Ruling’s takeaways include the need for providers to know the regulatory details that are material and not knowingly misrepresent what services were delivered or who provided them.


June 24—The U.S. Supreme Court’s unanimous June 16 decision in a False Claims Act (FCA) suit didn’t provide the “bright line” guidance some were looking for and may result in more litigation with one side attempting to prove the other knowingly misrepresented or omitted material facts.

Providers “have to watch what they’re doing--that’s the takeaway,” said Jim Landman, director of healthcare finance policy, perspectives and analysis for HFMA. “There’s going to be a lot of feeling out about what ‘materiality’ means.”

The suit was filed by the mother and stepfather of a 19-year-old woman with bipolar disorder who had an adverse reaction to medication and died of a seizure after receiving mental health services at an Arbour Counseling Services, a Massachusetts subsidiary of King of Prussia, Pa.-based Universal Health Services (UHS). Arbour was reimbursed by Medicaid for services provided to the woman, Yarushka Rivera. And, according to the decision’s headnote, it was discovered that “few Arbour employees were actually licensed to provide mental health counseling or authorized to prescribe medications or offer counseling services without supervision.”

The family filed the FCA suit claiming that, when the company submitted Medicaid payment claims, it constituted an “implied false certification.” A district court ruled against the family and granted a UHS motion to dismiss ruling that “none of the regulations violated by Arbour was a condition of payment,” according to the headnote. The Boston-based First Circuit Court of Appeals reversed this ruling, stating that submission of a claim “implicitly represents compliance” with regulations.

The Supreme Court vacated the Appellate decision and remanded the case back to the lower court “to apply the approach” detailed in the opinion written by Justice Clarence Thomas. This approach includes the idea that there is liability when a defendant submits a claim for payment that makes specific representations about what was provided and knowingly fails to disclose noncompliance with statutory, regulatory or contractual requirements.

“Arbour staff members allegedly made further representations in submitting Medicaid reimbursement claims by using National Provider Identification numbers corresponding to specific job titles. And these representations were clearly misleading in context,” Thomas wrote. "The defendant’s failure to disclose noncompliance with material statutory, regulatory, or contractual requirements makes those representations misleading half-truths.”

Providers Omniscience Not Expected

Landman said the Supreme Court spelled out that providers cannot be expected to know every detail among hundreds or thousands of pages of regulations, but providers should know the details that are material and not knowingly misrepresent what services were delivered and who provided them.

He interpreted the ruling to say it’s not an FCA violation to say “Please pay me $1,000.” But it may be a violation to say “Please pay me $1,000 for services by this provider on this date” and implying that the provider has certain credentials when they don’t.

Conversely, the court ruled that, if the government knowingly and routinely overlooks technical violations and continues to pay a provider for services rendered, it’s strong evidence that the requirements were not material for payment.

“The court said that, ‘Just because it’s in a government regulation, doesn’t mean it’s material,’” Landman said. “A lot of the muddiness is around ‘What is a material violation?’”

Rules Must Matter

Melinda Hatton, senior vice president and general counsel for the American Hospital Association, summarized the ruling as “The FCA only comes into play when a rule or regulation actually matters.” 

“As the Court recognized, hospitals and others who bill the government are ‘subject to thousands of complex statutory and regulatory provisions,’” Hatton wrote in an e-mail. “The Court went on to impose a rigorous test to determine which of the myriad rules and regulations governing health care providers actually matter when the government decides to pay a claim.”

In an amicus brief, David Engstrom, professor of law at the Stanford Law School, wrote that a “a bright-line rule would contravene Congress’s repeated efforts to construct a highly flexible, administrative bulwark—not a rigid, judicially devised one—against unjustified FCA liability.”

Engstrom, in an analysis posted on the Stanford Law School website, wrote that the FCA, which was enacted in 1863 to fight fraud related to the Civil War, “has quickly become the federal government’s most important anti-fraud tool.” There are now around 600 active FCA suits each year garnering more than $3 billion in recoveries for the federal government, he noted. Like Landman, Engstrom “expect lots of litigation” until a less muddy path is laid out.

Writing in Health Affairs blog, William Sage, professor of surgery and perioperative care at the University of Texas Dell Medical School in Austin, called the ruling “an exercise of both common law and common sense.” Sage applauded Thomas for emphasizing common law definitions of fraud--particularly “awareness on the part of the fraudster and loss of value to the person defrauded.”

More Settlements Predicted

Joan Krause, professor at the University of Carolina at Chapel Hill School of Law, disagreed with positive interpretations of the ruling. In a commentary on the “Hamilton and Griffin on Rights” website, Krause wrote that the ruling will cause more providers to hesitate before defending a suit and will allow the government to “continue to reap the benefit of massive health care FCA settlements.”

“The decision is likely to satisfy no one and to raise as many questions as it answers,” Krause wrote. “And because materiality can no longer be determined solely by looking to the wording of the statute or regulations, courts will be required to engage in more detailed scrutiny of the government’s actual claims procedures.”

Thomas Greene of Boston-based Greene LLP, who represented Yarushka Rivera’s family, disagreed.

“The Supreme Court spoke loudly today: if you’re trying to get the government to pay for services, you’d better actually provide them,” Greene said in a news release. “That means providing them in compliance with regulations that most people would consider important, like licensing and supervision requirements.”

Representing UHS, Roy T. Englert Jr., an attorney with Washington, D.C.-based Robbins, Russell, Englert, Orseck, Untereiner & Sauber LLP, said he was pleased the court unanimously vacated the First Circuit appellate decision which Thomas described as having an “extraordinarily expansive view of liability.”

“It is significant that the Court remanded to the lower court to reconsider the case under the new, rigorous standard of materiality stated by the Supreme Court,” Englert said in an e-mail.  “Our client looks forward to litigating the case on remand and is confident of prevailing under the new Supreme Court standard.”

The firm’s website noted that it has argued 51 cases in the Supreme Court with a record of 40 wins, nine defeats, and two split decisions. According to Englert, this case was another win.


Andis Robeznieks is a freelance writer based in Chicago. Follow Andis on Twitter at @AndisRobeznieks.

Publication Date: Friday, June 24, 2016