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Supreme Court to Decide Scope of “Implied Certification” False Claims Act Liability

Last month, the Supreme Court heard oral argument in Universal Health Servs., Inc., v. United States ex rel. Escobar, 780 F.3d 504 (1st Cir. 2015), cert. granted, 84 U.S.L.W. 3037 (U.S. Dec. 4, 2015) (No. 15-7). It will soon decide whether “implied certification” claims are valid under the False Claims Act (FCA). In this case, United Health Services, a national chain of clinics and hospitals, is urging the Court to restrict FCA liability to cases where government contractors make false claims relating to express conditions of payment. If the Court rejects or limits the implied certification theory, contractors will be liable only for violating statutes, regulations, or contract provisions that are express preconditions to payment.

From universities to telecommunications companies, government contractors of all kinds are weighing in. 22 amicus briefs were filed, 11 on behalf of United Health Services (UHS), and 11 on behalf of the whistleblowers. The Court’s decision will resolve a complicated circuit split and have a major impact on the scope of FCA litigation. While the specific facts of the UHS case involve Medicaid, the Court’s holding will affect all government contractors.

The FCA and the “Implied Certification” Theory

The FCA makes it unlawful to present a “false or fraudulent” claim for government reimbursement.[1] The FCA’s qui tam provision authorizes private individuals—known as “relators”—to sue on behalf of the United States to recover government reimbursements paid based on fraud.

While the Act does not define “false or fraudulent,” courts have developed two categories of false claims. A claim is “factually false” if the contractor submitted a claim for goods and services that the contractor did not provide. A claim is “legally false” if the contractor did not comply with a condition of payment imposed by statute, regulation, or contract.

Two theories of liability exist for “legally false” claims: “express certification” or “implied certification.” Under the express certification theory, relators argue that contractors violated expressly stated conditions of payment. Relators litigating under an implied certification theory argue that contractors implicitly certify compliance with all regulations when they bill the federal government. Consequently, they argue that noncompliance with any regulation can form the basis of a FCA claim.

United States v. Universal Health Services, Inc.

This case arose from a UHS subsidiary, a mental health clinic in Lawrence, Massachusetts.  In 2009, Yarkushka Rivera died of a seizure at the Lawrence clinic. The clinic receives federal and state reimbursement through the state Medicaid program, MassHealth. Ms. Rivera’s mother and stepfather filed several complaints with state agencies concerning deficiencies in the quality of service provided at the Lawrence clinic.

The couple also brought a FCA action as relators claiming that their daughter’s seizure was caused by medicine she received from unlicensed counselors and nurses at the Lawrence clinic. They argued that UHS’s claim submitted to MassHealth was legally false.  Specifically, they claimed that the unqualified and improperly supervised staff at the Lawrence clinic violated state regulations, and under the implied certification theory, the regulations were preconditions for payment.

The United States District Court for the District of Massachusetts dismissed the case. The court concluded that the regulations the relators cited could not be the foundation for a FCA claim because none of the regulations imposed compliance as a condition of payment. The relators appealed.[2]

On appeal, the First Circuit reversed and remanded. It held that the regulations at issue were conditions of payment. UHS argued that no statute, regulation, or contractual provision suggested that compliance was a condition of Medicaid reimbursement. The court disagreed and effectively endorsed the implied certification theory: “Preconditions of payment, which may be found in sources such as statutes, regulations, and contracts, need not be ‘expressly designated.’”[3] UHS filed a petition for certiorari, which the Supreme Court granted.

Circuit Split

Nearly every circuit has weighed in on the implied certification theory. The First, Fourth, and D.C. Circuits take a broad view of what constitutes a false or fraudulent claim. Any knowing and material violation or breach of a statute, regulation, or contract can be viewed as a precondition to payment and give rise to contractor liability.[4]

The Second, Third, Sixth, Ninth, Tenth, and Eleventh Circuits take a narrower approach. They have held that government contractors are liable for knowing and material violations or breaches of a statute, regulation, or contract that contain express preconditions to payment.[5]

The approach in the Fifth and Seventh Circuits is less clear. Recently, the Seventh Circuit stated that it joined the Fifth Circuit and rejected the implied certification theory.[6] However, the Fifth Circuit has, at least on one occasion, recognized the narrow implied certification theory adopted by the majority of jurisdictions.[7]

Supreme Court’s Grant of Certiorari

This case tests the boundaries of FCA liability. In the 2014 fiscal year, whistleblowers commenced 713 qui tam actions. That is more than 20 times the number of suits filed in 1987.[8] 

Government contractors, especially those in health care, are subject to a myriad of regulations. UHS argues that the FCA should not be used as a punitive vehicle for minor statutory, regulatory, or contractual violations. According to UHS, requiring express conditions of payment—as the narrow interpretation of the implied certification theory does—ensures that government contractors are put on notice when they are potentially liable under the FCA. UHS emphasizes that violations of applicable law will not go unpunished if the implied certification theory is struck down or narrowed—contractors will still be subject to administrative sanctions, for example. Allowing actions under the FCA without express conditions of payment will give rise to treble damages and costly penalties, a result that UHS asserts is unwarranted under the FCA.

