fca

By Jennifer J. Thomas

On December 4, 2015, the United States Supreme Court granted a Petition for a Writ of Certiorari in Universal Health Services, Inc. v. United States and Commonwealth of Massachusetts ex rel. Julio Escobar and Carmen Correa.  The Petition was filed by Universal Health Services, Inc. (“UHS”) challenging the United States Court of Appeals for the First Circuit’s (“First Circuit”) reversal of the District Court’s dismissal of the United States’ complaint alleging false or fraudulent claims for government reimbursement under the False Claims Act (“FCA”), 31 U.S.C. § 3729.  The First Circuit held that noncompliance with conditions of payment was sufficient to establish falsity of a claim for reimbursement.  This “implied certification” theory is based on the premise that a contractor did not comply with a condition of payment imposed by statute, regulation, or contract.  The “implied” comes into play when the contractor certifies compliance upon submission of a claim for payment from the government.  The question for consideration by the Supreme Court is:  can a claim be “false” under the FCA if the contractor failed to comply with a statute, regulation, or contractual provision that does not expressly state that it is a condition of payment?

If the Supreme Court affirms the First Circuit’s decision permitting the implied certification theory to be applied to the FCA, a government contractor could commit “fraud” on the government if it seeks payment while failing to comply with a state regulation governing participation in the Medicaid program.  Contractors will need to be vigilant in their compliance with all state requirements for participation before submitting a claim for payment by a government program.  Failure to comply with the conditions of participation, under the implied certification theory, could result in treble damages and penalties for false claims under the FCA, not just state administrative sanctions.

The case currently under review by the Supreme Court involves Arbour Counseling Services (“Arbour”), a mental health clinic owned and operated by the Defendant/Petitioner UHS.  Arbour is enrolled as a provider with the MassHealth, the Massachusetts state Medicaid program.  Arbour bills MassHealth for services provided to Medicaid beneficiaries.  Following the death of an Arbour patient, the Massachusetts’ Department of Public Health concluded that Arbour had violated fourteen Massachusetts state regulations including requirements for staff supervision and licensure.  Escobar and Correa, the Relators and parents of the deceased Arbour patient, thereafter alleged fourteen counts against UHS under the Federal and Massachusetts’ False Claims Acts.

The Federal FCA provides:

[A]ny person who…knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval…is liable to the United States Government for a civil penalty or not less than $5,000 and not more than $10,000, as adjusted by the Federal Civil Penalties Inflation Adjustment Act of 1990…, plus 3 times the amount of damages which the Government sustains because of the act of that person.”  31 U.S.C. § 3729(a)(1).

UHS argues that the FCA claims should be dismissed because UHS never expressly certified compliance with the Massachusetts regulations when submitting its claim for reimbursement.  UHS’ argument is based on the “express certification theory” that requires the underlying statute, regulations, or contract to expressly state that the government payor conditions payment on compliance with the statute, regulation or contract.

The U.S. District Court for the District Court of Massachusetts dismissed the Relators complaint in its entirety by distinguishing between “conditions of payment” imposed by Medicaid as preconditions to reimbursement versus “conditions of participation” in the Medicaid program and finding that only conditions of payment could establish a false claim.  The District Court determined that the regulations Arbour allegedly violated were “conditions of participation” as there was no text in the regulations that they were intended as “conditions of payment.”  The First Circuit reversed the District Court’s decision finding that the Relators had adequately pled that Arbour’s claims for reimbursement were false within the meaning of the FCA because the claims misrepresented compliance with a condition of payment.  The First Circuit determined that each time UHS submitted a claim, it “implicitly communicated that it had conformed to the relevant program requirements, such that it was entitled to payment.”  U.S. v. Universal Health Services, Inc., 780 F.3d 504, 514 fn. 14 (1st Cir. 2015).

In its Petition to the Supreme Court, UHS argues that the application of the implied certification theory usurped the State agency’s “role in evaluating and adjudicating violations of its regulations.”  UHS Petition, p. 17. UHS’ argument follows the reasoning in a separate case, United States v. Sanford-Brown, Ltd., 788 F.3d 696, 712 (7th Cir. June 8, 2015), where the U.S. Seventh Circuit Court of Appeals held that the FCA is not the proper mechanism to enforce compliance with statutes, regulations and contractual provisions applicable to a contractor by virtue of that contractor’s agreement to participate in an agency program, and that compliance with an agency’s requirements is best left to the agency to adjudicate.  Thus, the Seventh Circuit rejected the application of the “implied certification” theory to the FCA while other circuits have allowed FCA claims to survive dismissal when based on violations of statutes, regulations and contractual provisions even if it is not expressly stated that payment is conditioned on compliance with the statute regulation or contractual provision.  See e.g. U.S. v. Science Applications International Corporation, 626 F.3d 1257 (D.C. Cir. 2010).  Meanwhile, other jurisdictions such as the U.S. Fifth Circuit Court of Appeals have not yet “definitively ruled on the cognizability of implied false certification claims.”  U.S. ex rel. Steury v. Cardinal Health, Inc., 735 F.3d 202, 207 (5th Cir. 2013).  The Supreme Court’s ruling in the UHS case could resolve the inconsistent applications of the implied certification theory among the Appellate Courts.  The UHS case has not been scheduled for oral argument before the Supreme Court at this time; however, it is speculated that the case may be argued sometime in March 2016.