In a variety of matters, DOJ and relators have attempted to base claims under the FCA on alleged violations of the FDCA or FDA regulations, by arguing that such violations constitute “fraud on the FDA,” and that the resulting claims for payment to other agencies for associated products are false. As we have discussed (here, here, and here), so far plaintiffs have had little success with this theory, including in the First and Fourth Circuit Courts of Appeal. Last week, a panel of the Ninth Circuit heard oral arguments in United States ex rel. Campie v. Gilead Sciences, Inc., and the government and the plaintiff’s bar no doubt have pinned their hopes on that court reversing the trend.
As we previously discussed here, the government’s continued payment despite knowledge of contractual or regulatory noncompliance has become a powerful defense argument post-Escobar. The Fourth Circuit recently affirmed summary judgment in favor of government contractors after they obtained declarations from responsible government officials that undercut the relator’s theories of liability. See United States ex rel. Searle v. DRS C3 & Aviation Co., No. 15-2442 (4th Cir. Feb. 23, 2017).
As we reported here, in its ruling in Universal Health Services, Inc. v. United States ex rel. Escobar last June, the Supreme Court affirmed the viability of the implied certification theory of liability under the FCA, but remanded the case to the First Circuit to apply the Court’s newly-articulated framework for analysis of such claims. Last week, the First Circuit ruled that even under the Supreme Court’s demanding test for liability, the relators still stated a cognizable implied certification claim, and therefore reversed the district court’s dismissal of the relators’ complaint. Critical to the First Circuit’s ruling was its view that evidence of the government’s payment practices when faced with similar alleged violations are less important to the analysis than the court’s assessment of the centrality of a regulation to the contractual relationship between the government and the defendant.
This morning Justice Thomas announced a unanimous opinion in Universal Health Services, Inc. v. United States ex rel. Escobar. The Supreme Court held that implied certifications can violate the False Claims Acts in limited circumstances—when the “rigorous” and “demanding” materiality standard is met.
Sidley partner Joshua Hill recently published an article in the Daily Journal about the “implied certification” theory of falsity, which is at issue in the pending Supreme Court case Universal Health Services v. United States ex rel. Escobar, as discussed here. The Supreme Court heard oral argument in Escobar on April 19th, and its upcoming decision has important implications for the scope of the False Claims Act.
Sidley partners Jack Pirozzolo and Scott Stein, and associate Brenna Jenny, published an article in BNA’s Health Law Reporter analyzing the oral arguments in Escobar. We reflect on what the Court’s questioning may portend for its ultimate resolution of the case, and how the Court’s approach to redefining materiality will impact the future of implied certification cases.
A decision in the case is expected by the end of the term.
As we have discussed here and here, yesterday the Supreme Court heard oral arguments in Universal Health Services v. United States ex rel. Escobar, which presents questions over the viability and scope of the implied certification theory. The justices actively questioned the advocates, raising concerns over whether the position of the government and the respondents (“Escobar”) contains logical limitations, and pressing the petitioner (defendant Universal Health Services (“UHS”)) over whether the limitations it proposes truly are consistent with common understandings of fraud.
The Sixth Circuit recently issued a strongly worded rebuke to the government in response to its proposition that “actual damages” in a FCA suit premised on wage underpayment equals the full amount of the government’s payment for the contractor’s services. See United States ex rel. Wall v. Circle C Constr., No. 14-6150 (6th Cir. Feb. 4, 2016). The defendant contractor—hired to build warehouses for the Army—had certified to compliance with certain laws and regulations, including one requiring payment of above-market wages. The contractor underpaid several employees by a total of $9,900, and the government argued that the contractor’s noncompliance “tainted” all of its claims, resulting in damages equal to the full amount the government paid for the services. Trebling these so-called damages yielded a total FCA damages award in excess of $750,000.
On February 25, 2016, Respondents in Universal Health Services v. United States ex rel. Escobar, cautioned the Supreme Court against limiting the Government’s ability to prosecute fraud and argued that the Supreme Court should find the implied certification theory of liability a viable theory under which to bring claims against contractors.
As we previously reported, the Supreme Court’s pending decision in United Health Services, Inc. v. United States ex rel. Escobar has attracted a number of amicus briefs encouraging the Supreme Court to reject the implied certification theory altogether, or at the very least significantly cabin its scope. Below we summarize the highlights of several additional amicus briefs filed in support of the petitioner.
As we have previously reported, the Supreme Court will decide a case this term that will address the viability and scope of the implied certification theory. Earlier this week, numerous stakeholders filed amicus briefs supporting the petitioner, illuminating the practical consequences of the vast scope of potential liability under the implied certification theory.
The hallmark of the implied certification theory is the notion that virtually any regulatory obligation can be invoked as being “material” to the government’s payment decision. Courts thus must ex post define a claim as “false or fraudulent” by hazarding a guess as to whether the government would have declined to pay had it known of the regulatory violation. The morass of regulations governing numerous industries, but particularly the healthcare industry, leaves participants uniquely vulnerable to potential treble damages and public opprobrium under this theory of FCA liability. The amici advanced numerous statutory and public policy reasons for eliminating the implied certification theory.