The Supreme Court case that could expand false claims liability for hospitals: 10 things to know

The U.S. Supreme Court heard oral argument Tuesday in Universal Health Services v. Escobar, a case that focuses on the implied certification theory of False Claims Act liability.

Here are 10 things to know about the lawsuit and the implied certification theory.

1. Under the implied certification theory, the government or a whistle-blower can allege a claim submitted by a healthcare provider is false if they can show the provider billed for services while in violation of some government rule or regulation. The theory allows whistle-blowers to base their qui tam actions on statutes and regulations outside of the False Claims Act and permits cases to be brought even when payment requests contain no false information.

2. The whistle-blowers in Esobar premised their claims on the implied certification theory. Their teenage daughter was a beneficiary of the Massachusetts Medicaid program and received treatment at Arbour Counseling Services in Brookline, Mass., which is owned by King of Prussia, Pa.-based Universal Health Services.

3. The teenage girl died in 2009 after having an adverse reaction to anti-seizure medication prescribed by an Arbour Counseling employee. A subsequent investigation revealed Arbour Counseling was not in compliance with several Massachusetts regulations related to licensure and supervision in the course of the teenager's treatment, according to The National Law Review.

4. The girl's parents filed a lawsuit against UHS, alleging any claims for payments arising from their daughter's treatment were false because UHS knew it was not in compliance with Massachusetts regulations when the claims were submitted.

5. At the district court level, UHS' motion to dismiss was granted. The court reasoned that the state regulations UHS had violated were not "preconditions to payment," according to The National Law Review. However, the U.S. Court of Appeals for the First Circuit disagreed and reversed and remanded the case.

6. In December, the Supreme Court agreed to review UHS v. Escobar.

7. The case is closely watched by hospitals, as the implied certification theory essentially lowers the bar for what constitutes fraud — a change that hospitals are unlikely to embrace.

8. In January, the American Hospital Association, the Federation of American Hospitals and the Association of American Medical Colleges filed a friend-of-the court brief, asking the Supreme Court to reverse the appellate court decision.

In its brief, the AHA argues, "FCA liability should only attach when a defendant submits a claim that it knows is ineligible for payment because some expressly designated condition for payment of that claim has not been satisfied."

9. With others — including the American Health Care Association and the National Center for Assisted Living — also filing friend-of-the-court briefs in the case, a high court decision holding the implied certification is valid will definitely cause a stir in the industry.

10. Lawrence Kraus, partner at Foley & Lardner, told Becker's that during oral arguments Tuesday the Justices appeared frustrated with the technical labels currently used to analyze FCA claims. "Several Justices were skeptical the proper line could be drawn based on basic fraud principles, as urged by the petitioner/defendant," said Mr. Kraus.

"Overall, faced with the facts of the case, the court seems inclined to uphold the validity of the implied certification theory of liability under the FCA," he said. "The specific scope and basis for the court's ruling await the issuance of its written decision, likely in June."

More articles on healthcare industry lawsuits:

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Former medical biller sentenced to 11 years for role in $63M fraud scheme

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