On June 16, 2016, the U.S. Supreme Court issued a decision clarifying liability under the False Claims Act (FCA), which imposes penalties for knowingly presenting false or fraudulent claims for payment or approval to the federal government. The Court, in a unanimous decision, broadened the potential basis for liability under the FCA by adopting the “implied false certification” theory.  Before the Court’s decision, the Courts of Appeals were divided regarding the application and scope of the theory, which had been rejected by the Seventh Circuit.  Despite broadening the potential basis for liability under the FCA, the Court also emphasized the “demanding” materiality standard required for a successful claim under the implied false certification theory of FCA liability.

Health care providers (e.g., hospitals, nursing homes, doctors, home health care agencies, pharmacies, etc.) may violate the FCA by submitting false Medicaid or Medicare reimbursement claims, which formed the basis for the claim in Universal Health Services, Inc. v. U.S. ex rel Escobar et al.  

In Universal Health Services, Inc. v. U.S. ex rel Escobar et al., a 17-year-old girl died after having an adverse reaction to medication prescribed by a purported doctor who she saw at a mental health clinic owned and operated by Universal Health.  Following her death, the girl’s parents discovered that many of the employees at the clinic were unlicensed and unqualified to provide certain services, such as prescribing medication and providing mental health counseling. The girl’s parents filed a civil suit under the FCA as whistleblowers and on behalf of the United States. The parents alleged that Universal Health violated the FCA when it submitted Medicaid reimbursement claims that failed to disclose violations of license requirements and qualifications.

The girl’s parents brought their FCA claim under a legal theory known as “implied false certification.” Under this theory, a payment request constitutes a claimant’s implied certification of compliance with relevant statutes, regulations, or contract requirements that are material conditions of payment. The implied false certification theory treats a failure to disclose a violation as a misrepresentation that renders the claim “false or fraudulent.” The girl’s parents argued that Universal Health defrauded the government by submitting Medicaid reimbursement claims for services provided that the health care professional was not licensed or qualified to provide.

The Supreme Court’s acceptance of the theory confirms that a health care provider may now be subject to liability under the FCA if (1) the health care provider makes specific representations about the goods or services provided (e.g., payment codes submitted on Medicare and Medicaid billing forms) and (2) the health care provider’s failure to disclose noncompliance with material statutory, regulatory, or contractual requirements amounts to a false or fraudulent statement.

While the implied false certification theory expands the FCA’s scope, the Supreme Court stressed the materiality standard that would limit the success of a claim under the theory. To be found liable under the implied false certification theory, a health care provider must knowingly violate a statutory, regulatory, or contractual requirement that the health care provider knows is material to the Government’s decision to pay.  The Supreme Court explained that the requirements do not need to be expressly designated as a condition of payment to be “material.” In addition, a violation of a requirement expressly designated as a condition to pay does not necessarily give rise to liability under the implied false certification theory if it is not actually material to the Government’s decision to pay.

Unfortunately for health care providers, the Supreme Court provided little guidance on what is “material.” The Supreme Court did stress that the FCA is not a means to impose penalties for insignificant regulatory or contractual violations.  Regardless, this potential expansion of liability is concerning - a health care provider in violation of the FCA could be liable for treble damages plus civil penalties of up to $10,000 per false claim. Of course, this does not take into account the costs to defend a claim under the FCA.

The Supreme Court ultimately sent the case back to the lower court to be decided in accordance with its new analysis of the FCA and the theory of implied false certification. Health care providers will not know the extent to which this decision will impact their Medicaid reimbursement practices until more courts apply the implied false certification theory. For now, the best practice for health care providers is to comply with all statutory, regulatory, and contractual requirements. 

If a health care provider knows that they have violated the FCA under the implied certification theory by failing to disclose noncompliance with a statute, regulation or contractual requirement, the health care provider should determine whether such violation is material to the Government’s decision to pay.  If a health care provider concludes that such noncompliance is material to the Government’s decision to pay, the health care provider should report and return the government payment based on the fraud as required by the Affordable Care Act (ACA).  Under the ACA, the health care provider must submit the report and return payment by the later of (1) 60 days after the date on which the overpayment was identified or (2) the due date of a corresponding cost report.