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False Claims Act Liability Based on Health Care Regulatory Noncompliance is Here to Stay

False Claims Act Liability Based on Health Care Regulatory Noncompliance is Here to Stay


Health Care Law Note
(June 22, 2016)

Healthcare providers being sued under the federal False Claims Act ("FCA") is nothing new, but a U.S. Supreme Court decision last week in the case of Universal Health Services, Inc. v. U.S. ex rel. Escobar1 resolved a disagreement between the circuits and confirmed that a healthcare provider can violate the FCA based on a failure to comply with regulatory requirements (such as Medicaid program requirements), even when compliance is not a specific condition of payment for the provider's services. However, the violation must be substantial, and the requirement must be material to the government's obligation to pay.

FCA 101
Under the FCA, any person who knowingly presents a false or fraudulent claim for payment (or who knowingly makes or uses a false record or statement that is material to such a claim for payment) can be liable for civil penalties of thousands of dollars per violation, plus 2-3 times the actual damages sustained by the government.

In the case of healthcare providers who participate in Medicare or Medicaid, false claims can be based on failures to comply with complex regulations and can affect hundreds or thousands of claims for services. The resulting liability can balloon to catastrophic amounts (e.g., a jury held Tuomey Hospital in South Carolina liable for $237 Million under the FCA in 2013 based on noncompliance with Stark anti-self-referral regulation)

The Background
Until last week's decision, federal courts disagreed on whether providers could be liable based on an "implied certification."2 Under that theory, a provider's request for payment is treated as implicitly certifying that the relevant services were provided in compliance with all statutes, regulations, and contract requirements that are material to the government's payment for the claim. The Supreme Court's Universal decision resolves the disagreement and establishes a binding precedent that all Federal courts must follow.

The Universal case related to claims for services reimbursed by Medicaid and provided by a Massachusetts mental health facility, despite the facility's failure to ensure that its staff were properly licensed and supervised in accordance with licensure standards for psychologists and other professionals, as required by Massachusetts' Medicaid program. The facility submitted reimbursement claims using payment codes for specific counseling services but failed to disclose that its staff was not properly licensed and supervised; facility staff also misrepresented their qualifications to obtain National Provider Identification ("NPI") numbers.

The Court rejected the idea that a falsity must relate to a specific condition for payment and held that 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."3   

What's Next?
Going forward, providers facing investigations or civil actions may avoid FCA liability by showing that a regulatory violation is minor or insubstantial, or by showing that the relevant regulation is not sufficiently material to payment (such as if the government routinely pays claims despite knowledge of noncompliance).

However, FCA liability does not require that a provider intended to defraud the government.4  Therefore, providers cannot be careless about regulatory compliance, since the economic consequences can be devastating.
 



Smith Moore Leatherwood attorneys advise providers on regulatory compliance and defends providers in False Claims Act litigation.  If you have questions or concerns, contact a member of our team:
 

Marcus C. Hewitt
 (919) 755-8776
Maureen Demarest Murray
(336) 378-5258
Laura Johnson Evans
(843) 300-6634
Stephen W. Petersen
(919) 755-8834


 

1  579 U.S. ___, 2016 WL 3317565 (2016) (slip opinion), available at http://www.supremecourt.gov/opinions/15pdf/15-7_a074.pdf

2 The Fourth Circuit, which includes North and South Carolina, has only specifically allowed "implied certification" liability since 2015 (see U.S. ex rel. Badr. v. Triple Canopy,  Inc., 775 F.3d 628, 635-37 (4th Cir. 2015)).   In contrast, the Seventh Circuit specifically rejected "implied certification," and instead imposed FCA liability only where a regulation that was violated was a specific condition of the government's obligation to pay.  (See U.S. v. Sanford-Brown, Ltd., 788 F. 3d 696, 711–712 (7th Cir. 2015)).

3   Universal Health Services, Inc., slip op. at 8.

4  See 31 USC § 3729(b)(1).

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