Defending False Claims Act/Qui Tam Actions: Failure to Comply with Administrative Regulations and Statutes Standing Alone Cannot Constitute a Valid Cause of Action Against a Health Care Provider Under the Act

A frequent allegation asserted in False Claims Act (31 U.S.C. §§ 3729 et seq. (“FCA”)) complaints, whether filed by relators or the government, is that claims for payment were submitted even though the defendant had failed to comply with a statute or agency regulation in connection with the service that is being billed. Defense counsel should vigorously assert in motions to dismiss that such allegations, in and of themselves, do not assert a viable claim under the FCA . It is well established that the mere failure to comply with administrative regulations or statutes does not constitute a violation of the FCA. United States ex rel. Hopper v. Anton, 91 F.3d 1261, 1265-67 (9th Cir. 1996), cert. denied, 519 U.S. 1115 (1997) (“Violations of laws, rules, or regulations alone do not create a cause of action under the FCA”). Otherwise, every breach of a federal contract would be transformed into a FCA violation.

In Hopper, the Ninth Circuit held it was “the false certification of compliance which creates liability when certification is a prerequisite to obtaining a government benefit.” 91 F.3d at 1266 (emphasis in original). The district court granted summary judgment to the defendant upon finding that it had made no certification of compliance with regulations to the government and no such compliance was a prerequisite to receiving payment from the government. Id. at 1267. See also United States ex rel. Oliver v. Parsons Co., 195 F.3d 457, 463 (9th Cir. 1999), cert. denied, 530 U.S. 1228 (2000) (reasonableness of interpretation of “technical and complex” federal regulations may be relevant to determining “knowing” submission of false claim).

In United States ex rel. Swafford v. Borgess Medical Center, 98 F. Supp. 2d 822 (W.D. Mich. 2000), aff’d, No. 00-1288, 2001 U.S. App. LEXIS 26669 (6th Cir. Dec. 12, 2001), the relator alleged the defendant had failed to comply with certain Health Care Financing Administration regulations pertaining to reimbursement of venous ultrasound procedures and this failure constituted the submission of a false claim.

The district court rejected this argument, holding that the FCA “is not an appropriate vehicle for policing technical compliance with administrative regulations … [and] mere violations of administrative regulations are not actionable under the FCA ‘unless the violator knowingly lies to the government about them.'” 98 F. Supp. 2d at 828.

As another district court has noted, “Indeed, the FCA is not a regulatory vehicle, and its scope should not be broadened to include every instance where a claimant fails to comply with all applicable regulations.” United States ex rel. Riley v. St. Luke’s Episcopal Hospital, No. H-94-3996, 2002 U.S. Dist. LEXIS 6289 at *13 (S.D. Tex. April 1, 2002). Only if a defendant has represented to the government their compliance with the pertinent regulations or statutes as a prerequisite to obtaining payment could breaching those regulations or statutes serve as the predicate for a FCA action. United States ex rel. Thompson v. Columbia/HCA, 125 F.3d 899, 902 (5th Cir. 1997). See also United States ex rel. Joslin v. Community Home Health of Maryland, Inc., 984 F. Supp. 374, 384 (D. Md. 1997).

To survive a motion to dismiss under Rule 12(b)(6), the complaint must allege the so-called “false certification theory” of liability which is “predicated upon a false representation of compliance with a federal statute or regulation or a prescribed contractual term.” United States ex rel. Mikes v. Straus, 274 F.3d 687, 696 (2d Cir. 2001). Without such allegations, purported violations of the FCA based on non-compliance with regulations or statutes are rendered legal nullities. Luckey v. Baxter Health Healthcare Corp., 183 F.3d 730 (7th Cir. 1999), cert. denied, 528 U.S. 1038 (1999). It is clear that if an express written certification has been made, falsely attesting to compliance with particular regulations, statutes, or rules, and such certification is necessary for payment, this is sufficient to establish potential liability under the FCA. Mikes, 274 F.3d at 696-99.

