Health Law Daily False certification theory must be supported by allegations of specific misrepresentations
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Wednesday, February 17, 2021

False certification theory must be supported by allegations of specific misrepresentations

By Jeffrey H. Brochin, J.D.

Neither express false certification nor implied false certification was adequately pleaded where a relator failed to cite either specific misrepresentations or examples of submitted claims.

A federal district court in California has dismissed the False Claims Act (FCA) lawsuit filed against McKesson Corporation arising out of allegations that McKesson’s submitted claims misrepresented compliance with federal, state, and contractual obligations required by law. The relator’s assertion that discovery may reveal claims with express false certifications was purely hypothetical and no specific misrepresentations on any claims were alleged to support an implied false certification theory (United States v. McKesson Corporation, February 16, 2021, Ryu, D.).

Claim of non-compliance by provider. The relator alleged that McKesson engaged in extensive business with the federal government, including through its service as the prime pharmaceutical supplier for the United States Department of Veterans Affairs (VA). However, the relator claimed that during such business, McKesson both expressly and impliedly certified compliance with all requisite statutes, regulations, and contractual obligations, but that such certifications—whether express or implied—were false. McKesson moved to dismiss the complaint for failure to adequately plead an FCA claim, which, for the reasons cited below, the court granted.

Express versus implied certification of compliance. To prevail on an FCA claim, the relator was required to show: (1) a false statement or fraudulent course of conduct; (2) made with the scienter; (3) that was material; causing (4) the government to pay out money or forfeit moneys due.

An FCA claim can proceed under either an express or implied false certification theory. Express false certification occurs when the entity seeking payment certifies compliance with a law, rule or regulation as part of the process through which the claim for payment is submitted. By contrast, an implied false certification theory is appropriate when an entity has previously undertaken to expressly comply with a law, rule, or regulation, and that obligation is implicated by submitting a claim for payment even though a certification of compliance is not required in the process of submitting the claim. The key difference between the two is whether the entity seeking payment must certify that it has complied with the applicable law, rule, or regulation each time a claim is made, or if that certification is made initially and later implied with each subsequent claim.

Express false certification pleading. The relator alleged that the contracts McKesson entered into with the federal government required it to comply with all federal and state laws and regulations that govern the distribution of pharmaceuticals, but that McKesson was not so compliant. The relator further alleged that McKesson nevertheless submitted claims for payment for pharmaceuticals pursuant to those contracts while failing to disclose its alleged noncompliance. The court found that the complaint did not contain any allegations that McKesson expressly certified its compliance with the applicable authorities each time it submitted a claim for payment. The relator asserted that upon conducting discovery, proof of a claim would be revealed; however, the court found that such outcome of discovery was purely hypothetical.

The relator also argued that because the VA contract required McKesson to comply with all applicable laws and regulations, it could be inferred that McKesson expressly certified its compliance each time it submitted a claim. The court disagreed, noting that requiring compliance as part of a contractual agreement is not the same as requiring express certification of compliance each time a claim is made. Accordingly, the court granted the motion to dismiss the express false certification claim.

Implied false certification. The court referenced Supreme Court precedent (Escobar) that established that an implied certification theory can be a basis for FCA liability where two conditions are satisfied: first, the claim does not merely request payment, but also makes specific representations about the goods or services provided; and, second, the provider’s failure to disclose noncompliance with material statutory, regulatory, or contractual requirements makes those representations "misleading half-truths." Both conditions must be met to prove falsity under an implied certification theory.

McKesson argued that the relator did not meet the two Escobar requirements due to failure to identify any claims that made specific representations about the goods or services provided, such that McKesson’s alleged legal violations rendered such representations "misleading half-truths." The court agreed, finding that to succeed on an implied false certification theory, the relator needed to allege that McKesson submitted claims that made specific representations about the goods or services provided, and that it was not sufficient to merely allege that claims for payment occurred against the backdrop of underlying fraudulent activity, the government’s wrongful payment, or "a menacing underlying scheme." Because the relator did not explain how McKesson submitted claims, what specific representations it made in connection with those claims, or how those representations were misleading or false, the court ruled that the Relator failed to adequately plead an implied false certification theory.

Based on the foregoing, the court granted McKesson’s motion to dismiss.

The case is No. 4:19-cv-02233-DMR.

Attorneys: Benjamin Joseph Wolinsky, U.S. Attorney's Office, for the U.S. Benjamin Gillig (Sidley Austin LLP) for McKesson Corp.

Companies: McKesson Corp.

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