Skip to Main Content
Publications | July 13, 2016
6 minute read

Executive Summary of SCOTUS opinion in Universal Health Service v United States


The Supreme Court has released its long awaited opinion in Universal Health Service v. United States, which concerned claims made under the so-called “implied false certification theory” of liability.  In summary, the opinion shifts the debate over False Claims Act (“FCA”) liability away from arbitrary labels like “implied certification” and “conditions of participation” in favor of the traditional tort concept of “materiality.”  As such, the opinion contains both good and bad news for entities which do business with the government.


The allegations in the case, if true, are egregious.  The Defendant operated a Medicaid funded counseling service (the “Center”). One of its clients, Yarushka Rivera, was diagnosed with bipolar disorder by an unlicensed “psychiatrist” and prescribed medication by an unsupervised nurse.  She ultimately died from a seizure at the age of 17.  Her parents, the respondents, subsequently discovered that only one of the five mental health “professionals” that had treated her was licensed.  The so-called “psychologist” who diagnosed her received a Ph.D. from an unaccredited internet college and was not licensed.  The Center billed its services to Medicaid using NPI numbers which it had fraudulently obtained by misrepresenting the provider’s qualifications.  

The patient’s parents filed a qui tam suit under the so-called “implied false certification theory” of liability.  This theory posits that a party submitting a claim for payment “implicitly communicates that it (has) conformed to (each of) the relevant program requirements.”  (Slip op. at 7).  Prior to this case, there was a circuit split on the validity of the implied certification theory.  Some circuits had rejected the theory, ruling that FCA liability can only be based on specific and express misrepresentations by a party seeking payment from the government (i.e., certifying that the procedures being performed were medically necessary when they were not, and the like).  

To complicate matters, circuit courts had also split on the distinction between “conditions of payment” versus “conditions of participation.”  This distinction puts government regulations into two categories.  Some rules, like medical necessity, must be met in order to receive payment.  Other rules are not relevant to payment, but rather must be met in order to participate in the Medicare program in the first instance.  According to the courts which accepted this distinction, FCA liability could only be premised on the violation of specific conditions of payment (i.e., the procedure was actually performed and was medically necessary).  Violation of a condition of participation could lead to exclusion, but not denial of payments.  Here, for example, the district court recognized the implied certification theory, but dismissed the claim because the licensing rules allegedly violated were a “condition of participation” but not a “condition of payment.”

The Court, in a unanimous opinion, essentially rejected all of these distinctions in favor of a historic “tort model” approach.  


The opinion contains a series of rulings which, in the interest of expediency, can be categorized as “good news for regulated entities,” or “mixed news.”  In order:

(1) Mixed: The Court first ruled that the implied certification theory can be a basis for liability, but only if the certification contains an omission of fact which renders the representation that was made materially misleading. As such, the Court adopted the traditional tort law model that representations which are literally true but fail to disclose “critical facts” are in fact fraudulent. The key language here is “critical facts.” In this case, for example, the Center submitted claims under a NPI number for a clinical social worker. The “critical fact” the Center omitted, rendering the claim fraudulent, was that the social worker in question was not licensed and was otherwise unqualified to provide the services.

In contrast, failure to disclose that other rules may have been violated by the party submitting the claim which a “reasonable person” would not consider critical would not form a basis for liability. Hence, liability under this theory requires the claimant to prove two things: (a) the defendant made a “specific representation about the provided” (here: a social worker provided the service) and (b) the defendant failed to disclose noncompliance with a “critical” or “material” statutory requirement which rendered the representation misleading (here: the social worker was unlicensed and unqualified).

(2) Good news: The Court went on to reject the “condition of payment” versus “condition of participation” dichotomy. A little background is necessary to understand this portion of the ruling. Several years ago, CMS changed the language of its certifications to essentially suggest that compliance with every single regulation by the party submitting the claim was a condition of payment. In plain language, CMS was asserting that failure to meet any regulation, no matter how far removed from the claims process, could trigger FCA liability. The Court rejected this approach, ruling that “whether a (regulatory) provision is labeled a condition of payment is relevant but not dispositive of the materiality inquiry.” Slip op. at 12.

In plain language, the Court rejected the artificial “payment v participation” dichotomy in favor of a traditional tort model of “materiality” (discussed below). As stated by the Court “regulatory....requirements are not automatically material, even if they are labeled conditions of payment.” Id. This ruling essentially prevents the government from manipulating the FCA by designating compliance with every single rule as a “condition of payment.”

(3) Good news: “Materiality” with “teeth” is now the ultimate test for liability. Having rejected in part the various technical arguments made by the parties, the Court turned again to traditional tort concepts of “materiality” to define liability under the FCA. The Court defined materiality several different ways, but essentially an omission is material if (a) a reasonable person would attach importance to the omitted fact in making their decision or (b) the defendant knows that the government attaches particular importance to the omitted fact in making its decision. Critically, the fact that the government could have rejected payment if it knew the omitted fact, or even if the government designated a requirement as a condition of payment, is not enough to meet the materiality standard.

The court described the materiality standard as “demanding,” “rigorous” and not concerned with “minor” or “insubstantial” violations. Critically, the Court recognized that the FCA was not intended to be “an all-purpose antifraud statute” designed to punish “garden variety breaches of contract or regulatory violations.”

(4) A good example: At both the oral argument and in its opinion, the Court discussed the “foreign stapler” example. Suppose that Medicare had a requirement that any contractor must use American-made staplers. The provider in question in this scenario uses foreign staplers, which it fails to disclose in its request for payment. Under the government’s view, failure to meet the stapler requirement would be grounds for denying the claim, making the contractor’s “implied” claim that it was using American staplers false and therefore a basis for FCA liability. The Court rejected that argument, stating that the failure to disclose the use of foreign staplers would be material only if the government routinely had rejected claims in the past from parties who used foreign staplers.


In the final analysis, both sides will likely claim victory.  The case was ultimately remanded for reconsideration using the Court’s new expanded tort model.  The good news is that the Court rejected the government’s efforts to characterize every minor regulation as a condition of payment which could lead, if violated, to FCA liability.  But a note of caution must also be sounded.  By incorporating the tort principal that liability can still attach if the defendant knows that the government attaches particular importance to a particular rule, the Court does opens the door to the government  telling contractors that it in fact does attach such importance to every single rule.  On one hand, the fact that the government cannot trigger FCA liability by merely designating compliance with every rule as a “condition of payment” does give comfort.  On the other, nothing in the opinion specifically prohibits the government from essentially doing the same thing by arbitrarily denying claims every time a contractor uses a foreign stapler.  Ultimately, Court’s interpreting the opinion will hopefully apply a “reasonableness standard,” which will give contractors much more leeway.  The opinion has something for everybody.