Summer is almost here. For some, that means planning vacations to the beach, hitting the gym to shed that winter weight, or perhaps hitting the golf course—but for us at the Sheppard Mullin Healthcare Law Blog and the False Claims Act Defense Blog, summer signals the anniversary of the Supreme Court’s seminal decision in Universal Health Services, Inc. v. United States ex rel. Escobar.
Escobar was significant because it validated the “implied certification theory” as a valid basis of liability under the False Claims Act. Just as a reminder, the implied certification theory generally stands for the proposition that whenever an individual or entity submits a claim for payment/reimbursement to the federal government – including any claims submitted for reimbursement under the Medicare, Medicaid or other federal healthcare payment program – the claimant is implicitly certifying that the items and services covered by each submitted claim were provided in compliance with all applicable statutory, regulatory, and administrative laws, as well as in compliance with any and all contractual requirements applicable to the federal payment program at issue. By accepting the implied certification theory, the Escobar decision potentially transforms any statutory, regulatory, or contractual violation linked to a claim for reimbursement into a full-blown False Claims Act case, with all of the treble damages, civil penalties, and attorneys’ fees that go along with it.
But Escobar was not all bad. Although it validated the implied certification theory, Escobar also imposed a rigorous materiality standard derived from the common law. This materiality standard acts as a bulwark between a run-of-the-mill contract violation from being characterized as a ruinous allegation of fraud. Under the materiality standard, only violations that are material to the government’s decision to pay can form the basis of liability under the implied certification theory.
In the last two years, the Sheppard Mullin False Claims Act Defense Team and the Healthcare Law Team have followed the lower courts as they applied Escobar’s materiality standard to a variety of different cases.