Universal Health Servs., Inc. v. U.S. ex rel. Escobar — June 2016 (Summary)

FALSE CLAIMS ACT

Universal Health Servs., Inc. v. U.S. ex rel. Escobar
No. 15-7 (U.S. June 16, 2016)

The Supreme Court of the United States held that the implied false certification theory can be a basis for False Claims Act (“FCA”) liability and that FCA liability under such a theory turns on whether the requirement in question was material to the government’s payment decision.

The alleged FCA violations arose from a counseling service center operating with only a few of its employees holding the requisite licenses.  A patient at the center was treated and prescribed medication by employees who held themselves out as psychologists and psychiatrists, but lacked the required licenses and authority to prescribe medication.  The patient deteriorated after treatment and died.  This action by her parents, Massachusetts, and the United States followed.

They brought claims under the FCA against Universal Health, alleging violations under an implied false certification theory of liability.  Universal Health argued that the complaint failed to state a claim because, with one exception, the regulations violated were not conditions of payment.  In a unanimous decision, the Court held that, in some circumstances, the implied false certification theory can provide a basis for liability where at least two conditions are satisfied:  first, the claim does not merely request payment but also makes specific representations about the goods and services provided, and second, the defendant’s failure to disclose noncompliance with material requirements makes those representations misleading.

Additionally, the Court held that liability for nondisclosure of violations of CMS requirements does not turn on whether those requirements were conditions of payment.  Instead, it turns on the materiality of the requirement to the government’s payment decision.  This standard is demanding and the Court clarified that it is not sufficient that the government would have the option to deny payment if it knew of the violation.  It must be that the government in fact would withhold payment.