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February 3, 2016

Supreme Court to Decide What Qualifies as “False” under the False Claims Act

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What would be your reaction if we told you that the U.S. Department of Justice recently announced that it reached a $125 million settlement with the nation’s largest nursing home therapy provider to resolve a False Claims Act (FCA) case? Indifference? Who could blame you? In recent years an announcement of multi-million dollar settlements with the federal government to resolve FCA allegations is hardly breaking news. Last year, the Department of Justice recovered over $3.5 billion in settlements and judgments from cases involving the False Claims Act—$1.9 billion of which came from the health care industry. No sector was spared – hospitals, ambulatory surgery centers, pharmaceutical manufacturers, skilled nursing homes, rehabilitation facilities, physician practices, and individual physicians were all subject to investigations resulting in staggering payments, including treble damages, to the government. This is not surprising news.

But in a case that could cause providers to overhaul their risk management and compliance programs, the First Circuit Court of Appeals has taken a particularly broad view of what can serve as the basis for liability under the FCA. The case is so important that the U.S. Supreme Court has decided to review the First Circuit’s far-reaching FCA decision, United Health Services v. United States ex rel. Escobar.

In Escobar, the parents of a deceased teenager brought a claim against United Health Services, the owner of Arbour Health System clinic, a mental-health services provider in Lawrence, Massachusetts. The parents alleged that unlicensed and unsupervised staff members diagnosed their daughter with bipolar disorder, and that an inadequately-supervised nurse practitioner prescribed their daughter a medication for her purported bipolar disorder. After ceasing use of the drug, their daughter suffered two seizures, the second one fatal. Her parents allege that United Health Services submitted false claims to the government for services provided to their daughter, a Massachusetts Medicaid (“MassHealth”) beneficiary, because the services were rendered by unlicensed mental health professionals who were not properly supervised. While MassHealth regulations permit unlicensed staff to treat patients, the unlicensed staff must “receive regular supervision and consultation” from a licensed mental-health professional.

The FCA provides that anyone making a false claim for payment to the government is subject to treble damages, but the statute does not elaborate on what constitutes a “false claim.” Given this uncertainty, courts have taken various approaches, reaching different conclusions as to whether (i) a plaintiff alleging an FCA violation must identify an express or overt false statement; or, (ii) the false statement may be implied from a provider’s failure to comply with an applicable statute or regulation, which is known as the “implied certification theory.” Among Circuit Courts that have recognized the implied certification theory as a valid means of satisfying the FCA’s “falsity” element, many have restricted its applicability to circumstances in which the alleged implied certification pertains to a Medicare condition of payment, drawing a distinction from the Medicare conditions of participation.

In Escobar, the U.S. District Court dismissed the parents’ FCA claim, finding that the requirement to adequately supervise staff was a condition of participation in MassHealth rather than a condition of payment. The First Circuit, however, eschewed this distinction. The Court found that although the regulations at issue were not strictly defined as conditions of payment in the MassHealth regulations, “the cost of staff supervision is automatically built into MassHealth reimbursement rates.” Thus, it concluded that the District Court should not have dismissed the parents’ FCA claim, as their allegations that Arbour failed to comply with appropriate staff supervision regulations satisfied the FCA’s “falsity” element.

In determining whether Universal in fact submitted fraudulent bills to MassHealth, the Supreme Court has agreed to consider: (1) whether the implied certification theory is a valid theory of falsity under the FCA; and, if so, (2) whether, as the First Circuit held, claims for reimbursement can be legally “false” under the implied certification theory if the provider failed to comply with a statute, regulation, or contractual provision that does not state that it is a condition of payment. An answer of “no” to the first question would substantially limit the number of actionable cases under the FCA, as many cases are currently brought under an implied certification theory. Even if the Supreme Court decides to bless the implied certification theory, a “no” to the second question would nevertheless make it more difficult to allege and prevail on an FCA claim, requiring noncompliance with an express condition of payment. An answer of “yes” to both questions, however, would mean that a wide array of statutory and regulatory violations could subject a provider to a viable FCA claim. Regardless of the result, the resolution of this issue is critical to the healthcare industry and will impact most, if not all, health care practitioners and entities.

About the Authors

Elizabeth Foley

Elizabeth Foley is an attorney in the firm’s Health Law practice, where she brings over 25 years of specialized experience in health care corporate and litigation actions involving health care fraud and abuse, Medicare, Medicaid and third-party payer billing and coding audits, white-collar civil and criminal investigations, and physician and other health care practitioner disciplinary matters. She also advises clients on corporate and transactional matters, including ensuring compliance with all state and federal rules and regulations. Elizabeth served as an assistant attorney general in the Office of the Massachusetts Attorney General for ten years and as senior counsel in Blue Cross Blue Shield of Massachusetts, Inc.’s Fraud Investigation and Prevention Unit. You can find her on LinkedIn.

Mikaela Taberner

Mikaela Taberner is an attorney in Donoghue Barrett & Singal's Health Law practice, where she represents many types health care providers. She provides general business and corporate legal services on a wide range of issues, such as regulatory and corporate compliance, vendor contracting, HIPAA, Board of Registration issues, and healthcare fraud and abuse. You can find her on LinkedIn.

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