Throughout 2017, the lower courts built upon the standard for determining materiality under the False Claims Act (FCA) established by the U.S. Supreme Court in Universal Health Servs., Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016) (“Escobar”). In Escobar, decided in June 2016, the Court endorsed the “implied false certification” theory of liability under the FCA, premised on a “rigorous” and “demanding” element of “materiality.”  As expected, this decision triggered a spate of litigation over what “materiality” means, and how to apply this requirement.

By way of background, the Court held that the “implied false certification” theory has two elements:

  • “the claim does not merely request payment, but also makes specific representations about the goods or services provided,” and
  • the defendant’s “failure to disclose noncompliance with material statutory, regulatory, or contractual requirements makes those representations misleading half-truths.”

The Court described the materiality standard as centered on “the likely or actual behavior” of the agency that made the payment decision, not whether the agency had the legal authority to deny payment, as argued by the Department of Justice (DOJ) prior to the Court’s decision. To be material, the Court reasoned, the misrepresentation must go to the essence of the bargain, and noncompliance cannot be “minor or insubstantial.”  The Court noted that materiality can be determined based on a number of factors – none of which are dispositive – and held that a court’s decision, though fact-specific, still could lead to dismissal on a motion to dismiss or at summary judgment. Those looking for additional background on the Escobar decision should see our Health Care Enforcement Defense AdvisoryContinue Reading Health Care Enforcement Year in Review and 2018 Outlook: The False Claims Act’s Materiality Standard as Established by Escobar Continues to Evolve

A court in the Southern District of New York (“SDNY” or the “Court”) recently released an important decision applying the Supreme Court’s landmark Escobar ruling to a qui tam action involving percentage fee arrangements for billing agents.  Among other claims, the City of New York (“the City”) and its billing agent, Computer Sciences Corporation (“CSC”) allegedly used an illegal incentive-based compensation arrangement for CSC’s services when billing New York Medicaid for services provided to eligible children under New York’s Early Intervention Program (“EIP”).   EIP provides “early intervention services” to certain children with development delays using federal funds provided under the Individuals with Disabilities Education Act.  EIP allows municipalities like the City to pay providers directly for EIP services and then seek reimbursement from other payors, like third party payors and New York Medicaid.

Continue Reading Implied False Certification Theory Fails in FCA Case Against Billing Agent

On Monday, the U.S. Supreme Court issued summary dispositions vacating the judgments in three cases brought under the False Claims Act (“FCA”). The Court remanded the cases back to their respective circuit courts for reconsideration in light of the Court’s decision in Universal Health Services, Inc. v. United States ex rel. Escobar, 579 U. S. ___ (2016).  As we discussed in our advisory on Escobar, the Court held that liability under the False Claims Act can arise under the “implied false certification” theory.  Under this theory, prior to Escobar, some circuits held that a claim could be “false” if the defendant submitted an accurate claim but violated an underlying “condition of payment” that arose from a statute, regulation, or contract. In Escobar, the Court found that FCA liability can be premised on a theory of implied false certification, provided that: (1) “the claim does not merely request payment, but also makes specific representations about the goods or services provided,” and (2) the defendant’s “failure to disclose noncompliance with material statutory, regulatory, or contractual requirements makes those representations misleading half-truths.”

The following cases have been remanded: Continue Reading In Wake of Escobar, Cases Return to Circuit Courts