The Predictable but Disappointing Outcome of Universal Health Services v. United States ex. rel. Escobar
On June 16, 2016, Justice Clarence Thomas wrote for a unanimous Supreme Court that so-called “implied certification” theories supporting False Claims Act suits were permissible under the statute but ultimately sided with the government contractor because “if the Government pays a particular claim in full despite its actual knowledge that certain requirements were violated, that is very strong evidence that those requirements are not material”. As a reminder, the False Claims Act is a Civil War-era statute that allows whistleblowers to sue on behalf of the U.S. government when they obtain knowledge that a party is submitting claims for payment to the government that are false (“actual knowledge”, “deliberate ignorance,” or “reckless disregard”). “Implied certification” theories expand liability by asserting that parties that agree to accept government payment also impliedly agree that they have met all obligations imposed under law for participating in a government reimbursement or payment scheme, as opposed to requiring that a party actually issue a false statement to the government in connection with payment. In the Escobars’ case, Universal Health Services, through one of its subsidiaries, provided counseling and pharmaceutical treatment to their daughter under a Massachusetts Medicaid program. She had an adverse reaction to a medication that a purported doctor at UHS’s facility prescribed after diagnosing her with bipolar disorder. Her condition worsened, and she eventually died of a seizure. Respondents, her mother and stepfather, later discovered that few of the facility’s employees were actually licensed to provide mental health counseling or authorized to prescribe medications or offer counseling services without supervision, an implied requirement of participating in the Massachusetts Medicaid program.
While the Supreme Court rejected UHS’s principal arguments – that implied certification theories, per se, could not be “false” under the statute and that, even if they were, only those that constituted “conditions of payment” could result in liability – it ultimately sided with UHS on the basis that the relevant inquiry was based on materiality. If the government pays notwithstanding knowledge of the violations, wrote the Court, it is relevant evidence that the breach of the implied condition is not material.
The result is not only tragic for the victims of a medical practice that treated an ill person with unqualified and unlicensed personnel, it is also entirely inconsistent with what Congress has repeatedly stated about liability under the False Claims Act – that analysis of liability should turn on the size and sophistication of the defendant. Universal Health Services is a national hospital management company with 70,000 employees treating 2.5 million patients. Its communications to investors state that “UHS monitor[s] all aspects of our business and have developed a comprehensive ethics and compliance program that is designed to meet or exceed applicable federal guidelines and industry standards.” There is no excuse for it failing to comply with the aspects of patient care at issue in Escobar. In a forthcoming article in the Baylor Law Review, I detail this legislative history. I also allude to the decades’ long seesaw between Congress (which regularly expands the reach of the False Claims Act) and federal courts (which consistently limit its reach). It is disappointing that the Supreme Court reached the conclusion it did for both the Escobars and for Congress’s objectives for the False Claims Act.