Supreme Court’s Escobar Decision Affirms Both Implied Certification and “Demanding” Materiality Standard

    July 2016

    To the satisfaction of the government and many plaintiffs, the United States Supreme Court upheld the theory of implied certification liability under the False Claims Act in a June 16, 2016, decision in Universal Health Services v. United States ex rel. Escobar.

    In the same decision, to the relief of many potential defendants, the Court made clear that the materiality inquiry is a “demanding” one; thus shielding contractors and providers from False Claims Act (FCA) liability for “minor” or “insubstantial” noncompliance. 

    The eagerly awaited decision did not fully resolve questions about FCA liability because the Court allowed the meaning of a materially false statement to develop on a case-by-case basis. 

    While the full impact of the Escobar decision will not become apparent for some time, there is no question that the decision affects every contractor and provider of goods and services to the federal government, from defense industry contractors to life sciences companies to health care providers. In addition, the ruling likely will affect providers of good and services to state governments, whose courts often follow FCA case law for similar state statutes. 

    The decision’s emphasis on the “demanding” standard of materiality affords some of the protection that providers sought from the costs of FCA litigation and seems to encourage judges to dismiss frivolous lawsuits prior to expensive discovery. Nonetheless, providers still must enforce vigorous compliance programs in order to prevent potentially ruinous liability. 

    The following article has been reproduced with permission from BNA’s Health Care Fraud Report.