On December 4, 2015, the Supreme Court of the United States granted certiorari inUniversal Health Services, Inc. v. Escobar, agreeing to take up the validity and application of the implied certification theory of False Claims Act (FCA) liability.  The implied certification theory of liability provides that a party may be held liable for violating the FCA where that party has made a request for payment despite its noncompliance with applicable statutes, regulations, or contract provisions that are material preconditions to payment.  The Supreme Court has agreed to consider two questions, as framed by petitioner Universal Health Services, Inc. (UHS):

  1. “Whether the ‘implied certification’ theory of legal falsity under the FCA—applied by the First Circuit below but recently rejected by the Seventh Circuit—is viable.”
  2. “If the ‘implied certification’ theory is viable, whether 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.”


In Escobar,[1] the relators’ daughter, a teenage recipient of state medical benefits, consulted with various mental health counselors at Arbour Counseling Services (“Arbour”), which is owned and operated by UHS, to seek treatment for behavioral problems.  After it was discovered that relator’s counselors were not licensed by the state to provide mental health therapy, as required by Massachusetts regulations, relators filed suit in the District Court for Massachusetts.

Relators’ complaint alleged that Arbour fraudulently submitted invoices for payment based on mental health services provided by counselors that were not licensed as required by Massachusetts regulation.  Relators further alleged that Arbour made similar fraudulent misrepresentations with respect to other clinical staff members and nurse practitioners, and that Arbour invoiced the government despite Arbour’s noncompliance with staffing and supervision regulatory requirements.

The district court dismissed the relators’ complaint, finding that the Massachusetts regulations at issue imposed only “conditions of participation,” and not “preconditions to payment” sufficient to give rise to FCA liability.  In so holding, the district court analyzed the text of the specific regulations at issue and noted that the regulations did not contain explicit text indicating that the regulations were conditions of payment.

Relators subsequently appealed, and the U.S. Court of Appeals for the First Circuit reversed.  Noting that “[p]reconditions of payment, which may be found in sources such as statutes, regulations, and contracts, need not be ‘expressly designated,’” the First Circuit held that the regulations at issue were, in fact, conditions of payment, and remanded the case for further proceedings.

On June 30, 2015, UHS filed a petition for certiorari with the Supreme Court.

Circuit Split

The Supreme Court’s decision in this case will have a significant impact on FCA jurisprudence, and potentially will resolve a deep-seated split among the federal courts of appeals.  Almost every circuit has weighed in on the implied false certification doctrine, with the majority of circuits recognizing the validity of the doctrine to some extent.

In the Fourth and D.C. Circuits, any knowing and material breach or violation of a contract, statute, or regulation that can be viewed as a prerequisite to payment can give rise to liability.[2]  In contrast, the Second, Third, Sixth, Ninth, Tenth, and Eleventh Circuits apply a narrower view of the doctrine, rejecting liability based on implied certification of compliance with regulations that are conditions of federal government program participation,[3] and instead limiting the application of the doctrine to situations where compliance with the applicable statute, regulation, or contract provision contains an express prerequisite to payment.[4]  The Seventh Circuit recently deepened the split with its potential rejection of the doctrine.[5]

Oral argument in the Supreme Court will likely be held in March or April 2016, and a decision is expected by the end of June 2016.