Arguments in FCA Case Sets Up Potentially Big High Court Decision

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By Eric Topor

April 11 — The U.S. Supreme Court is set to decide one of the most substantive False Claims Act cases it has dealt with since the 1970s when it hears oral arguments in a health-care case April 19, according to FCA defense attorney John T. Boese.

The whistle-blowers and the government are arguing in favor of an “implied false certification” theory of FCA liability in the Universal Health case, under which entities submitting reimbursement claims to the federal government would be deemed as having implied certification of compliance with federal rules by virtue of submitting the claims, and could be found liable if they didn't comply with the rules.

Boese, an attorney with Fried, Frank, Harris, Shriver & Jacobson LLP in Washington, told Bloomberg BNA April 11 that U.S. Solicitor General Donald B. Verrilli Jr.'s position in the case seeks a significant expansion of the falsity element of the FCA.

In the case itself, whistle-blowers Julio Escobar and Carmen Correa alleged that defendant Universal Health Services, a mental health clinic, filed false Medicaid claims because none of the individuals who treated their child were actually licensed to do so, and treatment wasn't being supervised by a licensed psychiatrist as regulations required.

The U.S. Court of Appeals for the First Circuit ruled in favor of the whistle-blowers on March 17, 2015, finding that state Medicaid regulations stipulating licensing and supervision standards for psychiatric services were “conditions of payment” .

Boese said the solicitor general's position from his brief essentially states that “every violation of every regulation renders a claim false, whether it's expressly [part of the claim] or not.”

Boese said he didn't know “how anyone complies with the False Claims Act,” if the court sides with the government.

Potential Outcome, Impact

Boese said the Supreme Court “tends to rule unanimously, or virtually unanimously, usually in favor of the defendant,” when ruling on substantive FCA issues.

However, attorney Joseph E. B. “Jeb” White, with Nolan Auerbach & White PA in Philadelphia, predicted a much closer outcome, stating that “a 4–4 split decision is very likely in this case.” A tie would affirm the First Circuit's ruling, without setting a national precedent.

White told Bloomberg BNA April 11 that a ruling in favor of Universal Health, and against the implied certification theory of liability, could derail “potentially dozens of pending False Claims Act cases,” though the full impact could be hidden because many remain under seal.

Kathleen McDermott, with Morgan, Lewis & Bockius LLP in Washington, told Bloomberg BNA April 11 that a decision striking down the implied certification theory of liability “would curtail some of the litigation that is being pursued.”

But McDermott was less certain whether it would “actually curtail the strategy of pursuing regulatory or contract violations as false claims,” which has accounted for “the disquieting explosion in FCA litigation and is most dramatically inconsonant with the statute.”

What to Watch For

Jesse A. Witten, with Drinker Biddle & Reath LLP in Washington, told Bloomberg BNA on April 8 that the justices “will be concerned” that the implied certification theory “injects so much uncertainty” into the FCA. Witten said the potential uncertainty that implied false certification brings to FCA enforcement was “an issue that should be a concern to all of the justices across the ideological spectrum.”

White said that he would be assessing “the hostility of the justices' questions toward the government and the relators' counsel” during oral arguments.

Boese said that if the justices start to pose questions about the theoretical limits of imposing FCA liability under an implied false certification theory, that could be a clue that they are skeptical about how broadly the solicitor has draw potential liability.

Boese surmised that the solicitor general might insist that potential liability under the falsity element of the FCA “should be broad because the protections for the defendant are scienter and materiality,” which the solicitor asserted in his brief filed with the court .

But Boese noted that the scienter, or “state of mind” element of the FCA is also quite broad because it attaches liability not only to willful conduct, also that done with “reckless disregard” for whether claim submitted to the government were false. In fact, Boese said, the whistle-blowers' claims in Universal Health are premised on reckless disregard by the defendant in not knowing the law, not willful conduct.

Conditions of Payment Participation

Witten added that “practical questions” addressed to the government about “how judges and parties are supposed to sort out which regulations set condition of payment and which do not,” could be a “significant signal” in the justices' view on the issue.

A condition of payment for a Medicare or Medicaid claim is one that must be met by individual claim in order to receive government reimbursement. In contrast, a condition of participation generally refers to a rule that the claimant must meet in order to participate in a government program (such as Medicare), but its violation doesn't necessarily require the government to deny payment of a claim submitted through that program.

Boese also said a potential discussion on conditions of payment is something to watch for, given the facts of this particular case. Boese noted that the Massachusetts Department of Health completed an investigation of defendant Universal Health Services' Medicaid claims, but didn't request reimbursement from Universal Health.

Instead, Boese said the state issued a $1,000 fine to an individual employee and placed the clinic on probation. Boese said he was interested in whether the court notes that fact, and said, “If this is a condition of payment, why didn't the state department of public health ask for its money back?”

To contact the reporter on this story: Eric Topor in Washington at etopor@bna.com

To contact the editor responsible for this story: Brian Broderick at bbroderick@bna.com