Universal Health Services v. U.S. ex rel Escobar

Universal Health Services v. U.S. ex rel. Escobar
Reference: Docket No: 15-7
Term: 2015
Important Dates
Argued: April 19, 2016 Decided: June 16, 2016
Outcome
First Circuit Court of Appeals vacated and remanded
Majority
Chief Justice John Roberts • Anthony Kennedy • Clarence Thomas • Ruth Bader Ginsburg • Stephen Breyer • Samuel Alito • Sonia Sotomayor • Elena Kagan

Universal Health Services v. U.S. ex rel. Escobar was decided on June 16, 2016, by the U.S. Supreme Court. In this case, the court confirmed that a form of the implied certification theory under the False Claims Act could be a basis for civil liability, and provided guidelines for bringing such claims.

Questions presented: "Whether the 'implied certification' theory of legal falsity under the FCA--applied by the First Circuit below but recently rejected by the Seventh Circuit--is viable" ... "If the 'implied certification' theory is viable, whether a government contractor's reimbursement claim can be legally 'false' under that theory if the provider failed to comply with a statute, regulation, or contractual provision that does not state that it is a condition of payment, as held by the First, Fourth, and D.C. Circuits; or whether liability for a legally 'false' reimbursement claim requires that the statute, regulation, or contractual provision expressly state that it is a condition of payment, as held by the Second and Sixth Circuits."

Case background

See also: State Farm v. U.S. ex rel Rigsby

For about five years, Yarushka Rivera, a teenage minor, received counseling through Arbour Counseling Services, a satellite mental health facility of Universal Health Services, Inc. Rivera received services for counseling as a beneficiary of Massachusetts' Medicaid program. In 2009, a purported physician diagnosed Rivera with bipolar disorder and prescribed medication. Rivera was given the medication to which she had an adverse reaction. In May 2009, she suffered a seizure as a result of the medication, which required hospitalization. In October 2009, she suffered another seizure and died. After her death, an Arbour employee informed Rivera's mother and stepfather that,

“

few Arbour employees were actually licensed to provide mental health counseling and that supervision of them was minimal. respondents discovered that, of the five professionals who had treated Yarushka, only one was properly licensed. The practitioner who diagnosed Yarushka as bipolar identified herself as a psychologist with a Ph. D., but failed to mention that her degree came from an unaccredited Internet college and that Massachusetts had rejected her application to be licensed as a psychologist. Likewise, the practitioner who prescribed medicine to Yarushka, and who was held out as a psychiatrist, was in fact a nurse who lacked authority to prescribe medications absent supervision. Rather than ensuring supervision of unlicensed staff, the clinic’s director helped to misrepresent the staff’s qualifications. And the problem went beyond those who treated Yarushka. Some 23 Arbour employees lacked licenses to provide mental health services, yet—despite regulatory requirements to the contrary—they counseled patients and prescribed drugs without supervision.

”

In 2011, Rivera's mother and stepfather brought a civil action against Universal Health Services on behalf of the U.S. government alleging violations of 31 U.S.C. § 3279, a provision of the False Claims Act (Act). A separate provision of Act, 31 U.S.C. § 3730(b), permits private parties to bring civil actions on behalf of the U.S. government. Such lawsuits are known as qui tam suits and the parties bringing the suits are known as qui tam relators, or simply as relators. The term qui tam translates literally as "we think" and represents a shortened form of the phrase, qui tam pro domino rege quam pro si ipso in hac parte sequitur, which translates as "he who brings an action for the king as well as for himself." Relators authorized to bring qui tam lawsuits under § 3730(b) are eligible to receive between 15% and 30% of the monies recovered by the government.

Specifically, the lawsuit alleged that Universal Health Services, Inc., had violated the Act under what is known as the "implied false certification theory of liability." Under this theory, when a party submits a claim, it impliedly certifies that it has complied with all relevant contractual, regulatory, and statutory requirements which are material conditions of payment. A failure by the party submitting claims to disclose a violation renders the claim false or fraudulent under the Act. Here, Rivera's mother and stepfather, as relators for the U.S. government, alleged that Universal Health Services defrauded the Massachusetts Medicaid program by submitting claims for mental health services provided by unlicensed and unsupervised staff—claims that the relators alleged Massachusetts otherwise would not have paid under the Medicaid program had the state been provided this information, as required, prior to disbursing payment.

