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False Claims: Supreme Court Taketh and Giveth Away

The federal False Claims Act subjects anyone who “knowingly” presents a false or fraudulent claim for payment or approval to the federal government to significant penalties.  However, is it a “knowing” falsehood to be asked to be paid when the party submitting the bill happens to be in violation of some other legal requirement?

The answer to that question has just been provided by U.S. Supreme Court in Universal Health Services v. Escobar. In doing so, the Court has, on the one hand, increased exposure of health care providers to penalties, but on the other hand, given health care providers at least one small escape hatch through which they can potentially avoid penalties.

A.  The Facts

In Universal Health Services v. Escobar, a teenage Massachusetts Medicaid beneficiary received counseling services from Arbour Counseling Services, a subsidiary of Universal Health Services. Unfortunately, the teenager suffered an adverse reaction to medication prescribed to her, and she eventually died. 

After the teenager’s death, it was discovered that many of the Arbour non-physician practitioners were not properly licensed, and many were improperly providing medications and counseling services without supervision.

The question before the Court was whether Universal was “impliedly” confirming compliance with certain legal requirements, such as the practitioners for whom reimbursement was sought were properly licensed, when Universal submitted its bill for payment. In other words, has such a provider made a misrepresentation to the federal government when it turns out that the practitioners involved were not properly licensed?

B.  The Decision

The U.S. Supreme Court unanimously held that a health care provider can be liable under the False Claims Act, and can, therefore, be subject to treble damages, for violating material statutory, regulatory, or contractual requirements, even when the federal government does not expressly label such requirements as conditions of payment. 

To be held liable: (1) the health care provider must make certain representations about the goods or services provided, and (2) the health care provider’s failure to disclose noncompliance with statutory, regulatory, or contractual requirements must make those representations misleading half-truths. 

For example, if a provider submits an “incident to” claim for payment, thereby impliedly representing that the provider complied with incident to billing rules, but fails to disclose that the non-physician practitioner was not properly supervised, meaning the provider did not comply with incident to billing rules, the provider’s incident to billing representations are half-truths, and may subject the provider to False Claims Act liability.

The Court went on, however, to introduce a strict materiality standard — the provider’s noncompliance with the statutory, regulatory, or contractual requirement must be material to the government’s decision to pay. In other words, if the government knew about the half-truth, would the government have withheld payment? If so, then the half-truth is material, but if not, then there would be no False Claims Act violation.

C.  The Implications

While the Court’s decision expanded the so-called “implied false certification theory” into jurisdictions that had not yet adopted it, the decision limited the scope of implied certification through a strict materiality standard. 

Nevertheless, until the lower courts begin to flush out what is and is not material to the government’s decision to pay, providers should be extra vigilant, and ensure that they are compliant with statutory, regulatory, and contractual requirements, including, but not limited to, proper licensure, appropriate supervision of non-physician practitioners, and compliance with anti-kickback and referral prohibitions.


January 10, 2017




Rosen, Barry F.


Health Care