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Supreme Court: Failure to Comply With Medicare/Medicaid Rules Can Be a False Claims Act Violation

By: Allan M. Siegel

In a unanimous opinion, the U.S. Supreme Court held that whistleblower lawsuits may be based on a legal theory known as “implied certification.” Under this theory, whistleblowers may file cases based not on explicit misrepresentations, but on the implied representations of important terms in a government contractor’s request for payment. Under the False Claims Act, whistleblowers may report activity that defrauds the government and receive a percentage (up to 30 percent) of any resulting settlement or verdict.

DC Whistleblower LawyerIn Universal Health Services v. United States ex rel. Escobar, a contractor provided health care services that were funded in part by Medicare and Medicaid. According to the whistleblower’s complaint, Universal Health Services, the contractor, submitted payment claims based on services that were rendered by employees who lacked proper credentials. Escobar was filed by the parents of a woman who died of an adverse reaction to a bipolar medication given by a mental health clinic that did not comply with licensing and supervision regulations. The government reimbursed Universal Health Services for its claims on the assumption that the services were provided by qualified employees. The whistleblower’s lawsuit treated Universal Health Services’ reimbursement requests as implied certifications that it had complied with applicable Medicare/Medicaid regulations.

In Escobar, the Supreme Court unequivocally endorsed this liability concept of “implied certification” as the basis for a False Claims Act case. In its unanimous opinion, the Court stated that the implied certification theory falls under a “rule that half-truths – representations that state the truth only so far as it goes, while omitting critical qualifying information – can be actionable misrepresentations.” In order to be eligible to participate in the Medicare and Medicaid programs, health care providers must comply with the law and reimbursement claims that contain important omissions (such as the fact that providers are not properly licensed) are actionable under the False Claims Act.

The False Claims Act allows whistleblower lawsuits against government contractors if they “knowingly” present a materially “false or fraudulent” claim for payment. In the Escobar opinion, the Court outlined its mechanism for limiting overly broad liability exposure under the False Claims Act. The key question, according to the Court, in evaluating whether a contract breach is “material” is whether it is outcome determinative. In order to file a valid False Claims Act claim, the deceptive activity must rise above giving the government a right to withhold payment. Rather, the falsehood must be so serious that the government actually withholds payment. While the Escobar opinion is helpful to whistleblowers in that it endorses the “implied certification” liability theory, it may hinder future claims through its stringent materiality test.