The False Claims Act (“FCA”) permits whistleblowers, known as “relators,” to pursue actions on behalf of the U.S. government against those who knowingly present, or cause to be presented, false or fraudulent claims to the government for payment, if the government declines to pursue the actions.
To decide whether a complaint has sufficiently alleged a violation of the FCA, most federal courts first categorize an allegedly false claim for payment as “factually false” or “legally false.” They categorize a claim for payment for goods or services that are incorrectly described or were never provided as factually false. They categorize a claim that involves a false certification of compliance with statutes, regulations, or contract provisions as legally false.
Most federal courts further divide legally false claims into two categories. They categorize a legally false claim that includes an explicit misrepresentation of compliance with a statute, regulation, or contract provision as an “express certification” claim. They categorize a legally false claim that was submitted for payment—but that was based on conduct that failed to comply with a statute, regulation, or contract provision—as an “implied certification” claim.
The federal courts, however, have applied widely differing standards to decide the viability of complaints that allege false implied certification. At least one federal appeals court has held that a complaint that alleged that a claim for payment was based on conduct that failed to comply with any contract provision should not be dismissed. Others have required a complaint to allege that conduct on which the claim for payment was based failed to comply with a condition of payment or a condition of participation in the federal program from which payment is sought. Still others have required a complaint to allege a false express certification.
In U.S. ex rel. Hutcheson v. Blackstone Medical, Inc., 2011 WL 2150191 (1st Cir. June 1, 2011), the First Circuit Court of Appeals rejected these standards. It instead applied a standard based on knowledge and materiality and held that a complaint asserting payment of kickbacks to doctors in violation of the federal Anti-Kickback Statute (“AKS”)—to induce the doctors to use products in performing surgeries, for which the doctors and hospitals submitted claims to Medicare for payment—sufficiently alleged violations of the FCA against the defendant that allegedly paid the kickbacks.
On August 30, 2011, the defendant in Hutcheson petitioned the Supreme Court for a writ of certiorari, contending that the First Circuit applied the wrong standard, and that the First Circuit’s standard differs from the several differing standards adopted by the other federal appeals courts. Blackstone Medical, Inc. v. U.S. ex rel. Hutcheson, 2011 WL 3860767. If the Supreme Court grants the petition and decides the case, its opinion may provide important guidance concerning the standard to be applied in FCA cases—but might not change the result in Hutcheson, even if a different standard should have been applied.
In Hutcheson, the relator-plaintiff filed a qui tam action in federal court in Massachusetts, alleging that the defendant paid kickbacks to doctors to induce them to use the defendant’s products in performing spinal surgeries, in violation of the AKS. The plaintiff alleged that the defendant knew that “Medicare, Medicaid, and other federal program beneficiaries represent a significant percentage of spine-surgery patients.” The plaintiff also alleged that Medicare and the other federal programs require compliance with the AKS as a condition of payment through, inter alia, Medicare provider agreements with participating doctors and hospitals that require the signers to comply with the AKS and other statutes and regulations. The defendant thus allegedly knowingly caused the doctors and hospitals to present false claims to Medicare and the other federal programs in violation of the FCA. The defendant moved to dismiss. The district court granted the motion, categorized the complaint as alleging legally false (rather than factually false) claims, and—applying standards adopted by other federal appeals courts—held that the complaint failed to sufficiently allege a false certification, express or implied. On appeal, the First Circuit reversed.
The First Circuit rejected the factually false, legally false, express certification, and implied certification categorizations. “The text of the FCA does not refer to ‘factually false’ or ‘legally false’ claims, nor does it refer to ‘express certification’ or ‘implied certification.’” The applicable standard, the court held, instead is whether “a defendant acted knowingly and the claim’s defect is material.” The knowledge requirement, the court noted, is expressly stated and defined in the FCA, and the materiality requirement is supported by Supreme Court precedent.
The First Circuit also rejected the defendant’s argument that it could not be liable for violation of the FCA because the hospitals and doctors—rather than the defendant—had submitted the allegedly false claims to Medicare for payment. “The Supreme Court has long held that a non-submitting entity may be liable under the FCA for knowingly causing a submitting entity to submit a false or fraudulent claim, ant it has not conditioned this liability on whether the submitting entity knew or should have known about a non-submitting entity’s unlawful conduct.”
Applying these standards, the First Circuit then held that the complaint had sufficiently alleged violations of the FCA because the provider agreements that the doctors and hospitals had signed “to establish eligibility to receive reimbursement from Medicare” stated that “… payment of a claim by Medicare is conditioned upon the claim and the underlying transaction complying with such laws, regulations, and program instructions … including, but not limited to, the Federal anti-kickback statute …” If the defendant paid kickbacks to the doctors to use the defendant’s products in surgeries, with knowledge that the doctors and hospitals would submit claims for payment for many of these surgeries to Medicare, and if the agreements that the doctors and hospitals signed that conditioned payment of their claims by Medicare on compliance with the AKS were capable of influencing Medicare’s decision to pay the claims, then the defendant could be liable for violation of the FCA.
If the Supreme Court grants the defendant’s petition for a writ of certiorari and decides this case, its opinion may provide important guidance concerning the standard to be applied in FCA cases and may hold that the First Circuit should have applied one of the standards adopted by one of the other federal appeals courts. Application of one of these other standards, however, might not change the result in Hutcheson. The most rigorous standard adopted by any of the federal appeals courts for a legally false claim requires a false express certification of compliance with a legal requirement identified as a condition of payment of the claim. Based on the provider agreements, with their express references to conditioning payment by Medicare on “the underlying transaction complying with” the AKS, the Hutcheson complaint could be characterized as alleging false express certifications and the complaint again could be held to sufficiently allege violations of the FCA.