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False Claims Act Violations: When Is a Claim 'False'?

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Parties frequently battle over whether the conduct at issue was “false” such that False Claims Act liability is appropriate. Courts have recognized two types of false claims: factually false claims and legally false claims. A factually false claim is false as to a matter of fact (for example, a claim to have provided goods that were never provided). A legally false claim involves false certifications of compliance with laws or regulations that are prerequisites to payment. Courts have further divided legally false claims into express certification and implied certification claims.

The current debate surrounds how far the “implied certification” theory can be taken. In other words, when does a lack of compliance with a program requirement make a claim seeking payment for goods or services (which were actually provided) a false claim under the False Claims Act?

The U.S. Court of Appeals for the First Circuit has taken the most extreme position in Hutcheson v. Blackstone Medical, Inc. In that case, the relator claimed that Blackstone engaged in a nationwide kickback scheme to get physicians to use its medical devices, and that Blackstone knew that the scheme would cause physicians to submit claims for payment that contained material misrepresentations. She argued that a claim is false if it does not meet a material precondition of payment, that compliance with the Anti-Kickback Act was such a precondition, and that Blackstone, in providing the kickbacks, caused hospitals and physicians to submit false claims to Medicare.

The relator relied on two documents to show that Medicare reimbursement was conditioned on compliance with the Anti-Kickback Act: 1) a provider agreement that hospitals and physicians had to sign to receive Medicare reimbursement that included a certification that the signatory understands that payment of a claim is conditioned on complying with applicable laws, including the Anti-Kickback Act, and 2) a hospital cost report, submitted by hospitals, that also included a certification that the services identified in the report were provided in compliance with all applicable laws and regulations.

Blackstone moved to dismiss, and the district court granted the motion. It held that the provider agreement was specific to the party seeking reimbursement (the physicians and hospitals) and that the cost report wasn’t specific enough to condition compliance with the Anti-Kickback Act on payment. It then held that, because the relevant statues and regulations did not expressly condition Medicare payment on compliance with the Anti-Kickback Act, the relator’s theory failed.

The First Circuit rejected the district court’s argument that a precondition of payment must be explicitly stated in a statute or regulation to give rise to a false claim. Additionally, it held that a non-submitting entity could violate the False Claims Act through the legal certification of a submitting entity that was true. In other words, it does not matter whether the submitting entity knew or should have known about a non-submitting entity’s unlawful conduct. In the context of the case, the First Circuit found that the provider agreement and hospital cost report were sufficient to show that compliance with the Anti-Kickback Act was a condition of payment.

This decision expands the universe of potential claims for whistleblowers by allowing liability to be placed on wrongdoers removed from the submitting entity and engaging in conduct that may not have been clearly demarcated as materially improper. But, in its petition for certiorari to the Supreme Court, Blackstone noted the possible consequences of this decision:

After the First Circuit’s decision, a relator’s allegations that claims are “legally false” state a cause of action under the False Claims Act anytime a relator alleges that wrongful conduct occurred somewhere in a chain of transactions among various entities, one of which ultimately submitted a claim—even if the claim itself contains no false statement about the allegedly wrongful conduct and even if no statute or regulation conditions payment of a claim on such compliance.

The Supreme Court, however, denied certiorari to Blackstone, so the issue will continue to be debated within the appellate courts.

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