Risk of FCA Liability Increases as Supreme Court Recognizes Implied False Certification Theory

While labs are now busy focusing on gearing up to meet reporting obligations under the new PAMA rule, they should also heed a significant False Claims Act (FCA) decision by the U.S. Supreme Court released this month. In Universal Health Services, Inc. v. Escobar, the Court addressed whether FCA liability could arise based on a theory of “implied false certification.” This theory allows FCA liability to be based upon failure to disclose a violation of a “material statutory, regulatory or contractual requirement.” Such a failure to disclose is considered to render a related claim false or fraudulent. Noting disagreement among federal circuit courts of appeal, the U.S. Supreme Court made two important rulings in the Escobar case:

• "FCA claims can be based “at least in certain circumstances” on the implied false certification theory. That is, failure to disclose noncompliance with a material statutory, regulatory or contractual requirement can give rise to FCA liability if the omission makes the claim misleading.
  
• Whether such an omission makes a claim false doesn’t depend on whether the requirement violated is expressly made a condition of payment but rather whether the defendant “knowingly violated a requirement that the defendant knows is material to the Government’s payment decision.”

Ultimately, however, the U.S. Supreme Court returned the case to the lower court for review to determine whether the facts established FCA liability under the Supreme Court’s stated interpretation of the implied false certification theory.

Takeaway: U.S. Supreme Court settles circuit court debate, allowing FCA liability based on false representations of compliance with conditions material to federal programs’ decisions to pay claims.