News & Alerts

Supreme Court to Address Implied Certification Theory of False Claims Act Liability

January 29, 2016

On December 4, 2015, the Supreme Court of the United States granted certiorari in Universal Health Services, Inc. v. Escobar.  In doing so, the High Court agreed to take up the validity and application of the implied certification theory of False Claims Act (FCA) liability.  The implied certification theory has been a source of contention among practitioners in the FCA realm. The theory states that a party may be held liable for violating the FCA when they submit a request for payment to a governmental payer (such as Medicare or Medicaid) yet have not fully complied with applicable statutes, regulations, or contract provisions regulating the services rendered. 

Under its order the Supreme Court has agreed to consider two questions: 

  1. Whether the implied certification theory of legal falsity under the FCA is viable; and
  2. If it is viable, whether a reimbursement claim can be legally ‘false’ under that theory if the allegedly violated statutory, regulatory, or contractual provision does not state that it is a condition of payment, or whether the provision must expressly state that it is a condition of payment in order for FCA liability to attach.

Case Background

At issue in Escobar, are reimbursement payments made by the Massachusetts Medicaid Program for mental health services provided by Arbour Counseling Services, a subsidiary of Universal Health Services, Inc. (“UHS”).  According to the allegations made in the qui tam complaint brought by the parents of an adolescent patient, the counselors who provided services to the adolescent were not licensed by the State of Massachusetts to provide mental health therapy as required by Massachusetts regulations. 

The allegations also focused on the facility’s failure to provide supervision over the counselors as required by the Massachusetts Medicaid regulations.  The relators further alleged that Arbour made similar fraudulent misrepresentations with respect to other clinical staff members and nurse practitioners, and that Arbour invoiced the government despite Arbour’s noncompliance with all of these staffing and supervision regulatory requirements.

Case Outcome

At the trial court level, the district court dismissed the relators’ complaint, finding that the Massachusetts regulations at issue imposed only “conditions of participation,” and not “preconditions to payment” sufficient to give rise to FCA liability.  Key to the district court’s holding was its thorough analysis of the actual text of the specific regulations at issue.  The court found that the regulations did not contain explicit text indicating that the regulations were conditions of payment.

Appeals &Contrasting Circuit Court Opinions

The United States Court of Appeals for the First Circuit reversed, finding that “[p]reconditions of payment, which may be found in sources such as statutes, regulations, and contracts, need not be ‘expressly designated.’”  The First Circuit held that the regulations at issue were, in fact, conditions of payment, and remanded the case for further proceedings.  On June 30, 2015, UHS filed a petition for certiorari with the Supreme Court, noting that there is a circuit split regarding the implied certification theory.  The Supreme Court granted certiorari in the case, agreeing to hear the matter in its 2016 term. 

There is a split among the Circuit Courts of Appeals on this issue.  In the Fourth and D.C. Circuits, any knowing and material breach or violation of a contract, statute, or regulation that can be viewed as a prerequisite to payment can give rise to liability.

In contrast, the Second, Third, Sixth, Ninth, Tenth, and Eleventh Circuits apply a narrower view of the doctrine. In this application, these courts reject liability based on implied certification of compliance with regulations that are conditions of federal government program participation, and instead limit the application of the doctrine to situations where compliance with the applicable statute, regulation, or contract provision contains an express prerequisite to payment.

The Seventh Circuit recently waded in with an opinion that declines to adopt the implied certification theory, however, the opinion can also be read as actually following the narrow approach of the majority of circuits. 

The Eighth Circuit has not adopted the implied certification theory, although several district court cases within the Eighth Circuit have proceeded to analyze FCA cases under the doctrine.

The U.S. Supreme Court

Briefing will soon conclude at the Supreme Court level.  It is anticipated that oral arguments in the High Court will be held in March or April 2016, which could result in  a decision by the end of June 2016.  Of particular importance to providers are the various amicus briefs filed by industry groups.  Industry representatives are advancing the provider side of this debate.  A copy of the brief filed by the American Hospital Association, the Federation of American Hospitals, and the Association of American Medical Colleges earlier this week can be found here.

Mitchell Williams will continue to monitor and post updates on this case. If you would like to be added to our email list for legal alerts, please click here.