Specifically, the Court found that the implied certification theory can be a basis for liability under the FCA where at least two conditions are met. First, the claim for payment must go beyond a mere request for payment and must include a specific representation about the goods or services provided. Second, the defendant’s failure to disclose its noncompliance with relevant statutes, regulations, or contractual requirements makes its representations “misleading half-truths.”
The Court further stated that FCA liability for failure to disclose violations of statutes, regulations, and contractual terms does not depend on whether those requirements are expressly designated as conditions of payment. Instead, the question is whether the undisclosed violation is material to the Government’s payment decision. In other words, did the defendant knowingly violate a requirement that it knew was material to the Government’s decision to pay the claim? According to the Court, proof of materiality can include the defendant’s knowledge that the Government consistently refuses to pay claims when it becomes aware of certain violations. Conversely, if the Government pays a claim with knowledge that a certain requirement was violated, that is strong evidence that the particular requirement is not material.
In Escobar, the relators’ daughter died of a seizure following treatment at a UHS mental health facility. An investigation revealed that their daughter was treated by unsupervised and unlicensed staff in violation of Massachusetts Medicaid regulations, and the relators filed a qui tam lawsuit alleging violations under the FCA. After the case made its way to the Supreme Court, which granted certiorari to determine the viability of the implied certification theory, the Court found that UHS represented that it provided specific types of treatments by submitting claims for payment with certain payment codes and provider information, without disclosing its violations of staff qualification and licensing requirements for mental health facilities. The Court found that this failure to disclose could potentially give rise to a claim under the FCA, but the Court remanded the case so the courts below could make that determination consistent with its opinion regarding the scope of the implied certification theory.
In sum, although the Court found the implied certification theory viable under the FCA in certain circumstances, the Court placed limits on its application and emphasized that the FCA’s materiality standard is a “rigorous” and “demanding” one. Therefore, while defendants will continue to be subject to FCA claims under the implied certification theory of liability, whistleblowers and the Government must be ready to show that any non-compliance is “material” to a payment decision.
