The FCA continues to be the federal government’s primary civil enforcement tool for investigating allegations that healthcare providers or government contractors defrauded the federal government. In the coming weeks, we are taking a closer look at recent legal developments involving the FCA. This week, we examine the Supreme Court’s opinion in Escobar and its impact on the theory of implied certification.
In Escobar, the Supreme Court held that the “implied false certification theory can, at least in some circumstances, provide a basis for liability.” One such circumstance is when: (1) the defendant submits a claim that “does not merely request payment, but also makes specific representations about the goods or services provided,” and (2) “the defendant’s failure to disclose noncompliance with material statutory, regulatory, or contractual requirements makes those representations half-truths.” In other words, when “a defendant makes representations in submitting a claim but omits its violations of statutory, regulatory, or contractual requirements, those omissions can be a basis for liability if they render the defendant’s representations misleading with respect to the goods or services provided.”
The Supreme Court’s Escobar opinion left many unanswered questions as to the scope of the implied certification theory, and not surprisingly, lower courts have varied significantly in how they have applied the Court’s decision. In particular, lower courts have disagreed as to whether the two conditions set forth by Escobar for stating an implied certification claim—(1) that a claim makes representations about the services provided and (2) that defendant’s failure to disclose noncompliance makes the representations misleading half-truths—represent the only viable path or just one possible option.
In U.S. ex rel. Doe v. Health First, Inc., 2016 WL 3959343 (M.D. Fla. July 22, 2016), the district court took the former view, stating that under Escobar the “two conditions must exist” for implied certification liability. In U.S. v. Sanford–Brown, Ltd., 840 F.3d 445 (7th Cir. 2016), the Seventh Circuit found that the two conditions had not been met, yet did not consider whether the implied certification theory might be tenable in other circumstances.
Noting that Escobar held implied certification could be a viable theory “at least” where the two conditions were met, other courts have concluded that Escobar does not present the only way to state an implied certification claim. For example, in Rose v. Stephens Institute, 2016 WL 5076214 (N.D. Cal Sep. 20, 2016) (appeal pending), the district court explained that Escobar did “not purport to set out, as an absolute requirement, that implied false certification liability can attach only when these two conditions are met.” It remains to be seen whether and how other courts will flesh out the contours of potential implied certification theories that differ from that espoused in Escobar.
Regardless, the “specific representation” requirement may often be met in the healthcare context, where claims typically specify the services provided. For instance, in U.S. v. Crumb, 2016 WL 4480690 (S.D. Ala. Aug. 24, 2016), the district court explained, “[a]s to [Escobar’s] first requirement, the Amended Complaint clearly alleges that the Form CMS-1500 claims … were much more than bare requests for payment, but also made specific representations about the services provided and the reasons for those services (i.e., diagnoses).”