Amicus Curiae Brief — Universal Health Servs., Inc. v. U.S. & Mass. ex rel. Escobar, 136 S. Ct. 582 (2015) (No. 15-7)

No. 15-7

IN THE

Supreme Court of the United States

UNIVERSAL HEALTH SERVICES, INC.,

Petitioner,

Vv.

UNITED STATES AND COMMONWEALTH OF

MASSACHUSETTS EX REL. JULIO ESCOBAR AND CARMEN

CORREA,

Respondents.

On Writ of Certiorari

to the United States Court of Appeals

for the First Circuit

BRIEF OF INTERESTED HEALTHCARE

PROVIDERS AS AMICI CURIAE IN SUPPORT

OF PETITIONER

Scott D. STEIN PAUL E. KALB, M.D.*

BRENNA E. JENNY WILLIAM A. SARRAILLE

SIDLEY AUSTIN LLP BRIAN P. MORRISSEY

One South Dearborn St. JOSHUA J. FOUGERE

Chicago, IL 60603 NICHOLAS J. GILES

(312) 853-7000 SIDLEY AUSTIN LLP

1601 K Street, NW

Washington, DC 20005

(202) 736-8000

pkalb@sidley.com

Counsel for Amici Curiae

mtd 26, 2016 * Counsel of Record

WILSONM-EPES PRINTING CO., INC. — (202) 789-0096 — WASHINGTON, D. C. 20002

I.

II.

Il.

IV.

TABLE OF CONTENTS

THE IMPLIED CERTIFICATION THEO.

RY EXPOSES HEALTHCARE PROVID-

ERS TO EXTRAORDINARY LEGAL

THE IMPLIED CERTIFICATION THEO-

RY IS UNJUSTIFIABLY BROAD...............

THE FCA’S “MATERIALITY” AND “SCI-

ENTER” REQUIREMENTS DO NOT AD-

EQUATELY PROTECT PROVIDERS

FROM IMPLIED CERTIFICATION’S EX-

CESSIVELY BROAD REACH ......................

THE FCA SHOULD BE INTERPRETED

AS INTENDED—IE., TO REQUIRE A

CLAIM THAT IS ACTUALLY FALSE OR

EES a

RE

(1)

29

34

‘3

TABLE OF AUTHORITIES

CASES Page

Alexander v. Sandoval, 532 U.S. 275 (2001) 17

Allison Engine Co. v. United States ex rel.

Sanders, 553 U.S. 662 (2008) ................... 14

BMW of N. Am., Inc. v. Gore, 517 U.S. 559

RSENS ee ASAT Ee IE 1, ay arene vedo Pe eae 5, 16

In re Cardiac Devices Qui Tam Litig., 221

F.R.D. 318 (D. Conn. 2004)....................... 11

Concrete Pipe & Prods. of Cal., Inc. v.

Constr. Laborers Pension Trust for S.

Ce, Ce ies I reccsciccciscnsecindenioen 17

FCC vy. Fox Television Stations, Inc., 132 S.

i I I aie aad 17, 25, 30

Gonzalez v. Fresenius Med. Care N. Am.,

689 F.3d 470 (5th Cir. 2012)..................... 13

Herweg v. Ray, 455 U.S. 265 (1982) ............ 8, 22

Mikes v. Straus, 274 F.3d 687 (2d Cir.

PERE eee eeIN tak SSE SS 14, 19, 23

New York v. Amgen Inc., 652 F.3d 103 (1st

a 26

Safeco Ins. Co. of Am. v. Burr, 551 U.S. 47

RNR SST RE ER SE SE eh EE 9 28

Shalala v. Ill. Council on Long Term Care,

js 2s Bt = =| Eee 8

United States v. Amsurg Corp., No. 2:12-

CV-02218-TLN, 2014 WL 7336671 (E.D.

I TG is HII ciicciciscteeciacslicenttaiasiacieiehasasenininn 32

United States ex rel. Atkins v. MclInteer,

470 F.3d 1350 (11th Cir. 2006)................. 14

United States ex rel. Bidani v. Lewis, 264

F. Supp. 2d 612 (N.D. Ill. 2003)................ 16

United States v. Bornstein, 423 U.S. 303

SENT ictiicsighintdehabiandddendeiaiensdennlildsheintaldaiaiidaaes 20

‘i

TABLE OF AUTHORITIES—continued

United States ex rel. Cieszyski v. LifeWatch

Servs., Inc., No. 13-CV-4052, 2015 WL

6153937 (N.D. Ill. Oct. 19, 2015)..............

