Implied but Material: The Supreme Court on the False Claims Act

Steven T. Boell      Aug. 3, 2016

Recently, the United States Supreme Court issued a long awaited and significant decision relating to the “implied certification theory” under the False Claims Act.

The False Claims Act (“FCA”), a law dating back to the Civil War, imposes penalties on anyone who “knowingly presents . . . a false or fraudulent claim for payment or approval” to the federal government. For healthcare professionals this includes claims submitted to any federal program such as Medicare.  Under the FCA, a private individual, known as a “relator”, can bring a whistleblower action on behalf of and retain a large share of any proceeds.

Over time, the FCA has expanded its scope to include an “implied false certification theory,” allowing relators to bring claims on alleged false statements impliedly made by a defendant (i.e., there is no express representation).   According to this theory, when a provider submits a claim it impliedly certifies compliance with all material statutory, regulatory, or contractual obligations.

In Universal Health Services v. United States, ex rel. Escobar, a teenage beneficiary of Massachusetts’s Medicaid program received mental health counseling at a Universal Health Services subsidiary.  After receiving medication from purported doctors, the teenager suffered a seizure and died.  It was later discovered that when submitting the claim, the provider failed to disclose violations of Massachusetts Medicaid regulations governing the qualifications and supervision requirements for staff at a mental health facility.

The teenager’s parents filed suit in federal court under the implied false certification theory of the FCA. The parents alleged that the provider billed Medicaid for treatment by unlicensed or improperly supervised professionals, and thus violated regulatory requirements of the Medicaid program.

A unanimous United States Supreme Court held that, although the submitted claims did not explicitly state that it had performed the services in compliance with all applicable regulations, the “implied false certification theory can, at least in some circumstances, provide a basis for liability.” To succeed under an implied theory, the Supreme Court held that it must be shown that the provider (1) made specific representations about the goods or services provided when submitting a claim to the U.S. Government, and (2) failed to disclose noncompliance with material statutory, regulatory or contractual requirements that make those representations misleading.  The Court could not have emphasized more the “demanding” and “rigorous” nature of the materiality inquiry.  It remains a case-by-case determination.

The Escobar decision creates uncertainty about which side actually “won.” While relators can allege an implied false certification theory, even when the relevant legal requirement was not specifically identified as a condition for payment in the contract, the results might be costly. Because of the new demanding materiality standards, many cases that would have previously been dismissed will go through an expensive discovery process.  Regardless, the Supreme Court’s acknowledgment of the implied certification theory converts a circuit split into a result that favors a broader reading of the False Claims Act.

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