Amgen Seeks Supreme Court Review of Implied Certification Theory of Liability Under the False Claims Act

Posted on October 6, 2011 by Cliff Katz

The U.S. Courts of Appeals have been wrestling with the reach of the False Claims Act when the actual claim submitted to the government is not “factually false.”  Some courts have adopted a framework in which a claim that is true on its face can be considered “legally false” where a party somehow involved in the goods and services provided failed to comply with certain statutory, regulatory or contractual obligations, despite never expressly certifying that it did comply with these obligations.  This is called the “implied certification” theory of liability.  In its Petition for a Writ of Certiorari to the U.S. Supreme Court, Amgen contends that “[t]he Circuits have applied a dizzying array of different tests in deciding whether claims like this qualify as ‘false or fraudulent’ within the meaning of the FCA.”

 In its Writ, Amgen describes some of the varying positions taken by the Circuits regarding the implied certification theory of liability:

1st Circuit:  dispensing with the “certification” framework, and holding that liability can be premised on failure to comply with a contractual, regulatory or statutory obligation whenever the government could theoretically reject a claim for non-compliance.  See New York ex rel. Westmoreland et al. v. Amgen, Inc. et al., 2011 WL 2937420 (1st Cir. July 22, 2011); United States ex rel. Hutcheson et al. v. Blackstone Medical, Inc., 2011 WL 2150191 (1st Cir. June 1, 2011).  For further details on the First Circuit decisions, click here, here, and here.

7th, 4th, and 5th Circuits:  have taken positions that are incompatible with an implied certification theory.  See United States ex rel. Yannacopoulos v. General Dynamics, 2011 WL 3084932, at *3 n.4. (7th Cir. July 26, 2011); Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 786-87 n.8 (4th Cir. 1999); United States ex rel. Marcy v. Rowan Cos., 520 F.3d 384, 389 (5th Cir. 2008).

2nd, 3rd, and 8th Circuits:  implied certification theory limited to where there is a statute or regulation that is a condition of payment.  See Mikes v. Straus, 274 F.3d 687 (2d Cir. 2001); United States ex rel. Wilkins v. United Health Group, Inc., 2011 WL 2573380, at *9 (3d Cir. June 30, 2011); United States ex rel. Vigil v. Nelnet, Inc., 639 F.3d 791, 795–96 (8th Cir. 2011).

11th Circuit:  implied certification theory can be based on either a condition of payment or a condition of participation in the federal program.  See McNutt ex rel. United States v. Haleyville Medical Supplies, Inc., 423 F.3d 1256, 1259 (11th Cir. 2005).

D.C. Circuit:  holding that a violation of a contractual obligation that was “material” to the government’s obligation to pay a claim can form the basis for FCA liability.  See United States v. Science Applications Int’l Corp., 626 F.3d 1257, 1261 (D.C. Cir. 2010).

Amgen posed the following two questions to the U.S. Supreme Court:

  1. Whether a claim can be deemed “false or fraudulent” within the meaning of the FCA because the claimant violated a statutory, regulatory or contractual obligation and, at the time the claim was submitted, the government payor could have but was not required to deny the claim on that ground.

  2. Whether the draconian provisions of the FCA can be used to enforce compliance with statutes, regulations, contractual obligations, or other program requirements, even though no statute, regulation or contractual provision expressly conditions payment on compliance with those obligations.

In particular, at issue in the Amgen case is whether a violation of the Anti-Kickback Statute (AKS) can form the basis for liability under the FCA prior to the amendments to the FCA made by the 2010 Patient Protection and Affordable Care Act.  The First Circuit has held that compliance with the AKS is a precondition of payment of Medicare claims, and a violation of the AKS can cause factually true claims to be false and form the basis for liability under the FCA – whether or not the providers expressly certified compliance with the AKS.  The First Circuit has further held that liability can also be based on “a precondition of being entitled to payment,” i.e., violations of statutory, regulatory or contractual obligations which would give the government agency discretion to decline payment on the basis of the violation.