United States ex rel. Conner v. Salina Reg'l

Health Ctr., Inc., 543 F.3d 1211 (10th

EIR ager CRSP eee par BAY ee, $93

United States ex rel. Hobbs v. Medquest

Assocs., Inc., 711 F.3d 707 (6th Cir.

BEEP OTE SEE RE PCS SAL ree Ra eS sy Oe

United States v. Neifert-White Co., 390 U.S.

EIR N ees Si etal aad 2. ak a

United States ex rel. Saldivar v. Fresenius

Med. Care Holdings, Inc., No. 1:10-CV-

1614-AT, 2015 WL 7293156 (N.D. Ga.

Oct. 30, 2015), appeal docketed, No. 15-

15497 (11th Cir. Dec. 8, 2015)...................

United States v. Sanford-Brown, Lid., 788

F.3d 696 (7th Cir. 2015), petition for cert.

filed, 84 U.S.L.W. 3349 (U.S. Dec. 2,

I > i a a

United States v. Triple Canopy, Inc., 775

F.3d 628 (4th Cir. 2015), petition for cert.

filed, 83 U.S.L.W. 3905) (U.S. ..........0........

United States ex rel. Tyson v. Amerigroup

Ill., Inc., 488 F. Supp. 2d 719 (N.D. IIL.

RTE IG SEe Sts 88 eer SRB a cb eer a

United States ex rel. Wilkins v. United

Health Grp., Inc., 659 F.3d 295 (3d Cir.

ENE ER ee is Tae at ee Pe

United States ex rel. Williams v. Renal

Care Grp., Inc., 696 F.3d 518 (6th Cir.

EE SS ct Oe ae ED a RO

Vt. Agency of Nat. Res. v. United States ex

rel. Stevens, 529 U.S. 765 (2000) ...............

Page

31

19

17

33

27

iv

TABLE OF AUTHORITIES—continued

Page

STATUTES AND REGULATIONS

Fraud Enforcement and Recovery Act of

2009, Pub. L. No. 111-21, 123 Stat. 1617.. 24

a passim

ERE SESE INNS DAS RS 24, 26

5 EER TG R LTSN RS 18, 20

ee ee Be aieirtiinnisvisicinteniniesiinatinintoceaaas 9

ERR Rn et era eae 6, 30

AES ENS 18

EER eee eres 13

a gp EEE 21

eat REE SSM, SP ey ates 9

SNe Stee ra YY nd ara 11

AE RS IEE ERR RE 19

RAREST AUP a TS ID Pe 10

a 10

§§ 493.1800- 1850 ...................0.0.... 10

EA ace aaa EY, Ee a 11

SS 494.30-130....................ccecceceees. 9

RAR ag ACE SER SINR aire rs)

RR Renata eee i aaes eutaiese oa 9

ERE ERR Re area Oe 11

Final Rule, Medicare and State Health

Care Programs: Fraud and Abuse, 56

Fed. Reg. 35,952 (July 29, 1991) ............... 12

Final Rule, Clarification of the Initial OIG

Safe Harbor Provisions Under the Anti-

Kickback Statute, 64 Fed. Reg. 63,518

I 12

Final Rule, Revisions to Payment Policies

Under the Physician Fee Schedule and

Other Revisions to Part B for CY 2016,

80 Fed. Reg. 70,886 (Nov. 16, 2015).......... 13

Vv

TABLE OF AUTHORITIES—continued

Page

SCHOLARLY AUTHORITIES

John T. Boese, The Past, Present, and Fu-

ture of “Materiality” Under the False

Claims Act, 3 S.L. Univ. J. Health Law &

GN EP ERR PR IRS ene 24

John T. Boese & Beth C. McClain, Why

Thompson Is Wrong: Misuse of the False

Claims Act, 51 Ala. L. Rev. 1 (1999).......... 22

David Freeman Engstrom, Private En-

forcement’s Pathways: Lessons from Qui

Tam Litigation, 114 Colum. L. Rev. 1913

SST EERE SPMD aoe RA oe or CRN 20

Steven Harrison et. al., Health Care Fraud,

52 Am. Crim. L. Rev. 1223 (2015) ............. 19

Victoria E. Schwartz & Phil Goldberg, Car-

rots and Sticks: Placing Rewards As Well

As Punishment in Regulatory and Tort

Law, 51 Harv. J. Legis. 315 (2014)............ fal

LEGISLATIVE HISTORY

Cong. Globe, 37th Cong., 3d Sess. 952

(Sa AIRE nt Rte SG RE Sp I PEIN a et 29

OTHER AUTHORITIES

Centers for Disease Control and Preven-

tion, Chronology of CLIA Related Docu-

ments in the Federal Register & Code of

Federal Regulations, http://wwwn.cdc.

