D.C. Circuit Determines that Physical Possession of Medicare Records Not Required in Implied-Certification Claim Against the District of Columbia

by Dorsey & Whitney LLP

On Friday, the U.S. Court of Appeals for the District of Columbia Circuit reversed a district court’s grant of summary judgment in favor of a relator based on the district court’s finding of a violation of the False Claims Act.  United States ex rel. Davis v. District of Columbia, No. 14-7060 (D.C. Cir. July 10, 2015).

The relator’s FCA theory–implied-certification liability–relied on his allegation that the District of Columbia Public Schools (“DCPS”), as a provider of health-related services to Medicaid-eligible children, did not have possession of adequate supporting cost data available for audit when it presented its year-end cost report, in contravention of federal regulations (42 C.F.R. §§ 413.20, 413.24) that were incorporated into the District of Columbia’s Medicaid State Plan.  In reversing the decision of the lower court, the D.C. Circuit found that while the federal regulations at issue required the providers to maintain adequate cost information capable of being audited, the District reasonably understood that it could meet the requirements of the statute by contracting with a billing contractor, the relator’s company, to maintain such records.  Thus, the District’s lack of physical possession of the records did not constitute a knowing violation of the regulations.

The D.C. Circuit has previously held that a party may be liable for a violation of the False Claims Act under the false implied certification theory.  See United States v. Sci. Applications Int’l Corp, 626 F.3d 1257, 1266 (D.C. Cir. 2010) (citing United States. v. TDC Mgmt. Corp., 24 F.3d 292, 296–97 (D.C. Cir. 1994)).  Under the “certification theory” of liability, a claim for payment is false when it rests on a false representation of compliance with an applicable federal statute, federal regulation or contractual term.  Id.  False certification can be either express or implied.  Id.  Courts infer “implied” certifications where the certification was a prerequisite to government action sought.  Id.

In its decision, the D.C. Circuit held that the relator had failed to prove that the District of Columbia knowingly violated the regulation.  The Court reasoned that nothing in the regulations or the state plan conditioned payment on DCPS’s physical possession of the supporting documentation. Instead, DCPS was only required to maintain documentation such that the information could be obtained for audit.  In the prior contract years, Davis & Associates, a DCPS contractor and relators’ company, had provided this supporting documentation, and the relator failed to create a genuine dispute over (1) whether DCPS reasonably could have relied on the same arrangement when it submitted its year-end report for 1998 or (2) that Davis & Associates did not have a continuing contractual duty to provide this information.  Accordingly, DCPS reasonably relied on Davis & Associates to fulfill DCPS’s legal obligation to maintain records capable of being audited.

In light of this finding, the Court declined to decide whether the regulatory requirements at issue were a precondition to payment, as opposed to a precondition to participation in the Medicaid program.  The former is a prerequisite to false certification liability under the FCA.  The Court did note, however, that several of its Sister Courts have recognized this difference and cautioned against treating all Medicare and Medicaid regulations as conditions of payment.  For this proposition, the Court cited to decisions of the Second, Third, Sixth, and Tenth Circuits.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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