Implied Certification and the Problem of Interpretation Under the False Claims Act

By Joan H. Krause

[Cross-posted from Hamilton and Griffin On Rights]

In a recent post, I explained the contours of the False Claims Act (FCA) implied certification theory of falsity, the subject of the recent Supreme Court argument in Universal Health Services v. United States(UHS). In this post, I will address an issue largely overlooked by most commentators: the potential for differing interpretations of what is required by the underlying Medicare and Medicaid provisions that form the basis for the certification.

Recent years have seen an expansion of FCA cases from “factually false” misrepresentations to those involving “legally false” claims, where items or services were provided but the claimant also violated an underlying legal requirement. For example, UHS involves an allegation that the defendant clinic violated the FCA because, by submitting a claim for payment under MassHealth, it implicitly certified that it was in compliance with all relevant Massachusetts regulations – including the staffing and supervision requirements it later was found to have violated.

Courts have taken two broad approaches to defining the universe of regulatory provisions with which certification will be implied. Some courts, notably the Second Circuit in Mikes v. Straus, 274 F.3d 687 (2d Cir. 2001), limit the theory to violations of statutes or regulations clearly identified as conditions of payment. Other courts, such as the First Circuit in UHS, instead ask whether the claimant “knowingly represented compliance with a material precondition of payment,” which need not be “expressly designated.” The tests may sound similar, but differ both theoretically and functionally. First, defining implied certification by reference to “materiality” is curious in light of the fact that, since 2009, materiality has been an express – and distinct – element of the FCA false records provision in 31 US.C. § 3729(a)(1)(B). Yet implied certification cases such as UHS usually arise under the false claims provision in § 3729(a)(1)(A), which Congress did not amend to require materiality.

More importantly, while the Mikes approach requires a violation of a provision clearly identified as a precondition for payment, the materiality approach looks instead to the potential for the violation to affect the payment decision.   While few courts define the term with precision in this context, a loose definition of materiality may be extrapolated from the false records provision: “having a natural tendency to influence, or be capable of influencing” payment.  In the context of implied certification, moreover, the court often makes the determination itself, in the abstract and long after-the-fact.  This raises the possibility that a court might interpret the effect of a particular provision on payment quite differently from the regulatory agency itself, leaving the defendant caught in the middle.

Commentators have recognized the potential for such conflict with regard to qui tam relators, who may bring implied certification cases based on an interpretation of statutes or regulations that differs from that of the governing agency. In UHS, for example, while the relators alleged violations of regulations crucial to MassHealth payment decisions, Massachusetts regulators apparently found the violations to be relatively minor, and imposed minimal penalties. In response, UHS argued that the theory permits relators “to usurp the government’s primary role in evaluating and adjudicating violations of its regulations.”

Yet there is a more insidious potential for conflicting interpretations within the government itself, particularly in health care cases. The materiality approach treats “the government” as a monolithic claims determination entity, when in fact two separate agencies are involved: (a) the agency that makes payment determinations, usually the Centers for Medicare & Medicaid Services (CMS) or a state Medicaid agency; and (b) the Department of Justice (DOJ), which represents the federal government in FCA litigation. While often the views of regulators and prosecutors will be in sync, there have been notable exceptions. For example, in Northern Health Facilities, Inc. v. United States, a nursing and rehabilitation center resolved FCA allegations with DOJ by entering into a Consent Order that permitted it to continue participating in Medicare, subject to various conditions. Almost simultaneously, however, the predecessor to CMS decided to terminate the facility’s participation. When the facility sued to enjoin the termination, arguing that the agency was thwarting the remedial measures set forth in the Order, the district court denied the motion because the agency had not been a party to the Order. But the judge went on to express concern about the “inequitable result,” noting that “It is clear that two different arms of the Federal Government, with two different views on how [the problems] should be addressed, were involved in these cases.” It is not difficult to imagine a situation in which the opposite occurs: CMS (or the state) does not consider a violation to be significant, yet DOJ argues that it could have been material to the payment decision and thus is subject to the FCA. In short, regulators and prosecutors can have dramatically different interpretations of the same facts, not to mention dramatically different policy goals.

Of course, an implied certification alone does not prove a violation of the FCA. The government or relator must still establish the remaining elements, most notably scienter: that the defendant acted with actual knowledge, in reckless disregard, or in deliberate ignorance of truth or falsity. The fact that two agencies come to differing interpretations, however, may well bolster the argument that the defendant should have anticipated that possibility. More importantly, due to the substantial penalties that may be levied under the FCA, as a practical matter the vast majority of health care FCA cases will settle, especially after the denial of a motion to dismiss. As I have argued, while settlement may satisfy the short-term goals of the parties, it also has the effect of removing judicial oversight over the development of the law. If the Supreme Court adopts the views of the Respondents and imposes a loose materiality-based standard of implied certification, we likely will see an uptick in settlements. That may be good news for federal coffers, but perhaps bad news for the development of FCA jurisprudence over the long run.

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About jkrause

Professor Krause received her B.A. with Honors in Political Science from Yale University, where she graduated summa cum laude and was elected to Phi Beta Kappa. She received her J.D. with Distinction from Stanford Law School, where she was elected to the Order of the Coif and served as Senior Articles Editor for the Stanford Law & Policy Review. Before attending law school, Professor Krause worked as a medical writer/editor. After law school, Professor Krause clerked for the Honorable Dorothy W. Nelson of the United States Court of Appeals for the Ninth Circuit. As an Associate in the Health Practice Group of Hogan & Hartson L.L.P. in Washington, D.C., Professor Krause’s work focused on regulatory and administrative health care matters, with an emphasis on health care fraud and abuse. After serving as an Assistant Professor at Loyola University Chicago School of Law from 1997-2001, Professor Krause became an Associate Professor at the University of Houston Law Center in 2001 and was appointed George Butler Research Professor of Law in 2005. She served as Associate Director and then Co-Director of the University of Houston Health Law & Policy Institute from 2003-2009. Professor Krause joined the faculty of UNC School of Law in 2009 and was named Dan K. Moore Distinguished Professor of Law in 2011. Professor Krause teaches the Health Law survey courses, Criminal Law, Fraud & Abuse, Women & Health Law, and a joint JD-MD seminar on Current Issues in Law and Medicine. Her research interests include health law, criminal law, and women and the law.