gov/clia/Regulatory/Chronology.aspx ........ 9

vi

TABLE OF AUTHORITIES—continued

CMS, End Stage Renal Disease (ESRD)

Program Interpretive Guidance (Oct. 3,

2008), https://www.cms.gov/Medicare/

Provider-Enrollment-and-Certification/

SurveyCertificationGenInfo/downloads/S

CIE ceseccccososenconsvescosssesvornscaseces

CMS, Form 1500, https://www.cms.gov/

Medicare/CMS-Forms/CMS- Forms/

Downloads/CMS1500.pdf.....................::006

CMS, State Operations Manual Chapter 6 -

Special Procedures for Laboratories and

Appendix C - Survey Procedures and In-

terpretive Guidelines for Laboratories

and Laboratory Services (May 29, 2015),

https://www.cms.gov/regulations-and-

guidance/legislation/clia/downloads/app-

c_survey-procedures-igs-for-labs-labs-

I ciieitinsiniettsniniteninletimnciniincdisinces

Remarks of Leslie R. Caldwell, Assistant

Att'y Gen. of the U.S. (Sept. 17, 2014),

http://www.justice.gov/opa/speech/remar

ks-assistant-attorney-general-criminal-

division-leslie-r-caldwell-taxpayers-

I siciisis saseinerncliccembennadunaadisidaenaniiiAaidbinaines

Remarks of Stuart F. Delery, Acting Att’y

Gen. of the U.S. (June 7, 2012),

http://www.justice.gov/opa/speech/acting-

assistant-attorney-general-stuart-f-

delery-speaks-american-bar-association-

Ta EARS A i EISSN ee ac PSA eae

Robert Salcido, DOJ Must Reevaluate Use

of False Claims Act In Medicare Dis-

putes, Wash. Legal Found. (Jan. 7, 2000),

I EID cctiscncscosentidcsncecnessnsonsies

Page

11

31

20

19

vii

TABLE OF AUTHORITIES—continued

Page

Memorandum from Sally Quillian Yates,

Deputy Att’y Gen. of the U.S. (Sept. 9,

2015), http://www.justice.gov/dag/file/

769036/download....................cceseeeeeeeeeeeeeees 20

Letter from Ronald Weich, Assistant Att’y

Gen. and Jim Esquea, Assistant Sec’y,

U.S. Dep’t of Health & Human Servs. to

Sen. Charles E. Grassley (Jan. 24, 2011),

http://www.taf.org/DOJ-HHS-joint-letter-

ELIE AEDES I EO 20

INTEREST OF AMICI CURIAE'

Amici are healthcare providers and trade associa-

tions of healthcare providers who serve patients

across the United States, including millions of benefi-

ciaries of Medicare, Medicaid, and other federal

healthcare programs.

Amicus American Clinical Laboratory Association

(ACLA) is a not-for-profit organization whose primary

purposes are to advocate for laws and regulations

recognizing the essential role that laboratory services

play in delivering cost-effective healthcare; encourage

the highest standards of quality, service, and ethical

conduct among its members; and promote public

awareness about the value of laboratory services in

preventing illness, diagnosing disease, and monitor-

ing medical treatment.

Amicus Ardent Health Services provides hospitals

and clinics the tools they need to succeed through in-

vestments in facilities, technologies, and human re-

sources in the healthcare community. Ardent sup-

ports three health systems, including 14 hospitals

and 12,000 employees, along with three physician

groups with 270 employed physicians.

Amicus California Association of Physician Groups

(CAPG) represents over 100 medical groups and in-

dependent physician associations serving over 20 mil-

| Pursuant to Supreme Court Rule 37.6, amici curiae state

that no counsel for any party authored this brief in whole or in

part and that no entity or person, aside from amici curiae, their

members, and their counsel, made any monetary contribution

towards the preparation and submission of this brief. Respond-

ents have filed a letter with the Court granting blanket consent

to the filing of amici curiae briefs. Petitioner has granted con-

sent to this amici brief in the letter accompanying this filing.

2

lion patients in California. It is the leading U.S.

trade association for and the voice of accountable

physician organizations. The mission of CAPG is to

assist accountable physician groups to improve the

quality and value of healthcare provided to patients.

