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Health Care Provider Alert: Supreme Court Issues Landmark Ruling on False Claims Act

The Supreme Court has reached a significant decision that will substantially affect health care billing, but in an effort to breed uniformity, the Court appears to have actually facilitated even greater uncertainty. Last week, the United States Supreme Court issued its opinion in Universal Health Services v. Escobar, effectively approving the “implied false certification” theory of liability under the False Claims Act (FCA) and establishing a standard legal test in light of conflicting lower court decisions. Under the implied false certification theory, a provider that submits a claim for payment implicitly certifies compliance with all “conditions of payment,” potentially arising from statutory, regulatory, or contractual requirements. The Supreme Court adopted this theory, but with certain significant caveats.

Health care providers had been keeping close tabs on this case from initial filing through oral argument, and were hopeful that the Court would discredit the implied false certification theory. However, the Court’s opinion is a mixed bag for health care providers, as the Court both subjects providers to potentially increased exposure under the FCA, while at the same time ostensibly shielding them from liability for minor, inconsequential infractions.

The Court narrowed the circumstances under which an “implied false certification theory” may serve as a basis for liability under the FCA, 31 U.S.C. §3729 et seq. Specifically, the theory extends only to instances where a defendant submits a claim for payment which includes representations about goods or services provided, but fails to disclose non-compliance with statutory, regulatory or contractual requirements material to the government’s decision to pay the claim. The Court further held that FCA liability for failing to disclose violations of those requirements does not depend entirely on whether the provision in question was designated by the Government as a “condition of payment.”

The FCA imposes significant penalties and treble damages on a party who “knowingly presents . . . a false or fraudulent claim for payment” to the government. 31 U.S.C. §3729(a)(1)(A). Several circuit courts have adopted some version of this theory, but others have plainly rejected it, reasoning that only express falsehoods are actionable under the FCA. The Supreme Court decision in Universal Health resolves the dispute among the lower courts by allowing implied certification to serve as a basis for liability, but only where there is a finding of “materiality.”

This opinion is a chilling reminder to health care providers that a thorough compliance program is essential in avoiding costly and time-consuming litigation. Something as straightforward as a staff member’s lapsed license, even if unrelated to the reimbursement claim in question, could, in theory, expose a provider to lawsuits from taxpayers and whistleblowers alike. Future lawsuits brought under an “implied false certification” theory will primarily be centered on the issue of “materiality.” The FCA was never intended to punish insubstantial regulatory noncompliance; a violation does not become “material” simply because a defendant knows that the government would be entitled to refuse payment were it aware of the violation. Nonetheless, providers must be vigilant in ensuring strict compliance with all applicable regulations, or potentially be subjected to statutory liability under the FCA.

This blog post is not offered as, and should not be relied on as, legal advice. You should consult an attorney for advice in specific situations.