Supreme Court upholds controversial False Claims liability theory

The Supreme Court on Thursday upheld a controversial legal theory that could increase False Claims Act scrutiny against healthcare providers.
The Supreme Court on Thursday upheld a controversial legal theory that could increase False Claims Act scrutiny against healthcare providers.

The Supreme Court on Thursday upheld a controversial legal theory that could increase False Claims Act scrutiny against healthcare providers.

In a unanimous decision in Universal Health Services Inc. vs. United States, the court ruled that the theory of implied certification — which assumes providers are compliant with federal regulations when they submit reimbursement claims — is an allowable basis of liability in False Claims Act cases “at least in certain circumstances.”

In the court's opinion, Justice Clarence Thomas clarified that the theory can provide a basis for liability when two conditions are met: if providers' claims make representations about the services provided in addition to requesting payment, and if the providers' failure to disclose noncompliance with regulations makes their claims “misleading half-truths.”

The case involved a Massachusetts mental health clinic whose Medicaid reimbursement claims were deemed false because its services didn't comply with certain regulations, despite the clinic saying it was compliant each time it filed a claim. The clinic's statements “more than merely demanded payment,” Thomas wrote, and omitted critical information.

Provider organizations pushed back against the theory of implied certification, condemning it as “one-size-fits-all.” Mark Parkinson, president and CEO of the American Health Care Association, said his group is disappointed that the justices “failed to fully embrace” providers' arguments to reject the theory.

“We remain extremely concerned that the FCA is being inappropriately used to police regulatory violations in the healthcare profession that have separate administrative remedies under the law, and we would welcome congressional action to limit the baseless utilization of this law,” Parkinson said in a statement to McKnight's.

But Thursday's ruling wasn't all gloom and doom for providers — the Supreme Court did reverse a lower court's ruling that providers can be liable for any regulatory violation if they know that the government would refuse payment if it were aware of the violation. In its ruling, the court stated that if that were true, failing to mention noncompliance would always be grounds for liability.

“The False Claims Act is not a means of imposing treble damages and other penalties for insignificant regulatory or contractual violations,” Thomas wrote. “The False Claims Act does not adopt such an extraordinarily expansive view of liability.”

Parkinson said his group is pleased with the court's ruling that the “FCA cannot turn every statutory or regulatory violation into an action with severe penalties.”

The Supreme Court remanded the case to a lower appeals court.