More than a dozen major healthcare organizations and associations have jumped into a Supreme Court case over the validity of a legal theory now used to bring many fraud lawsuits against them.
The case has the potential to reduce—or increase—the number of False Claims Act suits brought against healthcare providers and other companies, depending on which way the high court rules.
Universal Health Services v. United States ex rel Escobar focuses on situations in which whistle-blowers allege providers have submitted false claims to government programs by failing to follow certain regulations. Providers are sometimes held liable even if the government never explicitly stated that following a regulation was a condition of payment, and even if the provider never explicitly vouched that it had complied with the regulation.
That legal theory is known as “implied certification” and has been accepted by some federal appeals courts and rejected by others.
The case has implications for many industries but arguably its biggest effects could fall on healthcare organizations. In 2015, two-thirds of federal whistle-blower lawsuits targeted healthcare entities.
That's prompted a number of healthcare organizations to file briefs siding with the Universal Health Services, which argues against the theory. Organizations that have filed briefs include DaVita HealthCare Partners, Fresenius Medical Care, the Pharmaceutical Research and Manufacturers of America, the Generic Pharmaceutical Association and the American Health Care Association.
The American Medical Association argues in its brief that imperfect compliance is not the same as fraud.
“The healthcare regulatory environment is especially complex, making it particularly inappropriate to use the hammer of (False Claims Act) liability to punish noncompliance,” according to the brief.
Organizations found liable under the False Claims Act face penalties and triple damages.
In their brief, the American Hospital Association, Federation of American Hospitals and Association of American Medical Colleges say the healthcare field is already targeted by whistle-blowers seeking massive payouts. In False Claims Act cases, whistle-blowers are entitled to a percentage of whatever money the government recovers.
They argue in the brief that the implied-certification theory has exacerbated the filing of meritless suits against healthcare organizations.
The suits "try to tap into the extreme complexity of Medicare and Medicaid and use that as a basis for asserting all sorts of hospitals, healthcare providers and others … have committed fraud for what might be fairly minor regulatory missteps,” said Jessica Ellsworth, a partner at Hogan Lovells who filed the brief on behalf of the hospital associations and medical college association.
Briefs have not yet been filed supporting the other side of the case; those will come soon.
But Patrick Burns, co-executive director of the Taxpayers Against Fraud Education Fund, a not-for-profit group that supports whistle-blower incentive programs, said implied certification is important for holding healthcare and other organizations accountable for doing the right thing—even if that right thing isn't explicitly stated in a contract with the government.
He said the facts of this case before the Supreme Court are a prime illustration.
The Universal Health Services case (PDF) was brought by the parents of a patient who died at a Massachusetts mental health clinic. Her parents alleged that the clinic's caregivers were not properly supervised and that the clinic did not employ a board-certified or board-eligible psychiatrist and a licensed psychologist, in violation of state Medicaid program regulations. The 1st U.S. Circuit Court of Appeals sided with the plaintiffs in that case.
"Do we have to demand to see the credentials and then call the college of every dentist, doctor and mechanic we go to or is there a reasonable expectation that the business itself is … doing due diligence?” Burns asked.
The Supreme Court has not yet scheduled oral arguments in the case.
