The U.S. Supreme Court’s holding in United Health Services, Inc. v. U.S. ex rel. Escobar was an unqualified victory for whistleblowers. The decision clarified three points of law:
- The opinion affirmed that federal contractors are responsible for complying with all material rules that govern their work.
- It held that False Claims Act violators cannot argue that it is alright to break any rule that is not explicitly flagged by the government beforehand as a condition for payment.
- It reaffirmed that the only category of claims that is out of bounds under the False Claims Act is minor or insubstantial non-compliance.
TheEscobar case involved a teenaged beneficiary of Massachusetts’ Medicaid program, who received counseling services from Arbour Counseling Services (“Arbour”), a mental health facility owned and operated by Universal Health Services, Inc. (“UHS”). The teenager died due to an adverse reaction to bipolar disorder medication prescribed by a nurse who lacked the authority to prescribe medications absent supervision. The teenager’s mother and stepfather (the whistleblowers in the case) discovered that few Arbour employees were licensed to provide counseling services or prescribe medication and they filed a qui tam action. The whistleblowers alleged that UHS defrauded Medicaid by submitting reimbursement claims that made representations about services provided by specific types of professionals that failed to divulge violations of Medicaid regulations pertaining to staff licensing and supervision requirements for these services.
Two questions were considered by the Supreme Court: whether the theory of implied certification is viable under the False Claims Act (“FCA”) and, if it is, whether it applies only to rules that the government has expressly designated beforehand as conditions of payment. Before Escobar, contractors accused of defrauding the government used both of these arguments to disavow liability under the FCA. For instance, in Escobar, UHS argued that it could not be held liable because it never lied directly to the government about its staff’s licensure and, regardless, compliance with various licensing rules was not specified as a condition of payment in advance. The Court squarely rejected both arguments.
The Court found that if a provider bills the government for a particular service while failing to disclose that it didn’t follow critical rules, it can be held liable for misrepresentation by omission. The Court noted that the idea of a misleading half-truth is well established in the law and that half-truths can create False Claim Act liability. The Court found that by using payment and other codes that conveyed provider qualifications and services rendered without disclosing Arbor’s many violations of basic staff and licensing requirements for mental health facilities, UHS’ claims constituted misleading half-truths. The Court held that such representations were clearly misleading in context, noting that anyone informed that a social worker at a mental health clinic provided a teenage patient with individual counseling services would probably — but wrongly — conclude that the clinic had complied with core requirements and that, at a minimum, the social worker possessed the prescribed qualifications for the job.
The second question was whether government contractors must get advance warning of each specific rule violation that would trigger non-payment — thereby allowing them to violate any rule without FCA liability unless the government had expressly designated the rule as a condition of payment beforehand. The Court found that nothing in the text of the False Claims Act supported such a restriction.
On both counts, the Court ruled explicitly against UHS. The Supreme Court’s unanimous decision is an important victory for whistleblowers who know about fraud against the government.