SCOTUS Ruling on False Claims Act has big implications

On April 19, the U.S. Supreme Court heard oral argument in the case of Universal Health Services, Inc. v. United States ex rel. Escobar. This case concerns the viability of the “implied certification” theory of legal falsity under the False Claims Act (FCA). The decision could resolve a split among various Circuit Courts of Appeal.

BreenStated simply, this theory-in its most expansive state-provides that when submitting a claim to the government for payment, a claimant is implicitly certifying compliance with all material requirements-contractual, statutory or regulatory. As often interpreted, the theory provides that a submission of a claim, at a minimum, certifies compliance with a requirement that is a prerequisite for payment.

This case has significant consequences for the healthcare industry. An opinion reflecting broad acceptance of this theory would doubtless embolden the government and whistleblowers to bring even more FCA cases against both providers and payers, arguing that a purported failure to comply with any of the myriad regulations resulted in the submission of a false claim. Given that healthcare entities are already overburdened in this arena, accounting for $1.9 billion of the reported $3.5 billion in FCA recoveries in fiscal year 2015, expanding liability would result in even more suits trying to turn simple mistakes into “knowing” fraud.     

The big question

At issue in Escobar is whether the theory is viable and if its viability depends on whether the provisions at issue were expressly designated as preconditions of payment. The First Circuit ruling being challenged held that preconditions of payment need not be “expressly designated,” calling for a “fact intensive” and “context specific” analysis of the applicable provisions of the contract, statute or regulation at issue.

During oral argument, some Justices expressed concern with this theory. Chief Justice Roberts specifically noted the difficulty in complying with “hundreds, thousands of pages of regulations,” suggesting that he was troubled that an expansive view of this theory could turn any material contractual breach into a cause of action under the FCA.

Others saw it more simply; as Justice Sotomayor noted, “[I]f you claim money for a service that you don't render … I'm having a hard time understanding how you have not committed a fraud if you knew what you were doing.” And Justice Kagan, in describing a bill submitted pursuant to a contract that required care by a doctor but the care was provided by a nurse, noted that, “By withholding that fact and by just saying the care was provided, have I not committed fraud …?”  

Due to Justice Scalia’s recent passing, the Court now stands at eight members; so, one possible outcome is a 4-4 “split decision.” This would result in an affirmance of the First Circuit’s decision but would not be precedential.

However, in light of the discussions during oral argument, a validation of the theory may be forthcoming-albeit conditioned on a showing of knowledge that the requirements at issue were material to the government’s payment decision. The Court’s decision is expected in June.

George B. Breen is a member of Epstein Becker Green’s Health Care and Life Sciences and Litigation practices in Washington, D.C. He is chair of the firm's National Health Care and Life Sciences Practice Steering Committee.