The United States Supreme Court adopted an “Implied Certification Theory” in “some circumstances”

bcbs lawsuitBy: Karina Gonzalez

The Supreme Court of the United States in the case of Universal Health Services v. United States ex rel. Escobar (decided 6/16/2016) extended the reach of the False Claims Act (FCA) to cover implied false certifications made “in certain circumstances” by healthcare providers in requesting payment for goods and services.

At issue was a theory of liability known as the “implied false certification theory” and whether this theory was valid under the FCA.  The implied false certification theory treats a payment request as an implied certification of compliance with relevant statutes, regulations or contract requirements that are a material condition of payment and treats a failure to disclose a violation as a misrepresentation that renders the claim false or fraudulent. 

In the Escobar case the respondents alleged that Universal Health defrauded the Medicaid program by submitting reimbursement claims that made representations about specific services provided by specific types of professionals but that failed to disclose violations of state regulations pertaining to staff qualifications and licensing requirements.

The Supreme Court adopted the approach that when “a defendant makes representations in submitting a claim but omits its violations of statutory, regulatory or contractual requirements, those omissions can be a basis for liability if they render the defendants representations misleading with respect to the goods or services provided.”

The Supreme Court contended that every claim for payment implicitly represents that the claimant is legally entitled to payment and that failing to disclose violations of material legal requirements renders the claim misleading. But the Court found that a misrepresentation about compliance with a statutory, regulatory or contractual requirement must be “material” to the Government’s payment decision in order to be actionable under the FCA.

So, instead of focusing on whether the government had labeled a particular requirement as a “condition of payment” the Court ruled that the focus should simply be on whether compliance with the requirement was material to the government’s decision to pay the claim.

Looking at the facts as pled by Relator in Escobar, the Supreme Court found it relevant that the payment codes under which the claims were submitted corresponded to specific counseling services that Universal Health represented it had provided. Similarly, the Supreme Court found relevant the use of National Provider Identification numbers corresponding to specific job titles. The Court concluded that Universal Health’s representations were false in light of its failure to comply with the core state Medicaid provisions requiring clinicians to have specialized training and experience in children’s services with the prescribed qualifications for the job.  Accordingly, the Supreme Court concluded that “[b]y using payment and other codes that conveyed this information without disclosing its many violations of basic staff qualifications and licensing requirements for mental health facilities, Universal Health’s claims constituted misrepresentations.”

The focus as a result of the ruling on the implied certification theory is whether the government was misled into paying money to a provider that hid its own unlawful conduct while its was submitting claims for payment to government programs.  Although this ruling applied to government sponsored programs, we can also expect commercial plans to increasing use this theory of liability in its

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