United States: Supreme Court Decides Validity Of False Implied Certification Theory In Universal Health Services v. Escobar

Last Updated: June 21 2016
Article by J. Andrew Jackson, Laura F. Laemmle-Weidenfeld and Stephen G. Sozio

On June 16, 2016, the U.S. Supreme Court decided Universal Health Services v. United States ex rel. Escobar, a widely anticipated decision with implications for health care provider and government contractor liability under the False Claims Act ("FCA"). The case addressed whether the so-called "implied false certification theory" is a valid method of establishing falsity under the FCA and, if so, under what conditions. In a unanimous opinion issued by Justice Thomas, the Supreme Court upheld the theory, at least insofar as an alleged falsity involves specific representations that omit material details. Universal Health Servs., 579 U.S. at __, Slip Op. at 3 (2016). However, the Court also separately emphasized that the FCA's materiality and scienter elements remain "rigorous" hurdles that the government and relators must satisfy. As a result, FCA litigation going forward may focus more on whether alleged violations actually mattered and were made knowingly, rather than on technical arguments over whether payment was premised on particular terms.

False Claims Act Background and Universal Health Services

The FCA imposes civil liability on any person or entity that "knowingly presents, or causes to be presented" to the United States government "a false or fraudulent claim for payment or approval." 31 U.S.C. §3729(a)(1). Some federal circuit courts previously held, with substantial variations in their reasoning, that one way of proving that a claim was "false or fraudulent" was through an implied false certification. In its purest form, implied false certification theory holds that any submission for reimbursement constitutes an implicit certification that the submitting party has complied with all applicable laws, regulations, and contract terms. Thus, if the party submitting the claim knowingly breached any one of the applicable terms, the claim is false.

Defendant Universal Health operated a mental health clinic in Massachusetts that received reimbursement under the Medicaid program, which is jointly funded by the federal and state governments. United States v. Universal Health Servs., Inc., 780 F.3d 504, 514 (1st Cir. 2015). A young woman who was a clinic patient died after receiving treatment from unlicensed and unsupervised staff, in violation of state regulations. The young woman's parents filed suit under the FCA as relators. They argued that the clinic's alleged noncompliance with supervision and licensure requirements made reimbursement claims submitted false under the FCA. Id. at 508. The district court dismissed the case, holding that only conditions of payment were actionable under the FCA, while relators alleged that conditions of participation in the Medicaid program were adequate to support FCA liability. U.S. ex rel. Escobar v. Universal Health Servs., Inc., No. CIV.A. 11-11170-DPW, 2014 WL 1271757, at *5 (D. Mass. Mar. 26, 2014).

The First Circuit reversed, holding that the clinic's payment was conditioned upon compliance with applicable regulations, including licensing and supervision of the clinic's staff. Universal Health Servs., 780 F.3d at 508. It held that "although the record is silent as to whether [the clinic] expressly represented that it was in compliance with conditions of payment when it sought reimbursement" for services, the court had not "required such 'express certification' in order to state a claim under the FCA." Id. at 514 n.14.

In its petition for certiorari, Universal Health asked the Supreme Court to review two questions: (i) "[w]hether 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"; and (ii) if the implied false certification theory is viable, "whether a government contractor's reimbursement claim can be legally 'false' under [implied certification] 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." Pet. for Cert. at i, U.S. ex rel. Escobar v. Universal Health Servs., Inc., No. 15-7 (2015).

The Decision in Universal Health Services

The Supreme Court's decision held that the implied false certification theory "can, at least in some circumstances, provide a basis for liability." Universal Health Servs., 579 U.S. at __, Slip Op. at 8. The Court first recognized that the term "false or fraudulent" is not defined by statute. It therefore looked to background common law principles for guidance. All parties agreed that the common law clearly recognized fraud by omission. As a result, the dispute focused on whether submission of a claim for payment was actually a representation at all, such that knowing omission of material information would constitute fraud.

The Court stated that it "need not resolve whether all claims for payment implicitly represent that the billing party is legally entitled to payment" because the claims actually submitted by Universal Health were clearly "half-truths." Id. at 9. It pointed to payment codes submitted by Universal Health that corresponded to specific counseling services and the defendant's use of National Provider Number codes corresponding to specific job titles of those providing the services. It explained that anyone informed of those representations would have believed that Universal Health's staff, in fact, were qualified to perform the services rendered and had the skills corresponding to the titles they claimed. The Court explained its holding as allowing the implied false certification theory "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." Id. at 11.

