U.S. Supreme Court Issues Important Decision Regarding False Claims Act Liability
On June 16, 2016, the United States Supreme Court issued a unanimous decision which held that an implied false certification made for the purpose of claiming payment from the government can serve as a basis for False Claims Act liability. The court held that when an individual or entity submits a claim to the government making specific representations about goods or services provided, but fails to disclose noncompliance with material statutory, regulatory or contractual requirements that result in those representations being misleading, that individual or entity may be subject to liability under the False Claims Act.
The case involved claims for payment for mental health services provided to a teenage beneficiary of the Massachusetts Medicaid program. The patient received counseling services from Arbour Counseling Services, a mental health facility owned and operated by a subsidiary of Universal Health Services, Inc. (“Universal”). The patient had an adverse reaction to a medication that an Arbour employee had prescribed. The patient’s condition worsened and she eventually died of a seizure.
After the patient’s death, her mother and stepfather discovered that few of the employees of the mental health facility were licensed to provide mental health counseling services or authorized to prescribe medications. Thereafter, the parents of the deceased patient filed a qui tam lawsuit, alleging that Universal had violated the False Claims Act by submitting a false or fraudulent claim under an “implied false certification” theory of liability. Under this form of False Claims Act liability, the submission of a claim for payment to the government is treated as the claimant’s implied certification that they have complied with relevant statutory, regulatory or contract requirements that are material conditions of payment. The claimant’s failure to disclose a violation of applicable legal or contractual requirements is treated as a misrepresentation that renders the claims false or fraudulent. The qui tam relators alleged that Universal defrauded the Massachusetts Medicaid program by submitting reimbursement claims that made representations about the specific services provided by specific types of professionals, but failed to disclose serious violations of Massachusetts law regarding staff licensing qualifications for the provision of these services. The complaint also alleged that Universal defrauded the Medicaid program because Universal knowingly misrepresented its compliance with mental health facility requirements that are so central to the provision of mental health counseling services that the Medicaid program would have refused to pay the claims had they known the violations.
The trial court granted Universal’s motion to dismiss the complaint. While this could have been viewed as a reasonable decision by the trial court given the state of the law at that time, it is unlikely that similar claims would be dismissed today as a result of the Supreme Court’s decision in the Universal case. The case ultimately went to the United States Supreme Court, which held that the implied false certification theory can be a basis for False Claims Act liability when a defendant submits a claim which make specific representations about the goods or services provided, or which fail to disclose noncompliance with material statutory, regulatory or contractual requirements that make those representations misleading with respect to those goods or services. The court held that the claims at issue did more than merely demand payment, and omitted critical qualifying information. The court held that by submitting claims for payment using payment codes corresponding to specific counseling services, Universal represented that it had provided specific types of treatment. In addition, by using National Provider Identification numbers corresponding to specific job titles in the course of submission of its claims, Universal misrepresented the status of its service providers by failing to disclose its many violations of basic staff and licensing requirements. The court found that False Claims Act liability for failure to disclose violations of legal requirements do not turn upon whether these requirements were expressly designated as conditions of payment. The mere fact that the Medicaid claim form did not ask specific questions about staff qualifications did not mean that Universal could avoid liability. The court found that what matters is whether the defendant knowingly violated a requirement that the defendant knows is material to the government’s payment decisions.
The Supreme Court also held that a misrepresentation about compliance must be material to the government’s payment decision in order to be actionable under the False Claims Act. The court found that when evaluating the False Claims Act’s materiality requirement, the government’s decision to expressly identify a provision as a condition of payment is relevant, but is not automatically dispositive of whether or not there is a potential for False Claims Act liability. The court found that proof of materiality can include, but is not necessarily limited to, evidence that the defendant knew that the government consistently refuses to pay claims based on noncompliance with the particular statutory, regulatory or contractual requirement.
The Supreme Court’s decision is important because it demonstrates that a health care provider, physician, advanced practice nurse or other individual may be held liable for violation of the False Claims Act under an implied false certification theory if they submit a claim for payment to the government knowing that they have not satisfied the standards for payment of such a claim. In other words, a “sin of omission” can provide a basis for False Claims liability. While an implied false certification standard may appear to create a vague standard for enforcement of potential False Claims Act liability providers and health care professionals must now operate under an assumption that when they file a claim for payment with a governmental payor, they are assumed to “know the rules.” If a health care provider submits a claim knowing that the provider has failed to meet certain statutory or regulatory requirements, they cannot hide behind the fact that the specific claim form that was submitted did not ask whether or not the provider complied with specific statutory and regulatory standards. On the other hand, the Supreme Court made it clear that the government’s reliance on an implied False Claims Act theory is not limitless, and that any noncompliance must be material before liability can be successfully asserted. Providers need to be aware that when they submit a claim for payment, not only are they certifying that the services contained in the claim form were actually rendered, but they are also certifying that they were rendered in compliance with applicable material legal requirements.