Supreme Court sends mixed message on False Claims Act liability

A unanimous U.S. Supreme Court decision seemed to open the door to more False Claims Act lawsuits against healthcare organizations while simultaneously applying some limitations that would favor providers.

The case, Universal Health Services v. Escobar, involved a Massachusetts Medicaid beneficiary named Yarushka Rivera who died of a seizure after an adverse reaction to a medication provided at Universal’s Arbour Counseling Services.

Rivera’s parents alleged Universal defrauded Medicaid by allowing an unlicensed nurse to prescribe medication to their son in violation of Massachusetts law and then submitting Medicaid claims. Universal countered it didn’t commit fraud because regulations don’t explicitly state proper supervision was a requirement of payment.

While the court’s decision sends the case back down to an appeals court by vacating its ruling, it upholds part of the parents’ argument, a theory known as “implied certification,” meaning by filing a claim, Universal implied it had complied with its regulatory and contractual obligations. Because it hadn’t, it can be held liable for fraud.

“By submitting claims for payment using payment codes corresponding to specific counseling services, Universal Health represented that it had provided specific types of treatment,” the court wrote. “Arbour staff allegedly made further representations by using National Provider Identification numbers corresponding to specific job titles. By conveying this information without disclosing Arbour’s many violations of basic staff and licensing requirements for mental health facilities, Universal Health’s claims constituted misrepresentations.”

However, another part of the ruling set a higher bar on what would meet the legal definition of fraud by omission.

In Justice Clarence Thomas’ opinion, he said a provider couldn’t be held liable under the False Claims Act simply because the government had grounds to reject a claim.

“Defendants can be liable for violating requirements even if they were not expressly designated as conditions of payment. Conversely, even when a requirement is expressly designated a condition of payment, not every violation of such a requirement gives rise to liability,” Thomas wrote. “What matters is not the label the Government attaches to a requirement, but whether the defendant knowingly violated a requirement that the defendant knows is material to the Government’s payment decision.”

Thomas said the U.S. Court of Appeals in Massachusetts went too far in its ruling, rejecting what he called an “extraordinarily expansive view of (False Claims Act) liability.” The appeals court will now have to rule again on the case using the higher court’s guidance.