In June of this year, the U.S. Supreme Court upheld that businesses could violate the False Claims Act (FCA) through implied false certifications. The implied certification theory of FCA liability is applicable when a business or person misrepresents compliance with federal statutes or regulations, which then induces payment of federal funds. Therefore, when a business fails to satisfy a material statute or regulation, it could result in an FCA violation. The Supreme Court decision in Escobar has left lower courts with the question as to how connected the ancillary laws or regulations have to be in order for the violation of a statute or regulation to constitute an FCA violation.

In Universal Health Servs., Inc. v. Escobar, the Court upheld an implied false certification theory can be a basis for liability under the FCA. 136 S. Ct. 1989, 1995 (2016). In Escobar, the relators were the parents of a child who tragically had a seizure and died after being diagnosed as bipolar and taking the medications for that disorder. 136 S. Ct. at 1993. The practitioner who diagnosed the daughter represented to the parents that she had a Ph. D., but did not mention that the degree came from an unaccredited internet college nor that the State of Massachusetts rejected the practitioner’s application to become a licensed psychologist. Id. at 1997.

The relators alleged that Universal Health submitted reimbursement claims, which represented that specific services were being provided by specific types of professionals − even though that was rarely the case. Id. at 1998. The Supreme Court vacated the judgment of the First Circuit and remanded the case, holding that an implied false certification theory is a basis for liability under the FCA. Id. at 2004.

The holding in Escobar will soon be interpreted by the District Court of New Jersey in United States v. Premier Education Group. The relators in this pending action alleged that Premier Education Group, who owns and operates 27 private colleges, has been fabricating various statistics. Civil No. 1:11-CV-3523-RBK-AMD. These statistics include the job placement of their graduates, the accreditation status of their programs, and the academic progress of their students. Id. These falsified statistics violate numerous federal regulations including 34 C.F.R. § 668.32 (concerning student eligibility) and 34 C.F.R. § 668. 22(b) (concerning student attendance). The relators contend that as a result of these fabricated statistics, the federal government has given financial aid and assistance to Premier Education Group. Id.

Oral arguments are set for the ninth of this month to determine whether the falsified certifications give rise to FCA violations. In determining whether the false information concerning compliance is sufficiently connected to constitute FCA violations, the court must determine whether the alleged falsified statistics are material to the government paying Premier Education Group. Materiality is met when either a reasonable man would consider it to be material, or when the Defendant possesses actual knowledge that the recipient attaches importance to the matter. Escobar, 136 S. Ct. at 2002.

The relators contend that the government would not have given Premier Education financial assistance had they known of the regulation violations. Relators allege that Premier Education’s falsified statistics were directed to the government to obtain Title IV financial aid. Therefore, it is likely that the Relators have alleged a viable implied false certification theory by demonstrating the materiality of the false statistics provided to the government.

If any of you are aware of fraud being committed against the federal government, or a state government, the FCA can protect and reward you for doing the right thing by reporting the fraud. If you have any questions about whether you qualify as a whistleblower, you can contact a lawyer at Beasley Allen for a free and confidential evaluation of your claim. You can email one of the lawyers on our whistleblower litigations team: Andrew Brashier (Andrew.Brashier@beasleyallen.com), Archie Grubb (Archie.Grubb@BeasleyAllen.com), Larry Golston (Larry.Golston@BeasleyAllen.com) or Lance Gould (Lance.Gould@BeaselyAllen.com). You can also call these lawyers at 800-898-2034.

Sources: United States v. Premier Education Group, Civil No. 1:11-CV-3523-RBK-AMD, Universal Health Servs., Inc. v. Escobar, 136 S. Ct. 1989 (2016) and Law360.com

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