Health Law Daily Wrap Up, FALSE CLAIMS ACT—N.D. Ind.: Court prescribes trial for hospital facing FCA allegations in connection with 340B diversion, retaliation, (Nov 12, 2026)

By Justin Marcus Smith, J.D.

Disputed evidence that a pharmacy director reported allegedly unlawful 340B patient qualification and was then suspended and discharged required a jury to resolve retaliation and defamation claims.

The U.S. District Court for the Northern District of Indiana denied summary judgment on claims for retaliation under the False Claims Act and defamation under Indiana law. In reaching its denial, the court found that evidence could permit a reasonable jury to find that a hospital pharmacy director (relator) engaged in protected activity by opposing efforts to qualify ineligible patients for discounted drugs under the 340B Drug Pricing Program, that the hospital had notice of those concerns, and that the concerns contributed to her suspension and discharge. The court also found triable questions concerning statements that attributed her termination to 340B violations or over-qualification of patients. Because the parties presented sharply conflicting accounts of the employee’s conduct, the hospital’s investigation, and the reasons for the employment actions, the court concluded that credibility determinations and competing factual inferences belonged to a jury (Tsahas v. Community Foundation Northwest Indiana, Inc., No. 2:21-cv-00279-AZ (N.D. Ind. Nov. 5, 2026)).

Background. A False Claims Act whistleblower-relator oversaw a staff of about 30 employees and helped operate the hospital’s 340B Drug Pricing Program while she was the hospital’s pharmacy director. Under the 340B program, the U.S. Health Resources & Services Administration (HRSA) requires pharmaceutical manufacturers to provide outpatient drugs to “covered entities” at significantly reduced prices. The 340B program is tied to the much larger Medicaid Drug Rebate Program.

The hospital was a 340B program covered entity at all relevant times. Covered entities are not supposed to be used as a shell to obtain discounted drugs for nonqualifying patients or non-covered entities, a practice known as “diversion.” The 340B program statute also prohibits covered entities from receiving duplicate drug discounts through both the Medicaid program and the 340B program.

It appeared that the hospital’s outside legal counsel may have, in or about 2019, looked into the possibility of having patients seen by an external physician organization (PO) receive pharmaceuticals from the hospital’s 340B program. A possibly premature announcement about the arrangement in 2019 raised the pharmacy director’s concern about diversion.

The hospital parties asserted that the pharmacy director made unauthorized changes to patient eligibility for the 340B program resulting in fewer qualified patients and higher hospital pharmacy costs. The pharmacy director said she raised concerns at the time about PO patient prescriptions being run through the hospital’s 340B program, but the hospital CEO allegedly threatened to fire her if she did not qualify them.

At some length, the pharmacy director submitted a formal internal ethics complaint against the CEO, took a period of leave, and was dismissed afterward. It did not appear that any forensic audit or similar type of investigation into the supposed manual manipulation of data or change to the 340B “lookback period” occurred within the hospital computer system. The pharmacy director alleged former supervisors and coworkers defamed her, with some possibly suggesting the hospital fired her for over-qualifying patients and other violations of the 340B program. The parties agreed that an audit after separation of the pharmacy director revealed instances where prescriptions were being over-qualified, but it was not clear when these audit findings were made in relation to the alleged defamation.

At this point in the proceedings, the parties consented to magistrate judge jurisdiction, the hospital parties moved for summary judgment, and the pharmacy director opposed. The hospital parties argued they were entitled to summary judgment for four primary reasons: (1) lack of “protected activity;” (2) insufficient notice of protected activity for the FCA relation claim; (3) lawful dismissal; (4) no cause for defamation.

Protected activity. First, as to protected activity, the Ninth Circuit recently held that 340B program violations could form a plausible basis for an FCA claim, even though the 340B program does not have a private right of action and any remedies, at least for overcharges by drug manufacturers. See U.S. ex rel. Adventist Health Sys. of W. v. AbbVie Inc., 169 F.4th 1137, 1140 (9th Cir. 2026). Remedies derive from the statute’s administrative enforcement mechanism.

