In the world of litigation healthcare providers can potentially fall victim to the False Claims Act (“FCA”) when they file medical claims for reimbursement from either Medicaid or Medicare. FCA claims against hospitals and other healthcare related entities usually involve allegations that the healthcare provider knowingly or recklessly filed a false claim for payment from a federally funded government program. Under the FCA qui tam provisions, private citizens, known as “relators”, can file lawsuits where they have suffered no personal injury. Instead, these relators allege the federal government was defrauded and can obtain a substantial monetary reward if they are successful in recovering a judgement from the court.
A hotly contested issue in qui tam cases is whether the violation of the regulation alleged in the case is material to the government’s obligation to pay a healthcare claim. For instance, whenever a physician or supplier of medical services completes a form 1500, it certifies the claims were medically indicated and necessary and that any “false claims, statements, or documents, or concealment of a material fact, may be prosecuted under applicable Federal or State laws.” Historically, the issue in a lot of cases involving alleged false claims is whether the claim made by the healthcare provider is either a “condition of payment” or a “condition of participation” in the governmental program. If the alleged false claim only violated a condition of participation, as opposed to a condition of payment, then there could be no false claim in violation of the FCA. Courts reasoned that conditions of payment were central to the government’s decision to pay claims as opposed to a mere violation of a condition of participation that could be handled administratively by the enforcing governmental agency.
After the United States Supreme Court’s ruling in Universal Health Servs. v. United States ex rel. Escobar 136 S. Ct. 1989 (2016), the old condition of payment or condition of participation standards for materiality were largely abandoned. Instead, the Supreme Court, adopted a new “rigorous” materiality standard. Escobar, 136 S.Ct. at 2004 n.6. Although promulgated conditions of payment in statutes or regulations are relevant in attempting to establishing materiality, they are not “automatically dispositive.” Id. at 2003. Moreover, the Supreme Court held that “A misrepresentation cannot be deemed material merely because the Government designates compliance with a particular statutory, regulatory, or contractual requirement as a condition of payment. Nor is it sufficient for a finding of materiality that the Government would have the option to decline to pay if it knew of the defendant’s noncompliance.” Escobar, a relator is now faced with a steeper climb to show that the violation of a particular statute or regulation is material to the government’s decision to a pay the medical claim.