Universal Health Services, Inc. v. United States ex rel. Escobar

The implied false certification theory of the False Claims Act can be a basis for liability when a defendant makes representations about the goods or services that it provides, but fails to disclose noncompliance with material legal requirements that make those representations misleading half-truths. Liability does not turn on whether the requirements are expressly designated as conditions of payment.

Respondents’ daughter, a beneficiary of the Massachusetts’ Medicaid program, died after having an adverse reaction to a medication prescribed by a doctor at Arbour. Subsequently, Respondents discovered that many Arbour employees lacked licenses and misrepresented their qualifications to the Federal Government. Respondents filed a suit, alleging that Universal Health (acting through Arbour) violated the False Claims Act under an implied false certification theory of liability. This theory provides that when a defendant submits a payment request to the Government, there is an implied certification of compliance with all conditions of payment. If a claim fails to disclose a violation of a material statutory, regulatory, or contractual requirement, then the defendant has made a misrepresentation that renders the claim false or fraudulent. The District Court held that Respondents failed to state a claim because none of the regulations that Arbour violated were a condition of payment. The First Circuit reversed, holding that a requirement can be a condition of payment either expressly or impliedly. The Supreme Court first established that the implied false certification theory can be a basis for liability when a defendant makes representations about the goods or services that it provides, but fails to disclose noncompliance with material requirements that make those representations misleading. The Court reasoned that such half-truths are actionable misrepresentations. The Court also turned to textual and policy arguments, holding that liability for nondisclosure of legal requirements does not depend on whether the Government expressly designated the requirements as a condition of payment. Additionally, the misrepresentation must be material and the Government’s decision to expressly identify a provision as a condition of payment is relevant, but not definitive of materiality. VACATED and REMANDED.