Scienter is an element that the government or relator must prove to demonstrate a violation of the False Claims Act, 31 U.S.C. § 3729, et seq.  Under the False Claims Act, the required scienter, or state of mind, is “knowledge.” In other words, the False Claims Act only penalizes defendants who knowingly submitted false claims, i.e., submitted the false claim with knowledge of the claim’s falsity.

Knowledge Defined

The False Claims Act defines knowledge to be broader than actual knowledge. It sets out three alternative definitions of “knowing and knowingly,” each independently sufficient to demonstrate that the defendant has the requisite knowledge to support a violation.

The Act requires that the defendant:

  1. Have actual knowledge that the information submitted is false;
  2. Acts in deliberate ignorance of the truth or falsity of the information submitted; or
  3. Acts in reckless disregard of the truth or falsity of the information submitted.

The False Claims Act also clarifies that the knowledge requirement does not require proof that the defendant had the specific intent to defraud the government when they submitted the claim.

Under Federal Rule of Civil Procedure 9(b)—which otherwise requires False Claims Act claims to be pleaded with particularity—allegations of scienter may be pleaded generally. Combined with scienter’s frequent involvement of highly factual questions about the defendant’s knowledge, the issue of scienter often is not resolved until trial. However, there are occasions when the scienter element may be decided before trial. Indeed, the Supreme Court has unanimously held that the scienter requirement is “rigorous” and subject to “strict enforcement.” Universal Health Services, Inc. v. U.S. ex rel. Escobar, 579 U.S. 176, 192 (2016).

Objective Scienter

One important defense that defendants can assert in a motion to dismiss or motion for summary judgment concerns the objective scienter standard. At least six circuit courts have adopted the objective scienter standard for the False Claims Act. The objective scienter standard is drawn from the Supreme Court’s decision in Safeco Insurance Co. of Am. v. Burr, which construed the scienter requirement of the Fair Credit Reporting Act. The Court held that a defendant did not act with the requisite scienter when their interpretation of an ambiguous statute or regulation was objectively reasonable, and no authoritative guidance warned the defendant away from their interpretation.

The adoption of the objective scienter standard in the False Claims Act context provides a critical boundary on otherwise expansive liability. It ensures that a defendant who incorrectly interprets a relevant statute or regulation does not act “knowingly,” provided that their interpretation was both objectively reasonable and that there was no authoritative guidance warning the defendant away from the incorrect interpretation. This is particularly significant for the highly regulated healthcare industry due to the often complex regulations and prevalence of non-binding guidance documents.

Corporate Scienter

Corporate defendants have another important defense. To hold an entity liable for an alleged corporate-wide scheme that affected its claims (for example, enterprise-wide upcoding claims in the Medicare Advantage context), the majority of courts require corporate-wide proof or evidence of a top-down directive from an officer or director. Therefore, a lower-level corporate employee’s knowledge of alleged false claims is unlikely to suffice to establish scienter on the entity’s behalf, especially where those employees are unconnected to the submission of the alleged 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 explore different elements of the False Claims Act and case law developments affecting the requirements of those elements.