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False Claims Act: Supreme Court Attempts to Clear the Blurry Line of The Implied Certification Liability.

Mohaimina Haque Sept. 7, 2016

The False Claims Act (FCA), 31 U.S.C. §§ 3729-3733, was enacted during the time of the Civil War to combat fraud committed by the suppliers of goods to the Union army. What made the False Claims Act different from other fraud and abuse laws was the inclusion of the qui tam provision that allowed private citizens/whistleblowers (“relators”) to bring a lawsuit against companies and individuals who were defrauding the government. Over the years, the FCA has had many changes, but more recently, the FCA has become the primary tool in combatting federal healthcare fraud and abuse.

Healthcare spending is skyrocketing in the United States. As of the recent data, published by the Center of Medicare and Medicaid services on December 3, 2015, health spending accounted for 17.5 percent of the nation's Gross Domestic Product (GDP). In 2014, U.S. health care spending grew 5.3 percent, reaching $3.0 trillion. It is no surprise that, with this gargantuan amount of healthcare cost, there is renewed attention to exposing health care fraud and abuse. False certification is an archetypal example of fraud and abuse perpetrated by healthcare providers.

False certification is when hospitals, physicians, and healthcare providers misrepresent government health care programs through non-compliance with all the regulations and obligations under their contracts with the government. For example, when providers misrepresent non-covered treatments as medically necessary for the purpose of obtaining payments from federal healthcare programs. However, in legal terms there are two categories of certification: 1) express false certification and 2) implied false certification. Express false certification theory applies when a government payee, “falsely certifies compliance with a particular statute, regulation or contractual term, where compliance is a prerequisite to payment.” United States. ex rel. Conner v. Salina Reg'l Health Ctr., Inc., 543 F.3d 1211, 1217 (10th Cir. 2008). While express false certification may not seem too hard to understand on its face, circuit courts across the country have been split on the application of the implied certification theory of liability. Government and qui tam plaintiffs have argued that just submitting a claim for reimbursement alone implies compliance with federal rules, and the implied false certification theory can be a basis for liability. On the other hand, defense counsels have argued that implied certification creates an excessive burden on defendants, especially when defendants have to pay treble damages for noncompliance of a contractual or regulatory term as conditions of payment.

On June 16, 2016, the Supreme Court in Universal Health Services v. United States ex. rel. Escobar, 136 S. Ct. 1989 (2016) unanimously held that implied certification theory can be a basis for FCA liability, thus resolving a circuit split. Under the Universal Healthcare decision, “when a defendant submitting a claim makes specific representations about the goods or services provided, but fails to disclose noncompliance with material statutory, regulatory, or contractual requirements that make those representations misleading with respect to those goods or services” 136 S. Ct. at 1994.

However, the Supreme Court limited the wide application of the implied certification theory. First, when a government payee submits a claim for government payment, the claim must not “merely request payment,” but also makes “specific representation about the goods or services provided.” Second, the Supreme Court applied the common-law rule to misrepresentation, where “half-truth representations that state the truth . . . . while omitting critical qualifying information- can be an actionable misrepresentation.” 136 S. Ct. at 1994. In a footnote, Justice Thomas gave examples of tort law, contract law and securities law to demonstrate the example of common law misrepresentation, which is very much the same in understanding misrepresentation in the FCA context. Third, the Supreme Court pronounced that the materiality standard is demanding. The Court further went on to state that when assessing materiality under FCA, it's not dispositive that every violation of express condition of payment can trigger liability. Id. at 2003. The Supreme Court identified additional situations on what can trigger materiality, and in sum, it is dependent on the specific context.

The much-anticipated Universal Health Services decision resolved the circuit split, and at the same time would thwart attempts by plaintiffs and the government to bring cases for a “garden variety of breaches of contract or regulatory violation.” Overall, this decision is a win for plaintiffs and government because a healthcare provider can still be facing implied certification liabilities under FCA for making a fraudulent claim for payment from the federal healthcare programs, but at the same time, defense counsels have assurance in light of this decision that minor regulatory and contract violations would not result in huge liabilities. Lower courts will determine what lies ahead in the wake of this decision, whether qui tam plaintiffs will have difficulty pleading facts sufficient to prove the test outlined by the Universal Health Services court or whether the defense community has these new guardrails to shield them from unsubstantiated implied false certification liability.