Unfortunately, relators and the government have tried to expand this limited theory by conjuring up the socalled “implied false certification” theory. “An implied false certification claim is based on the notion that the act of submitting a claim for reimbursement itself implied compliance with governing federal rules that are a precondition to payment.” Mikes, 274 F.3d at 699. Joining the Seventh (Luckey) and Ninth (Hopper) Circuits, the Second Circuit has rejected the blanket application of the implied false certification theory and held that “implied false certification is appropriately applied only when the underlying statute or regulation upon which the plaintiff relies expressly states the provider must comply in order to be paid.” Mikes at 700.

In Mikes, the qui tam relator argued that the defendant violated the FCA by submitting claims for reimbursement which certified that he had complied with all applicable statutes and regulations when in fact he had not adhered to the guidelines of the American Thoracic Society regarding the standards for administering and conducting certain tests. The court rejected this argument finding that payment to the defendant was not expressly conditioned on complying with such standards of care. Id. at 702.

In reaching this conclusion, the court concluded that “not all instances of regulatory noncompliance will cause a claim to become false.” Id. at 697. While the debate continues to rage over the propriety of the “implied certification” approach to FCA liability, it is evident that most federal courts are reluctant to endorse such a theory. See, e.g., United States ex rel. Siewick v. Jamieson Science and Engineering, Inc., 214 F.3d 1372, 1376 (D.C. Cir. 2000); Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 793 (4th Cir. 1999); United States ex rel. Franklin v. Parke-Davis, 147 F. Supp. 2d 39, 55 (D. Mass. 2001).

A recent Tenth Circuit decision, United States ex rel. Shaw v. AAA Engineering & Drafting, Inc., 213 F.3d 519, 531-33 (10th Cir. 2000), has engendered a substantial element of confusion in this area. Shaw dealt with the issue of whether the submission of monthly invoices by a government contractor, pursuant to a contract for passport photographic services, implied certified compliance with contractual provisions mandating that specified “silver recovery” procedures were to be followed.

The Tenth Circuit affirmed the lower court’s decision recognizing an implied certification was contained in each monthly invoice submitted for payment. The Shaw holding merely recognizes the long-recognized principle that in submission of requests for reimbursement pursuant to a government contract constitutes an implied certification that all contractual provisions have been satisfied.

However, some courts have even imposed limitations on this doctrine. See United States ex rel. Drake v. Norden Systems, Inc., No. 3:94-cv-963, 2000 U.S. Dist. LEXIS 13371, *29-*30 (D. Conn. Aug. 24, 2000) (holding “the FCA does not provide a remedy for contractual noncompliance where payment is not conditioned upon compliance with the terms of the contract”). Nonetheless, the government and the relators’ bar, seeking any purported justification supporting implied certification, have fixated on this decision as having much broader significance.

Not surprisingly, relators and the Department of Justice have neglected to recognize that Shaw is applicable only in the government contracts situation and have strained to apply it in such diverse areas as health care fraud prosecutions, where there is no contractual relationship such as in Shaw. See, e.g., United States ex rel. Wright v. Cleo Wallace Centers, 132 F. Supp. 2d 913, 925-26 (D. Colo. 2000). Such misuse of Shaw should be opposed energetically by defense counsel in FCA actions.

Shaw only recognizes an implied certification theory where submission of certain categories of documents to the government (e.g., progress reports, daily reports, payment invoices) can be construed as devices for falsely representing compliance with contractual provisions. United States ex rel. Bryant v. Williams Building Corp., 158 F. Supp. 2d 1001, 1009-1011 (D.N.D. 2001). If there is no contractual relationship with the government, then Shaw is inapposite.

False certification requires either (a) an express certification of compliance, or (b) a statute or regulation that states explicitly that certification is a precondition for payment. With the exception of these two categories, defense counsel should not hesitate to contest “implied certification” theories whenever they are invoked.

An unresolved question is whether an express false certification of compliance submitted to the government triggers FCA liability even if the statute under which payment is made does not require certification as a condition for payment. See Siewick, 214 F.3d at 1376, discussing the holding in Thompson, 125 F.3d at 902.


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