Supremes Hear Argument on Implied Certification Theory

On April 19 the U.S. Supreme Court heard oral argument in Universal Health Services v. U.S. ex rel. Escobar.  That’s the case in which the First Circuit upheld a whistleblower suit brought against a mental health clinic that had treated their daughter.  Their theory is that the clinic’s reimbursement requests to Medicaid violated the False Claims Act (FCA) because the clinic failed to meet certain Medicaid regulations, including the proper licensing of personnel who treated their daughter.

The case is closely watched by government contractors—especially health care providers that receive Medicare, Medicaid, or Tri-Care reimbursement.  It’s regarded as central to the validity and limits of the “implied certification” theory: the theory that in submitting a claim for payment, a contractor impliedly certifies that it’s in compliance with applicable contract requirements and specifications.

For two reasons, the issue may be even more important to the health care industry than to most others.   First, health care may be the most heavily regulated of all major industries.  The regulations applicable to a hospital may run into the thousands of pages, and they can change daily.  So it’s not hard to be out of compliance with one regulation or another.

Second, FCA violations carry a per-claim penalty that can run as high as $11,000 (and is due to rise later this year).  And that’s in addition to triple-damage liability.  Assume, for example, that a clinic submitted 100 claims of $50 each and was found liable under the implied certifications theory for violating a Medicaid regulation.  The result could be liability of $1,150,000 (i.e., [$50 x 100 x 3] + [100 x $11,000]), when the clinic had received a mere $15,000—and, by the way, had provided the medical care.

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