In Universal Health Services, Inc. v. United States ex rel. Escobar, the U.S. Supreme Court will decide an important issue affecting the scope of the False Claims Act (FCA) that will have broad ramifications for anyone doing business with the federal government. 

As the name of the statute suggests, violations of the FCA require a false statement—i.e., a “false or fraudulent claim” or “a false record or statement material to a false or fraudulent claim.”  31 U.S.C. § 3729(a)(1)(A)-(B). Traditionally, the falsity element of an FCA claim required a “factual falsehood” (e.g., submitting a claim for payment for 10 computers when only 5 were delivered) or an express false certification (e.g., certifying to a lack of organizational conflicts of interest when such conflicts exist). However, courts developed a different breed of “falsity” over the last several years based on so-called “implied certifications.” Under the “implied certification” theory, submitting a claim for payment alone can constitute an implicit representation that legal or contractual requirements were followed. Thus, violation of such a legal or contractual requirement can, in certain situations, give rise to FCA liability and the attendant treble damages and civil penalties. 

In Escobar, the Supreme Court will soon decide the viability of the “implied certification” theory. In that case, the qui tam relators filed a complaint alleging that a mental health clinic in Massachusetts was operating—and submitting claims for payment under Medicaid—with staff who were not qualified and were not being supervised in accordance with Massachusetts regulations.  The relators alleged that staff had fraudulently held themselves out as being properly licensed and supervised. However, the clinic had never certified to the federal government that they were complying with these regulations, so there was no specific misstatement in connection with the Medicaid payments. The district court dismissed the complaint, finding that the regulations that had been violated were merely “conditions of participation” in the Medicaid program that were not “conditions of payment” on specific claims. 

But the First Circuit reversed, applying a broad understanding of the “implied certification” theory. It found that the regulations at issue were conditions of payment and that by submitting claims for payment the defendant “implicitly communicated that it had conformed to the relevant program requirements, such that it was entitled to payment.” Universal Health Services, Inc. v. United States ex rel. Escobar, 780 F.3d 504, 514 n.14 (1st Cir. 2015). The First Circuit’s decision added to the growing circuit split on this issue. In United States v. Sanford-Brown, Ltd., 788 F.3d 696 (7th Cir. 2015), for example, the Seventh Circuit recently rejected the “implied certification” theory.  

By granting certiorari in Escobar, the Supreme Court intervened in this dispute among the circuit courts and should be able to provide clarity on this important issue, which will have significant effects on the application of the FCA. Depending on what the Court decides, it could cement an expansive view of falsity that sweeps extensive regulatory and contractual requirements within the purview of a fraud statute. Or, the Court could pull back the scope of the FCA, leading to a more rigid interpretation of the statute that may leave some improper conduct against the federal government outside the statute’s purview. 

The FCA, the circuit split on “implied certification,” and the Court’s likely path in Escobar will all be discussed in the Teleforum Conference Call on January 25, 2016.