December 09, 2015
Government Investigations & White Collar Defense Alert
Author(s): Hannah Bornstein
In response to a circuit split, the Supreme Court announced last week that it will hear arguments on a heavily debated theory of liability under the federal False Claims Act known as “implied certification.” The Court’s decision will significantly impact companies and organizations that contract with the federal government or that face heavy scrutiny under the False Claims Act.
On Friday, December 4, 2015, the Supreme Court announced that it has granted a petition for review in Universal Health Servs., Inc. v. United States, No. 15-7. In doing so, the Court will hear arguments regarding what counts as a “false” claim for payment under the False Claims Act (“FCA”), with particular focus on two important issues: (1) express versus implied certification, and (2) conditions of participation versus conditions of payment. These issues have divided the circuits, with the First, Second, Third, Fourth, Sixth, Eighth, Ninth, Tenth, Eleventh and D.C. circuits accepting, to varying degrees, the theory of implied certification, the Seventh Circuit rejecting the theory and the Fifth Circuit having yet to definitively decide. In light of this circuit split, the Supreme Court will hear the following two questions in Universal Health Servs., Inc.:
Under the theory of express certification, a company or individual faces liability under the FCA by fraudulently and expressly certifying compliance with a statute, regulation, or contractual provision when submitting a claim for payment. Under the theory of implied certification, a company or individual faces liability under the FCA by submitting claims for payment despite a lack of compliance with applicable statutes, regulations, or contractual provisions, even though the company or individual did not expressly certify compliance when submitting the claim for payment. Under the latter theory of liability, defendants face potential FCA liability for alleged noncompliance with a myriad of often lengthy and dense regulations or contractual provisions. Even among the circuit courts that have accepted the implied certification theory, they are divided as to whether the statute, regulation, or contractual provision must expressly state that it is a condition of payment.
Another key question raised by the First Circuit in Universal Health Servs., Inc. is whether compliance with a statute, regulation, or contractual provision is a condition of participation in a government program (often in a government healthcare program) or a condition of payment. While the question can be very fact-specific, in circuits that recognize the distinction, a defendant may be able to avoid FCA liability if compliance with the applicable statute, regulation, or contractual provision is irrelevant to the government’s decision to provide reimbursement (a condition of participation). Conversely, a defendant may incur FCA liability if the government’s decision to pay is predicated upon compliance with the applicable statute, regulation, or contractual provision (a condition of payment). The distinction can be blurry, and the question of whether a defendant is alleged to have impliedly certified compliance with a condition of participation or a condition of payment—particularly in circuits that do not require a statute, regulation, or contractual provision to expressly state that it is a condition of payment—raises a host of uncertainties for companies and individuals trying to predict what conduct may give rise to liability under the FCA.
In Universal Health Servs., Inc., the relators’ teenage daughter died while receiving treatment services from unlicensed providers at a Massachusetts counseling center owned by Universal Health Services. The relators alleged that the treatment facility, in submitting claims for payment, falsely represented that it was in compliance with numerous regulations, including regulations regarding the licensing and supervision of providers and thereby violated the FCA. The district court granted the defendant’s motion to dismiss, holding that compliance with the regulations at issue were conditions of participation in the MassHealth program but were not conditions of payment for reimbursement. See United States ex rel. Escobar v. United Health Servs., Inc., 780 F.3d 504, 510-11 (1st Cir. 2015).
On appeal, the First Circuit reversed. In its ruling, the First Circuit hinted that the distinction between conditions of payment versus conditions of participation might not be critical to determining the falsity of a claim for payment, but then held that the regulations at issue did impose a condition of payment. Id. at 513. The First Circuit stated that “[b]ecause our case law makes clear that a healthcare provider’s noncompliance with conditions of payment is sufficient to establish the falsity of a claim for reimbursement, we need not address here whether the False Claims Act embraces a distinction between conditions of payment and conditions of participation.” Id. at 517.
The First Circuit also stated that “express certification” of compliance with a condition of payment is not required under the FCA. Id. at 514, n.14. The First Circuit noted that while it generally has eschewed any distinctions between express and implied certification, the counseling center implicitly certified compliance with the relevant regulations any time that a claim for payment was submitted. Id. The Seventh Circuit, however, recently rejected an “implied certification” liability theory in United States v. Sanford-Brown, Ltd., 788 F.3d 696 (7th Cir. 2015).
The Supreme Court’s resolution of the circuit split regarding express versus implied certification and conditions of participation versus conditions of payment will significantly impact companies and organizations that routinely contract with the federal government or that face heavy scrutiny under the False Claims Act. Stay tuned for updates as Nixon Peabody tracks the development of this landmark case before the Supreme Court.
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