Supreme Court Urged to Reject Far Reaching “Implied Certification” Theory Under the False Claims Act

On April 19, 2016, the United States Supreme Court heard oral argument in Universal Health Services, Inc. vs. United States and Massachusetts ex. rel. Escobar. In Escobar, the Court will decide for the first time whether to embrace the theory of “implied certification” under the Federal False Claims Act (“FCA”), 31 U.S.C. §§3729-3733. Under that theory, a health services provider that requests payment from the Government for providing services while knowing, but not disclosing, that the services failed to meet requirements that were material to payment is deemed to have presented a false or fraudulent claim under the FCA. In other words, the theory states that the provider impliedly certifies that the billed for services meet the applicable requirements merely by submitting the claim for payment. Most Federal circuits which have considered the theory have adopted it in one form or another.

The Escobar case arose out of a qui tam or whistleblower suit filed in Massachusetts alleging that services provided by a mental health clinic failed to meet regulatory requirements which were material to the Government’s decision to pay for the services. Specifically, the qui tam relators alleged that mental health counseling services and treatments provided by the clinic were performed by counselors who did not hold licenses to provide the services and were not properly supervised.

The qui tam defendants in Escobar argued that the regulations violated were not specifically designated as preconditions to reimbursement and should therefore not give rise to FCA exposure. Instead, regulatory violations of this sort are best left to administrative enforcement mechanisms and not to the FCA which should properly be directed only towards fraud and false statements. The FCA, therefore, should not be read to create liability under the implied certification theory when the claims at issue contain no affirmative misstatements but instead simply fail to disclose a violation of the requirement of the relevant contract or regulation.

Defendants urged that a claim for payment is not “false” unless it contains affirmative misstatement. The claim is not fraudulent due simply to the violation of a legal requirement unless the provider is under a duty to disclose the non-compliance. The only potentially appropriate application of the implied certification theory according to the Escobar defendants would be where the provider violates a statutory, regulatory or contractual provision that has been expressly designated as a precondition to payment. The Defendants argued that without such a direct link between compliance and payment, there is no proper basis upon which to treat the mere submission of a claim as a certification of compliance and doing so is unfair and implausible.

Relators, with the United States as amicus curiae, countered that no express falsehood need appear on the face of the claim in order for it to be “false” or “fraudulent.” Rather, when a claimant either expressly or implicitly represents that it has satisfied all material contractual or legal requirements, it should be held liable if it knows that representation to be untrue. Liability should not be limited only to express certifications because the FCA’s “knowledge” and “materiality” requirements protect claimants who are simply negligent or who rely in good faith on an objectively reasonable interpretation of a contractual or legal duty. Moreover, while one provision of the FCA applies where a provider makes or uses a false record or statement which is material to a false or fraudulent claim, another FCA provision does not have that requirement. The United States argued that this makes clear that FCA exposure need not be premised only an affirmative false statement but also exists even when no express false statement is present.

To date, all but one of the Federal circuits which have considered the issue have upheld the implied certification theory and acknowledged that a claim may be “false or fraudulent” within the meaning of the FCA even though no explicit false statement appears on the face of the claim. The Seventh Circuit previously declined to adopt the implied false certification doctrine and the Fifth Circuit has reserved judgement on the theory.

The potential importance of the Supreme Court’s decision in Escobar for FCA defendants and healthcare providers throughout the United States cannot be overstated. If the court refuses to adopt the implied certification theory – i.e., it refuses to permit liability for providers with respect to claims which contain no affirmative misstatements but instead simply violate a program or contractual requirement – it will constitute a dramatic reduction in the scope and reach of FCA liability for providers. Even if the Court recognizes the implied certification theory but limits it to circumstances in which a provider has violated a statutory, regulatory or contractual provision that is expressly designated as a precondition to payment, as the Escobar defendants advocate, it will still signal a significant diminution in the breadth and depth of potential FCA exposure. Further Escobar, could provide a much needed degree of certainty regarding which regulations are materially linked to program payments and which are not. The Supreme Court’s decision in Escobar is expected to be issued in June 2016.

Written by: Alec Alexander

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