Humana is being required to cover more than $32 million in attorneys’ fees following its $90 million settlement of a federal False Claims Act case, even as a looming appellate challenge raises questions about the future of whistleblower litigation in the United States.
The lawsuit, filed in 2016, alleged that between 2011 and 2017 Humana deliberately inflated the bids it submitted to the Centers for Medicare & Medicaid Services (CMS). By overstating its projected costs, the complaint argued, Humana secured more favorable terms for its contracts, ultimately leading to substantial overcharges to the government. “This is the first case of its kind to resolve allegations of fraud in the Part D contracting process,” Phillips & Cohen said in a statement at the time of settlement.
Humana did not admit liability in the agreement and maintained it had complied with federal rules. The company said it chose to resolve the matter to avoid the expense and uncertainty of prolonged litigation.
Chief U.S. District Judge Greg Stivers in Louisville, Kentucky, ruled this month that the insurer must pay legal fees and costs to the lawyers for Steven Scott, a former Humana actuary whose allegations of Medicare Part D fraud were resolved last year. “The first case of its kind to resolve allegations of fraud in the Part D contracting process,” Scott’s counsel, Phillips & Cohen, said previously in a statement about the settlement.
Scott was represented by Kellogg Hansen and Phillips & Cohen. His share of the recovery amounted to nearly $26.1 million, equivalent to 29 percent of the government’s settlement, according to court filings. Attorneys argued they were entitled to fees above the $10.44 million Scott had already paid them under a contingency arrangement. While Stivers permitted substantial additional recovery, he rejected a larger request for $41 million, finding that “shockingly high” rates could not be justified for Kentucky, though he agreed to apply higher national benchmarks according to Reuters.
The fee order comes as the False Claims Act’s “qui tam” provisions face their most serious constitutional test in decades. Last year, U.S. District Judge Kathryn Mizelle in Florida ruled that allowing private citizens to litigate on the government’s behalf amounted to an improper delegation of executive authority. The U.S. Chamber of Commerce has urged the Atlanta-based 11th U.S. Circuit Court of Appeals to uphold Mizelle’s finding. The Justice Department, by contrast, has defended the law. Oral arguments are expected in December.
The outcome matters not only for insurers but for all sectors reliant on federal reimbursement. In 2023 alone, whistleblowers initiated 979 suits under the statute, producing $2.4 billion in settlements and judgments, according to the Justice Department.
Whistleblowers typically receive between 15 and 25 percent of recoveries when the government intervenes, and up to 30 percent if it declines. In Scott’s case, the government chose not to intervene, giving him the right to a larger share.
Humana’s exposure mirrors wider industry vulnerability. In July, Omnicare, a CVS Health subsidiary, was ordered to pay nearly $949 million in damages for allegedly billing Medicare, Medicaid, and Tricare for invalid prescriptions. The unit has since filed for bankruptcy protection. “Given that ruling and a number of other issues facing our business, we now are taking necessary steps to move forward and ensure the continued delivery of safe and reliable pharmacy service to our customers,” said Omnicare President David Azzolina.
For insurers active in Medicare and Medicaid markets, these developments illustrate both the financial stakes and the regulatory uncertainty surrounding federal reimbursement. Should the 11th Circuit limit or strike down the False Claims Act’s qui tam provisions, the enforcement landscape would be transformed – reducing exposure to whistleblower suits but potentially inviting other forms of government oversight.
For now, the Humana decision ensures a significant payday for the whistleblower’s lawyers, while the larger question of the statute’s constitutionality remains unsettled.
