Providing Medical Services in the Wake of United Health Services v. United States ex rel. Escobar
On June 16, 2016, the U.S. Supreme Court (the Court) issued a unanimous decision in United Health Services, Inc. v. United States ex rel. Escobar, upholding the controversial theory of “implied certification” as a basis for liability under the False Claims Act (FCA), but replacing the previous limitations on the scope of falsity with a “new” materiality standard. Under the “implied certification” theory, when a person submits a claim to the federal government for reimbursement under a federal health care program, the person certifies its compliance with all applicable statutory, regulatory and contractual requirements.
The implications of this decision are far-reaching for medical service providers trying to navigate the already complex landscape of medical legislation and regulation. Further, the effect of Escobar is amplified by a recent Department of Justice Interim Final Rule which nearly doubled the monetary penalties for violating the FCA (from a minimum of $5,500 to $10,781 per claim, and from a maximum of $11,000 to $21,563 per claim). This article will summarize the landmark case and provide key takeaways medical service providers, general counsel, accountants and other persons impacted by the ruling can use to make the navigation of that complex landscape a little more manageable and, hopefully, avoid subjecting themselves to the increased penalties on the horizon.
Yarushka Rivera (Ms. Rivera) was a teenage Medicaid recipient and counseling patient at Arbour Counseling Services (Arbour), a subsidiary of United Health Services, Inc. (UHS). Ms. Rivera was prescribed a medication at Arbour that caused an adverse reaction and, subsequently, a fatal seizure. Ms. Rivera’s parents later discovered numerous employees at Arbour counseled patients and prescribed medications without proper licenses or supervision – against regulatory requirements.
Ms. Rivera’s parents brought a qui tam suit alleging that UHS violated the FCA, under the implied certification theory of liability, by submitting Medicaid reimbursement claims for services rendered by Arbour without disclosing that its staffing practices violated material Medicaid regulations. The district court dismissed the case, finding the failure to disclose improper licensing was not a violation of the FCA because proper licensing was not a precondition of payment. On appeal, the First Circuit reversed in relevant part, finding that, although not an express precondition to payment, proper licensing is an implied precondition of payment and, therefore, the failure to disclose improper licensing was a violation of the FCA under the implied certification theory. This decision deepened a circuit split on the issue regarding whether and when the implied certification theory of liability is valid under the FCA. The U.S. Supreme Court granted certiorari to resolve the circuit split.
In its unanimous decision, the Court held that a version of the implied certification theory of liability under the FCA is valid, but the application of this theory is limited to claims for payment that make “specific representations about the goods or services provided,” where “the defendant’s failure to disclose noncompliance with material statutory, regulatory, or contractual requirements makes those representations misleading half-truths.” The Court defined “misleading half-truths” as “representations that state the truth only so far as it goes, while omitting critical qualifying information.” In short, the Court upheld the validity of the implied certification theory, but limited its scope to a defendant’s knowing failure to disclose a “material” violation of a statutory, regulatory or contractual requirement on a claim for payment.
The Court next addressed the issue of materiality. The Court held materiality does not depend on whether or not the violated condition was labeled a precondition of payment by the government or whether or not the government would be entitled to refuse payment. Instead, the Court found materiality turns on whether or not the government’s payment decision would have been influenced if it had known about the violation. Thus, evidence the government made payments in similar situations of noncompliance, despite knowledge of the violation, could help to defeat the materiality requirement. As a result, the Court stressed that not every violation of either an express or implied condition, or every false statement, is actionable under the FCA.
Unfortunately, there still exists a great deal of uncertainty about how the theory of implied certification will be applied moving forward. The Court provided factors to consider when determining whether the materiality standard under the FCA has been met. The Court’s interpretation supports a fact-intensive, case-by-case interpretation of the implied certification theory. Consequently, it will be left to the lower courts to shape the materiality standard through its application to alleged violations of the FCA. It also will be much harder for defendants to win motions to dismiss in these cases because of the fact-intensive nature of the new rule.
- Whether and to what extent a statutory, regulatory or contractual violation is considered to be a false claim under the FCA could shift dramatically in the coming years, as courts interpret and apply the new materiality standard.
- Technical violations of statutory, regulatory or contractual requirements may no longer qualify as “false claims,” to the extent those violations are immaterial to the government’s decision to pay a given claim. Again, these interpretations will be rather fact-intensive and unique to each case.
- Evidence of the government making payments in similar situations of noncompliance despite knowledge of the violation could help to defeat the materiality requirement. Therefore, it will be important to stay apprised of FCA litigation and its effects on your practice.
- Defendants must know that the violation would be material, but ignorance of the law is no excuse. Therefore, the onus is on the defendant to stay apprised of what does and does not constitute materiality.
- The fact that a requirement is deemed a condition of payment is relevant, but not dispositive of materiality. Similarly, the fact that a requirement is not deemed a condition of payment is not sufficient to conclude that the requirement is not material.
- The defendant’s knowledge that the government has consistently refused to pay the type(s) of claim(s) in question based on noncompliance with statutory, regulatory or contractual requirements supports a finding of materiality. Conversely, demonstrating the government has paid the type of claims in question despite having knowledge of such violations is evidence against a finding of materiality.
- You have received a request for information from the government;
- You have received a notice of investigation from the government;
- You have received a notice of an audit from the government;
- You are concerned that some of your previous reporting practices may constitute a false claim(s) under the new standard;
- You are creating new reporting practices and want to make sure that they comply with the new standard;
- You are drafting new policies and want to make sure that they comply with the new standard;
- You believe that you are at risk of being reported to the government for any violations;
- You think you may be subject to higher penalties retroactively; or
- You have any remaining questions about this article and its application to your practice.
Disclaimer: The article in this publication has been prepared by Eastman & Smith Ltd. for informational purposes only and should not be considered legal advice. This information is not intended to create, and receipt of it does not constitute, an attorney/client relationship.
Breanna M. Caldwell, a third year law student at the University of Michigan Law School, contributed to this article.