On June 16, 2016 the United States Supreme Court ruled that
government contractors can violate the Civil False Claims Act under
the theory of "Implied False Certification." It is
a violation of the False Claims Act to knowingly present a
fraudulent or false claim for payment to the Federal Government.
In Universal Health Servs., Inc. v. United States ex rel.
Escobar 136 S. Ct. 1989, 195 L. Ed. 2d 348 (2016) the Court
held that such liability can attach when the government contractor
makes specific representations about the goods or services provided
but fails to disclose noncompliance with material legal
requirements under the contract thereby making those
representations misleading half-truths. Liability can attach
even if the misrepresentation does not relate to an express
condition of payment if the misrepresentation is
"material" to the Government's payment decision.
It has always been a violation of the False Claims Act
("FCA") for a claimant to knowingly submit a false
certification in a request for payment. This can occur when a
claimant expressly certifies it has complied with a statute or
regulation or complied with the specifications of the contract that
are prerequisites to payment when in fact it has not complied.
However, some federal circuit courts had developed what is
referred to as the "implied false certification" theory
of liability. The implied false certification is a legal
doctrine under which when a claimant submits a claim for payment
the claimant impliedly certifies that it has complied with certain
laws and regulations even though the claim is factually accurate
and contains no express certification. The theory is based on
the proposition that compliance with laws and regulations is a
condition of payment and submitting a claim for payment without
disclosing the violations constitutes a false claim. Other
federal circuits had rejected the implied false certification
theory. Hence, the split in the circuits required the Supreme
Court to resolve the conflict.
The Universal Health case arose from the treatment of Yarushka
Rivera, a teenage beneficiary under the Massachusetts Medicaid
program. Yarushka received counseling services at Arbour
Counseling Services, a mental health facility owned and operated by
a subsidiary of Universal Health Services. Yarushka received
treatment from a number of individuals who purported to be licensed
medical professionals. She was diagnosed with a bipolar
disorder and prescribed a medication to which she had an adverse
reaction which ultimately resulted in her death.
Yarushka's parents brought a qui tam action
under the FCA alleging that the Arbour employees who treated her
were not actually licensed to provide mental health counseling or
to prescribe medication. The parents asserted under an
implied false certification theory that Universal defrauded the
government in its billing for services by failing to disclose these
serious violations of Massachusetts Medicaid regulations and
licensing requirements for these services. The District Court
dismissed the case finding that none of the regulations that Arbour
violated was a condition of payment and, therefore, did not
constitute an implied false certification in violation of the
The Supreme Court found that Arbour had violated the FCA under a
theory of implied false certification. The Court found that
Arbour knowingly submitted bills which contained billing codes
corresponding to licensed professionals where those individuals
were not licensed thereby misleading the Government into paying the
invoices. The Court said that an implied false certification
can occur when: 1) the claimant "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 legal requirements
makes those representations misleading half-truths." The
Court further held that the undisclosed violation does not have to
be an express condition of payment to constitute a violation but
must only be "material" to the Government's payment
This case is a significant decision for anyone doing business
with the federal government. Government contractors can now
be liable under the FCA based on the implied false certification
theory if the violation is "material" to the
government's payment decision. For example, under a
construction contract a contractor can be liable for implied false
certification for knowingly supplying materials of lesser quality
than specified or billing for work performed by a non-engineer when
the contract requires work to be done by a licensed professional
engineer even though it does not expressly certify those
requirements have been met. In light of this, contractors
must insure that the work performed under the contract complies
with the contract specifications.
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.
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