Why hospitals could see lower fraud litigation costs

Modern Healthcare – Friday, March 28, 2025
By Alex Kacik

Health systems could spend less money and time fighting fraud allegations if their legal challenges to federal oversight are successful.

Supreme Court cases, including Loper Bright Enterprises v. Raimondo and Securities and Exchange Commission v. Jarkesy, along with a federal lawsuit questioning the constitutionality of whistleblower cases are poised to revamp healthcare fraud enforcement. Decisions in these cases, combined with the Trump administration’s renewed emphasis on deregulation, could narrow the scope of healthcare fraud investigations and ease federal oversight, healthcare lawyers said.

“Whether decreasing the cost of fraud investigations is a result of the Loper Bright decision, the [whistleblower] case or enforcement priorities of the Trump administration is unknown, but that is the direction things are heading,” said Brian Roark, a healthcare lawyer at law firm Bass, Berry and Sims who represents providers.

Here is how fraud enforcement may shift.

How could the Loper Bright decision influence fraud cases?

The Loper Bright ruling, which shifted power to interpret statutes from federal agencies to the courts by overturning what’s known as Chevron deference, could make it easier for providers to fight fraud allegations.

Many False Claims Act cases stem from allegations against hospitals for not complying with regulations that they now can argue were based on agencies’ overly broad interpretation of statutes.

In addition, many fraud cases are based on what’s known as legal falsity, where providers allegedly received payments that didn’t match the services they offered. Under Loper Bright, hospitals can more easily defend those allegations by arguing regulation underpinning such payments is invalid or not directly tied to the payments, healthcare lawyers said.

“If these decisions [Loper and Jarkesy] are properly evaluated and applied, they have an incredible potential to reduce costs and spending for hospitals,” said Mark Silberman, an attorney at law firm Benesch who represents providers.

What lawsuits have been filed as a result of the Loper Bright ruling?

Health systems have filed a number of Loper Bright-linked lawsuits against the federal government seeking higher reimbursement, but relatively few providers have cited the decision in fraud-related cases.

One case involved allegations against hospitals operated by WVU Medicine based in Morgantown, West Virginia. A whistleblower filed a federal lawsuit in 2020 alleging the hospitals submitted false claims by violating regulations under the Stark law, which prohibits Medicare payment for a physician who financially benefits from patient referrals. Before ruling on hospitals’ motion to dismiss, which was filed in August, the judge ordered the parties to submit a briefing on the impact of the Loper Bright decision.

The judge dismissed the lawsuit in November, writing in an order that the suit placed an unnecessary burden on the hospitals.

Lawyers expect more hospitals to use the Loper ruling to combat fraud allegations.

How could the Jarkesy ruling play a role in fraud litigation?

The Supreme Court ruled agencies cannot impose civil monetary penalties through in-house administrative processes because defendants have a right to a jury trial.

As a result, healthcare companies facing fines from federal regulators could shift hearings from agencies’ administrative law proceedings to federal court. Litigating penalties in court gives defendants more protections than an administrative setting, including the discovery process that gathers evidence to prepare for a trial, healthcare lawyers said.

The Centers for Medicare and Medicaid Services and Health and Human Services Department impose civil monetary penalties for a range of alleged violations, such as those tied to the price transparency law, No Surprises Act and false claims. If those penalties are disputed, they often are heard by an administrative law judge.

Agencies may choose to settle those cases rather than go to court, which could lower hospital fraud litigation costs, healthcare lawyers said.

How could whistleblower lawsuits change?

About 60% of the Justice Department’s $2.9 billion in fiscal 2024 fraud settlements stemmed from the healthcare sector. A pending case — Zafirov v. Florida Medical Associates — could significantly reduce the number of whistleblower cases filed against providers and other healthcare companies.

U.S. District Court of the Middle District of Florida Judge Kathryn Kimball Mizelle in December ruled whistleblowers could not file False Claims Act lawsuits on behalf of the federal government. The government appealed the decision and the case is pending.

Attorneys say hospitals face a barrage of meritless claims stemming from whistleblowers. However, patient advocates contend filing fraud cases on behalf of the government is a vital transparency tool.

“If whistleblower lawsuits are no longer allowed, that would be a tremendous sea change in the whole area of fraud enforcement,” said Charles Oppenheim, a healthcare lawyer at law firm Hooper Lundy who represents providers.

How could the Trump administration impact fraud oversight?

President Donald Trump administration’s emphasis on deregulation may also ease fraud oversight.

For instance, Trump issued an executive order last month that directed federal agencies to rescind allegedly unlawful regulations that undermine national interests. The order said agencies should preserve their limited resources by walking back enforcement actions on regulations that go beyond the constitutional powers vested in the federal government.

Trump also looks to crack down on allegedly frivolous litigation. In an executive order issued last week, Trump directed the attorney general to sanction lawyers who file allegedly unreasonable lawsuits against the federal government.

While it’s unclear if and how these orders would be applied, they signal a continued emphasis on regulatory easing and chilling legal action established during Trump’s first term.

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