The False Claims Act, 31 U.S.C. § 3729, et seq. is the federal government’s primary and most effective tool for fighting fraud. This post provides an overview of the elements that plaintiffs must satisfy to establish liability under the False Claims Act and common defenses related to the elements.
Although the False Claims Act creates liability for seven types of conduct, most False Claims Act cases involve allegations that the defendant knowingly submitted or caused another to submit a false or fraudulent claim for payment to the government. § 3729(a)(1)(A). To establish this type of False Claims Act violation, the plaintiff must show the following:
- A false claim.
- The false claim was made with the requisite scienter (or knowledge that it was false).
- The false claim is material to payment.
- The false claim caused the government to pay money.
These four elements are discussed in further detail below.
Claims may trigger False Claims Act liability if they are factually false or legally false. Factually false claims involve billing for goods or services that are incorrectly described or were not provided at all. Legal falsity, on the other hand, is not predicated on the accuracy of the claim itself, and indeed, legally false claims may be factually accurate. Instead, a claim is legally false if it is predicated upon a false representation of compliance with a material statutory, regulatory, or contractual term.
Because the False Claims Act does not define the terms “false” and “fraudulent,” various judicially construed categories of falsity have arisen. For instance, courts recognize two subtypes of legal falsity:
- Express false certification claims.
- Implied false certification claims.
Express false certification relates to claims that falsely certify compliance with a particular statute, regulation, or contractual term where compliance is a prerequisite to payment. Implied false certification does not relate to any express certification. Rather, submitting a claim for reimbursement itself implies compliance with some provision that is a precondition to payment.
Individuals and entities facing False Claims Act allegations have several defenses related to falsity. First, there is no falsity unless there is a violation of some rule, regulation, standard, or breach of contractual duty – subregulatory guidance generally does not suffice. Second, most courts have adopted an “objective falsity” standard. Courts typically do not hold defendants liable where there is only subjective disagreement about, for instance, the medical necessity of the type and amount of treatment provided to a patient, and no other evidence of falsity.
False Claims Act liability does not attach unless the plaintiff can establish the defendant acted with the required state of mind, also known as “scienter.” The False Claims Act punishes only knowing submissions of false claims, i.e., submitting a false claim with knowledge of its falsity. The False Claims Act defines knowledge broadly to include the following:
- Actual knowledge.
- Deliberate ignorance of the truth or falsity of the information.
- Reckless disregard of the truth or falsity of the information.
False Claims Act plaintiffs must prove only one of these to satisfy the statute’s knowledge requirement.
The majority of federal circuit courts of appeal that have considered the issue have held that the False Claims Act requires an objective scienter standard. A defendant who acts under an incorrect interpretation of a relevant statute or regulation does not act “knowingly” under the False Claims Act if their interpretation was objectively reasonable, and authoritative guidance did not warn the defendant away from their interpretation. This defense helps to ensure that a defendant’s reasonable interpretation of an ambiguous law does not result in False Claims Act liability.
Another important defense relates to the plaintiff’s inability to prove a corporate-wide scheme. The majority of courts require some sort of corporate-wide proof or top-down directive to hold an entity liable for an alleged corporate-wide scheme that affected its claims.
Not all factual or legal falsities render a claim “false” for purposes of the False Claims Act, only records or statements “material” to government payment. The False Claims Act defines material as “having a natural tendency to influence, or be capable of influencing, the payment or receipt of property.” The materiality requirement ensures that the False Claims Act applies only when the false or fraudulent conduct was important enough that it would probably have influenced a government decision.
In the watershed Universal Health Services v. U.S. ex rel. Escobar decision in 2016, the Supreme Court re-emphasized the element of materiality, calling it “rigorous” and “demanding.” In particular, Escobar spotlighted the fact of continued government payment, establishing that the government’s continued payment despite actual knowledge of a violation is a strong defense against the element of materiality. Since Escobar, courts have grappled with specific applications of the materiality standard, with some giving less weight to various materiality factors than others depending on the circumstances, including the continued-payment defense.
The causation analysis can be straightforward in the most common fact patterns where the False Claims Act is invoked. When an alleged False Claims Act violation is predicated on an underlying Anti-Kickback Statute (AKS) violation, however, the causation analysis can be more involved. Congress amended the AKS in 2010 to confirm that a claim “resulting from” an AKS violation constitutes a false or fraudulent claim but did not define the phrase “resulting from.” Courts diverge from circuit to circuit on whether plaintiffs must show the AKS violation was the but-for or proximate cause of a false claim.
Notably, the False Claims Act imposes liability even where a company does not directly submit a claim to the government. For example, a company may be liable for causing false claims when it adopts a policy or makes representations about its product’s capabilities that leads another entity to submit false claims.
If you have any questions about the False Claims Act, please contact a member of Bass, Berry & Sims’ Healthcare Fraud & Abuse Task Force. Please also check out other posts on this blog where we dive deeper into specific elements of the False Claims Act and case law developments that affect the showing that each element requires.