A federal district court granted Universal Health Services' motion to dismiss the suit, holding that while the district court was bound by precedent of the First Circuit—which embraced the implied false certification theory of liability under the Act—here, the relators failed to state an actionable claim under the theory because none of the regulations Universal Health Services, through its satellite Arbour, violated was a condition of payment. Accordingly, as no conditions of payment were violated, no false claim was submitted under the theory or the Act. The First Circuit Court of Appeals reversed, holding that "each time a billing party submits a claim, it 'implicitly communicate(s) that it conformed to the relevant program requirements, such that it was entitled to payment' ... To determine whether a claim is 'false' or 'fraudulent'...'asks simply whether the defendant, in submitting a claim for reimbursement, knowingly misrepresented compliance with a material precondition of payment.'" The court held that Massachusetts' regulations regarding reimbursal under the Medicaid program "clearly impose conditions of payment" and that the regulations "constitute[d] dispositive evidence of materiality," because the regulations require adequate supervision as an "express and absolute" condition of payment under the program. Universal Health Services, Inc., appealed to the Supreme Court of the United States.

Oral argument

Oral argument was held on April 19, 2016.

Decision

The judgment of the First Circuit Court of Appeals was vacated and remanded.

Opinion

Justice Clarence Thomas delivered the opinion for a unanimous court. In his opinion for the court, Justice Thomas held that the implied false certification theory could be a basis to prove liability under the Act "when a defendant submitting a claim makes specific representations about the goods or services provided, but fails to disclose noncompliance with material statutory, regulatory, or contractual requirements that make those representations misleading with respect to those goods or services" that were provided. In noting that the Act does not provide a definition for the terms "false" or "fraudulent," Justice Thomas noted that the court must turn to the "settled principle of interpretation that, absent other indication, Congress intends to incorporate the well-settled meaning of the common-law terms it uses." Under this view, the court noted that falsehoods by omission or half-truths are actionable misrepresentations under the Act. "By using payment and other codes that conveyed this information without disclosing Arbour’s many violations of basic staff and licensing requirements for mental health facilities, Universal Health’s claims constituted misrepresentations."

In announcing a rule of interpretation for federal courts regarding the implied false certification theory of liability, Justice Thomas stated,

“

The implied certification theory can be a basis for liability, at least where two conditions are satisfied: first, the claim does not merely request payment, but also makes specific representations about the goods or services provided; and second, the defendant’s failure to disclose noncompliance with material statutory, regulatory, or contractual requirements makes those representations misleading half-truths.

”

The court next addressed a specific question raised in Universal's appeal: whether a party should face liability under the Act only if the party fails to disclose a violation that is expressly designated as a condition of payment. The court concluded that while the Act does not limit liability in this way, the court also held that "not every undisclosed violation of an express condition of payment automatically triggers liability." In Justice Thomas' words,

“

when evaluating materiality under the False Claims Act, the Government’s decision to expressly identify a provision as a condition of payment is relevant, but not automatically dispositive. Likewise, proof of materiality can include, but is not necessarily limited to, evidence that the defendant knows that the Government consistently refuses to pay claims in the mine run of cases based on noncompliance with the particular statutory, regulatory,or contractual requirement. Conversely, if the Government pays a particular claim in full despite its actual knowledge that certain requirements were violated, that is very strong evidence that those requirements are not material. Or, if the Government regularly pays a particular type of claim in full despite actual knowledge that certain requirements were violated, and has signaled no change in position, that is strong evidence that the requirements are not material.

”

Following this interpretation, the court vacated the holding of the First Circuit that any violation is material if the submitting claimant knows that the government would have grounds to refuse payment were the government aware of the violation. As the court noted, "If the Government contracts for health services and adds a requirement that contractors buy American-made staplers, anyone who submits a claim for those services but fails to disclose its use of foreign staplers violates the False Claims Act. To the Government, liability would attach if the defendant’s use of foreign staplers would entitle the Government not to pay the claim in whole or part—irrespective of whether the Government routinely pays claims despite knowing that foreign staplers were used ... The False Claims Act does not adopt such an extraordinarily expansive view of liability."

The court, after vacating the First Circuit's ruling, remanded the case back to the First Circuit to reconsider the relators' claims in light of the Supreme Court's holding in this case.

Impact

As a result of this case, the court resolved a dispute among federal circuit courts as to the viability of the implied false certification theory of liability under the False Claims Act. The court further provided guidance as to when and how cases under the theory can be considered, as well as to how materiality must be demonstrated.

See also

• Supreme Court of the United States
• History of the Supreme Court
• State Farm v. U.S. ex rel. Rigsby''

External links

• Supreme Court of the United States