SCOTUS to Decide When a Claim is False per the False Claims Act

There is outright theft and then there is getting paid for doing the job but not following all the rules. The former may be the subject of a False Claims Act claim but what about the latter?  The Supreme Court will hear argument on that question next week.

 The False Claims Act (FCA) allows private individuals to sue on behalf of the United States to recover money that has been defrauded from the federal government. While the Supreme Court has yet to rule whether states and local governments can bring FCA claims, local governments, but not state governments, can be sued for making false claims against the federal government.  

 What exactly is a false claim? The question for the Supreme Court in Universal Health Services v. Escobar is whether a claim for reimbursement from the federal government containing no affirmative misstatements can be deemed false because the claimant failed to disclose that it has violated a requirement of the federal program. Technically, this is called the “implied certification” theory of legal falsity.

 Parents of Yarushka Rivera brought a FCA case against Arbour Counseling Services, owned by Universal Health Services, claiming that it submitted false Medicaid reimbursement claims in regards to their daughter’s care. Rivera died from seizures related to medication prescribed by an Arbour nurse who wasn’t supervised by a board certified psychiatrist, as required by state regulation.  An investigation revealed that Arbour failed to comply with a number of staffing and supervision regulations. Rivera’s parents argued that Arbour’s Medicaid reimbursement claims for Rivera’s care were false because Arbour wasn’t complying with program requirements.   

 Arbour argues that only factually false FCA claims should be possible–for example claims that incorrectly describe the goods or services provided or seek reimbursement for goods or services that were not provided. The First Circuit disagreed adopting the “implied certification” theory. It noted that “each time it submitted a claim, Arbour implicitly communicated that it had conformed to the relevant program requirements, such that it was entitled to payment.”

 Arbour further argues that if the Court does recognize the implied-certification theory “its application must be limited to situations in which a defendant requests payment in violation of an expressly designated precondition to payment.” The First Circuit again disagreed stating that a material condition of payment “need not be ‘expressly designated’” as such in any statute, regulation, or contract provision.

 The Court’s ruling in this case will affect state and local governments. Which outcome would be best for them is hard to say. To the extent FCA claims can be brought against local governments the implied certification theory, which expands liability beyond factually false claims, is undesirable. But to the extent state and local governments may bring FCA claims or otherwise benefit from them (as in this case—Massachusetts is a party) the “implied certification” theory is desirable.