The End Of The Implied Certification Theory?: The U.S. Supreme Court Grants Certiorari In Case That Could Substantially Limit The False Claims Act

On December 4, 2015, the United States Supreme Court granted certiorari in Universal Health Services, Inc. v. United States ex rel. Escobar.1 In Universal Health Services, Inc., the Supreme Court will decide the legal validity of the "implied certification" theory of False Claims Act ("FCA") liability.2 Under this theory, a relator or the government may allege that whenever a government contractor, or a Medicare or Medicaid provider, submits a claim for payment to the government, that party has also impliedly certified that it has complied with all applicable statutory, regulatory, and contractual requirements. Accordingly, the party has allegedly violated the FCA if it has not actually complied with those requirements on the premise that compliance with the regulations or contract terms is a "condition of payment." Circuits are currently split on this issue: the First, Second, Third, Fourth, Sixth, Ninth, Tenth, Eleventh, and D.C. circuits have found that implied certification is a valid FCA theory,3 but the Fifth and Seventh circuits have found that it is not.4 This split has caused uncertainty for companies doing business with the government along with health care providers seeking reimbursement. Likewise, the availability of the implied certification theory has caused deep concern because of its incredibly broad reach and the FCA's imposition of treble damages and per claim liability of $5,500 to $11,000.5 Consequently, companies with potential FCA exposure should follow the Universal Health Services, Inc. matter and continue to monitor their FCA compliance.

UNIVERSAL HEALTH SERVICES, INC. V. UNITED STATES EX REL. ESCOBAR

Universal Health Services, Inc. operated a mental health clinic in Massachusetts that received federal and state Medicaid funds.6 After a young woman died of a seizure at the clinic, her parents—the relators—brought a qui tam action against Universal Health Services.7 The relators claimed that the clinic's staff was both unlicensed and unsupervised, in violation of state regulations, and therefore the clinic's request for Medicaid reimbursements based upon such staff's services violated the FCA.8 The district court dismissed the relators' claims, finding that compliance with the regulations was not a condition of payment from the government.9

The First Circuit reversed, holding that the clinic's payment was indeed conditioned upon the proper supervision of its staff, in compliance with the state regulations.10 The Court noted that "[a]lthough the record [was] silent as to whether [clinic] explicitly represented that it was in compliance with conditions of...