“Implied Certification” Theory Allowed Under the False Claims Act
February 14, 2017
The Supreme Court recently allowed liability through the implied certification theory of the False Claims Act (FCA), which was raised and upheld in Universal Health Services, Inc. v. United States ex rel. Escobar. The decision provided for a new applicable standard and resolved the split among circuit courts on whether to recognize the theory.
In Escobar, a teenaged patient was receiving health services from a mental health facility. The patient had an adverse reaction to medication prescribed and died of a seizure. The parents later discovered United Health Services sought reimbursement from MassHealth (the Massachusetts State Medicaid Program) for mental health services provided at the facility by individuals who did not meet the standards for licensure and other requirements. The parents then filed a qui tam suit relying on the implied certification theory of liability. The District Court ruled against the parents finding the claims for reimbursement were not expressly false because the facility made no express statement regarding the service providers. United States ex. rel. Escobar v. Universal Health Services, 780 F.3d 504 (1st Cir. 2015). On appeal, the First Circuit rejected the bright line approach and determined that compliance with licensure and other MassHealth regulatory requirements were conditions of payment sufficient to support an FCA suit. United States ex. rel. Escobar v. Universal Health Services., 780 F.3d 504 (1st Cir. 2015)
The Supreme Court held that implied false certification is a proper basis for liability under the False Claims Act where (1) “the claim does not merely request payment, but also makes specific representations about the goods or services provided”, and (2) “the defendant’s failure to disclose noncompliance with material statutory, regulatory, or contractual requirements makes those representations misleading half-truths.” The Court focused on defining the FCA’s materiality standard as whether the government’s knowledge of the noncompliance “would have” affected their payment decision rather than “could have”. The Court further explained that whether an obligation was a condition of payment relates to, but is not dispositive of, materiality.
Now, after Escobar, FCA plaintiffs must overcome a more demanding materiality standard when relying on implied false certification to establish False Claims Act liability.
Special thanks to Law Clerk Joanna Lima for her assistance in preparing this blog post.