The hospital parties “brushed aside” the pharmacy director’s concerns about 340B diversion as a regulatory dispute, but the court found that a bit of a red herring in light of Adventist, which explained that the mere fact that a particular 340B violation can be remedied through a non-judicial administrative process does not necessarily exempt the alleged violation from the scope of the FCA. However, Adventist did not address whether or not fraudulent conduct resulting in diversion can form the basis of an FCA claim. The court said the likely answer would turn on whether the alleged fraudulent conduct directly or indirectly caused presentment of materially false claims to the government in exchange for payment. Neither party addressed this, and the court declined to resolve this “thorny question” on its own at this juncture.

In any event, the pharmacy director did not have to prove an actionable FCA violation happened to establish that she engaged in protected activity. The FCA protects any activity in furtherance of an FCA action or to stop violations. As the pharmacy director pointed out, FCA antiretaliation kicks in somewhere between when an employee suspects fraud and while they are trying to piece it together. Protected activity requires both subjective (i.e., genuine) and objective (i.e., reasonable) belief that fraud occurred. That was the core inquiry.

The court agreed with the pharmacy director that the hospital parties’ cases were distinguishable and of little instructive value. Adventist opened the door to the possibility of a 340B regulatory violation forming the basis of an FCA claim if the alleged fraudulent conduct was causally connected to the submission of false claims of payment to the government. At this stage, the pharmacy director presented sufficient evidence that she complained the hospital was attempting to divert prescriptions to make fraudulent claims for reimbursement. All parties agreed that if this in fact happened, it would be an FCA violation, but the hospital parties did not present sufficient evidence at this juncture to show the pharmacy director’s concerns were objectively unreasonable as a matter of law, nor that she kept her concerns to herself.

Causation. As for causation and whether the hospital parties knew about the pharmacy director’s alleged protected activity, the notice requirement is essential, but not onerous. There is no need for a putative relator to utter magic words like “False Claims Act.” The court found neither side adequately addressed, other than in conclusory fashion, whether the pharmacy director’s allegations of fraudulent over-qualifying of patients could plausibly be connected to false submissions for payment to the government.

There remained an open factual question as to whether her complaints about false over-qualifying of patients put the hospital parties on notice about conduct that could cause submission of false claims to the government, and the record had “too many holes” for summary judgment. The court also declined the hospital parties’ invitation to break new ground about but-for causation. The court said that invitation was “largely academic” anyway in the instant context because but-for causation does not necessarily mean sole or exclusive causation.

Pretext. The court also disagreed with the hospital parties that the pharmacy director lacked evidence of pretextual dismissal, albeit that evidence was “far from definitive.” Judicial analyses of pretext may vary, but temporal proximity between protected activity and adverse employment action remains relevant, especially when paired with some other circumstantial evidence of pretextual retaliation.

The hospital parties’ evidence boiled down to testimony about unauthorized alteration of the lookback period, but the pharmacy director’s evidence suggested a plausible story of pretext. The court found the timing especially significant. In the weeks after suspension, before firing, and even for months thereafter, there was “never any objective confirmation of the supposed change in the lookback period.” The court found a “thicket” of conflicting evidence here.

Defamation. The court disagreed with the hospital parties’ contention that the pharmacy director could not succeed on her defamation claim, even if the court were to presume damages. The statements at issue, indicating that the hospital fired the pharmacy director for 340B program violation, were not opinions, and a listener could have interpreted them as defamatory, which presented a fact question for the jury. Whether statements were inadmissible hearsay was better left to a motion in limine, not summary judgment. The lack of specific identification of the pharmacy director by name in at least one instance might defeat the defamation claim, but the court said it could not decide that as a matter of law.

The case is No. 2:21-cv-00279-AZ.

Judge: Zanzi, A.

Attorneys: Rick C. Gikas (Rick C. Gikas, Attorney at Law) for Kiriaki Koula Tsahas. Emily C. Lodge (Barnes & Thornburg LLP) for Community Foundation of Northwest Indiana Inc. and St. Catherine Hospital Inc.

Companies: Community Foundation of Northwest Indiana Inc.; St. Catherine Hospital Inc.

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