There are a number of key issues that will drive the government’s enforcement efforts in the coming year and that will have a significant impact on how healthcare fraud matters are pursued by relators asserting FCA claims and are defended on behalf of healthcare providers. In the coming weeks, we will examine these issues in greater depth and why healthcare providers should keep a close eye on these issues. This week, we examine the future of implied certification as a viable FCA theory of falsity.
In December 2015, the U.S. Supreme Court granted the petition for writ of certiorari in Universal Health Services, Inc. v. Escobar and will consider whether and to what extent the implied certification theory is a viable theory of falsity under the FCA. This case undoubtedly will be one of the most closely watched FCA cases to be argued before the Supreme Court since the 1986 amendments to the FCA.
In the absence of a statutory definition of “falsity,” courts have grappled with how to define the FCA’s reach in determining what constitutes a false or fraudulent claim. To this end, a number of courts have fashioned distinctions between “factually” false and “legally” false claims and have further subdivided “legally” false claims based on whether those claims are premised on “implied” or “express” certification of compliance with conditions of payment. See, e.g., U.S. ex rel. Conner v. Salina Reg’l Health Ctr., Inc., 543 F.32d 1211, 1217 (10th Cir. 2008).
To complicate things further, there is a division among some courts regarding whether the conditions of payment upon which an implied certification theory of liability must be expressly identified as such. Compare Chesbrough v. VPA, P.C., 655 F.3d 461, 468 (6th Cir. 2011); Mikes v. Straus, 274 F.3d 687, 702 (2d Cir. 2001), with U.S. ex rel. Hutcheson v. Blackstone, 647 F.3d 377, 386-88 (1st Cir. 2011); U.S. ex rel. Triple Canopy, Inc., 775 F.3d 628, 636 (4th Cir. 2015); U.S. ex rel. Davis v. SAIC, 626 F.3d 1257, 1269-70 (D.C. Cir. 2010).
Still other courts are yet to have adopted such distinctions or have rejected the foregoing distinctions in their entirety. See United States v. Sanford-Brown, Ltd., 788 F.3d 696 (7th Cir. 2015); U.S. ex rel. Steury v. Cardinal Health, Inc., 625 F.3d 262, 270 (5th Cir. 2010).
Given the wide divergence of views on this issue, the Supreme Court’s willingness to consider the viability of the implied certification theory of liability is significant.
In the underlying opinion, the First Circuit considered whether a mental health provider’s failure to meet certain state regulations rendered claims submitted by the provider false for purposes of the FCA. The district court had dismissed the relators’ complaint in its entirety and in doing so, drew a distinction between requirements imposed on providers as preconditions to reimbursement and those imposed as preconditions of participation in the program in the first instance. In reversing the district court’s dismissal of the relators’ FCA claims, the First Circuit found that any distinction between a condition of participation and a condition of payment was irrelevant to the analysis. Rather, the First Circuit concluded that the relator had adequately pleaded falsity despite the fact that none of the regulations at issue implicated conditions of payment. In doing so, the First Circuit reiterated its prior holding in Hutcheson that preconditions of payment may be found in sources such as statues, regulations, and contracts and “need not be expressly designated.” To this end, the inquiry is “fact intensive” and “context specific” and requires a “close reading of the foundational documents, or statutes and regulations” at issue.
Wider acceptance of the First Circuit’s approach would open the door for relators to premise FCA claims on virtually any regulatory violation given the “fact intensive” inquiry required by Hutcheson and Escobar. Whether the Supreme Court outright rejects implied certification as a basis of FCA liability or merely limits its use to situations where the regulation expressly preconditions payment on compliance, either result would provide some level of comfort for healthcare providers given the “blunt instrument” the FCA has become in policing regulatory violations that otherwise would be left to administrative or state oversight.