The False Claims Act (FCA), 31 U.S.C. § 3729, makes it unlawful for any person to knowingly submit a false or fraudulent claim for payment to the government. In recent years, the government has relied on the robust damages provisions of the FCA (three times the damage sustained by the government, plus civil penalties of $5,500 to $11,000 per claim) to recover billions of dollars from contractors in both court victories and FCA settlements. Much of the recent uptick in government enforcement actions has resulted from the government's increasingly aggressive assertion of what is known as the "implied certification" theory of liability. On Friday, December 4, 2015, the Supreme Court of the United States granted review in United States v. Universal Health Services., Inc., 780 F.3d 504 (1st Cir. 2015), cert. granted in part, 84 U.S.L.W. 30337 (U.S. Dec. 4, 2015) (No. 15-7), to determine the validity of the implied certification theory.
Under the implied certification theory, the government considers a claim for payment to be "false" when the contractor seeking payment is noncompliant with its contract, a regulation, or other federal, state, or local law. The government thus contends that the claim is "false," even though the contractor furnished the government all of the goods or services it seeks payment for. The government's theory is that it would not have paid for the goods or services had it known of the contractor's noncompliance. The government takes the position that noncompliance makes a claim "false," even where the government does not expressly condition payment on the breached provision, regulation, or law.
In the case now before the Supreme Court, United Health Services argues that, by advancing a theory of FCA liability that has nothing to do with whether a contractor fraudulently sought payments for goods or services it never delivered, the government has created a category of claims for payment that are "legally false," as opposed to "factually false." Invoking this distinction, United Health Services, like a number of other contractors, criticizes the implied certification theory for blurring the important differences between fraud—the stated concern of the FCA—and breach of contract.
Federal appeals courts are split over how to interpret and administer the implied certification theory. The Supreme Court decided to hear the Universal Health Services case to resolve these differences. The specific questions before the Court are:
- Whether the "implied certification" theory of legal falsity under the FCA—applied by the First Circuit but recently rejected by the Seventh Circuit—is viable; and
- Whether, if the "implied certification" theory is viable, 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.
Preparing for the SCOTUS Decision
A SCOTUS decision could substantially affect the way contractors manage their risk of noncompliance. However, regardless of outcome, contractors should remember the following points:
- Robust compliance programs are the best defense under any theory of FCA liability.
- An ethical culture will arm contractors with the personnel needed to make reasonable, appropriate, and sometimes difficult decisions about compliance. Underscoring the importance of ethical conduct must come from the highest levels of management.
- Contractors should continually seek to detect fraud, waste, and abuse within the organization through:
- Internal reporting procedures. Each employee, down to the lowest-paid employee, must be encouraged to report concerns, and contractors should follow up on all concerns raised, explaining how the organization is either working to resolve, or has resolved, them;
- Information sharing. If a contractor detects potential noncompliance within the organization, the issue should be shared with appropriate personnel across other business units to ensure that the scope of the problem is contained;
- Systematic audits by neutral personnel or third parties. Contractors should establish a schedule for auditing each of its contracts, and the audits should examine whether current policies and procedures are effective at maintaining compliance; and
- Training of and communication with employees. Management should seek to obtain information about its compliance weaknesses by establishing a rapport with the employees best positioned to furnish it. To that end, contractors must give their employees the training necessary to spot compliance issues, and seek employee feedback on compliance programs.
- Certifications should be reasonably vetted to determine that they are thoughtfully given and should comprehensively include all personnel—including finance, program, and legal personnel—relevant to the certification.
- Outside counsel may be able to provide necessary third-party review and protect any investigation under the attorney-client and work-product privileges.
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The Court has not yet set a schedule for briefing and argument in United Health Services v. United States ex rel. Escobar. Venable will be providing updates as more information becomes available. The Court is expected to issue its decision no later than the end of June 2016.