On June 16, 2016, the U.S. Supreme Court in Universal Health Services, Inc. v. United States, ex. rel. Escobar, U.S. No. 15-17, 06/16/2016, ruled unanimously in an opinion written by Justice Thomas that the “implied false certification theory” can be a basis for FCA liability. This theory treats a provider’s payment request as provider’s implied certification of compliance with any statutes, regulations, or contract requirements that are material conditions of payment. This means that a failure to disclose a violation of the material conditions is a misrepresentation that renders the claim false or fraudulent. By accepting this theory of FCA liability, the Court held that providers can have FCA liability if they bill the government when not in compliance with regulations that are not explicit conditions of payment.
The FCA makes it unlawful to knowingly present a false or fraudulent claim to the government for reimbursement. A claim can be false either factually or legally. A claim is factually false when a provider submits a claim for services that were not provided. A claim is legally false when a provider falsely certifies compliance with regulations that are a condition of payment. For example, in a legally false claim the services were provided; however, the patient was referred based on a kickback.
Certification of a claim for payment may be either express or implied. An express certification requires an explicit certification as part of a claim for payment, such as a certification of a cost report. An implied certification of a claim for payment fails to disclose that the regulations which are a condition of payment may have been violated.
In addition to distinguishing between express and implied conditions of payment, courts have struggled over whether a requirement is a condition of payment (government denies payment if it knows that the conditions are not followed) or a condition of participation (government issues administrative sanctions, but would not deny payment). Before the Supreme Court ruling in Escobar, the circuit courts were split on the viability of the implied certification theory with some courts distinguishing between conditions of payment and conditions of participation.
In Escobar, a qui tam action, the relators, parents of a teenager, asserted that defendant defrauded the government by submitting claims for reimbursement in which the defendant failed to disclose violations of regulations pertaining to staff qualifications and licensing requirements. Therefore, the relators asserted that the provider defrauded the government by knowingly misrepresenting its compliance with regulations, and the government would have refused to pay the claims had the noncompliance been disclosed. The district court and the court of appeals disagreed on whether compliance with relevant regulations was a condition of payment.
The Supreme Court held that the implied false certification theory can be a basis for FCA liability if two conditions are met; “first, the claim does not merely request payment, but also makes specific representations about the goods or services provided; and second, the defendant’s failure to disclose noncompliance with material statutory, regulatory, or contractual requirements make those representations misleading half-truths.” The Court rejected the distinction between conditions of payment and conditions of participation, instead focusing on whether the defendant knowingly violated a requirement that it knows is material to the government’s decision to pay the claim.
The Court also noted that under the FCA, the materiality standard is “demanding,” and that the FCA “is not an ’all-purpose antifraud statute’.” In remanding to the district court to decide whether the relator sufficiently plead an FCA violation, the Court cautioned:
We emphasize, however, that the False Claims Act is not a means of imposing treble damages and other penalties for insignificant regulatory or contractual violations. This case centers on allegations of fraud, not medical malpractice. Respondents have alleged that Universal Health misrepresented its compliance with mental health facility requirements that are so central to the provision of mental health counseling that the Medicaid program would not have paid these claims had it known of these violations.
Although the Court adopted a narrower application of the implied certification theory than advanced by the government, it did not provide much guidance on what is a “specific representation,” whether the government has regularly paid claims despite knowledge that a condition of payment was violated, and whether the representation was material to the government’s decision to pay the claim. In view of Escobar, on June 27, 2016 the Court remanded three pending FCA case petitions back to federal circuit courts for reconsideration of the standards set forth in Escobar. The cases are:
- Triple Canopy, Inc. v. United States ex rel. Badr, U.S., No. 14-1440,
- United States ex rel. Nelson v. Sanford-Brown Ltd., U.S., No. 15-729, and
- Weston Educ., Inc. v. United States ex rel. Miller, U.S., No. 15-404.