History was made yesterday. The United States Supreme Court heard oral arguments in Universal Health Services vs. United States of America ex rel Escobar. How the court decides will impact the whistleblower community for years to come. At the heart of the controversy is the so-called “implied certification” doctrine.
When the False Claims Act was passed in 1863, most contracts were done on a handshake or if in writing, were one page or less. We didn’t have a Code of Federal Regulations and hundreds of thousands of pages of rules, regulations and forms.
The premise of the law back then was simple. The government could fine you if you knowingly sold rancid meat or moth infested blankets or lame mules to the government. The False Claims Act made it possible for private citizens to file these lawsuits on behalf of the government. If the case was successful, the person filing the lawsuit (called a “relator” or whistleblower) was entitled to a percentage of the recovery.
Overnight Congress provided real incentives to the public to report and prosecute fraud.
One hundred and fifty plus years later, the world has dramatically changed including the government procurement process.
Most courts still say that a whistleblower simply must prove that a wrongdoer knowingly or recklessly defrauded the government. Technically speaking, the whistleblower must show that the wrongdoer submitted a “false claim” for payment to the government.
When a vendor asks for payment from Uncle Sam, the government assumes that the vendor has delivered the goods or services required by the contract. We naturally assume that the vendor is abiding by all regulations.
The implied certification theory says that by billing taxpayers, a company implicitly certifies that is in compliance with the law. For example, when a physician bills Medicare for a patient visit, it is implied that the physician is licensed to practice medicine, that the physician’s license is in good standing, that the service provided was medically necessary, that the service was actually performed, etc.
Sometimes government contracts specifically specify these requirements but with so many rules and regulations it would be impossible and impractical to require the government to specify every single rule and regulation that could apply.
The case before the Supreme Court involved the implied certification that mental health facilities use properly trained, licensed and supervised personnel. The two whistleblowers in this case, Julio Escobar and Carmen Correa claimed that Universal Health Services used unlicensed and supervised therapists to treat their child. Universal doesn’t deny the allegations but says it shouldn’t be fined because they never claimed to be in compliance with supervision requirements. As far as defenses go, this one is mighty thin.
The case becomes a False Claims Act when the medical care is paid with tax dollars (Medicare, Medicaid and Tricare).
During the oral argument yesterday, Justice Sonia Sotomayar said “[i]f I hired you to provide me with doctor services, you ask me for money, I’m assuming you provided me with doctor services.” She is right.
Universal suggests that at most, this case is about a simple breach of contract. Escobar and Correa contracted for a trained, supervised and licensed therapist to treat their child and were given something less. When Universal knew it was in the wrong, knew what the law required and still billed the government for something that was never provided, we believe the case becomes a False Claims Act case and subjects Universal to steep fines.
The False Claims Act provides for stiff penalties. When you ripoff the government, you ripoff taxpayers. Everyone suffers. The False Claims Act provides powerful incentives for insiders to come forward and report fraud. Those incentives include monetary awards, prosecution fees and anti-retaliation provisions. If lawyers can’t get paid to prosecute theses frauds and whistleblowers don’t share in the proceeds, there is little incentive to come forward.
This is what big business is fighting. In there world, if they get caught cheating taxpayers they shouldn’t have to pay a fine. Under their theory, having to pay back the money would be punishment enough. Unfortunately, the government can only audit one half of one percent of healthcare providers. Whistleblowers are what keep the system honest and greedy banks, sleazy vendors, hospitals and Wall street executives want to remove their incentive to come forward.
This case goes well beyond a couple unlicensed therapists. Because the case is before the U.S. Supreme Court, what happens here will affect all would be whistleblowers. Twenty six outsiders filed briefs with the cause, most of them funded by big business and filed in support of Universal Health Services.
PhRMA, the Pharmaceutical Research and Manufacturers of America, claims that noncompliance with regulations is not fraud. They argue that implied certification leads to frivolous claims but fail to prove their argument. In 2014, the False Claims Act brought in $5.7 billion, almost half of that from the healthcare industry. Those figures support the government’s arguments, not Universal’s.
We were amused to see that even the National Association of Chain Drug Stores filed a brief opposing implied certification. Big pharmacy chains such as Omni care, CVS and PharMerica seem to be constantly in trouble with the government over Medicare fraud. Of course they want to gut the law. Ditto for the American Hospital Association.
The Supreme Court has the opportunity to put a real dent in corporate greed and fraud. We have no doubt, however, that big business and big medicine will go to great lengths to gut the False Claims Act. Already worried that the Supreme Court might side with the government and whistleblowers, the Chamber has found Congressional sponsorship of a bill to “fix” the False Claims Act by gutting the award provisions.
Yesterday was a big day in history. Let’s hope that it was also a good day for whistleblowers and taxpayers.
At least for today, David can still beat Goliath.
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