Supreme Court Will Tackle the Issue of "Implied Certification" Under the False Claims Act

December 11, 2015 Alerts and Newsletters

The United States Supreme Court announced its intention on Friday, December 4 to officially weigh in on the viability and scope of the controversial theory of False Claims Act (FCA) liability known as "implied certification." Under the theory of implied certification at its broadest, a provider that bills for an item or service payable by the Federal Government can be held liable under the FCA1 for failing to comply with a particular statute, regulation or contractual term concerning the provision of that item or service, even if the provider did not explicitly certify its compliance.

The case at issue is Universal Health Services v. United States ex rel Escobar2, in which relators claim that a mental health center is liable under the FCA for submitting claims for reimbursement for services provided by unlicensed and poorly supervised staff.3 The relators are the parents of a young woman who died of a seizure after receiving treatment at the facility. They argued that the facility's claims for reimbursement were false because "every request for reimbursement carries with it the implication that [the provider] has complied with applicable regulations" — in this case, the regulations that govern the proper supervision and licensure of staff. The district court for the District of Massachusetts dismissed the case under the theory that the mental health center violated conditions of participation in federal health care programs, not conditions of payment. The United States Court of Appeals for the First Circuit (which includes ME, MA, NH, RI and PR) reversed, finding that compliance with the regulations governing proper staff licensure and supervision is a material precondition of payment, even if they do not explicitly state as much.4 Therefore, the knowing submission of claims for reimbursement for services provided without proper supervision is sufficient to establish falsity under the FCA.

The validity of implied certification liability has been a hotly contested issue among the Federal Circuit Courts of Appeal for some time now. While the majority of appellate courts have adopted the implied certification theory in some form, there is widespread disagreement regarding its validity. The Second Circuit (which includes CT, NY and VT) and the Sixth Circuit, for example, have concluded that for the purposes of FCA liability, a provider impliedly certifies compliance only if the statute, regulation or contractual provision in question expressly conditions payment on compliance. Conversely, the First, Fourth and D.C. Circuits have found that implied certification may exist even if the relevant statute, regulation or contract does not expressly condition payment on such compliance. The Seventh Circuit has rejected the existence of implied certification outright.

The Supreme Court's decision will have far reaching implications for FCA liability. A decision to reject the theory of implied certification liability altogether could considerably narrow the scope and reduce the volume of claims brought under the FCA. Conversely, a decision to adopt the theory without limitation would significantly broaden the FCA's reach. However, the Court could also settle on a middle-ground by recognizing the validity of the theory but only in the case of regulations, statutes and contractual provisions that expressly constitute conditions of payment.

The decision could have significant implications for health care providers by increasing the risk of an FCA claim for non-compliance with non-payment related regulations. The Supreme Court is expected to issue its decision in the first half of 2016. Verrill Dana will issue another Client Alert when the Supreme Court issues its decision.

For more information, please contact any member of the Health Care Group at Verrill Dana.

131 U.S.C. § 3729
2No. 15-7, --- S.Ct. ---, 2015 WL 4078340 (Dec. 4, 2015).
3U.S. ex rel. Escobar v. Universal Health Services, Inc., No. 11-11170, slip op. at 5 (D. Mass. March 26, 2014).
4U.S. v. Universal Health Services, Inc., 780 F.3d 504 (1st Cir. 2015).

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This communication is intended for general information purposes and as a service to clients and friends of Verrill Dana, LLP. This publication, which may be considered advertising under the ethical rules of certain jurisdictions, should not be construed as legal advice or a legal opinion on any specific facts or circumstances, nor does it create attorney-client privilege.

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