On June 16th, the U.S. Supreme Court, in a unanimous decision in Universal Health Inc. v. U.S. et al. ex rel. Escobar et al., expanded the basis for turning otherwise valid claims for reimbursement into false claims and, therefore, expanded the universe of potential whistleblower lawsuits. It did so by finding that, in some circumstances, an implied false certification can be the basis for False Claims Act (“FCA”) liability.
Claims for payment from the federal government are wrapped in specific representations about the goods or services provided. For example, the use of a CPT code constitutes a representation that the services underlying that code were actually delivered.
The “implied false certification” concept holds that specific representations come bundled with implied certifications of certain underlying compliance with statutory, regulatory, or contractual requirements. Under that theory, if a claimant omits to inform the government that it is out of compliance with an underlying requirement, the claim is rendered false.
The Supreme Court endorsed that reasoning, but only to the extent that compliance with the implied underlying statutory, regulatory, or contractual requirement is material to the Government’s payment decision.
The Underlying Case
The facts of the case involved a teenage Medicaid patient who received psychiatric care at Arbour Counseling Services, a subsidiary of for-profit hospital chain Universal Health Services. The patient died due to an adverse drug reaction. Upon investigation, it was discovered that Arbour had few physicians or other licensed providers and that unlicensed staff had illegally prescribed the drugs to the patient.
A whistleblower filed an FCA action alleging that Universal Health through Arbour, had violated the FCA 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 regulations pertaining to staff qualifications and licensing requirements for these services.
The Supreme Court held that the implied certification theory can be a basis for liability, at least where two conditions are satisfied:
1. The claim does not merely request payment, but also makes specific representations about the goods or services provided. [Note: CPT coded claims are such claims.] and
2. Failure to disclose noncompliance with material statutory, regulatory, or contractual requirements makes those representations misleading half-truths.
Materiality Is Key
The Court disagreed with Universal Health’s argument that a defendant should face FCA liability only if it fails to disclose the violation of a contractual, statutory, or regulatory provision that the Government expressly designated a condition of payment.
The Court stated that under the FCA, the misrepresentation must be material to the other party’s course of action, but that statutory, regulatory, and contractual requirements are not automatically material, even if they are labeled conditions of payment.
Materiality means "having a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property.”
In describing examples, the Court stated that proof of materiality can include, but is not necessarily limited to, evidence that the defendant knows that the government consistently refuses to pay claims based on noncompliance with a particular statutory, regulatory, or contractual requirement. Conversely, if the government pays a particular claim in full despite its actual knowledge that certain requirements were violated, that is very strong evidence that those requirements are not material. Or, if the government regularly pays a particular type of claim in full despite actual knowledge that certain requirements were violated, and has signaled no change in position, that is strong evidence that the requirements are not material.
The Bottom Line For You
1. It’s likely that the case will result in more FCA whistleblower actions.
2. CPT coded services are specific representations as to the goods/services provided.
3. There are probably thousands of laws and regulations governing the operation of your business, so many that it’s probably the case that no single person or even group of persons could list them all for you. Compliance with a subset of those is likely material. Which ones are material in respect of any particular specific representation becomes the treble damages plus $11,000 per claim question.
4. Materiality is a double-edged sword. It unlocks the key to implied false certification for whistleblowers. But the argument over lack of materiality is a defense for targets of this type of FCA case.
5. The best practical advice is to audit your medical group’s/business’s compliance with the broadest range of underlying regulations and laws. This can be stratified into those categories that are clearly material, those that may be material, and those that are less likely to be material. [Caveat: I have seen state court FCA counterpart cases that have used arcane requirements to deny millions in insurance company payments — arcane was seen as material.]