Third Circuit Court of Appeals Recognizes Implied False Certification Theory of Liability
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).
