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June 17, 2016

Supreme Court Provides Murky Guidance on Standard For Implied False Claims Liability

On June 16, 2016, the Supreme Court issued its long-awaited decision in University Health Services Inc. v. Escobar on the issue of implied certification as a basis for False Claims Act liability. The case squarely presented the unsettled question of where the line of materiality should be drawn where there has been no obvious departure from established conditions of payment, but liability was based upon a lack of technical compliance with applicable laws and regulations rendering a government claim technically improper.

The Court held that the "implied false certification theory" is a valid means of imposing liability on health care providers under the False Claims Act, identifying two conditions that must be met for the implied certification theory to apply: (1) the request for payment must make specific representations about the goods or services provided; and (2) the failure to disclose noncompliance with material statutory, regulatory or contractual requirements makes those representations "misleading half-truths." According to the Court, a provider's request for payment constitutes the provider's implied certification of compliance with all material statutory, regulatory and contractual requirements for the provision of the service. Moreover, if a provider fails to disclose (or omits) its noncompliance with these requirements, then the provider is misrepresenting the claim and the claim is "false or fraudulent" under the False Claims Act based on the Court's decision.

On the pivotal question of materiality, the Court declined to establish a bright line test, stating that materiality can be established where no violation of conditions of payment have occurred, but the provider knew or should have known that the deficiencies would have caused denial of payment. The Court noted in this context that technical reliance upon obscure requirements that have been waived by governmental payors may, for example, not be invoked as a basis for False Claims liability.

University Health involved a mental health clinic that submitted Medicaid claims for services rendered to a teenage patient who suffered an adverse reaction to a medication and died of a seizure. The provider's investigation revealed an lack of proper licensure of many of the treating professionals at the facility. The whistleblower or "qui tam" claim filed by the parents alleged that by filing reimbursement claims, inaccurate representations were made that violated the False Claims Act by impliedly certifying that the staff were properly qualified and licensed.

The decision encourages a broad view of the implied certification theory that leaves providers confronted with self-disclosure obligations and defense of False Claims Act claims to engage in a forensic re-construction of the likelihood of payment in a given situation; a prospect that is sure to create great uncertainty and concern in the provider community and encourage whistleblowers.

The focus upon the subjective knowledge of the provider as to the payable status of claims also creates substantial evidentiary hurdles for payors and providers alike in pursuing or defending these claims that will make dismissal of claims at early stages of litigation more difficult.

If you have questions or require further assistance regarding the information contained in this Legal Alert and the impact on your organization, please contact Susan A. Benz, Co-Chair of the Barclay Damon Health Care & Human Services Practice Area at or Linda J. Clark, Chair of the Health Care Controversies Practice Area a  


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