The U.S. Supreme Court has determined that the False Claims Act applies when an organization fails to disclose noncompliance with certain requirements. The issue at hand is called “implied certification.”
- The theory applies when seemingly legitimate medical services are provided, but noncompliance with regulations makes the services invalid.
- The regulation in question does not have to be a condition of payment.
- The Onus Is On Healthcare Organizations To Know If They Legitimately Can Bill For Services.
In a decision that increases the risk of violating the False Claims Act (FCA), the U.S. Supreme Court ruled recently that an organization can violate the law if it relied on “implied false certification” when billing the government for services. The hospital or health system may have provided the services, but those services were rendered invalid because the organization — by not stating that it was noncompliant — falsely implied that it was in compliance.
The court’s ruling came in the case of Universal Health Services Inc. v. United States et al. ex rel. Escobar et al, which involved a mental health facility that provided services to a teenage girl with bipolar disorder who died from the effects of prescribed medication. The girl’s parents claimed a violation of the FCA because the facility billed the government knowing the staff were not properly authorized to provide counseling or medications. (The court’s ruling is available to readers online at http://1.usa.gov/1YuNhnA. See a summary of the decision in this issue.)
The ruling is a dual victory for the government and individuals who might make an FCA claim, says Colin E. Wrabley, JD, partner with the law firm of Reed Smith in Pittsburgh, PA, who co-authored an amicus brief in the case on behalf of the National Association of Criminal Defense Lawyers. (See the story in this issue for excerpts from the amicus brief.)
The court upheld an increasingly common theory of FCA liability and eliminated a key defense previously endorsed in some circuits: the requirement that only failure to disclose noncompliance with “express conditions of payment” could support implied certification liability, Wrabley explains.
Don’t Play Innocent
The ruling makes clear that lying by omission, in effect, won’t be tolerated when billing the government, says Brian Markovitz, JD, principal with the law firm of Joseph Greenwald & Laake in Greenbelt, MD. He represents whistleblowers in FCA and similar cases.
“You should look at it this way: Would this issue be something you would want to know about if you were entering a contract with another entity?” Markovitz says. “If the answer is yes, then the government would probably want to know too, and if you don’t tell the government, then you’re looking at a likely implied certification problem.”
Rather than introducing a new FCA risk, the Supreme Court ruling affirms a theory that lower courts have favored in recent years, Markovitz says. Courts have increasingly decided that healthcare organizations are expected to know that they can’t bill for services when out of compliance in a significant way. The government shouldn’t have to remind them or seek an affirmative confirmation of compliance each time, courts have said.
“It’s as if I hired a contractor to paint the exterior of my house, and he used interior paint. When I complain that the paint is falling off, he says I never told him to use exterior paint, so he didn’t commit fraud,” Markovitz says. “The court is taking a common sense approach and saying healthcare providers should know better. Don’t try to play innocent when you knew you shouldn’t have billed the government.”
Markovitz notes that the FCA originally was enacted to protect the Union army from fraud during the Civil War, after experiences in which profiteers shipped boxes of sawdust instead of guns and sold the same horses to the cavalry several times. The “Escobar” ruling underscores that FCA’s original purpose of putting the onus on the contractor to be honest, rather than requiring the government to verify honesty in each transaction, he says.
“If I want to buy some mules for the army, do I really have to specify that they be able to walk and carry things?” Markovitz says. “Or would it be fraud if you sell me a mule with two legs? It’s still a mule, right? If you bill for medical services, do I really have to verify that you’re actually a doctor and authorized to prescribe medicine?”
Some Positive Effects
Still, the ruling contains several features favorable to defendants, Wrabley says. First, the court clarified that a mere request by a company for payment by the government is not enough to support implied certification liability. The implied certification theory now requires “specific representations” about the goods or services provided along with information not disclosed to the government that, taken together, are misleading.
Additionally, the court breathed new life into the materiality requirement and narrowed the broad definition in the text of the statute and the plaintiff-friendly broad interpretation that lower courts routinely had adopted, Wrabley says. The materiality requirement is based on the legal system’s acknowledgment that heavily regulated companies, such as healthcare organizations, cannot be expected to comply perfectly with the thousands of applicable laws, regulations, and guidelines. With that requirement in mind, courts have developed a mechanism known as “materiality” to differentiate which violations actually go to the heart of a claim for federal money and which violations are inconsequential to a federal funding decision.
In this decision, the Supreme Court emphasized the need for materiality by describing the burden as “demanding materiality,” Wrabley notes. The court also emphasized that the “demanding” materiality requirement is susceptible to disposition pre-trial through dismissal and summary judgment motions.
Furthermore, the court clarified that materiality under the FCA is an objective test that does not rely on artificial characterizations such as “condition of payment” and “condition of participation,” explains Cleveland Lawrence, JD, an attorney with the law firm of Sanford Heisler in Washington, DC. Lawrence is chair of the firm’s whistleblower practice and former co-executive director of Taxpayers Against Fraud, also in Washington, DC.
The overall message, however, is a stern warning to healthcare organizations that they are expected to know when they are noncompliant and, therefore, unable to bill Medicare, he says. Lawrence says the ruling returns the FCA to its intended purposes: providing a strong remedy and deterrent to combat fraud on government funds. The Supreme Court emphasized that when a contractor delivers a good or provides a service to the government, the contractor cannot seek payment while omitting material information from the government.
“Doing business with the government while failing to disclose underlying statutory, regulatory, or contractual violations that are key to the government’s payment decision will lead to FCA liability,” Lawrence says. “Contractors must turn square corners.”