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RJO Update: Government Contracts
May 2016

Client Alert: 
U.S. Supreme Court to Rule on False Claims Act:  A Lawyer’s Game?

By Oliya S. Zamaray and Brian D. Miller

Today, it is easier and more profitable than ever to bring a case under the False Claims Act (FCA). In fiscal year 2015 alone, the Justice Department recovered over $3.5 billion from FCA cases, with $1.9 billion coming from companies and individuals in the health care industry.1To limit their exposure under the FCA, government contractors must be ever vigilant. As regulation keeps increasing, companies are finding it nearly impossible to keep tabs on whether every single aspect of every regulation is punctiliously complied with. Not surprisingly, many contractors focus on the most important requirement in a contract: delivering to the government the required goods or services at a good price. Depending how a case now before the U.S. Supreme Court turns out, a good product at a good price might soon not be good enough.

In this week’s BNA Federal Contracts Report, Brian Miller published an article titled “The False Claims Act: Fraud Without a Word,” in which he provides a complete analysis of this important case and the relevant issues. Here, we summarize the essential facts and analyze the key issues.

The Case Before the Court

Now before the Supreme Court is United States ex rel. Escobar v. Universal Health Services, Inc.2In this case, a mental health clinic in Lawrence, Massachusetts3had been providing psychological counseling services to the relators’ daughter, when a tragedy occurred. The daughter suffered a fatal adverse reaction to medication prescribed to her by a practitioner at the clinic. The Massachusetts Department of Public Health (DPH) imposed a fine of $1,000 and required improved documentation of the clinic’s supervision of non-psychiatrists. The Massachusetts Medicaid agency (MassHealth) took no action; the clinic’s Medicaid reimbursement claims had been accurately completed, describing the services using proper rates.

Following the death of their daughter, the relators filed an FCA claim based on the DPH’s finding that the mental health clinic violated applicable regulations in failing to adequately supervise its psychiatric service providers.4Neither the Commonwealth of Massachusetts nor the federal government intervened in the relators’ FCA lawsuit. 

At Oral Argument: What Makes a Claim a “False” Claim?

The Supreme Court heard oral arguments in this case on April 19th. The parties’ arguments were relatively straightforward.

The healthcare provider argued that, for purposes of the FCA, a “claim” cannot be a “false claim” if it does not state anything untrue. In other words, a false claim must be “false,” and its claim for payment from the MassHealth Medicaid program was not false. In fact, the healthcare provider’s claim contained an accurate description and the correct charge, as required by the form that MassHealth designed. The provider’s argument is obviously rooted in the text of the FCA, which appears to require an affirmative misstatement – or “false claim” – for liability. The provider also argued that the FCA does not require a contractor to disclose every non-conformity with or non-performance of the contractor or applicable regulations. In this case, the contractor had not disclosed its lack of documentation of the required supervision, and the MassHealth form did not have a place for this or any other disclosure.  

Both the relator’s counsel and the Department of Justice argued that an express false statement is not required under the FCA, because the submission of the claim is a representation that the claimant has fulfilled all of the obligations under the contract and deserves to be paid. Thus, when the healthcare provider submitted its claims for payment, each submission served as an implied statement or “certification” that the clinic’s workers were adequately supervised. However, by not adequately supervising those providing care – or failing to document that it did – the healthcare provider submitted a false claim under the FCA. The Justice Department further argued that a claim for reimbursement is false so long as the claimant knows that it failed to comply with a term of the contract or an applicable regulation, and knows that the government considers this contract term or regulatory provision to be material. Knowledge of a material omission makes the claim false, which in this case would be the alleged lack of supervision.

Depending on how the Supreme Court rules, it may soon be that every requirement is important and every non-conformity must be disclosed. Under this framework, failure to comply with just one tiny aspect of a contract could result in a judgment of millions of dollars. Here’s how the theory would work: a contractor doesn’t even have to say it has complied with every aspect of the contract and applicable regulations; the representation would be implied by way of the “implied certification doctrine.”5 Every time a contractor submits a bill, the contractor will be deemed to be stating that it has complied with every aspect of the contract and governing regulations. Any slip may be deemed an FCA violation, resulting in a multimillion dollar judgment and/or settlement. By making a request for payment – even just submitting an invoice stating an amount and nothing more – a contractor is deemed to be saying, “I am eligible for payment because I performed everything under the contract and I am in complete compliance with all applicable federal laws and regulations.” 

Counsel for the contractor argued that this kind of after-the-fact analysis makes the FCA into a kind of “lawyer’s game.” Here is what he said:

All that was submitted was a request for payment. The government controls what it will require in a request for payment. There is no allegation of a false statement in the request for payment. The only allegation is that every jot and tittle of every MassHealth regulation [was not complied with]  . . . .

And in seven complaints to administrative agencies, in the … operative complaint in this case, amended many times, why is not the regulation the First Circuit relied on even cited? Why is the regulation Mr. Frederick [relator’s counsel] says he would have used if he had been litigating this case in the district court even cited?

It proves my point, Your Honor, that this is a morass. And for one to think, after the fact, this is basic and central and this is fraud, is a plaintiff’s lawyer’s game. Thank you. Tr. at 54-55.

