White Collar Posts

U.S. Supreme Court to Decide the Viability of the Implied Certification Theory of False Claims Act Liability

December 7, 2015

On December 4, 2015, the U.S. Supreme Court agreed to consider a challenge to the federal government’s hotly-contested and Circuit-splitting “implied certification” theory of False Claims Act (FCA) liability. Per that theory, the submission of a claim for government payment is deemed to automatically trigger an implied certification of compliance with all statutes, regulations and contractual arrangements that govern the federal program being billed, even where the claimant has not expressly certified to compliance with these rules. The implied certification theory has been an enforcement weapon used frequently by the government in the health care sector – where the government argues that health care providers who submit claims to federal programs like Medicare and Medicaid impliedly certify compliance with the myriad of regulations that govern these programs and that non-compliance with those regulations creates a false claim. The theory also has been asserted in numerous other settings ranging from defense contracting to educational subsidies. The Supreme Court’s acceptance or rejection of this theory will have an unquestionably profound impact on the scope and breadth of the government’s use of the FCA.  

The petition for writ of certiorari at issue, available here, was filed by Universal Health Services, Inc. (Universal Health), a Fortune 500 company that operates hundreds of health care facilities nationwide, including a mental health clinic in Massachusetts that was the subject of a qui tam FCA whistleblower complaint. The qui tam complainants were relatives of a patient who died while in the care of the facility, whose FCA claims were premised in large part on the facility’s alleged failure to properly supervise patients pursuant to the purported requirements of Massachusetts’ Medicaid program, MassHealth. The plaintiffs did not allege that Universal Health had expressly certified compliance with these requirements when submitting its claims for payment; rather, Universal Health was alleged to have impliedly certified compliance when it sought payment for these claims.

After the government declined to intervene, the district court eventually granted Universal Health’s motion to dismiss on the basis that:

1. all but one of the regulatory requirements cited by the plaintiffs did not condition government reimbursement on compliance with these requirements (in other words, these requirements were not express conditions of payment); and
2. the plaintiffs failed to allege a credible violation of MassHealth’s supervision requirement, which was a condition of payment.

The First Circuit reversed this decision on appeal, holding in essence that the government had pleaded a viable FCA claim based on Universal Health’s failure to comply with MassHealth regulations with which it had impliedly certified compliance via the simple act of submitting a claim for payment. 

Universal Health’s certiorari petition asked the Supreme Court to determine the viability and limitations of the implied certification theory given the theory’s inconsistent treatment among the Circuits, a situation that we analyzed in detail earlier this year in ABA’s White Collar Crime Committee newsletter. The breakdown of this Circuit split is as follows: 

• The Seventh Circuit flatly rejected the “so-called doctrine of implied certification” earlier this year, chiefly because “distilled to its core…the theory of liability lacks a discerning limited principle.” One of the court’s concerns with the theory was that a claimant’s single, minor regulatory violation could hypothetically create FCA liability for all its submitted claims.   
• At the other end of the spectrum, the First, Fourth and D.C. Circuits adopt an expansive view of implied certification: a claim for government payment creates an implied certification of compliance with all of the statutes, regulations, rules and contractual requirements that govern that particular government program, even where the rule or regulation at issue does not expressly state that compliance is a precondition of payment. 
• In between, fall the Second, Third and Sixth Circuits, which accept the implied certification theory but restrict its use to instances where the claimant has impliedly certified compliance with a statute or regulation that expressly states the claimant must meet its terms in order to be paid. 

The implied certification theory has been a versatile and lucrative tool for whistleblowers and for the government (see DOJ’s recent press release announcing $3.5 billion in fraud recoveries in FY 2015), which touts a return on investment of $7.70 in health care fraud recoveries for every $1.00 spent (per a March 2015 HHS press release.) A Supreme Court ruling on the viability of this prosecution theory may provide clearer boundaries and more certainty for those who do business with the government.

White Collar Posts will provide updates on developments in this case.