Supreme Court Issues False Claims Act Opinion

On June 16, 2016, the United States Supreme Court issued a unanimous decision in Universal Health Services, Inc. v. United States ex rel. Escobar which upheld what is termed the "implied certification" theory of liability under the False Claims Act ("FCA"); while adopting a more rigorous materiality standard for determining liability in such cases. This is one of the most important FCA cases in years. Historically, the government and plaintiffs, without any authority, have argued that the federal FCA can be violated if a physician or other provider or supplier ("Provider") submits a claim when the provider did not meet all compliance standards associated with that claim. This has been known as the "implied certification" theory of liability; that providers were impliedly certifying to compliance with laws associated with the claim when it was submitted.

The FCA imposes liability on anyone who knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval to the federal government. The FCA also punishes whoever knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim. The statute does not, however, provide a definition of a "false" or "fraudulent" claim. One theory that has been adopted by some courts is the "implied certification theory." Under the implied certification theory, a claim can be deemed false for purposes of liability under the FCA based on an implied representation that the provider or supplier who submitted the claim is in compliance with all applicable statutes, regulations, or government contract provisions.

As a hypothetical example, think of an ambulance company which has certified that it has complied with all applicable laws and regulations when it submitted a claim, but perhaps the entire fleet's registration stickers had expired. Does that make the certification "false?" Could a whistleblower sue and the government recover every penny it paid to the ambulance company? That is the kind of thing litigants have been arguing about: A false certification of compliance regarding regulations that don't seem to have anything to do with meeting conditions of payment.

Reasonable minds differ. Circuit courts of appeals across the county couldn't agree. Some say there should not be an implied certification theory, others say there should. The Supreme Court did what it typically does, answer the question, then create a test which is more confusing than the original question.

What does Escobar mean for physicians and providers? The Supreme Court upholds the theory, but then it narrows its application with a new demanding "materiality" standard which will offer physicians and providers an additional defense in FCA cases going forward. I doubt the number of FCA cases based on the implied certification theory will increase after Escobar. Certainly, the case provides lower courts with a basis for granting summary judgment in favor of physicians because of the new test. It is also possible Congress will respond with changes to the statute to wipe out the new "materiality" test. This would likely result in a wave of new False Claims Act lawsuits. 

The Supreme Court termed the materiality standard "rigorous" and "demanding," finding that it is insufficient that the government merely would have had the option to decline payment had it known of noncompliance. It also emphasized that the FCA is not intended to punish "garden-variety breaches of contract or regulatory violations" or to impose "treble damages and other penalties for insignificant regulatory or contractual violations."

It may be years before the full impact of this decision is known. As always, it is best to consult a healthcare attorney in your state, if you have any questions regarding your practice's compliance.