New issues regarding False Claims Act.

• Author: Elsmore, Brianna L.
• Position: Ethics Corner

* There were two recent developments regarding the False Claims Act that will likely have a significant impact on the defense contractor community.

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First, the Supreme Court June 16 issued a decision in Universal Health Services v. United States ex rel. Escobar in which it determined that under some circumstances, a contractor may be found liable for a violation of the FCA under the "implied certification theory." Second, as of Aug. 1, civil penalties for each FCA violation nearly doubled.

The act imposes liability on "anyone who knowingly presents ... a false or fraudulent claim" to the government for payment. See 31 U.S.C. [section] 3729(a)(1)(A). It defines "knowingly" as actual knowledge, deliberate ignorance, or a reckless disregard for the truth. See 31 U.S.C. [section] 3729(b)(1).

Since the term "anyone" is used, liability under the act can apply to subcontractors as well as prime contractors. Therefore, if a subcontractor submits a false or fraudulent claim to its prime contractor and it believes the prime will submit the claim to the government for payment, the government can hold the subcontractor liable under the FCA.

Liability even attaches to the subcontractor if the prime never submits the fraudulent claim to the government. Prime contractors can also be liable for the actions of subcontractors if it knows the subcontractor submitted a false or fraudulent claim and it presents this claim to the government for payment.

The act does not define "false" or "fraudulent" so this is where the Supreme Court stepped in. Universal Health Services Inc. provided counseling services and submitted claims for payment to Medicaid for services it provided. Universal, however, did not comply with Massachusetts Medicaid regulations regarding staff qualifications and licensing requirements for these services. The Department of Justice argued that by submitting claims for payment, Universal represented that it was entitled to payment and had complied with all material and legal requirements for these services. Since Universal did not comply with all the legal requirements, Justice argued, under the implied certification theory, that its claim was misleading and fraudulent and thereby a violation of the False Claims Act. Universal argued that none of the regulations it violated were Medicaid payment conditions, and it did not certify compliance with all material and legal requirements merely by submitting a claim for payment.

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