United States: US Supreme Court To Decide Fate Of FCA's Implied Certification Theory

Supreme Court grants certiorari in qui tam case to consider viability and scope of the "implied certification" theory of liability under the False Claims Act.

On December 4, the US Supreme Court granted certiorari in Universal Health Services, Inc. v. Escobar1 to address the hotly debated "implied certification" theory of False Claims Act (FCA) liability. The Court's decision could have significant implications on FCA jurisprudence by potentially foreclosing the theory in its entirety or, alternatively, providing a uniform standard and limitations in its application.

The FCA proscribes "knowingly present[ing], or caus[ing] to be presented, a false or fraudulent claim for payment or approval."2 In defining the element of falsity under the FCA, courts have divided claims into two categories: claims that are factually false and those that are legally false. The latter category is further divided into claims premised on either an "implied" or "express" certification of compliance with conditions of payment.3 The implied certification theory generally contemplates liability under the FCA where a contractor seeks and receives reimbursement from a government payor for services rendered, but has not complied with a statute, regulation, or contractual provision that is a condition of payment by the government payor for those services. The theory is "implied" because it applies even where the contractor has made no express certification of compliance to the government.

The Circuits Are Split on the Implied Certification Theory

The circuits are split on the viability and proper scope of the implied certification theory. The Seventh Circuit has rejected it; other circuits have accepted it but apply the theory inconsistently and without articulating a clear standard.

The Supreme Court has agreed to consider two important questions:4

(1) "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."

(2) "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."

The first question involves the circuit split between the Seventh Circuit, which has rejected the "implied certification" theory, and the First, Second, Fourth, Sixth and D.C. Circuits, which have accepted the theory in various forms.

For example, in United Sates v. Sanford Brown, Ltd.,5 the Seventh Circuit considered a defendant's alleged noncompliance with a Program Participation Agreement (PPA) necessary to receive certain federal education subsidies. The PPA obligates the defendant to "abide by a panoply of statutory, regulatory, and contractual requirements," many of which are incorporated by reference to the respective statute, regulation, or contractual provision.6 The government argued that defendant's adherence to these obligations were "conditions of payment," which would require an institution to "remain in compliance with all of the PPA's conditions in order to remain lawfully eligible to continue receiving federal subsidies."7 The Seventh Circuit rejected this argument, holding that "the government's theory of liability lacks a discerning limiting principle" and that it would be "unreasonable for us to hold that an institution's continued compliance with the thousands of pages of federal statutes and regulations incorporated by reference into the PPA are conditions of payment for purposes of liability under the FCA."8

In contrast, in Escobar, while the First Circuit claimed to "eschew[] distinctions between . . . implied and express certification theories," it ultimately upheld an implied certification theory of liability. Escobar concerned allegations against a mental health clinic that certain caregivers at one of its facilities were not properly supervised in violation of state Medicaid regulations and that the clinic violated the staff composition requirements contained in those regulations. Citing provisions of the state Medicaid regulations, the First Circuit held that these supervision and licensure requirements "clearly impose conditions of payment" and that "alleged noncompliance with certain regulations were sufficient allegations of falsity to survive a motion to dismiss."9

The Supreme Court is poised to resolve this circuit split and determine whether the implied certification theory is viable in the first instance. Should the Court determine that the implied certification theory is sustainable, it could address the second question presented to provide needed guidance on applying the theory.

Significantly, circuit courts "differ on whether a condition of payment must be expressly identified as such, or whether a statute, regulation, or contractual provision can be a 'condition of payment' even if it does not state that payment is conditioned on compliance."10 In Mikes v. Straus,11 the Second Circuit held that the "implied false certification is appropriately applied only when the underlying statute or regulation upon which the plaintiff relies expressly states the provider must comply in order to be paid."12 The Second Circuit reasoned that "the False Claims Act was not designed for use as a blunt instrument to enforce compliance with all medical regulations—but rather only those regulations that are a precondition to payment—and to construe the impliedly false certification theory in an expansive fashion would improperly broaden the Act's reach."13

Other courts of appeals, however, have adopted a broader application of the implied certification theory. In United States v. Sci. Applications Int'l Corp.,14 the D.C. Circuit rejected the limitation, articulated by the Second Circuit, that the implied certification theory can apply only where the underlying statute or regulation is expressly designated as a precondition of payment. The D.C. Circuit expressed concerns that adopting such a limitation "would foreclose FCA liability in situations that Congress intended to fall within the Act's scope."15 Other courts of appeals have held similarly to the D.C. Circuit.16


Given the significant conflicts among the courts of appeals on these important issues, the Supreme Court can provide critical guidance on the viability and scope of the implied certification theory of liability. That guidance will be critical for companies that contract with and seek reimbursement from government payors.


1 No. 15-7, -- S. Ct. --, 2015 WL 4078340 (Dec. 4, 2015).

2 See 31 U.S.C. § 3729(a)(1)(A).

3 See United States ex rel. Escobar v. Universal Health Servs., Inc., 780 F. 3d 504, 512 (1st Cir. 2015).

4 See Universal Health Servs., Inc. v. United States, No. 15-7, 2015 WL 4078340, at *1 (U.S. Dec. 4, 2015); see also Petition for Writ of Certiorari at *i, Universal Health Servs., Inc. v. United States, No. 15-7 (U.S. June 30, 2015), 2015 WL 4035937.

5 No. 14-2506, 788 F.3d 696 (7th Cir. 2015).

6 Id. at 701.

7 Id. at 709-10.

8 Id. at 711.

9 See 780 F. 3d at 513-14.

10 See Petition for Writ of Certiorari at *3, Universal Health Servs., Inc. v. United States, No. 15-7 (U.S. June 30, 2015), 2015 WL 4035937.

11 274 F.3d 687 (2d Cir. 2001).

12 Id. at 699; see also Chesbrough v. VPA, P.C., 655 F.3d 461, 468 (6th Cir. 2011).

13 Id. at 609.

14 626 F.3d 1257, 1268 (D.C. Cir. 2010)

15 Id. at 1268.

16 See United States ex rel. Hutcheson v. Blackstone, 647 F.3d 377, 386-88 (1st Cir. 2011); see also United States v. Triple Canopy, Inc., 775 F.3d 628, 636 (4th Cir. 2015).

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