June 16, 2017, marks the one-year anniversary of the precedent-setting U.S. Supreme Court decision in Universal Health Services v. United States ex rel. Escobar (Escobar), which approved the implied false certification theory as a basis for liability under the False Claims Act (FCA). Because the decision impacts every provider who supplies goods and services to the federal government, all eyes were on the lower courts and how they will apply the decision. In an article for Bloomberg BNA Health Fraud Report, Tom Zeno and Rebecca Worthington reviewed recent FCA decisions on questions of materiality, falsity and other FCA concerns.
Escobar emphasized that the materiality inquiry is a “demanding” one. Upon remand, the First Circuit determined the language used by the Supreme Court “makes clear that courts are to conduct a holistic approach to determining materiality in connection with a payment decision, with no one factor being necessarily dispositive.” For establishing materiality, a holistic analysis of three factors is a favored test: (1) whether regulatory compliance was a condition of payment; (2) the centrality of the requirement in the regulatory program; and (3) whether the government paid claims despite actual knowledge that certain requirements were violated.
One unsettled question is whether Escobar set forth two requirements for establishing implied certification liability. In Escobar, the Supreme Court held that “implied certification theory can be a basis for liability, at least where two conditions are satisfied: first, the claim does not merely request payment, but also makes specific representations about the goods or services provided; and second, the defendant’s failure to disclose noncompliance with material statutory, regulatory, or contractual requirements makes those representations misleading half-truths.” Many courts have treated these two conditions as a mandatory two-part requirement.
Inferring insight from an active year of decisions, the authors also concluded that dismissal is likely when payments continue after actual knowledge of alleged fraud as well as when conduct such as altered invoices is alleged. Additionally, as expected, other jurisdictions are adopting the analysis of Escobar as seen in New Jersey, Chicago and the District of Columbia.