Frey v. Health Management Systems: Whistleblower and False Claims

Christopher Frey, a former regional vice president at Health Management Systems, Inc. (HMS), spent more than a decade suing the company and lost every case. The Frey HMS lawsuits included a whistleblower retaliation complaint filed with the Department of Health and Human Services and two federal False Claims Act suits in Texas. All were rejected, and the Fifth Circuit affirmed the last of the dismissals in March 2026.¹

The Whistleblower Retaliation Complaint

Frey worked at HMS from September 2006 until May 2013, managing sales and client relations in an assigned region. HMS terminated him citing a company-wide reduction in force and documented performance issues.²

Frey filed a retaliation complaint with the HHS Office of Inspector General under Section 1553 of the American Recovery and Reinvestment Act of 2009, which protects employees of federal stimulus recipients who report fraud or waste.³ He said he had told HMS executives in 2009 that the company was billing third-party liability claims late in violation of a federal Medicaid regulation and double-billing the state of Tennessee for Medicaid information. He argued the 2013 termination was payback for those disclosures.²

The OIG investigated for years and issued a final 23-page report in June 2017. It accepted that Frey had made protected disclosures and that management knew about them, but concluded that the four-year gap between the disclosures and the firing undercut any causal link. The agency also found “clear and convincing evidence” that HMS would have fired Frey regardless, pointing to his performance evaluations and a broader reduction in force in which 107 employees were terminated between 2013 and 2014. The HHS Associate Deputy Secretary adopted those findings in January 2018 and denied the claim.²

Frey petitioned the Fifth Circuit for review. On April 8, 2019, the court denied the petition, applying the deferential “arbitrary and capricious” standard and finding that the agency had drawn a rational connection between the facts and its conclusion.²

The Texas State Action and the $2.25 Million Release

Frey also filed a state qui tam action in Travis County, Texas, styled Texas ex rel. Frey v. HMS Holdings Corp. (No. D-1-GN-16-1842). The case remains under seal. After Texas reached a separate $236 million settlement in the related “Xerox Lawsuits,” Frey and his counsel entered into an agreement with the state that paid them $2.25 million. In exchange, Frey released claims against the state, the HMS defendants, and the Xerox defendants for anything arising from the “Covered Conduct.”⁴ That release later became a defensive issue in the federal cases, though HMS did not win either federal case on release grounds.

The Northern District False Claims Act Suit

In 2019, Frey filed a federal qui tam suit against HMS in the Northern District of Texas before Judge Jane J. Boyle (consolidated as 3:19-CV-0920-B), alleging False Claims Act violations tied to HMS’s Medicaid billing work. The Department of Justice declined to intervene.⁵

After partial dismissals and failed mediation, Judge Boyle granted HMS summary judgment on October 18, 2024.⁶ Frey appealed, and on January 5, 2026, the Fifth Circuit affirmed in an unpublished per curiam opinion. The panel found no “genuine fact disputes” and no “evidence that HMS failed to bill even a single claim under its contracts with state-Medicaid agencies.”¹

The Southern District Suit Against HMS and Three RACs

In June 2021, Frey filed a separate qui tam action in the Southern District of Texas (No. 4:21-cv-02024). This one targeted HMS along with three Medicare Recovery Audit Contractors: Cotiviti, Inc., CGI Federal, Inc., and Performant Recovery, Inc. All four contract with CMS to identify improper Medicare payments and are paid on a contingency-fee basis.⁷⁸

Frey ran two theories. The “hospital-settlement claims” theory alleged the defendants improperly kept contingency fees after CMS offered hospitals a September 2014 settlement resolving disputed inpatient admission claims at 68 cents on the dollar.⁹ The “unearned-fees” theory alleged the contractors collected contingency fees they had not properly earned.

On February 10, 2023, Magistrate Judge Dena Hanovice Palermo recommended dismissal with prejudice. The hospital-settlement claims were barred by the False Claims Act’s public disclosure bar because they relied on publicly available information such as CMS technical direction letters and SEC filings, and Frey did not qualify as an “original source.” The unearned-fee claims failed Rule 9(b)’s requirement that fraud be pleaded with particularity, because the complaint lumped all defendants together without identifying any specific false claim by any individual defendant. The conspiracy count fell with the underlying claims.¹⁰ Judge Keith P. Ellison adopted the recommendation in full on March 17, 2023.⁷

The Fifth Circuit affirmed the dismissal on March 6, 2026, in an unpublished opinion (No. 25-20146).¹¹

Where Things Stand

Frey lost the retaliation case at HHS and on Fifth Circuit review in 2019. He lost the Northern District qui tam on summary judgment, affirmed in January 2026. He lost the Southern District qui tam on the pleadings, affirmed in March 2026. The only money that changed hands was the $2.25 million paid to Frey and his counsel through the Texas state settlement release. As of mid-2026, no further proceedings appear to be pending.

1
Bloomberg Law. Medicaid Payment Firm Escapes Whistleblower’s False Claims Suit
2
U.S. Court of Appeals for the Fifth Circuit. Frey v. United States Department of Health and Human Services, No. 18-60205
3
Federal Communications Commission. Whistleblower Protections Under the Recovery Act
4
FindLaw. United States ex rel. Frey v. Health Management Systems, Inc.
5
U.S. Securities and Exchange Commission. HMS Holdings Corp. Annual Report, Legal Proceedings
6
PACER Monitor. Frey et al v. Health Management Systems Inc, No. 3:19-cv-00920
7
PACER Monitor. Frey et al v. Health Management Systems, Inc. et al, No. 4:21-cv-02024
8
CMS. Medicare Fee for Service Recovery Audit Program
9
CaseMine. Frey v. Health Management Systems, Fifth Circuit
10
CaseMine. United States ex rel. Frey v. Health Mgmt. Sys., Report and Recommendation
11
GovInfo. Frey v. Health Management Systems, No. 25-20146