A young woman from a poor family in Massachusetts struggles in school, and is referred to a behavioral health provider serving Medicaid patients. After prolonged counseling of doubtful quality, she is diagnosed with bipolar disorder and medicated. She suffers a seizure from the medication. Several months later, still receiving less-than-optimal medical care, she seizes again and dies. Her distraught parents complain to state regulators, and learn that the individuals involved in her care were both unqualified and unsupervised.
These are the facts in Universal Health Services Co. v. United States ex rel. Escobar, which was decided by the U.S. Supreme Court on June 16, 2016. The case presents an unusual legal vehicle for redressing physical harm to patients: the False Claims Act. A Civil War procurement statute that has been significantly strengthened since the 1980s to police both defense contracting and federal health programs, the False Claims Act empowers private "relators" with knowledge of misconduct to bring suit on behalf of the government and rewards them with a share of any judgment or settlement. Seeking substantial damages, the young woman's parents filed a False Claims Act suit against the corporate owner of the facility that treated her and sent Medicaid the bill.
In its ruling, the Court provided a seemingly straightforward answer to a fairly technical question: whether "implied false certification" of compliance with governmental requirements can constitute a violation of the False Claims Act, which attaches sizeable penalties to "false or fraudulent claims" but does not define those terms. Several federal courts had struggled with this issue, reaching a range of conclusions. In Escobar itself, the Massachusetts district court had dismissed the case, reasoning that health professional licensing and supervision requirements were not "conditions of payment." The Court of Appeals for the First Circuit reversed, holding that a regulatory violation sufficient to permit Medicaid to withhold payment could also support an action under the False Claims Act.
The Supreme Court rejected both lower court interpretations of the federal statute, vacated the First Circuit's decision, and remanded the case for further consideration. In a unanimous ruling authored by Justice Thomas, the eight members of the current Court agreed that failing to disclose non-compliance with a statutory, regulatory, or contractual requirement could render a claim false or fraudulent (thereby validating the "implied false certification" theory of liability); however, the Court nonetheless imposed a "demanding" standard on plaintiffs to demonstrate that the omission was both relevant and important. Because Universal Health Services had submitted claims to Medicaid using specific billing codes that misrepresented the qualifications of their workforce, and because the underlying regulatory violations were substantial, the Court suggested that the Escobar family had met its legal burden.
In taking this approach, the Court—absent the late Justice Scalia—eschewed bright-line tests and relied only marginally on textualist principles, demonstrating instead the shared respect that senior American jurists hold for common law adjudication. Justice Thomas emphasized that "fraud" has a well-developed meaning under the common law—which requires awareness on the part of the fraudster and loss of value to the person defrauded—even if it is undefined in the False Claims Act.
The text of the False Claims Act facilitated the Court's holding. The statute imposes liability on anyone who "(A) knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval; [or] (B) knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim." It defines "material" as "having a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property." And it defines "knowingly" as "actual knowledge; … deliberate ignorance; … or reckless disregard of the truth or falsity of the information; and … no proof of specific intent to defraud [is required]."
Focusing On Substance Over Form
This is a refreshingly commonsensical resolution, which was undoubtedly made easier by a desire for consensus on an equally divided Court responding to a young woman's seemingly avoidable death. Unanimous Supreme Court decisions are often intellectually unsatisfying because they tend to rely on narrow grounds and sidestep important underlying questions. In this instance, however, finessing several peculiarities of False Claims Act liability in health care cases may be beneficial insofar as it instructs lower courts to focus on substance over form when processing (and perhaps dismissing) cases.
Civil Or Criminal?
The False Claims Act is a civil statute enforceable by both the government and private parties on the government's behalf. A separate statute allows the Department of Justice to prosecute fraud as a criminal offense. Because federal health programs are structurally vulnerable to abuse, however, Congress continues to heighten penalties for violating fraud laws. Escobar does not belabor the point, noting only that the potentially harsh consequences of false claims liability make the law "essentially punitive in nature" and increase the importance of proving knowledge and materiality.
Tort Or Contract?
Similarly, the justices were uninterested in whether implied false certification under the False Claims Act should be treated as a breach of contract or a tortious wrong. At oral argument, counsel for Universal Health Services had warned the Court repeatedly of the dangers of applying (lower) contract law standards while assessing (higher) tort law penalties. The Escobar opinion, however, cites contract and tort law equally in support of its conclusion that fraud under the False Claims Act should be given its common law meaning.
Payment Or Regulation?
Historically, the states regulated health and safety under their general police powers. Federal influence over health care was achieved primarily through requirements placed on individuals and organizations receiving payment under Medicare and Medicaid. Instead of basing liability for material non-compliance on whether the rule violated was labelled a federal condition of payment, a federal condition of participation, or a state law, Escobar sensibly asks whether the defendant knew that its non-compliance would matter to a buyer of the services for which it was claiming payment. By contrast, the standards the Court rejected seem less fair to government contractors by continually tempting Medicare and Medicaid to adopt more rules, however trivial, and to brand them all as conditions of payment that generate potential False Claims Act liability.
Quality Or Quantity?
In a variety of legal contexts, including questions under the Employee Retirement Income Security Act (ERISA) and the Emergency Medical Treatment and Labor Act (EMTALA), the Supreme Court has sought to avoid federalizing medical malpractice claims and subjecting federal judges to an avalanche of disputes previously heard by state tribunals. False Claims Act cases have suffered a similar fate, with lower courts holding that the statute does not make it unlawful to bill for poor quality care.
In Escobar, however, Justice Thomas contents himself with the caveat that "[t]his case centers on allegations of fraud, not medical malpractice," even though determining the adequacy of supervision bears similarity to establishing the standard of care in a case of professional negligence. Nor does the Court mention other legal theories that the family might have pursued in connection with their daughter's death.
In sum, the Escobar ruling is an exercise of both common law and common sense by a now-balanced Court whose previous majority had more often emphasized statutory primacy, textualism, and ideological purity. The plaintiffs and their lawyers should prevail on remand, with the possibility of recovering a hefty percentage of accumulated fines and treble damages not only for treatment rendered to their daughter by unqualified personnel but also for treatment rendered to other patients. Under the facts of the case as we know them, this seems a just outcome. Whether it creates reasonable incentives going forward for other health care providers and potential litigants will be a question for Congress.
from Health Affairs BlogHealth Affairs Blog http://ift.tt/28UPjsM
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