After implied cert ruling, courts will focus on 'materiality'

Supreme Court Building

In a decision that both defense attorneys and prosecutors are calling a “win,” the Supreme Court’s ruling that the implied certification theory of the False Claims Act (FCA) is valid under “certain circumstances” brings clarity to a longstanding legal concept, while also raising new questions about the definition of “materiality.”

headshot of Jeff NewmanAlthough Justice Clarence Thomas laid out a fairly comprehensive definition of the materiality, it’s an issue that federal courts will be left to decide as new FCA cases move forward in the coming years, according to several attorneys who have been closely following the case.

When companies decide to fight cases, "this will be used by the defendants as a basis to dismiss cases in the first instance,” Jeffrey Newman (right), a whistleblower attorney based in Boston, Massachusetts, told FierceHealthPayer: AntiFraud in an exclusive interview.

“Federal judges will have to piece through the evidence based on this kind of mini-exception that the evidence of wrongdoing is not material to the core aspect of the case.”

Based on the oral arguments in April, the legal community was largely unfazed by the Supreme Court’s decision to uphold the implied certification theory in United Health Services, Inc. v. U.S. ex rel. Escobar, which is considered a victory for the government and whistleblower attorneys.

headshot of Geoffrey KaiserOn the other hand, Thomas’ stipulation that the FCA is not an “all-purpose anti-fraud statute” or “a vehicle for punishing garden-variety breaches of contract or regulatory violations,” as well as the Court’s willingness to address the materiality of claims, was seen as a small victory for defense attorneys and the provider community that had originally argued the implied certification theory “lowers the bar as to what constitutes 'fraud."

“The Court, at least in my view, was going for a more pragmatic and practical analysis as to whether or not a particular legal requirement—whether it was labeled a condition of payment or not—was material to the payment decision,” Geoffrey Kaiser, a partner with Rivkin Radler LLP, told FierceHealthPayer: AntiFraud.

Shifting toward materiality

Although the Supreme Court did rule that implied certification is a viable theory under the FCA, it rejected the government’s more expansive position that the theory is all-encompassing, and applies to virtually every regulation. In delivering the opinion of the Court, Thomas laid out several ways to determine whether or not a claim was material, but also left some room for interpretation by lower courts.

headshot of George BreenFor example, the “Government’s decision to expressly identify a provision as a condition of payment is relevant, but not automatically dispositive,” he said.

A defendant that is aware that the government routinely denies claims that are not compliant with certain regulations or contractual requirements would qualify as material. Failure to disclose noncompliance—or “half-truths”—would also implicate the theory. Alternatively, if the government consistently pays a type of claim with full knowledge that certain regulations were violated, those regulations would not adhere to the same standard.  

“I think you’ll see lots of cases talking about what materiality means, and whether or not in certain circumstances the omission—for lack of a better word—was in fact material to the payment decision,” George Breen, an attorney with Epstein Becker & Green P.C. in the District of Columbia, told FierceHealthPayer: Antifraud.

Without a bright line interpretation, the issue of materiality is bound to be a sticking point in future FCA litigation, particularly as defendants move to dismiss claims.

“It opens the door to some litigation about what that word really means,” Breen said.

A new wave of FCA cases?

Legal experts were divided on whether or not the Supreme Court’s ruling would spark a wave of new FCA claims. Last year, the number of FCA claims declined in both the number of cases and investigations filed and the amount awarded in settlements and judgements. However, it was the best year on record for whistleblower cases in which the government declined to intervene.

Breen said there may be a slight increase in FCA claims thanks to the Supreme Court’s validation of the implied certification theory.

“This definitely encourages the filing of cases that might have fallen by the wayside on the notion that people questioned the viability of the theory,” Breen said.

Kaiser agreed, noting that any time the Supreme Court rules on the FCA, it draws more attention to the law. It may also change the way the government approaches whistleblower cases that involve the elements of the implied certification theory.

“They are going to want to make sure they are consistent and following the Supreme Court’s method of asserting these types of claims,” he said. “In that sense, the opinion is probably prescriptive guidance for those types of arguments.”

Newman, who has been closely following the Supreme Court’s decision because he has several cases that mirror the provider certification and licensing concerns that were directed at United Health Services, doesn’t believe the healthcare industry will see a sudden rash of new FCA claims. However, he does think it provides whistleblowers a stronger blueprint for successful FCA claims, and gives the government a reason to “assert their resources” in FCA cases in which certain regulations are material to medical payments.

“Every major decision that clarifies the False Claims Act is an important one because it’s the central mechanism by which the government can find out about true fraud,” he says.