Amicus DaVita HealthCare Partners Inc. is an in-

novative healthcare community that is committed to

providing the highest quality care for patients suffer-

ing from chronic kidney disease, including health-

management resources that keep patients off dialysis

as long as possible and appropriate dialysis treat-

ments for those patients that need it. DaVita’s

HealthCare Partners division is one of the country’s

leading operators of medical groups and physician

networks, providing integrated healthcare manage-

ment services that help ensure quality, accessible,

and affordable patient care.

Amicus Fresenius Medical Care offers industry-

leading coordinated healthcare services to patients

with kidney failure and other chronic diseases in all

50 states and across the globe through a network of

more than 2,200 dialysis facilities, outpatient cardiac

and vascular labs. Consistent with its integrated ap-

proach to patient care, Fresenius also operates the

United States’ largest practice of hospitalist and post-

acute providers, offers specialty pharmacy and labor-

atory services, and manufactures and distributes a

comprehensive line of dialysis equipment, disposable

products, and renal pharmaceuticals.

Amicus U.S. Renal Care is one of the nation’s

preeminent dialysis providers, offering in-center and

at-home dialysis services to patients in 33 states

through joint venture partnerships with leading local

nephrologists.

3

Amici and their members are directly and pro-

foundly impacted by the “implied certification” theo-

ry. As Petitioner convincingly demonstrates, this

theory empowers enterprising qui tam relators and

aggressive prosecutors to hold government contrac-

tors such as amici and their members liable for treble

damages and civil penalties under the False Claims

Act (FCA) without any evidence that the contractor

made the type of “false or fraudulent” claim the Act

requires for a violation. 31 U.S.C. § 3729(a)(1)(A);

Petr’s Br. 28-33.

Merely submitting a claim for payment, the theory

goes, somehow constitutes an “implied” affirmative

representation that the contractor has complied with

every regulatory standard and contractual obligation

that conceivably could apply to its business, regard-

less of whether the claim itself contains any such rep-

resentation or whether Congress has made clear that

a violation of that standard or obligation renders

claims for reimbursement actionable under the FCA.

By this logic, a claim for payment can be “false or

fraudulent” if the contractor is in violation of any le-

gal requirement that a relator or prosecutor—or, as

happened in this case, a court acting sua sponte—

may characterize after the fact as a condition of pay-

ment.

Healthcare providers like amici and their members

face especially severe risks when they are targeted

with this theory. As participants in Medicare, Medi-

caid, and other federal healthcare programs, amici

and their members are subject to thousands of com-

plex regulations, sub-regulatory standards, and con-

tractual provisions—a substantial percentage of

which are ambiguous, and some of which even con-

flict with one another. Although the FCA is designed

solely to prohibit fraud, “implied certification” expos-

4

es healthcare providers to litigation whenever they

are alleged to have failed to meet any of these con-

tractual, regulatory, or sub-regulatory requirements.

As a result of the application of this theory,

healthcare providers are subject to substantial and

unnecessary litigation costs, the threat of excessive

damages and penalties, and unreasonable compliance

obligations. Congress simply never intended this.

SUMMARY OF ARGUMENT

The implied certification theory is utterly unmoored

from the FCA’s text and purpose and should be re-

jected. The theory’s application in the healthcare in-

dustry makes this starkly clear. The theory’s core

premise is that a claim submitted by a contractor

may be “false or fraudulent” under the FCA, and thus

subjects the contractor to the Act’s extraordinary

damages and penalties, if the contractor is not in

compliance with any legal obligation, even if not ref-

erenced in a claims form or any statute and even if

ambiguous, obscure, or tangential to the Govern-

ment’s payment decision.

I. This is an enormous problem for healthcare pro-

viders like amici and their members. Relators (and

their lawyers) seeking a payout under the FCA use

the implied certification theory to allege falsity under

federal regulations, sub-regulatory documents, and

state and local rules—many of which are ambiguous.

It is no exaggeration, then, to say that a healthcare

provider may find itself defending against an FCA

claim based on the disputed meaning of a single

phrase somewhere within: hundreds of thousands of

pages of regulatory and contractual obligations. Infra

Part I.

II. This problem alone should expose the theory's

absurdity, but the theory should be rejected not solely

5

because it is implausible, but because it 1s contrary to

the statute itself and to accepted interpretive princi-

ples. Infra Part I]. The FCA imposes liability for

“false or fraudulent’ claimfs],” 31 U.S.C.

§ 3729(a)(1)(A); the implied certification theory im-

poses liability based on conduct divorced from the

“claim” itself.

