Labor & Employment Law Daily Wrap Up, WHISTLEBLOWERS—D. Kan.: Former hospital CEO can proceed with False Claims Act suit for retaliation, (Feb 7, 2025)

By Donielle Tigay Stutland, J.D.

The court dismissed claims brought under the Kansas False Claims Act and for common law retaliatory discharge.

A federal district court in Kansas dismissed parts of a suit brought by the former CEO of Norton County Hospital (NCH) asserting that the hospital terminated his employment in retaliation for reporting potential violations of federal and state law. The hospital moved to dismiss the suit which alleged violations of the False Claims Act (FCA), the Kansas False Claims Act, and Kansas common law. The court denied the hospital’s motion to dismiss the claims under the FCA, concluding that the former CEO adequately pleaded that the hospital’s Board of Trustees terminated his employment when he raised concerns of potential Stark Law violations. The court granted the hospital’s motion to dismiss the claims under the Kansas False Claims Act, finding the former CEO did not meet the heightened standard of the Kansas statute by showing he had engaged in protected activity by alleging that he acted in furtherance of an action filed or to be filed under the Kansas False Claims Act. The court also dismissed the claim of retaliatory discharge under Kansas common law, finding that under the alternative remedies doctrine, his retaliation claim under the False Claims Act precludes his common law retaliation claim (Kirk v. Norton County Hospital, No. 24-2405-KHV (D. Kan. Feb. 4, 2025)).

Background. The plaintiff was hired in 2021 as the CEO of Norton County Hospital, a “Critical Access Hospital,” providing a full range of medical services to patients in Norton County, Kansas and surrounding northwest Kansas and southwest Nebraska communities. At the time he was hired, the hospital was in a dire financial situation. The former CEO alleged that between October of 2021 and April of 2022, he made substantial improvements to the hospital’s financial situation. However, the former CEO also raised concerns to the hospital’s Board about several physicians’ compensation packages that were above industry standards. The CEO alleged that in response to raising concerns of a compliance risk related to the Stark Law for overpayment to physicians, he was placed on administrative leave, then reinstated and ultimately terminated.

False Claims Act. The court began its analysis of the former CEO’s claims for violations of the FCA, which protects whistleblowers from retaliation by their employers. To state a retaliation claim under the False Claims Act, the former CEO must allege that (1) he engaged in a protected activity; (2) defendant was on notice of that protected activity; and (3) defendant retaliated against plaintiff because of his protected activity. Specifically, the court stressed that to adequately plead that the hospital was on notice of his protected activity, a compliance employee must allege facts that, viewed in his favor, make clear that his employer had been put on notice that he was trying to stop it from violating the False Claims Act and not merely doing his job as a compliance employee.

Viewing the facts in the CEO’s favor, the court found he had sufficiently pleaded that his internal reports went beyond his duties as CEO. Specifically, he alleged that “(1) for the first eight months before he was reporting potential fraud, the Board thought he was doing his job and doing it well; (2) on October 5, 2022, plaintiff filed an employee grievance report to the Board which stated his concerns; (3) defendant violated its own policy by refusing to respond to plaintiff’s grievance in a timely manner; (4) plaintiff’s grievance report caused “noticeable hostility” at work; (5) on December 15, 2022, plaintiff submitted a second letter, asking the Board to ensure compliance with applicable laws and providing specific recommendations to resolve the issues; (6) between October and December of 2022, plaintiff experienced “growing hostility” between him and the Board, the Board undercut decisions which it had previously approved and the Board president disinvited him the hospital’s holiday party; (7) after the second letter, defendant placed plaintiff on administrative leave; (8) defendant’s legal counsel admitted on January 4, 2023, that the doctors’ compensation package was “quite aggressive;” (9) legal counsel criticized the timing of plaintiff’s second letter even though plaintiff had repeatedly raised the issue for months; (10) after plaintiff again urged the Board to self-report potential Stark Law violations, it placed plaintiff on a performance improvement plan; (11) on May 16, 2023, plaintiff sent a third letter to the Board, reminding it of the potential Stark Law violations; and (12) the next day, defendant terminated plaintiff’s employment.”

The court indicated that “viewing these facts in the light most favorable to plaintiff, he has easily alleged that when he reported potential Stark Law violations, defendant did not see him as merely ‘doing his job.’” If the hospital had perceived that the CEO was merely “doing his job” in reporting alleged violations, it presumably would have supported his efforts to contain costs and not penalized and ostracized him for raising his concerns. The court denied the hospital’s motion to dismiss the former CEO’s retaliation claim under the FCA.

Kansas False Claims Act. The court next turned to the CEO’s claim that the hospital retaliated against him by firing him for trying to stop it from violating the Kansas False Claims Act. The hospital contended that this claim should be dismissed because the CEO failed to allege (1) protected activity that put defendant on notice; (2) that he undertook lawful acts in furtherance of a Kansas False Claims Act action; and (3) that he made his reports to the Board in good faith. The Kansas False Claims Act imposes additional requirements on the employee to prevail on a whistleblower retaliation. First, the CEO’s protected activity must be “in furtherance of an action” under the Kansas False Claims Act, including “investigation for, initiation of, testimony for, or assistance in an action filed or to be filed under this act.” Second, the CEO’s conduct must have been taken “in good faith” on behalf of himself or other employees.

The hospital argued that the CEO has not alleged that “he acted in furtherance of an action filed or to be filed under the Kansas False Claims Act.” In response, the CEO cited his allegation that he “was concerned that NCH was in violation of applicable rules and regulations governing physician compensation rates.” The court found this insufficient. Wrote the court, “merely reporting a potential violation of the statute, or having a subjective concern about a potential violation, is not protected activity in furtherance of a lawsuit under the Kansas False Claims Act.” The court granted the hospital’s motion to dismiss the CEO’s retaliation claim under the Kansas False Claims Act and indicated that it need not consider whether the CEO took protected action in good faith.

Retaliatory discharge. The court finally turned to the common law claim for retaliatory discharge. The CEO alleged that the hospital terminated his employment in retaliation for reporting potential violations of state and federal law, in violation of Kansas common law. The hospital argued this claim should be dismissed because, under the alternative remedies doctrine, the CEO’s retaliation claim under the False Claims Act precludes his common law retaliation claim.

The court agreed and concluded that the False Claims Act provides an adequate statutory remedy and precludes the CEO’s retaliation claim under Kansas common law. The court granted the hospital’s motion to dismiss the CEO’s retaliation claim under Kansas common law.

The case is No. 24-2405-KHV.

Judge: Vratil, K.

Attorneys: Sarah S. Chu (Sanford Heisler Sharp McKnight, LLP) for Brian Kirk. Lawrence J. Logback (Simpson, Logback, Lynch, Norris, PA) for Norton County Hospital.

Companies: Norton County Hospital

Cases: Whistleblowers Retaliation Discharge StateLawClaims KansasNews