Implied certification liability under FCA upheld, but limited to material compliance violations
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Monday, June 20, 2016

Implied certification liability under FCA upheld, but limited to material compliance violations

By Kayla R. Bryant, J.D. In a False Claims Act case with implications for employment law, the U.S. Supreme Court found that implied certification can be a basis for liability when an entity fails to disclose noncompliance with requirements that results in misleading representations about the provided goods or services. The Court found that when Universal Health Services, Inc., submitted claims for reimbursement, it represented that it provided specific types of treatment that conformed to regulations. Although the FCA does not limit liability to claims that only misrepresent compliance with conditions of payment, the misrepresentations must be material to the government’s payment decision (Universal Health Services, Inc. v. U.S. ex rel. Escobar, June 16, 2016, Thomas, C.). Diagnosis and treatment by unlicensed practitioners. A teenager was treated at Arbour Counseling Services, a mental health facility owned by a Universal subsidiary, for several years. She was diagnosed with bipolar disorder and prescribed a medication that caused adverse reactions culminating in a fatal seizure. Upon investigation, the patient’s parents discovered that most employees at the mental health facility were not licensed to provide counseling or authorized to prescribe medications or offer counseling without supervision. The practitioner that made the diagnosis stated that she was a psychologist with a Ph.D., but her degree was from an unaccredited college and the state had denied her licensure as a psychologist. The medication was prescribed by a nurse who did not have authority to prescribe medicine unsupervised, but who was held out as a psychiatrist. The qui tam suit the parents filed alleged that Universal violated the FCA through the implied certification theory, under which a submission of a claim for reimbursement is considered a certification of compliance with all requirements that are "material conditions of payment." Any failure to disclose a violation is a misrepresentation that makes the claim false or fraudulent. When the case was originally brought, the district court dismissed the complaint, finding that none of the regulations violated were conditions of payment. The First Circuit reversed in part, holding that submission of claims for reimbursement does implicitly represent compliance and that an undisclosed violation of a precondition of payment makes a claim false. It also held that because facilities are required to adequately supervise staff in order to receive reimbursement, compliance was a material condition of payment. During oral arguments before the Supreme Court, several justices seemed open to the idea of the implied certification theory, but the outcome remained uncertain. Health care organizations were adamant in stating their position that the implied certification theory improperly broadened the reach of the FCA and that noncompliance is not necessarily fraud. Implied certification theory checks out. The Supreme Court held that the implied false certification theory does provide a basis for liability in the proper circumstances. The mental health facility not only allowed its unlicensed, unqualified staff to provide services, the staff also misrepresented their qualifications in order to obtain the National Provider Identification numbers required for reimbursement claims. Upon submitting claims for reimbursement, it failed to report the violations of certain requirements. According to the Court, "those omissions can be a basis for liability if they render the defendant’s representations misleading with respect to the goods or services provided." Assessing the FCA’s statutory language, the court noted that Congress did not define a "false or fraudulent claim" and relied on the inclusion of misrepresentation by omission in common-law fraud to justify liability. Two conditions must be met: (1) the claim must make specific representations about the services, and (2) the failure to disclose noncompliance must make those representations misleading. Influence on government decision to pay. While the Court found that the FCA does not limit liability to misrepresentations that only include conditions of payment, it also cautioned that not every violation triggers liability. Under the FCA, liability attaches when someone makes a false record or statement "material" to a false or fraudulent claim. A material claim is one that has an influence on the government’s decision to pay. The Court strictly applied this standard, holding that a misrepresentation is not material simply because compliance is required as a condition of payment, or that the government could decline to pay if it knew of the failure to comply. Materiality is not present when the noncompliance is minor. Proof of materiality can include showing that the provider knew that the government refuses to pay claims based on that particular noncompliance. When the government consistently pays claims despite knowledge that requirements were violated, those requirements are unlikely to be material. The Court stressed that the FCA’s penalties are intended to fall on those who commit fraud, not for regulatory or contractual violations or even medical malpractice.

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