Supreme Court Decides Landmark False Claims Act Case
In Universal Health Services, Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016) (Escobar) the Supreme Court finally considered whether the implied false certification theory was a permissible basis for liability under the False Claims Act, a question that has long dogged the lower courts. This case arose out of an interesting and heart-wrenching set of facts: The Relator’s daughter died of a seizure after being prescribed medication to treat her bipolar disorder by employees of a counseling service who were not licensed to provide mental health counseling or to prescribe medication. The question was whether, when the defendant submitted claims for reimbursement for the mental health services provided to her, they impliedly certified that the services had actually been provided by qualified professionals. A unanimous Court concluded that the implied certification theory can be a basis for liability “at least 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 defendant’s failure to disclose noncompliance with material statutory, regulatory, or contractual requirements makes those representations misleading half-truths.” This finally puts to rest a long-standing conflict in the circuit courts about whether the implied certification theory is valid.
The Supreme Court went on, in Escobar, to consider when a failure to disclose the violation of a contractual, statutory or regulatory provision is “material.” The Court’s focus was on whether the Government’s explicit designation of such a provision as a condition of payment factors into that analysis. The petitioner, Universal Health, argued that a defendant could only face liability where the Government expressly designated such a provision a condition of payment. Id. at 2001. The Supreme Court rejected that argument, noting that “the [False Claims] Act does not impose this limit on liability.” Id. Rather “[a] statement that misleadingly omits critical facts is a misrepresentation irrespective of whether the other party has expressly signaled the importance of the qualifying information.” Id. The question is whether the statement is material to the other’s party’s course of action. Id.
In Escobar, the Supreme Court defined materiality under the FCA in the same way that the courts have traditionally defined that concept in other federal fraud statutes. Id. at 2003. Under the FCA false or fraudulent statements “having a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property” are material. Id. (citing Neder v. United States, 527 U.S. 22 (1999). If the Government would refuse to pay a claim because of non-compliance with a statutory or regulatory condition, then the provision is material, regardless of whether the Government has expressly designated the provision a condition of payment or not. Id. at 2004.
In sum, Escobar has not changed the landscape of the False Claims Act at all. Materiality has always been the touchstone for FCA liability, and it has always been defined objectively, as a fact that is capable of influencing the decision whether to pay money. If anything, the Court has expanded liability under the FCA by making clear that “conditions of payment” are not limited to those specifically designated by statute or regulation, but may include other conditions that could influence payment decisions.