Universal Health Services, Inc. v U.S. ex rel. Escobar

On June 16, 2016, the U.S. Supreme Court in Universal Health Servs., Inc. v. United States ex rel Escobar, No. 13-317, — S. Ct. — (June 16, 2016), confirmed that the implied certification theory may serve as a basis for liability under the False Claims Act (FCA), although it employed a more narrow interpretation of the theory than the lower court. The Court’s unanimous ruling can be summarized as follows:

a.  An “Implied Certification” Can Give Rise to FCA Liability

• The Supreme Court held that the implied certification theory can, in some circumstances, provide an independent basis for liability under the FCA when a party makes a certification to the government about the nature of its goods or services yet fails to disclose its failure to comply with material statutory, regulatory or contractual requirements.
• While not delineating all situations in which an implied certification can give rise to FCA liability, the Supreme Court ruled that the implied certification theory can give rise to FCA liability where (1) “the claim does not merely request payment, but also makes specific representations about the goods or services provided;” and (2) “the defendants’ failure to disclose noncompliance with material statutory, regulatory or contractual requirements makes those representations misleading half-truths.”

b.  Noncompliance with an Express Condition to Payment Does Not Automatically Give Rise to FCA Liability

• A defendant may face FCA liability if it fails to disclose the violation of a contractual, statutory, or regulatory provision that the government has not expressly designated a condition of payment if compliance with that requirement was material to the government’s decision to pay a claim.
• Failure to comply with an express condition to payment does not automatically trigger FCA liability where the express condition is not material to the government’s decision to pay a claim.
• Whether a provision is expressly listed or otherwise labeled a condition of payment is instructive, but not dispositive as to whether a defendant has committed a fraud that can give rise to FCA liability. “What matters,” instead, is “whether the defendant knowingly violated a requirement that the defendant knows is material to the government’s payment decision.”
• The Court further ruled that the “materiality standard is demanding” and that the FCA is not “a vehicle for punishing garden-variety breaches of contract or regulatory violations.”
• Materiality cannot be found when a health care provider’s noncompliance is “minor or unsubstantial” or on the sole grounds that the government had the option to refuse payment of the claim if the government had known of the defendant’s noncompliance with a particular statutory, regulatory, or contractual requirement.
• Evidence relevant to a determination of materiality includes whether the scienter element is satisfied, that is, whether defendant knows that the government has an established pattern or practice of refusing to pay claims based on noncompliance with a particular statute, regulation, or contractual requirement. Conversely, if the government pays a claim in full despite its actual knowledge that certain requirements were violated, even if such requirements are express conditions of payment, the Court held that such an occurrence “is very strong evidence” that those requirements are not material.”

Implications for Health Care Providers

The Escobar decision may actually prove to be a helpful ruling for defendants in FCA actions. That being said, health care providers must stay vigilant and aware of the key regulations, statutes, and contractual requirements that a court might determine to be material in the government’s decision to accept or reject payment – specifically, for example, those conditions that the government has in the past rejected payment for noncompliance. Health care providers should also be careful to understand what they are implying in terms of their qualifications when they use certain industry codes in claims for payment or reimbursement from the government (for example, if a health care provider uses codes that correspond to a particular surgical procedure, it should have employed individuals licensed and duly qualified to perform the services related to that procedure).