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Executive Order Creates Potential False Claims Act Liability for Employment Discrimination

Posted on January 31, 2025 in False Claims Act Defense, Health Law News, HR Insights for Health Care

Published by: Hall Render

In the opening days of his second term, President Donald Trump signed a number of executive orders covering a wide swath of public and private activity. One such executive order (the “Order”), entitled “Ending Illegal Discrimination and Restoring Merit-Based Opportunity,” addresses diversity, equity and inclusion (“DEI”) programs in the federal government, as well as DEI programs administered by recipients of federal grants and federal contracts. This Order represents a significant deviation from prior federal policy. Although the Order contains several additional key aspects, this article focuses on the implications of the Order as it relates specifically to health care providers and potential liability under the False Claims Act (“FCA”). While this Order on its face is not directly related to health care, it would affect health care providers that are recipients of federal financial assistance, including Medicare/Medicaid participants, research hospitals and federal contractors.

False Claims Act Refresher

The FCA is a federal law that penalizes the submission of knowingly false claims to the government. Generally, claims covered by the FCA include any request for payment from the federal government. In 2024, the minimum penalty was $14,308 per claim and a maximum of $28,619 per claim, plus triple the value of the false claim.

One limit on FCA liability is the materiality doctrine. The materiality doctrine requires that any alleged falsehood in a claim be “material” to the government’s payment decision. If the government would have paid the claim even if it knew about the falsehood, the falsehood is not “material,” and there is no violation. As such, simply submitting a false claim is not a violation unless there is materiality.

Historically, in the context of health care providers and materiality, the issue of FCA liability has arisen with regard to Medicare and Medicaid’s payment rules. Violations of other federal laws, however, are enforced in other ways – for instance, an alleged violation of Title VII of the Civil Rights Act, which prohibits employment discrimination on the basis of race, religion, sex, national origin and color, would not be enforced through FCA liability but instead would be enforced by the Equal Employment Opportunity Commission.

The Order now creates ambiguity on the outer bounds of FCA liability when there is an allegation of employment discrimination by recipients of federal grants and/or federal contracts.

The Executive Order

The Order, which was signed on January 21, 2025, took several steps including but not limited to directing “all executive departments and agencies (agencies) to terminate all discriminatory and illegal preferences, mandates, policies, programs, activities, guidance, regulations, enforcement actions, consent orders, and requirements” and to “enforce our longstanding civil-rights laws and to combat illegal private-sector DEI preferences, mandates, policies, programs, and activities.” The Order also rescinded Executive Order No. 11246, which is the primary source of federal affirmative action obligations. Hall Render’s analysis of that topic is available here.

The Order further includes the following language:

(iv) The head of each agency shall include in every contract or grant award:
(A) A term requiring the contractual counterparty or grant recipient to agree that its compliance in all respects with all applicable Federal anti-discrimination laws is material to the government’s payment decisions for purposes of section 3729(b)(4) of title 31, United States Code.

In conjunction, these provisions of President Trump’s Order have created questions for federal grantees and contractors about risks associated with continuing to maintain certain initiatives related to DEI in their workplaces, particularly because the Order is signaling that the Trump administration views violations of federal anti-discrimination laws as material to the government’s payment decisions such that they could be enforced through the FCA.

Some of the recent Executive Orders signed by President Trump have already been challenged, and it remains to be seen if this Order will as well. If this portion of the Order is ultimately challenged, it is possible that one argument that plaintiffs may rely on to challenge the validity of the Order is that the U.S. Supreme Court has already spoken about whether the government has the authority to declare that something is “material,” and held that:

“A misrepresentation cannot be deemed material merely because the Government designates compliance with a particular statutory, regulatory, or contractual requirement as a condition of payment. Nor is it sufficient for a finding of materiality that the Government would have the option to decline to pay if it knew of the defendant’s noncompliance. Materiality, in addition, cannot be found where noncompliance is minor or insubstantial.”

Universal Health Services, Inc. v. United States ex rel. Escobar, 579 U.S. 176, 194 (2016). Consequently, under Supreme Court precedent, if the Order was challenged with regard to the materiality language, there is precedent established that the government cannot just label an aspect of a claim “material” to its payment decision to make something a false claim. Rather, it must actually be material.

Practical Takeaways

Given the Order, and questions about whether the Order would withstand scrutiny if challenged, health care organizations that are federal contractors or federal grant recipients should continue to monitor this Order and other related legal developments. Additionally, federal contractors or federal grant recipients should consider taking steps to ensure that the DEI programs and other policies and procedures in effect now and going forward are lawful and do not result in unlawful discrimination. The Order specifically states that federal contractors and grantees will be required to attest that they are in compliance in all respects with all applicable federal anti-discrimination laws. Although the Order uses the phrase “illegal DEI,” well-crafted DEI programs do not inherently violate applicable federal anti-discrimination statutes such that they would be prohibited by the Order.

Some specific action items that entities may consider taking include the following:

  • Ensure that there are no unlawful preferences in their employee selection procedures, such as race- or sex-based preferences. Making hiring determinations on the basis of race and sex is unlawful, and even prior to the issuance of the Order, there has been an uptick in “reverse discrimination” lawsuits filed, including in the context of DEI-related initiatives. In fact, the U.S. Supreme Court granted certiorari in a case addressing the pleading standard in reverse discrimination claims under Title VII, and oral arguments are scheduled to be held in February 2025.
  • Similarly, review new and existing employment-adjacent programs, such as scholarships or internships, to ensure that their availability is not limited to one specific race, gender or ethnicity.
  • Train and retrain managers and others involved in employee selection procedures regarding federal discrimination law compliance.
  • Continue to monitor the status of any new anti-DEI laws that might be passed.
  • Be mindful of how policies and training could be perceived. As an example, although unconscious bias training is likely still permissible, references to things like “white male privilege” could be interpreted by the new Administration as unlawful “race or sex stereotyping” or “scapegoating.” Indeed, President Trump signed an Executive Order that prohibited federal contractors from engaging in this type of DEI training toward the end of his first term, although it was promptly rescinded by President Biden.

If you have any questions or would like additional information about this topic, please contact:

Hall Render blog posts and articles are intended for informational purposes only. For ethical reasons, Hall Render attorneys cannot—outside of an attorney-client relationship—answer specific questions that would be legal advice.