In an unusual unanimous ruling, the United States Supreme Court recently upheld a whistleblower’s claim (Universal Health Services v. U.S. ex rel. Escobar). With the ruling, the Court affirmed the “implied certification theory” of liability under the False Claims Act (FCA), which permits contractors to be liable for fraud when they fail to disclose material non-compliance with regulatory requirements. The False Claims Act, also referred to as the “Lincoln Law”, is a federal law that imposes liability on persons and companies (typically federal contractors) who defraud governmental programs. Side note: the Act received its presidential nickname because it was enacted during the Civil War to combat the fraud perpetrated by companies that sold supplies to the Union Army.
The case at issue involved a 17-year-old girl who died due to a reaction to medication she received while under the care of Universal Health. Her family later learned that the “doctors” who prescribed the medication that ultimately killed her were, in fact, unlicensed and brought an FCA whistleblower claim against Universal Health. The FCA contains “qui tam” provisions that allow private citizens to sue, on the government’s behalf, companies and individuals that are defrauding the government.
The Court refined the implied certification theory and noted two preconditions for its application. First, when a contractor submits a claim for government payment, the claim must not “merely request payment”, it must also “make specific representations about the goods or services provided.” Second, the contractor’s “failure to disclose noncompliance with material statutory, regulatory, or contractual requirements” must transform those representations into “misleading half-truths.” Furthermore, the Court went on to say that the legal noncompliance must be “material to the Government’s payment decision” and that this determination may often be a context-dependent analysis.
Rejecting arguments by numerous business groups, including the healthcare industry and US Chamber of Commerce, the Court disagreed that the False Claims Act only prohibited fraud that was “expressly designated” as a “condition of payment.” The Court elaborated that “what matters is not the label 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.”
Relevant considerations of what is “material” include whether the government consistently refuses to pay based on noncompliance with the particular statutory, regulatory, or contractual requirement, or, conversely, whether the government pays a particular claim in full despite its actual knowledge that certain requirements were violated.
For more information on how to avoid FCA whistleblower claims, contact experienced business attorney Drew E. Pomerance today.