In Universal Health Services Inc. v. United States et al. ex rel. Escobar et al, the U.S. Supreme Court addressed a case involving Yarushka Rivera, a teenage beneficiary of Massachusetts’ Medicaid program who received counseling services for several years at Arbour Counseling Services, a satellite mental health facility owned and operated by a subsidiary of petitioner Universal Health Services.
Rivera had an adverse reaction to a medication that “a purported doctor at Arbour” prescribed after diagnosing her with bipolar disorder, the Supreme Court’s decision says. She eventually died of a seizure related to the medication. Her parents later discovered that few Arbour employees were licensed to provide mental health counseling or authorized to prescribe medications or offer counseling services without supervision.
They filed a qui tam suit and alleged that Universal Health Services had violated the False Claims Act, which penalizes anyone who “knowingly presents ... a false or fraudulent claim for payment or approval” to the federal government. They based their claim on the theory of “implied false certification theory of liability,” which treats a payment request as a claimant’s implied certification of compliance with relevant statutes, regulations, or contract requirements that are material conditions of payment and treats a failure to disclose a violation as a misrepresentation that renders the claim “false or fraudulent.”
If an organization was not in compliance, then it would not submit the bill for payment because compliance is a prerequisite, the theory says. By billing the federal government for services, the organization implies that it is in compliance with all requirements, even if it does not say so outright. “Specifically, respondents alleged, Universal Health (acting through Arbour) defrauded the Medicaid program by submitting reimbursement claims that made representations about the specific services provided by specific types of professionals, but that failed to disclose serious violations of Massachusetts Medicaid regulations pertaining to staff qualifications and licensing requirements for these services,” the court decision says.
Universal Health Services thus allegedly defrauded the program because it “knowingly misrepresented its compliance with mental health facility requirements that are so central to the provision of mental health counseling that the Medicaid program would have refused to pay these claims had it known of these violations.”
The District Court granted Universal Health Services’ motion to dismiss and said the “implied false certification” theory of liability did not apply because none of the regulations violated by Arbour was a condition of payment. The First Circuit reversed that part of the decision and said that every submission of a claim implicitly represents compliance with relevant regulations. It said that any undisclosed violation of a condition understood to be required for payment — even if it is not specifically stated as a “condition of payment” — renders a claim “false or fraudulent.”
Justice Clarence Thomas wrote the opinion. “We first hold that, at least in certain circumstances, the implied false certification theory can be a basis for liability,” the decision says. “Specifically, liability can attach when the defendant submits a claim for payment that makes specific representations about the goods or services provided, but knowingly fails to disclose the defendant’s noncompliance with a statutory, regulatory, or contractual requirement. In these circumstances, liability may attach if the omission renders those representations misleading.”
The decision goes on to say that the False Claims Act liability for failing to disclose violations of legal requirements “does not turn upon whether those requirements were expressly designated as conditions of payment. Defendants can be liable for violating requirements even if they were not expressly designated as conditions of payment.”
On the other hand, the court also said that even when a requirement is expressly designated a condition of payment, not every violation of such a requirement gives rise to liability. “What matters is not the label the Government attaches to a requirement, but whether the defendant knowingly violated a requirement that the defendant knows is material to the Government’s payment decision,” the decision says.