Supreme Court Clarifies False-Claims Liability

     (CN) — The U.S. Supreme Court ruled Thursday that a government contractor’s Medicaid reimbursement claims were legally false even though payment conditions were not clearly specified.
     The False Claims Act, or FCA makes it illegal to submit a false or fraudulent claim for government reimbursement. Some judges have found a claim to be “legally false” if a contractor provided products or services but didn’t comply with a payment condition imposed by law or a contract.
     The United States and Massachusetts alleged that reimbursement claims from Universal Health Services were legally false because the company’s services didn’t comply with certain regulatory provisions, according to court records.
     The underlying case involves Universal Health’s Medicaid reimbursement claims for mental health care services. The government sued after discovering unlicensed counselors at the company’s Lawrence, Mass., clinic, claiming violations of the FCA.
     A district court dismissed the government’s lawsuit, finding that none of the regulatory provisions at issue imposed conditions of payment, except for one that the government did not claim Universal Health violated.
     But the First Circuit reversed in March 2015 and found that Massachusetts Medicaid regulations allegedly violated by Universal Health were conditions of payment. The government therefore stated an actionable FCA claim for legal falsity, according to the Boston-based appeals court.
     Universal Health petitioned the U.S. Supreme Court for review last summer. The high court looked at whether the implied certification theory is viable and, if so, whether a government contractor’s reimbursement claim can be legally “false” under the theory if the law or contractual provision at issue doesn’t specifically say that it is a condition of payment.
     On Thursday, the Supreme Court unanimously held that the implied false certification theory can be a basis for FCA liability when an entity submitting a claim makes specific representations about its services but doesn’t disclose its non-compliance with relevant laws or regulations.
     The high court also ruled that FCA liability for non-disclosure of violations doesn’t depend on whether compliance with laws or regulations was an express condition of payment.
     “A defendant can have ‘actual knowledge’ that a condi­tion is material even if the government does not expressly call it a condition of payment,” Justice Clarence Thomas wrote. “What matters is not the label that the gov­ernment attaches to a requirement, but whether the defendant know­ingly violated a requirement that the defendant knows is material to the government’s payment decision. Universal Health’s policy ar­guments are unavailing, and are amply addressed through strict en­forcement of the FCA’s stringent materiality and scienter provisions.”
     The 8-0 Supreme Court, however, vacated the First Circuit’s ruling, disagreeing with the appeals court’s “expansive view that any statutory, regulatory, or contractual violation is mate­rial so long as the defendant knows that the government would be entitled to refuse payment were it aware of the violation.”
     “A misrepresentation cannot be deemed material merely because the government designates compliance with a particular re­quirement as a condition of payment,” Thomas wrote. “Materiality also cannot be found where noncompliance is minor or insubstantial. Moreover, if the government pays a particular claim in full despite its actual knowledge that certain requirements were violated, that is very strong evidence that those requirements are not material.”

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