The 2010 Patient Protection and Affordable Care Act amended the FCA to specifically provide that a violation of the AKS causes the claim to be false under the FCA.  These amendments, however, are not retroactive, and so, the issue before the Supreme Court will be relevant to hundreds of FCA cases.
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Third Circuit Court of Appeals Recognizes Implied False Certification Theory of Liability

Posted on July 13, 2011 by Cliff Katz

In a False Claims Act case against United Health Group and its subsidiaries, alleging violations of Medicare marketing regulations and the Anti-Kickback Statute, 42 U.S.C. § 1320a-7b ("AKS"), the Third Circuit joined with the Second, Sixth, Ninth, Tenth, Eleventh, and District of Columbia Circuits in recognizing that there can be implied false certification liability under the FCA.  United States ex rel. Wilkins v. United Health Group, Inc., Case No. 10-2747, 2011 WL 2573380 (3rd Cir. June 30, 2011).  The Court did, however, acknowledge that the First Circuit recently rejected the judicially created categories of express and implied false certification in U.S. ex rel. Hutcheson v. Blackstone Med. Inc., 2011 WL 2150191, at *7 (1st Cir. June 1, 2011), and that the Fourth Circuit found the theory "questionable" in Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 786 n. 8 (4th Cir.1999)).  The Third Circuit also joined with courts that require that implied certification with a statute or regulation be a condition of payment, as opposed to merely a condition of participation in a federal program, such as Medicare.  In doing so, the Court upheld the District Court's dismissal of claims based on implied certification of Medicare marketing regulations, but reversed the dismissal of claims based on violations of the AKS. 

The Third Circuit held that under an implied certification theory of liability, "a plaintiff must show that if the Government had been aware of the defendant's violations of the Medicare laws and regulations that are the bases of a plaintiff's FCA claims, it would not have paid the defendant's claims."  In short, the defendant's compliance must be a "condition of payment."  This is distinguished from a condition of participation.  Quoting the Tenth Circuit, the Third Circuit explained the difference: “Conditions of participation are enforced through administrative mechanisms, and the ultimate sanction for violation of such conditions is removal from the government program, while conditions of payment are those which, if the government knew they were not being followed, might cause it to actually refuse payment.” U.S. ex rel. Conner v. Salina Reg'l Health Ctr., Inc., 543 F.3d 1211, 1220 (10th Cir.2008).

In this case, the marketing regulations allegedly violated by the defendants permit them to correct the problem within 30 days with certain exceptions which may result in immediate termination of the Medicare contract.  The Court held that these regulations "clearly demonstrate that compliance with the marketing regulations is a condition of participation and not a condition of payment as the regulations draw a line between the type of violations which are correctible and, if corrected, will allow the sponsor to continue as a Medicare program participant and the type of violations which lead to immediate termination of a CMS contract."

The Court further explained:

[I]t is ironical that if we allowed appellants, though they are ostensibly acting on behalf of the Government, to bring suit based on United Health's non-compliance with marketing regulations, we would short-circuit the very remedial process the Government has established to address non-compliance with those regulations. It would be curious to read the FCA, a statute intended to protect the government's fiscal interests, to undermine the government's own regulatory procedures.

By contrast, the Third Circuit held that compliance with the AKS is a condition of payment under Medicare Parts C and D.  The Court noted that the defendants allegedly certified compliance  with the AKS as an express condition of payment when they entered into an agreement with CMS.  Quoting the Ninth Circuit, the Third Circuit stated:  "Implied false certification occurs when an entity has previously undertaken to expressly comply with a law, rule, or regulation, and that obligation is implicated by submitting a claim for payment even though a certification of compliance is not required in the process of submitting the claim.” Ebeid ex rel. U.S. v. Lungwitz, 616 F.3d 993, 998 (9th Cir.2010).
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