On Friday, the US Supreme Court agreed to consider two questions involving the so-called “implied certification theory” under the federal False Claims Act (FCA).  First, the Court will consider whether the implied certification theory is ever viable for establishing FCA liability.  If it is, the Court will also consider under what circumstances FCA liability may be based on the implied certification theory.

Under the judicially-created implied certification theory, FCA liability may attach if a company submits a false claim for payment to the government while not being compliant with other statutes or regulations, even if the company was not required to expressly certify its compliance with such statutes or regulations.

Although most of the circuit courts of appeal allow implied certification as an acceptable theory of FCA liability, they have been difference in how the courts have applied the theory.  The Second, Third, Sixth, Ninth, Tenth, and Eleventh circuits have previously held that FCA liability may be established under the implied certification theory if the defendant failed to comply with the condition of payment expressly required by the statute or regulation on which the relator relied.  On the other hand, the First, Fourth, and D.C. Circuits have held that the implied certification theory may attach FCA liability to a violation of any potentially relevant condition of payment statute or regulation, even if compliance with such statute or regulation is not expressly tied to the government’s payment decision.  The Seventh Circuit, in its decision in United States v. Sanford-Brown, Ltd., 788 F.3d 696. (7th Cir. 2015), earlier this year, rejected the implied certification theory as a means of establishing FCA liability, thus creating a circuit split.

The case for which the Court will review these questions is Universal Health Services v. Escobar, No. 15-7.  In this case, the relators are family members of a woman who allegedly died as a result of a seizure at a Massachusetts mental health clinic.  The relators allege that the clinic failed to adequately hire and supervise its staff as required by MassHealth regulations, and that noncompliance with these regulations resulted in FCA liability.  The district court dismissed the case by distinguishing conditions of payment from Medicare conditions of participation, and stated that FCA liability under the implied certification theory will only attach when there is noncompliance with statutory or regulatory conditions of payment.  Here, the district court found that the regulations in this case were conditions of participation rather than conditions of payment, and therefore, the implied certification theory did not result in FCA liability.  The First Circuit reversed the district court’s opinion.

The Supreme Court’s decision in this case may resolve the circuit split and provide a uniform set of rules regarding the falsity element of the FCA.  An opinion following the Seventh Circuit’s recent decision rejecting the implied certification theory altogether would significantly narrow the scope of the FCA, which could reduce the number of FCA claims brought by the government and relators. A decision following the majority circuit approach allowing FCA liability to attach to the implied certification theory but limiting the scope and application of the theory would also provide defendants with decreased exposure to FCA liability based upon the implied certification theory and assist in reining in the government’s broad reach under the act.