Supreme Court Upholds The Implied Certification Theory Under the False Claims Act

In a unanimous decision issued on June 16, 2016, the United States Supreme Court upheld the implied certification theory of liability under the False Claims Act (FCA).  This was a closely watched case due to its potentially expansive effect on FCA liability for health care providers and other government contractors.  Under the implied certification theory, whenever a provider or contractor submits a claim for payment to the government, he has also “impliedly certified” that the he has complied with all regulatory and contractual requirements regardless of their significance to overall performance. 

The case was Universal Health Services, Inc. v. United States ex rel. Escobar, No. 15-7.  In Escobar, the defendants were alleged to have filed false Medicaid claims as a result of mental health services that were performed by unlicensed and unsupervised staff.

The impact of the Court’s decision will continue to be debated; however, a few things seem clear as to Escobar’s significance on the future of False Claims Act practice:

1. The decision will likely result in an increase in FCA filings which are already trending to all-time highs. 
2. For those who are currently named FCA defendants, the decision’s impact will be felt immediately as a large number of cases asserting liability under an implied certification theory will be reinvigorated and likely proceed to trial.
3. Failure to disclose noncompliance with requirements relating to the goods or services for which you are submitting claim for payment can lead to FCA liability.
4. FCA liability does not turn exclusively on whether those requirements were expressly designated as conditions of payment.
5. For FCA liability to attach, misrepresentations or noncompliance cannot be minor or insubstantial. They must be “material” to the government’s decision to pay a claim.
6. Proof of materiality can include evidence that a defendant knows that the government consistently refuses to pay claims of the type that a defendant submitted.
7. The FCA’s materiality standard is demanding and one that tends to be fact-specific. Government investigations and future litigation will necessarily focus on this key element of materiality.

Any evidence that tends to show a provider’s or contractor’s knowledge as to whether a claim is payable, such as the results of a prior audit, becomes critical.

For more information about how this ruling may affect your business and/or current or pending litigation, please contact one of the authors, Bob Threlkeld or Edgar Bueno.