Health care providers beware – the United States Supreme Court may have just equipped federal authorities with another tool for pursuing false or fraudulent claims billed to Medicare or Medicaid under the False Claims Act (FCA). In a unanimous opinion issued last week, the court held that the implied false certification theory can be a basis for FCA liability under certain circumstances, all of which arguably fall for the government. Even though the court granted certiorari to resolve disagreement across the appellate court landscape regarding FCA liability and the implied false certification theory in claims for reimbursement, its newly articulated standards left several questions unanswered.
In Universal Health Services, Inc. v. United States ex rel. Escobar, the parents of a seventeen year old girl filed a qui tam action against Universal after their daughter received care for mental health services provided by a subsidiary of Universal, and subsequently died. The parents’ claim alleged that clinical services were provided to their daughter by unlicensed and unsupervised staff members, for which the provider then submitted claims for reimbursement to the Massachusetts Medicaid program. The parents asserted that the provider’s failure to disclose its noncompliance with Massachusetts regulations regarding staff qualifications and licensing was fraudulent because the state Medicaid agency would not have paid the claims had it known that the services were performed by unlicensed and unsupervised staff. The provider argued that it should not be held liable because the regulations were not expressly designated conditions of payment.
The implied false certification theory of liability means that a provider implicitly certifies compliance with all material statutory, regulatory or contractual requirements by submitting a claim for reimbursement, and that a provider’s failure to disclose noncompliance with any of the requirements leads to a false or fraudulent claim. Some courts had rejected the implied false certification theory and required an affirmative falsehood, while other courts had adopted this theory but applied it differently related to conditions of payment (e.g. some required the misrepresentation to apply to an expressly designated condition of payment while others had no such requirement).
The court in Escobar clarified the varying approaches to the implied false certification theory, and held that the theory can be a basis for FCA liability, at least where two conditions are met. First, the claim for reimbursement must be more than a request for payment. The claim must make specific representations about the goods or services provided. Second, failing to disclose the noncompliance with a material statutory, regulatory or contractual requirement must make the representation a misleading half-truth.
The court emphasized that the FCA is not a “vehicle for punishing garden-variety breaches of contract or regulatory violations” and explained that a strict and rigorous review of the FCA’s materiality requirement would address the enforcement of liability. The court explained that the government’s view that any statutory, regulatory, or contractual violation is material if the defendant knows the government could refuse payment if it knew of the violation is too expansive. Similarly, that the government designates a requirement as a condition of payment is relevant, but not alone dispositive of whether that requirement is material. As a result, the designation of a requirement as an express condition of payment cannot alone make a misrepresentation of that requirement material; at the same time, a misrepresentation could be material even if the related requirement is not designated as a condition of payment.
The court outlined circumstances that could be indicative of a material requirement. For instance, a misrepresentation could be material when a defendant knows the government consistently refuses to pay claims based on noncompliance with a particular statutory, regulatory, or contractual requirement. However, the court was clear that a misrepresentation cannot be deemed material if noncompliance with a particular requirement is minor or insubstantial. In addition, it is strong evidence that a requirement is not material if the government regularly pays certain claims despite its knowledge of noncompliance with certain requirements.
What does this mean for providers? First, the Supreme Court settled the differences between courts across the country and held that the implied certification theory can determine liability in FCA cases. While this ruling provides some certainty, a significant amount of difficulty remains for providers. The rigorous test for materiality is a retrospective analysis not performed for a period of time after the alleged nondisclosure. This gives little help for providers at the time of submission of the claim or claims. Subjectivity will remain in the application and analysis of the materiality factors because of the evidence, and more litigation post-Escobar will be needed to shed light on what is and is not material under the court’s standard.