Note: this blog post was originally published on LinkedIn Pulse on January 11, 2017.
In reflecting on 2016 legal developments, a key health law case that stands out is the Supreme Court’s decision endorsing the implied certification theory of the False Claims Act (Universal Health Services v. Escobar). Contrary to many press outlets, Universal Health Services will not serve – in 2017 and onward – to pave the way for more whistleblower suits. In fact, the Court’s decision raises the bar for whistleblowers, and its practical impact will be to restrict the use of the False Claims Act.
The Court, in a unanimous decision written by Justice Clarence Thomas, upheld the “implied certification theory” as a tool for prosecutors and whistleblowers to use in filing suit under the False Claims Act. We have seen many plaintiffs’ lawyers and qui tam firms herald the Court’s decision as a triumph. This is hardly the case. A careful, objective read of the decision reveals that it is not a clear win for the government or the plaintiff’s bar. Rather, the Court has appropriately raised the bar and limited how plaintiffs and the government can leverage the implied certification theory.
Under the implied certification theory, when a party submits a claim for payment to the government, it is said to have essentially certified that (a) it has met the technical requirements associated with the claim and (b) it complies with all statutory, regulatory, and contractual requirements regarding the provision of the goods and services at issue. When there is a lapse in a requirement underlying the claim (even one that is minor and has no impact on the government’s decision to pay), the implied certification theorist argues that a false claim has been submitted to the government.
Prior to Universal Health Services, the implied certification theory opened the door for the government and relators – whistleblowers who can file suit on behalf of the government – to use the False Claims Act when there was a technical oversight of virtually any underlying statutory, regulatory, or contractual requirement. (Think of it as applying the same penalties to a driver with a broken headlight as a driver who operates a vehicle while under the influence.)
In Universal Health Services, the Supreme Court has limited the theory only to those situations where compliance with the underlying statute or regulation is material to the government’s decision to pay the claim. Whether a statutory, regulatory, or contractual requirement is material to the government’s payment decision requires the government and plaintiffs to meet what the Court calls a “demanding” standard. Materiality, the Court said, cannot be found where there is a minor or insubstantial oversight. According to the Court, if the government or a relator does not plausibly meet this materiality requirement, the case can be dismissed in pre-trial motions. An implied certification case won’t last long or go far if the plaintiff cannot meet this rigorous standard. Further, the government’s decision to pay the claim or similar claims, even knowing that the claims did not meet a particular requirement, is “very strong evidence” that the requirement is not material.
In other words, the implied certification theory can now only be used when failing to meet an underlying requirement is so significant that it would influence the government’s decision to pay the claim. This means that the Court has effectively and firmly shut off relators’ and the government’s ability to use the False Claims Act to sue for technical oversights. The Court’s decision underscores the need to handle these circumstances through the regulatory enforcement means originally established and in place to address these concerns – not through protracted litigation under the False Claims Act. The False Claims Act, on the other hand, should be reserved for only the most serious allegations.
Yes, the Supreme Court in 2016’s Universal Health Services unanimously upheld implied certification as a valid enforcement tool. But, the Court also raised the bar on the ability to file suit under this theory. The full impact of Universal Health Services remains to be seen, as does the ability of the government and qui tam relators to surmount Universal’s rigorous pleading burden. Relators’ firms should not celebrate just yet.