Whistleblowers argue that it is reasonable to expect government contractors to be familiar with the rules of federal programs. To counter contractor claims of unfair liability for trivial violations, whistleblowers contend that “policy arguments cannot justify engrafting a requirement that is found nowhere in the statute’s text and that directly contravenes Congress’s broad remedial purposes in passing the Act.”[9] Further, even under the implied certification theory, whistleblowers assert that contractor violations must be made knowingly and must be material to government reimbursement in order to violate the FCA. 

If the Court determines that the implied certification theory violates the spirit of the FCA, contractor liability will be limited to factually false claims and expressly certified legally false claims. If the Court sides with the majority of circuits and adopts the narrow version of the implied certification theory, contractors will be liable only for violating statutes, regulations, or contracts that provide express preconditions to payment. Finally, if the Court sides with the First Circuit, contractors may be liable under the FCA for minor regulation infractions that are not identified as conditions of payment.   

During oral arguments, the Justices did not focus on whether to recognize the implied certification theory—there seemed to be agreement that government contractors implicitly certify some level of compliance with contract terms or regulations when they submit claims for payment. Instead, the Court emphasized the question of the appropriate standard to determine which obligations give rise to FCA liability. To this point, Justice Breyer asked, “how do you distinguish those regulations, [the] breach of which are fraudulent . . . from those that [are] not? There are millions of regulations.” Deputy Solicitor General Malcolm L. Stewart—arguing for the government—suggested noncompliance with any regulation that would result in a reimbursement reduction would give rise to FCA liability if the contractor knew of the noncompliance and did not disclose it. Chief Justice Roberts seemed skeptical of this approach given the “thousands of pages of regulations” government contractors are subject to.  

A decision on the FCA liability standard is likely to be handed down by late June. It is possible the Justices will be evenly divided due to the current vacancy. If that is the case, the First Circuit’s holding will stand, and the Courts of Appeals will remain split. 


[1] 31 U.S.C. § 3729(a)(1)(A).

[2] United States ex rel. Escobar v. Universal Health Servs., Inc., No. 11-11170-DPW, 2014 WL 1271757 (D. Mass. Mar. 26, 2014).

[3] United States ex rel. Escobar v. Universal Health Servs., Inc., 780 F.3d 504, 512 (1st Cir. 2015).

[4] United States ex rel. Hutcheson v. Blackstone Medical, Inc., 647 F.3d 377 (1st Cir. 2011); United States ex rel. Badr v. Triple Canopy, Inc., 775 F.3d 628 (4th Cir. 2015); United States v. Sci. Applications Int’l Corp., 626 F.3d 1257 (D.C. Cir. 2010).

[5] Mikes ex rel. United States v. Straus, 274 F.3d 687 (2d Cir. 2001); United States ex rel. Wilkins v. United Health Grp., Inc., 659 F.3d 295 (3d Cir. 2011); United States ex rel. Augustine v. Century Health Servs., Inc., 289 F.3d 409 (6th Cir. 2002);Ebeid ex rel. United States v. Lungwitz, 616 F.3d 993 (9th Cir. 2010); United States ex rel. Conner v. Salina Reg’l Health Ctr., Inc., 543 F.3d 1211 (10th Cir. 2008); McNutt ex rel. United States v. Haleyville Med. Supplies, Inc., 423 F.3d 1256 (11th Cir. 2005).

[6] United States v. Sanford-Brown, Ltd., 788 F.3d 696, 711–12 (7th Cir. 2015). 

[7] United States ex rel. Steury v. Cardinal Health, Inc., 625 F.3d 262 (5th Cir. 2010).

[8] U.S. Dep’t of Justice, Fraud Statistics – Overview (Nov. 20, 2014), http://www.justice.gov/civil/pages/attachments/2014/11/21/fcastats.pdf.  

[9] Brief for Respondent at 38, Universal Health Servs., Inc., v. United States ex rel. Escobar, No. 15-7 (U.S. filed Feb. 25, 2016).

© 2020 Schiff Hardin LLPNational Law Review, Volume VI, Number 143
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