June 16, 2016

Supreme Court Decides Universal Health Services, Inc. v. United States et al. ex. rel. Escobar et al.

On June 16, 2016, the Supreme Court of the United States decided Universal Health Services, Inc. v. United States et al. ex. rel. Escobar et al., No. 15-7, holding that omitting material statutory, regulatory, or contractual violations that make other representations misleading in a claim for reimbursement can support False Claims Act liability.

In 2009, Yarushka Rivera suffered a seizure and died while receiving counseling services and medical treatment from Arbour Counseling Services, a subsidiary of Universal Health Services. Her mother and stepfather later found out that most of Arbour’s employees lacked the appropriate licenses and that the practitioner who prescribed the medicine for Rivera’s bipolar disorder lacked authority to prescribe medications without supervision. When submitting reimbursement claims to Medicaid, Arbour staff omitted these deficiencies in their qualifications and licensing status.

Rivera’s mother and stepfather filed a qui tam action under the False Claims Act, which imposes penalties on those who present or induce the submission of false or fraudulent claims, including requests for reimbursement of funds under federal benefit programs.

Although the False Claims Act does not define what constitutes a “false” or “fraudulent” claim, the Supreme Court held that representations that state the truth while omitting critical qualifying information can be actionable misrepresentations. The decision started with the statute’s language. By not defining “false” or “fraudulent,” Congress incorporated the well-settled common law meaning of fraud — and common-law fraud has long encompassed misrepresentations by omission. The claims in this case constituted “representations that state the truth only so far as it goes, while omitting critical qualifying information.”

Like a job applicant that lists prior jobs and then “retirement,” but fails to disclose that “retirement” occasioned prison time for bank fraud, submitting payment claims using codes corresponding to specific services constituted a representation that certain treatment was provided. Arbour staff also made representations corresponding to specific job titles that were, in context, misleading.

The Court rejected Universal Health’s argument that the government must expressly designate a disclosure as a condition of payment. The “clear statutory text” did not support the requirement. Rather, whether a defendant knows that an omission is material to the payment decision will determine liability.

Justice Thomas delivered the unanimous opinion of the Court.

Download Opinion of the Court

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