Turning to the second question presented in the case, the Court held that liability does not turn on whether an alleged violation was expressly designated as a condition of payment. Instead, designation of a term as a condition of payment is relevant but not dispositive of the term's materiality.

The Court explained that nothing in the FCA's text dictates that liability is limited to violations of express conditions of payment. While misrepresentations must be material and must be made with scienter, alleged violations can be both without being made explicit conditions of payment.

The Court also rejected Universal Health's policy arguments that fair notice required cabining liability to terms actually linked to payment. It pointed out that the statutory text did not support this claim. Further, such a rule might give the government the perverse incentive of designating all terms as conditions of payment, eliminating any benefit of notice entirely. Instead, the Court stated that the FCA's "rigorous" materiality and scienter requirements should address these policy concerns.

The Court then proceeded to "clarify how that materiality requirement should be enforced." Id. at 14. It repeatedly noted that the FCA's "materiality standard is demanding," flowing from the fact that "[t]he False Claims Act is not 'an all-purpose antifraud statute' or a vehicle for punishing garden-variety breaches of contract or regulatory violations." Id. at 15 (quoting Allison Engine Co. v. United States ex rel. Sanders, 553 U.S. 662, 672 (2008)). Under the FCA, at common law, and in both torts and contract, materiality depends on the likely or actual behavior of the recipient of the alleged misrepresentation.

As a result, government designation of a term as a condition of payment is not dispositive of materiality, for materiality "cannot be found where noncompliance is minor or insubstantial." Id. at 16. Although designation of conditions of payment may be evidence of materiality, courts may not rely exclusively upon such designation. Other factors could include proof that the government routinely does or does not make payments in the face of violations of a particular term. Similarly, materiality may be implicated where "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." Id. The Court emphasized that it still expects lower courts to be able to dismiss claims that fail to plead materiality with particularity and to resolve cases at summary judgment based on materiality. Id. at 16 n.6

In reaching this conclusion, the Court rejected the government's and First Circuit's position that any violation "is material so long as the defendant knows that the Government would be entitled to refuse payment were it aware of the violation." Id. at 17. The Court explained that this argument swept too broadly, pointing to the government's concession at oral argument that it would impose FCA liability on a contractor for health services even if the only violation were an undisclosed failure to comply with a requirement to buy American-made staplers. The Court rejected that view of FCA liability as "extraordinarily expansive."

In light of its decision, the Court vacated the First Circuit's decision and remanded for further proceedings.


The Supreme Court's decision did not provide the clarification that a bright-line test for FCA falsity could have provided. Nor did it definitively resolve whether implied false certification is proper in all cases or for all alleged regulatory violations. Instead, the Court's falsity discussion carefully stated that implied false certification is permissible "at least" where there are specific representations that are made misleading based on failure to disclose material noncompliance. That holding tracks a narrow reading of the facts of the case, which did not necessarily require the Court to address the full implications of implied false certification. As a result, the Court's decision establishes that a request for payment need not expressly incorporate false information to trigger liability under the FCA, but it does not establish the full extent of that rule.

At the same time, the Court's references to scienter and materiality provide continuing strong arguments for defendants seeking to limit FCA liability. Particularly in the materiality context, the Court went out of its way to emphasize that actions speak louder than words. Thus, if defendants cannot necessarily escape liability for contractual, statutory, or regulatory requirements based on the four corners of their payment requests, neither can the government (or, by extension, relators) definitively impose liability on that basis. Similarly, the government's actions and contractors' knowledge of them will now be subject to renewed scrutiny to determine whether the government actually cared about alleged violations. Government indifference now seems firmly established as a basis for attacking materiality of purported fraud.

Finally, the Court's pronouncements come against a backdrop of repeated, strong statements that FCA liability targets fraud, not contractual or regulatory foot faults. Whether lower courts will take those statements to heart is to be seen, but a fair reading of the Court's decision suggests that limiting liability is appropriate.

Going forward, litigation may focus more on whether alleged violations actually mattered and were knowing, rather than technical arguments over terms of payment. Relators may find it harder to transform mere errors into fraud under the Court's practical and commonsense emphasis.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

J. Andrew Jackson
Laura F. Laemmle-Weidenfeld
Stephen G. Sozio
Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions