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US Supreme Court Affirms a Legal Theory Involving False Claims Act

As the Justice Department’s initiative against healthcare fraud continues unabated, the government and healthcare providers have received some clarification from the Supreme Court about a legal theory that affects both. Back in June of this year, the U.S. Supreme Court unanimously ruled in support of a legal theory called “implied certification.” The case – ‘Universal Health Services v. Escobar’ – involved a healthcare provider who had argued that it should not have been held liable for fraud because they failed to comply with regulations never explicitly stated by the government. “Implied certification” basically means that liability can be imposed upon a contractor who has engaged in a lie by omission, such as failing to disclose its noncompliance with the act.

The court supported the theory of “implied certification” but only under two conditions: The first is that healthcare providers must make “specific representations about the goods or services provided,” and second, an organization’s failure to reveal noncompliance with “material” requirements must equate to “misleading half-truths.” “Implied certification” has been the basis for many lawsuits brought by the government against healthcare providers it has accused of False Claims Act violations. The case also affects whistleblowers and Whistleblower lawyers in that many of the suits brought by the government against healthcare providers have come from information submitted by whistleblowers.

The result of the decision is that the though the government did not set forth a simple formula for reaching a clear outcome in every fraud case, it did set standards that are not subject to change from case to case. ‘Universal Health Services vs. Escobar’ involved a teenager who, after receiving psychiatric care from Arbour Counseling Services – a subsidiary of Universal Health Services – eventually died from an adverse drug reaction. Arbour had treated the patient – a Medicaid enrollee – in its facility which contained few doctors who were licensed mental health professionals. Moreover, it was found that the patient had minimal supervision from an unlicensed staff that nevertheless counseled and prescribed drugs to him. This was in violation of state and federal standards. After first remanding the case back to the appeals court, The Supreme Court supported the “implied certification” theory meaning that healthcare providers could still be liable for False Claims Act penalties even if they violated Medicare and/or Medicare rules that aren’t related to conditions of payment. Healthcare providers have complained that the set of regulations involved in False Claims Act cases is confusing, but this ruling helps clarify the issue of materiality in such cases.