The Escobar Case and False Certification

Friday, September 8, 2017

Last month’s column provided a brief overview of the False Claims Act (FCA). To recap, the FCA is a federal law that imposes liability on persons and companies who defraud government programs.

Examples of fraudulent conduct under the FCA include, but are not limited to:

  • Billing for services or procedures that were not provided, non-FDA-approved drugs or services, or unlicensed or unapproved drugs
  • Prescribing drugs for non-FDA approved uses
  • Falsifying physician signatures when such signatures are required for reimbursement
  • False certification, or certifying all conditions for payment are proper when, in fact, they are not

Last summer, in Universal Health Services v. United States ex rel. Escobar, the Supreme Court handed down a unanimous decision holding that an “implied false certification” theory can serve as a basis for FCA liability.

In Escobar, a teenager covered under Medicaid was treated for bipolar disorder at a mental health facility in Massachusetts. The teenager had a bad reaction to prescribed medication and died. Her parents discovered that only one of the five providers who treated their daughter was licensed — a serious violation of Medicaid requirements. They filed a qui tam (see June MD News San Antonio) suit under the FCA using an implied certification theory, alleging the claims submitted to Medicaid were fraudulent because the claims did not disclose the facility’s noncompliance with Medicaid requirements. Stated another way, they claimed that when the facility submitted claims to Medicaid, the act of submitting the claims carried implied regulatory compliance, and because they were not in compliance, the facility submitted false claims.

The Supreme Court unanimously held implied certification theory as legitimate when an implied certification rises to a threshold for which the government would withhold claim reimbursement or terminate a contract. The Court reasoned that FCA’s term “fraudulent” is “a paradigmatic example of a statutory term that incorporates the common-law meaning of fraud” and “because common-law fraud has long encompassed certain misrepresentations by omission, ‘false or fraudulent claims’ include more than just claims containing express falsehoods.” Therefore, the Court reasoned, “misrepresentations by omission can give rise to liability.”

Turning to the facts in Escobar, the Court observed the Medicaid claims submitted by the facility contained representations “about the specific services provided by specific types of professionals,” but “failed to disclose serious violations of regulations pertaining to staff qualifications and licensing requirements for these services.” As a result, the claims submitted by the facility were “clearly misleading in context,” because they submitted claims using medical claim coding that implied the providers met the requirements for claims submission for the codes that were submitted. In short, the Court provided two conditions that may rise to implied certification:

  • The claim makes specific representations about the goods or services provided.
  • The defendant’s failure to disclose noncompliance with material legal requirements “makes those representations misleading half-truths.”

Today, healthcare providers are increasingly tasked with increased documentation requirements (EHR, Quality Measures, ACOs), while they continue to provide a consistent high-standard of patient-centered care.

Escobar highlights the need for healthcare providers and healthcare organizations to also ensure reimbursement regulatory compliance.

Next month: Stark Law

Disclaimer: This information is provided for informational purposes only. It is not intended to provide legal advice. Please contact an attorney to obtain advice on any specific issue, question or problem.

E. Patrick Magallanes, MBA, MPA, CPPM, FACHE (March 2018), is CEO of Oncology San Antonio and a JD Candidate at St. Mary’s University School of Law. Keenly interested in health law subjects, Magallanes is the founding member of the St. Mary’s Health Law Society. He is a student member of the American Health Lawyers Association and the San Antonio Bar Association Health Law Section and intends to practice corporate and health law. Magallanes can be reached at