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Friday, June 17, 2016

Supreme Court Further Defines Fraud Under the False Claims Act

Defining Fraud in Cases of Misrepresentation by Omission and the Importance of Materiality

The Supreme Court of the United States has further clarified the definition of fraud under the False Claims Act. Fraud may be both criminally and civilly pursued. 

The case, Universal Health Services, Inc. v. United States ex rel Escobar, is a civil matter, however the fundamental elements are ready transferable to criminal matters as well.  This is because the commission of fraud is a criminal cause of action as well as a civil one.

Background:

The False Claims Act (31 U.S.C. §3729 et. seq.) itself is designed to go after individuals or entities who are alleged to have defrauded the government.  It imposes significant penalties to such individuals or entities.   

A commonly used theory in such fraud cases is that of “implied false certification.” This theory sates that when an individual submits a claim to the government, they are impliedly certifying compliance with all conditions of payment for that claim. But if that claim fails to disclose one’s violation of a material statutory, regulatory, or contractual requirement, the claimant has made a misrepresentation that renders the claim “false or fraudulent” under §3729(a)(1)(A).

In the present case, the fraud alleged is related to Medicaid.  There were knowing omissions made by a treatment and mental health counseling facility regarding the licensing of key employees who were executing treatment.

Issue Before the Court:

The United States Supreme Court addressed the validity of “implied false certification” as well as further defined fraud under the False Claims Act as it relates to misrepresentation by omission and the Importance of Materiality.

Holding of the Court:

The Court found that “implied false certification” may be a basis for liability.  Specifically, liability attaches when one submits a claim for payment that makes specific representations about the goods or services provided, but knowingly fails to disclose their noncompliance with a statutory, regulatory, or contractual requirement. In these circumstances, liability attaches if the omission renders those representations misleading. Such omission may be that of a half-truth.

The Court further held that False Claims Act liability for failing to disclose violations of legal requirements does not turn upon whether those requirements were expressly designated as conditions of payment. One may be liable for violating requirements even if they were not expressly designated as conditions of payment. Conversely, even when a requirement is expressly designated a condition of payment, not every violation of such a requirement gives rise to liability.

The Court stated that what matters is whether one knowingly violated a requirement that they knew was material to the Government’s payment decision. A misrepresentation about compliance with a statutory, regulatory, or contractual requirement must be material to the Government’s payment decision in order to be actionable under the False Claims Act.

The Court additionally held that it is not enough to make a falsehood material that it would give the government a right to withhold payment; the falsehood has to be so serious that the government in fact would withhold payment.

 

If being investigated or facing a fraud charge related to misstatements or omissions, you need to contact me for a confidential consultation. 


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As a former prosecutor, I fully understand the power law enforcement has. As a trial attorney, I know the law seems very scary.