On Tuesday, April 19, the Supreme Court heard oral arguments on Universal Health Services v. United States, ex rel Escobar, in which Universal Health Services, Inc. made the argument that providers ought not be held liable for fraud for failing to comply with particular regulations. The outcome of the case will have important implications for the number of False Claims Act suits that are brought against a number of industries but healthcare providers in particular, with two-thirds of whistleblower suits targeting healthcare entities.
At the heart of the case is the False Claims Act, legislation enacted amid the Civil War and awarding treble damages against government contractors that "knowingly presen[t] . . . false or fraudulent claim[s] for payment.” The majority of cases brought under the Act are by whistleblowers, who can then recover 15-30% of the government's overall recovery.
Supporting UHS are a number of healthcare groups such as the American Medical Association and the American Hospital Association, which wrote briefs for the case in support of the petitioner's argument that imperfect compliance with the law does not constitute fraud and that the Court should not open the door to meritless lawsuits. Opposing this position are whistleblower groups and mental health advocates, holding that the law is in place to protect patients against being subjected to substandard care, of which Universal Health Services has been frequently accused, with a number of their facilities under Department of Justice investigation, Departments of Children and Family Services refusing to send children to some of their units due to patient conditions (see my previous post on UHS maltreatment), and the Commonwealth of Massachusetts recently requiring that four UHS-managed facilities submit correction plans given patient care and life safety violations. UHS is no stranger to False Claims Act suits across the country, with the company and two subsidiaries settling in 2011 for $6.9 million claims that they had provided substandard psychiatric care to adolescents and had engaged in Medicaid fraud, and with 25 of its behavioral health facilities under federal civil investigation under over alleged violations of the False Claims Act.
Justices Kagan and Sotomayor appeared during the oral argument to be skeptical of the argument made by UHS, with Justice Sotomayor asking early on, "I always thought that when you asked for payment, you're making a promise: I did what I agreed to do. Pay me, please. That's, to me, what's sort of understood. If I hired you to provide me with doctor services, you ask me for money, I'm assuming you provided me with doctor services. And you know you didn't. Why isn't that a fraud?" Justice Kagan noting that the issue at hand was quite analogous to the type of fraud that the False Claims Act had been meant to address -- namely, contractors' selling to the government non-functioning guns and other materials to the United States during the Civil War -- and she noted, “I would think that this is the exact same --that the contract was for a doctor's medical care, and a doctor's medical care was not provided." Chief Justice Roberts, however, was more sympathetic to UHS's arguments about the harshness of applying the False Claims Act given the complexity and extensiveness of the applicable (thousands of pages of) regulations in challenging cases. Justice Breyer sought to distinguish between garden variety breaches of contract and those violations that could accurately be construed to be outright fraudulent under the FCA.
How the Court ultimately will come down on the case is ultimately unclear, apart from the quite vocal and pointed Justices Sotomayor (pro-relator) and Roberts (pro-contractor). Should the Court be split 4-4 along party lines with the ninth seat not yet filled, the 1st Circuit's 2015 holding will stand (though it is worth noting that this is an issue of inter-circuit conflict, with the 7th Circuit rejecting the 1st Circuit's argument in a separate case). The 1st Circuit had validated the notion of "implied fraud" -- that is, that even absent actual misrepresentation, claims can be misleading because demands for payment contain an implicit misrepresentation (e.g., the provision of certain medical services that were ultimately deemed substandard).
While a case of fraudulent claims, at first blush, does not appear the stuff of front page headlines, the implications of the case are vast, with Universal Health Services being the largest provider of inpatient behavioral health services in the United States -- boasting facilities in 37 states, Washington DC, Puerto Rico, the U.S. Virgin Islands, as well as the United Kingdom -- and managing approximately 25% of inpatient care. Touching on so many lives across the country, the company is highly influential in the lives of its patients and their families, but with that power comes the responsibility to adhere to certain standards of care, standards that a number of suits and reports have suggested that they have failed to make. Chances are, we will not know until June how the Supreme Court ultimately will rule on the matter.
At the heart of the case is the False Claims Act, legislation enacted amid the Civil War and awarding treble damages against government contractors that "knowingly presen[t] . . . false or fraudulent claim[s] for payment.” The majority of cases brought under the Act are by whistleblowers, who can then recover 15-30% of the government's overall recovery.
Supporting UHS are a number of healthcare groups such as the American Medical Association and the American Hospital Association, which wrote briefs for the case in support of the petitioner's argument that imperfect compliance with the law does not constitute fraud and that the Court should not open the door to meritless lawsuits. Opposing this position are whistleblower groups and mental health advocates, holding that the law is in place to protect patients against being subjected to substandard care, of which Universal Health Services has been frequently accused, with a number of their facilities under Department of Justice investigation, Departments of Children and Family Services refusing to send children to some of their units due to patient conditions (see my previous post on UHS maltreatment), and the Commonwealth of Massachusetts recently requiring that four UHS-managed facilities submit correction plans given patient care and life safety violations. UHS is no stranger to False Claims Act suits across the country, with the company and two subsidiaries settling in 2011 for $6.9 million claims that they had provided substandard psychiatric care to adolescents and had engaged in Medicaid fraud, and with 25 of its behavioral health facilities under federal civil investigation under over alleged violations of the False Claims Act.
Justices Kagan and Sotomayor appeared during the oral argument to be skeptical of the argument made by UHS, with Justice Sotomayor asking early on, "I always thought that when you asked for payment, you're making a promise: I did what I agreed to do. Pay me, please. That's, to me, what's sort of understood. If I hired you to provide me with doctor services, you ask me for money, I'm assuming you provided me with doctor services. And you know you didn't. Why isn't that a fraud?" Justice Kagan noting that the issue at hand was quite analogous to the type of fraud that the False Claims Act had been meant to address -- namely, contractors' selling to the government non-functioning guns and other materials to the United States during the Civil War -- and she noted, “I would think that this is the exact same --that the contract was for a doctor's medical care, and a doctor's medical care was not provided." Chief Justice Roberts, however, was more sympathetic to UHS's arguments about the harshness of applying the False Claims Act given the complexity and extensiveness of the applicable (thousands of pages of) regulations in challenging cases. Justice Breyer sought to distinguish between garden variety breaches of contract and those violations that could accurately be construed to be outright fraudulent under the FCA.
How the Court ultimately will come down on the case is ultimately unclear, apart from the quite vocal and pointed Justices Sotomayor (pro-relator) and Roberts (pro-contractor). Should the Court be split 4-4 along party lines with the ninth seat not yet filled, the 1st Circuit's 2015 holding will stand (though it is worth noting that this is an issue of inter-circuit conflict, with the 7th Circuit rejecting the 1st Circuit's argument in a separate case). The 1st Circuit had validated the notion of "implied fraud" -- that is, that even absent actual misrepresentation, claims can be misleading because demands for payment contain an implicit misrepresentation (e.g., the provision of certain medical services that were ultimately deemed substandard).
While a case of fraudulent claims, at first blush, does not appear the stuff of front page headlines, the implications of the case are vast, with Universal Health Services being the largest provider of inpatient behavioral health services in the United States -- boasting facilities in 37 states, Washington DC, Puerto Rico, the U.S. Virgin Islands, as well as the United Kingdom -- and managing approximately 25% of inpatient care. Touching on so many lives across the country, the company is highly influential in the lives of its patients and their families, but with that power comes the responsibility to adhere to certain standards of care, standards that a number of suits and reports have suggested that they have failed to make. Chances are, we will not know until June how the Supreme Court ultimately will rule on the matter.
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