The “lawyer’s game” was ably described by the Chief Justice, though he did not refer to it as such:

I suspect most cases are a little more complicated than that, and that’s where the difficulty comes in when you have hundreds, thousands of pages of regulations. And typically [it’s] not . . . the government [that finds the non-compliance]. They didn’t in this case. They didn’t pick up the – the false claim; it was the relator. And the relator comes in and says, well, you didn’t [do this or that] – you violated the provision . . . whatever it is. . . .  [You] have to use this particular syringe or drug company, and, in fact, you didn’t.  And, therefore, blah, blah, blah.

And I guess that’s where the problem comes in . . . in that it’s a little more complicated than that. And I don’t know if I can take your abstract hypothetical and transfer it to the reality of government contracts.6 Tr. at 30.

The Chief Justice’s commentary invites speculation as to which core tenets of the FCA and federal procurement law in general the Court’s decision will impact.

Our Recommendation: Tie “Implied Certification” to an Express Condition for Payment

Without bright lines – such as an express condition for payment – government contractors are left with very little to go by beyond judgment calls that will inevitably be second-guessed by relators. A relator’s FCA challenge of such a judgment call will expose a contractor to liability, potential debarment, and possibly even closure. Let’s hope the Supreme Court finds some clear guidelines for contractors under the FCA.

So, what would be a clear guideline? One that acknowledges the realities of the government contracts world? We suggest that the clearest rule is the one set forth in the text of the FCA, itself: the claim must actually be false – not impliedly false – and contain an untruth. However, if the Supreme Court is going to follow the “implied certification” theory and hold that the contractor makes an implied promise with each claim – namely, that it has complied with all conditions of the contract and all applicable regulations – we suggest that the high court limit those “implied” statements to express conditions for payment. An express condition for payment is a statement by the government that a certain provision must be complied with or it will not pay. For example, if the government is buying pencils, it must say it will only pay for number 2 pencils. Then it is clear to the contractor that it must not submit a claim for payment if it supplied some other kind of pencil. This would provide clarity and certainty for contractors.

Unfortunately, we do not think the Supreme Court will do this. Instead, the Court will likely try to limit the “implied certification” theory by saying that before liability can be found, a court or jury must find that the contractor knew or intended to submit a false claim, and that the non-conformity must be “material” or important. While this kind of attempt is admirable, it does not help contractors who will have to spend time, money, and resources in courts – because knowledge and materiality determinations are only made in court. Lawyers will have to step in and continue to second-guess the contractor, arguing for or against materiality and whether the contractor had knowledge, all of which validates concerns that the process will become a “lawyer’s game.”

When the Supreme Court issues its decision in Universal Health Services, we will provide an update regarding the Court’s final analysis of the issues and its implications for government contractors and healthcare providers.

Both Mr. Miller and Ms. Zamaray work in the area of false claims. As an Assistant U.S. Attorney, Mr. Miller handled more than 100 FCA matters. We welcome inquiries from companies working to mitigate their FCA exposure or those responding to investigations.

The content of this article is intended to provide a general guide to the subject matter, and is not a substitute for legal advice in specific circumstances.

1 See “Justice Department Recovers Over $3.5 Billion From False Claims Act Cases in Fiscal Year 2015,” Dept. Of Justice, Office of Public Affairs, (Dec. 3, 2015) available at

2 780 F.3d 504 (1st Cir. 2015), cert. granted, 136 S. Ct. 582 (2015). A transcript of the argument before the Supreme Court, as well as the parties’ briefs and other materials, is available at the Universal Health Services “Case Page” at

3 The Petitioners operated healthcare facilities in Malden, Massachusetts and Lawrence, Massachusetts. See Brief for Petitioners at 9. Both provided mental health services, and the Lawrence clinic is the “satellite” office of the Malden facility, which is the “parent” facility. See Petition for a Writ of Certiorari at 6. 

4 In fact, even the MassHealth regulations require that “unlicensed counselors” be supervised by a qualified professional staff member, such as a psychiatrist, psychologist, social worker, or psychiatric nurse. 130 Mass. Code Regs. § 429.424. 

5 The phrase “implied certification” appears to have been used for the first time in Ab-Tech Construction, Inc. v. United States, 31 Fed. Cl. 429, 434 (1994), aff’d., 57 F.3d 1084 (Fed. Cir. 1995) (unpublished table decision); see B. Murrill, Contractor Fraud Against The Federal Government: Selected Federal Civil Remedies, p. 10. N. 78 (Cong. Res. Service Apr. 1, 2014).

6 The notion of having the government identify which regulations are material or important to it (see Tr. at 31) is doomed from the start and unrealistic. The government must say that all rules and regulations are important. That’s why they are there – as the Deputy Solicitor General admitted. See Tr. at 45 (“I don’t know if there are any terms that are wholly immaterial, because if there were, presumably they wouldn’t be in the – the agreement or the – the regulations.”).


The content of this article is intended to provide a general guide to the subject matter, and is not a substitute for legal advice in specific circumstances.


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