SCOTUS Broadens False Claims Act Liability Based On “Implied False Certification” Theory

In a June 2016 decision, the United States Supreme has held, under the False Claims Act (FCA), that (1) the so-called “implied false certification theory” may create liability when the defendant fails to disclose noncompliance with a legal requirement when submitting payment claims that make definitive representations about the services provided; and (2) liability is not contingent upon the requirements being an express condition of payment.

Yarushka Rivera, received counseling at a mental health facility. Rivera suffered an adverse reaction to medication resulting in her death. After Rivera’s death, her parents learned that most employees at the facility were not licensed to provide mental health counseling. They later discovered that only one of the five professionals treating their daughter was licensed. Respondents filed a qai tam suit alleging violations under the FCA, based on an implied false certification theory of liability; that is, they claimed that the facility submitted false claims by submitting reimbursement requests without disclosing regulatory violations regarding the staff credentialing and licensing violations.

Implied False Certification Theory

The implied false certification theory suggests that a defendant implicitly verifies all payment requirements are satisfied when submitting a claim. However, if the claim fails to disclose violations of material legal provision then a misrepresentation has been made rendering the claim false or fraudulent under the FCA. Disputes among the Court of Appeals concerning the validity of this theory prompted the Supreme Court to grant review. In its decision, the Supreme Court held the implied certification theory may create liability when two conditions are met: first, the claim does not just demand payment but makes definitive representations about the products or services provided; and second, failure to disclose noncompliance with material statutory, regulatory, or contractual provisions makes those representation deceptive half-truths.

Liability Under the FCA

The FCA imposes civil liability on “any person who…knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval.” Defendants argued that liability should only be imposed when the violations of statutory, regulatory, or contractual requirements are an express condition of payment. The Supreme Court rejected this contention, stating liability is not contingent upon the violated legal provision being an express condition of payment. In so holding, the Court noted that the FCA does not impose such a restriction.

Instead, liability is determined by the extent of the material misrepresentation. The FCA defines material as having influence or capable of influencing the payment or receipt of money or property. However, misrepresentation is not material simply because the government compels compliance with statutory, regulatory, or contractual provisions as condition of payment. Nor is materiality found if noncompliance is trivial or insubstantial. Thus, when evaluating the materiality of a misrepresentation for possible FCA violation under the implied false certification theory, that an express condition of payment is relevant but not dispositive.

The Supreme Court’s ruling on the implied false certification theory now broadens healthcare providers’ liability because plaintiffs can now bring more expansive claims under the FCA. But liability is only actionable when the misrepresentation of a legal provision is material to the government’s decision to provide payment. While a healthcare provider’s liability is broadened, the bar to sustain such claims is slightly raised by demanding nature of the materiality standard articulated by the Court.