Universal Health Services, Inc. v. Escobar

PETITIONER: Universal Health Services, Inc.
RESPONDENT: United States and Massachusetts, ex rel. Julio Escobar and Carmen Correa
LOCATION: Arbour Counseling Services

DOCKET NO.: 15-7
DECIDED BY: Roberts Court (2016- )
LOWER COURT: United States Court of Appeals for the First Circuit

CITATION: 579 US (2016)
GRANTED: Dec 04, 2015
ARGUED: Apr 19, 2016
DECIDED: Jun 16, 2016

ADVOCATES:
David C. Frederick - for the respondents
Malcolm L. Stewart - Deputy Solicitor General, for the respondents, for the United States as amicus curiae
Roy T. Englert, Jr. - for the petitioner

Facts of the case

Universal Health Services, Inc. (UHS) owns and operates Arbour Counseling Services (Arbour), a mental health services provider in Lawrence, Massachusetts. Arbour participates in the state Medicaid program, MassHealth, and the state has promulgated regulations for such “satellite” facilities.

Julio Escobar and Carmen Correa are the parents of Yarushka Rivera, a teenager with behavioral issues who began seeing a counselor at Arbour. These counselors were not licensed, and Escobar and Correa became concerned that they were not being properly supervised as the regulations of satellite facilities required. Rivera was eventually diagnosed with bipolar disorder and prescribed a medicine by a “doctor” who was later discovered to be a nurse under the supervision of a non-board-certified psychiatrist. Rivera soon had an adverse reaction to the medicine and called Arbour for guidance but was unable to speak with anyone. A few days later, she had a seizure and was hospitalized. A few months later, she suffered a fatal seizure.

Escobar and Correa filed complaints with several state agencies and eventually sued UHS under both the federal and state False Claims Acts. The district court dismissed the complaint and held that the plaintiffs did not sufficiently plead the elements of falsity that claims under the False Claims Act require. The U.S. Court of Appeals reversed and held that the plaintiffs had sufficiently pled the elements of falsity by applying an “implied certification” test, which states that falsity has been sufficiently pled when there is evidence that the defendant did not comply with a condition of payment.

Question

(1) Is the implied certification test for determining when claims have sufficiently pled falsity for the purposes of the False Claims Act valid?

(2) If so, does the relevant statute need to explicitly state the conditions of payment with which the defendant allegedly failed to comply?

Media for Universal Health Services, Inc. v. Escobar

Audio Transcription for Oral Argument - April 19, 2016 in Universal Health Services, Inc. v. Escobar

Audio Transcription for Opinion Announcement - June 16, 2016 in Universal Health Services, Inc. v. Escobar

Clarence Thomas:

The second case I have is Universal Health Services Inc. versus United States and Massachusetts, number 15-7.

This case comes to us on a Writ of Certiorari to the United States Court of Appeals for the First Circuit.

The False Claims Act was enacted during civil war to punish contractors who cheated the government.

At issue in this case is whether government contractors can be liable under the False Claims Act when they submit claims to the government for payment but fail to disclose that they did not comply with material, contractual, statutory or regulatory requirements.

The relaters in this case as well as the government argued that just by submitting a claim for payment the contractor represents that it has complied with all material legal requirements so that its failure to disclose a violation makes its claim “false or fraudulent.”

The validity of this theory called the implied false certification has divided the lower courts.

The district court held that the False Claims Act defendants are liable under this theory if they violate requirements that are conditions of payment.

The First Circuit agreed with that theory but reversed the district court concluding that the regulatory requirements in this case were conditions of payments.

We vacate and remand. We first hold that at least in certain circumstances the implied false certification theory can be a basis for liability.

Specifically, liability can attach where two conditions are satisfied.

First, the claim does not merely request payment but also makes specific representations about the goods or services provided.

And second, the defendants’ failure to disclose its violation of a material legal requirement makes those representations misleading half-truths.

We further hold that a defendant's liability for failing to disclose violations or legal requirements when submitting a claim does not turn upon whether those requirements were expressly designated as conditions of payment.

What matters is not the label the government attaches to a requirement but whether the defendant “knowingly violates a requirement that the defendant knows is material to the government's payment decision”.

Finally, we emphasize that a misrepresentation about compliance with a legal requirement must be material to the government's payment decision in order to be actionable under the False Claims Act.

The act's materiality requirement is very rigorous because the act is not a vehicle for punishing ordinary contractual breaches or regulatory violations.

We, therefore, reject the government's and the First Circuit's view of materiality, which is that any violation of a legal requirement by a government contractor is material so long as the defendant knows that the government would be entitled to refuse payment were it aware of the violation.

Both opinions below construed the False Claims Act differently than we do today.

We, therefore, vacate the First Circuit's judgment and remand the case for reconsideration of whether the relaters have sufficiently pleaded a False Claims Act violation.

The opinion of the Court is unanimous.

Sarah from Law Aspect

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