On June 16, 2016, the Supreme Court, in a unanimous decision, upheld the use of the “implied certification theory of liability” in False Claims Act (“FCA”) cases.  See Universal Health Services, Inc. v. United States ex rel. Escobar.  The FCA imposes penalties on anyone who “knowingly presents . . . a false or fraudulent claim for payment or approval” to the federal government.  The implied certification theory supports FCA liability for claimants who make specific representations about the goods or services provided but fail to disclose non-compliance with material statutory, regulatory, or contractual requirements that govern the substance of the claim they submit to the government.  In Escobar, the Court considered two questions: (1) whether the implied certification theory is viable; and (2) if implied certification theory is viable, whether it requires the legal requirement supporting the theory to be expressly designated by the government as a “condition of payment” before it will be deemed “material.”

In finding the implied certification theory viable, the Court reasoned that Congress had not defined what makes a claim “false” or “fraudulent.”  As such, the common law definitions of these terms applied.  Since common law fraud has “long encompassed certain misrepresentations by omission,” the Court held that express statements of falsity were not required to bring a false claim.  Thus, in the case at issue, a psychology clinic could be sued under an implied certification theory when it submitted claims for Medicaid funds for providing professional psychological treatment because the clinic allegedly had not ensured adequate professional qualifications for its employees.

The Court then considered whether a legal requirement underlying an FCA claim relying on an implied certification theory must have been expressly designated by the government as a “condition of payment” to qualify as a “material” requirement.  The Court concluded that there was no statutory basis to limit the implied certification theory to violations of legal requirements that have been designated as “conditions of payment.”  Instead, the FCA’s “demanding” materiality standard, which defines materiality as “having a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property,” 31 U.S.C. § 3729(b)(4), must be analyzed to determine the viability of a case brought under an implied certification theory.  While the government’s decision to expressly designate a legal requirement as a “condition of payment” is relevant to the determination of materiality, that designation does not necessarily mean that the legal requirement is material such that a claimant’s non-compliance with the legal requirement automatically leads to liability under the FCA.

The Court’s opinion in Escobar can be found here.