Contractors Need to Scrutinize Unanimous Supreme Court Ruling on FCA Issue

By Pamela J. Bethel

Government contractors and subcontractors need to carefully scrutinize the Supreme Court’s important June 16 ruling on a key False Claims Act. In a unanimous decision that has delighted lawyers for claimants under the FCA, the Court endorsed a potent theory of FCA liability known as “implied false certification.” The closely watched case was Universal Health Services, Inc. v. United States ex rel. Escobar.

Under the doctrine of “implied false certification,” a company that does business with the U.S. Government can face liability, which can include treble damages and civil penalties, if it makes a claim to the Government for payment and knowingly omits to mention its violation of statutory, regulatory, or contractual obligations. Liability can be found, in other words, even if the company didn’t explicitly make a false statement that was a condition of its request for payment.

The facts of this case are illustrative of that point. The defendants, who ran a mental health facility in Massachusetts, employed grossly unqualified and unlicensed people to provide treatment and misstated the providers’ credentials in submitting reimbursement claims to Medicaid. The defendants, who were supported by amicus curiae briefs from the health care industry and other industries, contended that since the falsehoods were not directly related to the requests for payment, the FCA didn’t apply. The U.S. Court of Appeals for the 1st Circuit held in favor of the “relators,” the plaintiffs in the case. It ruled that merely by submitting claims for payment, the facility had “implicitly” represented that it was in compliance with Medicaid program requirements. The U.S. Supreme Court unanimously agreed, in a strongly worded opinion by Justice Clarence Thomas.

Justice Thomas wrote, “By punishing defendants who submit ‘false or fraudulent claims,’ the False Claims Act encompasses claims that make fraudulent misrepresentations, which include certain misleading omissions. When, as here, a defendant makes representations in submitting a claim but omits its violations of statutory, regulatory, or contractual requirements, those omissions can be a basis for liability if they render the defendant’s representations misleading with respect to the goods or services provided.”

“By submitting claims for payment using payment codes that corresponded to specific counseling services, Universal Health represented that it had provided individual therapy, family therapy, preventive medication counseling, and other types of treatment,” Justice Thomas wrote, and those payment codes were knowingly false. Thus the FCA applied.

Justice Thomas wrote that the “implied certification theory” can be a basis for liability, “at least where two conditions are satisfied: first, the claim does not merely request payment, but also makes specific representations about the goods or services provided; and second, the defendant’s failure to disclose noncompliance with material statutory, regulatory, or contractual requirements makes those representations misleading half-truths.”

The Court also rejected the defendant’s argument that FCA liability should only be imposed if the defendant’s violations have been “expressly designated” as “conditions of payment” by the government. The Court said that rather than focus on whether the government had labeled a particular requirement as a “condition of payment,” the focus should simply be on whether compliance with that requirement was “material” to the government’s decision to pay the claim. That “materiality” requirement is already in the text of the FCA.

This important case clarifies a key question regarding the FCA’s coverage, and it does so largely in favor of plaintiffs. It creates a host of new questions, however, about where the Government will draw the line going forward.  Government contractors need to be extremely careful that their invoices are accurate in terms of the products and services supplied as well as the dollar value of the invoice.

 

 

 

 

 

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