause:
6.1 Arbitration. With the exception of Article IV, any unresolved dispute arising out of or relating to this Agreement shall be settled exclusively by arbitration, conducted by a single arbitrator in Akron, Ohio, in accordance with the American Health Lawyers Association ("AHLA") Alternative Dispute Resolution Service Rules of Procedure then in effect, provided that the discovery provided for under Ohio Rules of Civil Procedure shall be available too all parties to the arbitration and that the parties may agree to use an arbitrator other than those provided by the AHLA. The arbitrator shall not have the authority to add to, detract from, or modify any provision hereof. The arbitrator shall have the authority to order back-pay, severance compensation, reimbursement of costs, including those incurred to enforce this Agreement, and interest thereon, but shall not be permitted to award punitive damages. The parties agree that the decision by the arbitrator shall be specifically enforceable and the arbitration aware shall be final and judgment may be entered upon it in any court having jurisdiction over the subject matter of the dispute. the fees of the arbitrator, his or her reasonable expenses and attorneys' fees incurred in connection shall be allocated by the arbitrator among the parties as the arbitrator deems just and equitable.
Plaintiff Gilchrist alleged that during his tenure as COO, he witnessed IMS employees violating Medicare billing requirements. Gilchrist relayed these observations in person and in writing to IMS's CEO and other officers and advised IMS to correct these problems to avoid FCA liability. IMS terminated Gilchrist in April 2009, which Gilchrist alleged was retaliation for his reporting of IMS's illegal activity.
Gilchrist brought suit alleging retaliatory firing in violation of the FCA and breach of contract. The complaint also asked the court to declare the arbitration provision null and void based on the assertion that its terms prevent the arbitrator from awarding the same relief that the FCA makes available for FCA retaliation claims. In response to IMS's attempt to enforce the arbitration clause, Gilchrist further argued that the arbitration clause should be struck as procedurally and substantively unconscionable.
The Court's Decision. The district court rejected the plaintiff's position with regard to the arbitration clause and granted IMS's motion to dismiss the complaint and to compel arbitration. The court determined that the case was governed by the Federal Arbitration Act ("FAA") and its strong presumption favoring enforcement of arbitration agreements. With this framework in mind, the court reviewed and rejected each of Gilchrist's challenges to the arbitration clause, finding no procedural or substantive infirmity in the clause.
Conclusion. The impact of Gilchrist v. Inpatient Medical Services, Inc. is difficult to predict. On the one hand, it represents a single district court decision regarding a specific arbitration clause in the context of an FCA retaliatory firing claim. On the other hand, it represents a federal court's grant of a motion to dismiss an FCA lawsuit based on the enforceability of arbitration language in an employment contract. At a minimum, healthcare providers should weigh the potential usefulness of entering into employment agreements with its executives (and perhaps other employees) that contain arbitration clauses, and the ways in which the specific arbitration language could be improved.
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