SCOTUS Decides Implied Certification Issue in Key False Claims Act (Whistleblower) Case

In a decision that is poised to have resonating implications for health services providers, the Supreme Court of the United States explicitly endorsed the “implied false certification theory of liability” under the False Claims Act (FCA) in Universal Health Services, Inc. v.  U.S. ex rel. Escobar.  Under this theory of liability, any person who submits a claim for payment or reimbursement from the Federal Government impliedly certifies that they have complied with all applicable statutory, regulatory, and contractual requirements upon which payment is materially conditional, and any failure to disclose a violation of such applicable underlying legal obligations is considered a misrepresentation rendering the claim “false or fraudulent” under the FCA. The underlying controversy in Universal Health Services, Inc. v.  U.S. ex rel. Escobar concerned the provision of mental health services to Yarushka Rivera, a teenage girl from Massachusetts, by Universal Health Services, Inc. (Universal Health) at a facility owned by its subsidiary, Arbour Counseling Services.  Yarushka was diagnosed with bipolar disorder by purported mental health services professionals at Arbour, who then prescribed medication to treat the condition.  In May of 2009, Yarushka suffered an adverse reaction to the medication, resulting in a subsequent seizure and death later that year.

Respondents, Yarushka’s mother and stepfather, commenced a qui tam action pursuant to the FCA upon discovering that only one of the five Arbour employees who provided mental health counseling to Yarushka was, in fact, properly licensed to provide such services and that supervision of such employees was inadequate. In their complaint, respondents invoked the implied false certification theory of liability, alleging that by submitting reimbursement claims to Medicaid for specific mental health services performed by uncertified and unlicensed providers, Universal Health knowingly misrepresented compliance with Massachusetts licensing and certification regulations, which impose stringent certification and licensing requirements for mental health services professionals.  This allegedly resulted in Universal Health submitting “false and fraudulent” claims, which defrauded the Medicaid program by causing it to pay claims that, had it known of the violations, it would have denied payment for.

In defense, Universal Health argued that FCA liability should attach only where a provider fails to disclose violations of underling statutory, regulatory, or contractual obligations, which the Government expressly requires as a condition of payment. According to Universal Health, anything less than an express requirement would fail to provide fair notice to a potential defendant. Rejecting this argument, the Court held that implied certification may be the basis for liability provided that: (1) a claim requests payment and makes specific representations about the goods or services rendered, and (2) a claimant’s failure to disclose noncompliance with material statutory, regulatory, or contractual requirements causes such representations to become misleading.  Specifically, the Court noted that “[a] defendant can have ‘actual knowledge’ that a condition is material without the Government expressly calling it a condition of payment.”  Additionally, the Court directly addressed Universal Health’s fair notice argument and reasoned that, given the thousands of statutory and regulatory requirements that claimants are subject to, causing the Government to designate all statutory and regulatory requirements as express conditions of payment would work contrary to providing more adequate notice and that forcing the Government to designate specific statutory and regulatory provisions as express conditions would only cause “further arbitrariness.”  Therefore, the Court held that a materiality inquiry is the appropriate method for determining liability and rejected limiting liability to only violations of express designations.

However, the Court constricted its materiality analysis. For FCA purposes, the Court noted, materiality does not encompass mere designation by the Government that compliance with a statute, regulation, or contractual requirement is a condition of payment, or simply a defendant’s knowledge that the Government would have the option to decline payment if it had known of the defendant’s noncompliance, or where the noncompliance is “minor or insubstantial.”  Rather, the Court stated that where the Government expressly conditions payment on compliance, or where evidence exists that the Government consistently refuses to make payments based on certain noncompliance, such information is relevant for the materiality issue, yet not dispositive.  Thus, the Court simultaneously supported the implied false certification theory of liability, while rejecting the view that any noncompliance, which would entitle the Government to reject payment if it had known of such a violation, constitutes materiality for FCA purposes.

The Court’s holding, while seemingly expanding FCA liability, defines a more narrow, albeit indeterminate, scope of materiality within the context of the implied false certification theory of liability. Consequently then, potential FCA prosecutors and defendants will be forced to mine the decision’s language in order to ascertain the potential parameters of FCA liability.  As for now, the Court has remanded the case for the courts below to determine whether, given this newly articulated FCA materiality standard, the respondents have sufficiently pleaded an FCA violation under the implied false certification theory of liability.

For more information about this case and False Claims Act litigation issues, please contact David Ross

David R. Ross is a Shareholder of the firm. Prior to joining the firm, and under former Governors Pataki and Spitzer, Mr. Ross served as the Acting Medicaid Inspector General for New York State. Prior to his service at the OMIG, Mr. Ross held several positions at the New York State Office of Alcoholism and Substance Abuse Services (OASAS), including Acting General Counsel, Deputy Counsel, and Associate Counsel.

O&A Law Clerk Bryan Bessette assisted with the drafting of this blog post


David Ross

About David Ross

David is Partner and concentrates his practice on Medicaid, Medicare and private insurance audits & investigations, Health Law including fraud and abuse, governmental investigations of all kinds, Medicaid compliance plans and Article 78 cases. He is head of our Government Investigations practice and also works in Healthcare Fraud & Abuse.