As the overseer of health benefits for millions of Americans, the Federal Government has a vested interest in ensuring the legitimacy of claims submitted for payment to Government Healthcare programs, such as Medicare, Medicaid, and Tricare. The False Claims Act (the “FCA” or the “Act”), which is perhaps the Government’s strongest tool in ensuring the validity of claims, is a civil statute which carries harsh penalties for knowingly submitting, or inducing the submission of, false or fraudulent claims to the federal government. The FCA carries a materiality component, such that the violation must be material to the Government’s payment decision for it to be prosecuted under the Act.
In recent years, the Government has expanded its use of the FCA to combat fraud against the federal Government. Not only has the Government used the FCA to increasingly target the healthcare industry over other industries, but the Act has become progressively more government-friendly over time; indeed, it has been amended several times in recent years, specifically “…to enhance the ability of the United States Government to recover losses sustained as a result of fraud against it.”1 As the Government and Qui Tam plaintiffs continue to expand the ways in which liability can be found under the False Claims Act, it has become less and less clear as to what behaviors infringe upon the Act.
In 2016, the Supreme Court, though its decision in United Health Services, Inc. v. United States Ex Rel. Escobar,2 sought to clarify the circumstances in which liability could be imposed under the FCA. The Escobar Court reviewed the implied certification theory, which is premised on the notion that that submission of a claim implies that conditions of payment (as opposed to conditions of participation, for example) for that claim have been complied with; stated differently, failure to disclose noncompliance with those conditions of payment would be a misrepresentation to the Government, making the claim false or fraudulent under the Act.3
The Court in Escobar held that when certification with a statutory, regulatory, or contractual requirement is implied (i.e., upon submission of a claim), it matters not whether the Government has deemed the requirement a condition of payment. Rather, of import is “whether the defendant knowingly violated a requirement that the defendant knows is material to the Government’s payment decision.”4 Escobar. The case made it very clear that “…compliance with a statutory, regulatory, or contractual requirement must be material to the Government’s payment decision in order to be actionable under the False Claims Act.”5
The Escobar Court held that merely because a requirement is a condition of payment does not necessitate the conclusion that it is material, deserving prosecution under the FCA. While the Court acknowledged that a Government’s labeling a requirement a condition of payment does indeed hold weight as to whether that requirement will be deemed material, the Court further stated that whether a provider knows that the Government generally does not pay claims based on noncompliance with a particular provision or requirement will also hold weight in determining whether a requirement is material to the Government’s payment decision. Further, the Escobar Court states that if the Government pays a particular claim or a particular type of claim despite its knowledge that certain requirements were violated, then this would be considered “[very] strong evidence” that those requirements are not material. Escobar requires, to successfully plead a violation of the False Claims Act, that the Government “…would not have paid the claims had it known of the violations.”
The holding in Escobar put a burden on the Government to more closely monitor claims it receives and conduct due diligence prior to paying, as paying on a claim where requirements had been violated could potentially impact the Government’s ability to later recoup on that claim, due to lack of materiality. Escobar further necessitated that the Government plainly state, in complaints alleging violations of the FCA, that it would not have paid the claims had it known of the violations. This guidance focuses on the actions of the Government in determining whether a violation was material.
Despite the very clear mandate provided in Escobar, in a recent case (Poehling)6, the Government failed to state in its complaint alleging a violation of the Act that it would not have paid the relevant claims had it known of the alleged violations. Instead of focusing on the Government’s actions, the Government turned its focus towards the actions of the defendants in this case and tried to demonstrate that the defendants’ alleged violations were material by arguing in its complaint that had Defendants, upon discovery of the falsity of the claims, returned the payment to the Government, the Government would have accepted those repayments.
In response, the defendants in Poehling, argued that the Government would accept repayments on claims “regardless of the agency’s view of how important the underlying violation is,” and that, if the Government’s theory is correct, it would “eviscerate the False Claims Act’s materiality requirement in every case.” Indeed, a theory of materiality which focuses on whether the Government would have accepted a repayment would entirely defeat the “demanding” materiality standard and serve only to facilitate the Government’s ability to assert that the False Claims Act had been violated.
There is a hearing on the Motion scheduled for January 29, 2018. Stay tuned for an update on this case as well as further guidance about how it may affect you and your healthcare practice. If you have questions regarding the False Claims Act, contact Frier Levitt to speak to an attorney
1 See para 10 of complaint filed in United States Ex. Rel. Benjamin Poehling v. United Health Group, Inc., civil action number 11-cv-0258-A.
2 136 S. Ct. 1989 (2016).
3 Id. at 1995.
4 Id. at 1996.
5 Id.
6 United States Ex. Rel. Benjamin Poehling v. United Health Group, Inc., civil action number 11-cv-0258-A.
