In its Universal Health Services, Inc. v. United States ex rel. Escobar ruling, the Supreme Court endorsed the implied certification theory of False Claims Act (FCA) liability—but with limitations. The Court’s construction differs from several lower court interpretations and explicitly rejects a bright-line condition of payment requirement. Instead, the Court adopted a “half-truth” theory of liability that focuses on a “rigorous” and “demanding” materiality standard.
Writing for a unanimous court, Justice Clarence Thomas held that FCA liability can attach under the implied certification theory if at least two conditions are met:
1. A defendant does not “merely request payment” but makes “specific representations about the goods or services provided.”
2. The defendant’s “failure to disclose [its] noncompliance with material statutory, regulatory, or contractual requirements makes those representations misleading half-truths.”
The full impact of the Court’s decision is not immediately clear. Although the decision will permit claims of implied certification going forward, it will only do so where plaintiffs meet the rigorous and demanding standard of materiality under the False Claims Act. Notably, the Court disagreed that its ruling would make it impossible to obtain dismissal of FCA complaints on the pleadings. One potential focus of future litigation will be what factual showing of materiality the plaintiff must make to withstand dismissal. For example, the Court indicated that if the government regularly pays a particular type of claim despite knowledge that certain requirements were violated, that is strong evidence that the requirements are not material.
The Court did not clearly define what a “half-truth” is, nor did it clearly define materiality. Instead, the Court pointed to principles that have been established by common law. For example, a misrepresentation might be material if it goes to “the very essence of the bargain.” The Court also clarified that the government’s ability to refuse payment is not sufficient without more to establish materiality. Nor is a regulation or requirement necessarily material simply because the government has defined it as a condition of payment.
At issue in Escobar was the alleged violation of a regulation that related directly to the services for which payment was sought. Escobar, therefore, can be distinguished from other cases where the alleged violation is unrelated to the reimbursed services. The Escobar defendant provided mental health services to the relators’ daughter at a clinic. After adverse reactions to medication, the daughter passed away from a seizure. The parents claimed that the clinic violated the FCA by seeking Medicaid reimbursement for services provided by unqualified and unlicensed staff that, by state Medicaid regulation, could only be provided by licensed providers. The Court concluded that by submitting claims using payment codes that directly corresponded to those services (e.g., individual therapy), the clinic told a “half-truth” when it failed to disclose that its employees could not, in fact, legally provide those services. The Court appeared to suggest—but did not conclude—that the misrepresentation was material. The case is being remanded for that determination.
This advisory is published by Alston & Bird LLP’s Health Care and Government & Internal Investigations practice areas to provide a summary of significant developments to our clients and friends. It is intended to be informational and does not constitute legal advice regarding any specific situation. This material may also be considered attorney advertising under court rules of certain jurisdictions.