Beyond the statutory text, there is good reason to

think Congress did not intend, and indeed could not

have intended, this result. First, the implied certifi-

cation theory deprives healthcare providers of any

fair notice regarding what the FCA prohibits and

what it does not. The vast majority of the thousands

of regulatory and contractual requirements applica-

ble to healthcare providers are not designated as con-

ditions to the Government’s payment of claims in any

claims form, nor otherwise specified by Congress as

predicates for FCA liability. But “implied certifica-

tion” allows relators and prosecutors to argue—after

the fact—that a court should construe them as mate-

rial conditions of payment as if they were expressly

identified as such on a claims form or by Congress.

This raises important constitutional “fair notice” con-

cerns, especially because a violation of the FCA car-

ries “essentially punitive” penalties—i.e., treble dam-

ages and per-claim civil penalties. Vt. Agency of Nat.

Res. v. United States ex rel. Stevens, 529 U.S. 765,

784 (2000); see also BMW of N. Am., Inc. v. Gore, 517

U.S. 559, 574 (1996) (“Elementary notions of fairness

enshrined in our constitutional jurisprudence dictate

that a person receive fair notice not only of the con-

duct that will subject him to punishment, but also of

the severity of the penalty....”); infra Part II. Indeed,

the threat of exclusion from federal healthcare pro-

viders—a professional “death penalty’—hangs over

the head of every healthcare provider accused of vio-

6

lating the FCA. See 42 U.S.C. § 1320a-7(a), (b). As a

matter of constitutional avoidance, the statute should

be read to avoid these infirmities.

Second, the implied certification theory transforms

regulatory ambiguity into hunting grounds for qui

tam litigation and improperly duplicates existing

remedies. The healthcare regulatory agencies have

numerous tools available for enforcing compliance

with federal healthcare regulations, guidance docu-

ments, and contracts including administrative penal-

ties, breach-of-contract suits, and exclusion from par-

ticipation in federal healthcare programs. Under the

implied certification theory, private relators decide

which regulatory and sub-regulatory requirements

warrant FCA litigation (and resulting government

investigations and the potential application of FCA

penalties) and which do not. By permitting relators

to enforce regulatory standards, the implied certifica-

tion theory disrupts the carefully calibrated regime of

administrative remedies reflected in essentially every

federal and state healthcare program.

Ill. The overbreadth of the implied certification

theory cannot be justified or resuscitated based on

the FCA’s “materiality” and “scienter” requirements.

Infra Part III. As Petitioner powerfully shows, these

requirements cannot protect government contractors

from the abuse of the FCA’s “falsity” requirement

that the implied certification theory allows. Petr’s

Br. 53—56. Indeed, FCA litigation involving

healthcare providers has demonstrated time and

again that these separate elements of FCA liability

are inherently ambiguous and fact-bound, and typi-

cally cannot be resolved at the early stages of a case.

Reliance on these elements to screen out meritless

FCA complaints thus exacerbates, rather than ad-

7

dresses, the challenges that the implied certification

theory creates.

IV. These problems must be solved by rejecting the

implied certification theory entirely so_ that

healthcare providers doing business with the Gov-

ernment can understand precisely what is expected of

them and courts can consistently apply the law. The

solution should be straightforward: A claim for pay-

ment may be “false or fraudulent” in three circum-

stances. First, the claim may misrepresent the goods

or services provided. Second, the claim may contain a

false certification of compliance with a rule that

is expressly, specifically, and unambiguously refer-

enced on the claims form and which itself is unam-

biguous. Finally, a claim may be “false or fraudulent”

if the underlying services were performed in violation

of a statute that Congress itself has expressly, specif-

ically, and unambiguously declared renders claims

for those services false within the meaning of the

FCA. Infra Part IV. This rule would allow the Gov-

ernment to impose FCA liability for the true acts of

knowing misconduct that Congress intended to cover

when it enacted the FCA, and would grant providers,

relators, the Department of Justice, and the courts

clear notice of what conduct the FCA specifically pro-

hibits. This clarity is essential, particularly in

healthcare. To ensure a regime of clarity, the Court

should make clear that the Government cannot ad-

dress the infirmities of the “implied certification” the-

ory by requiring healthcare providers and other gov-

ernment contractors to certify, on claims forms, to

compliance with “all laws” or “all rules.” Such a solu-

tion does not give providers proper notice of what

specific laws or rules are truly critical.

8

ARGUMENT

I. THE IMPLIED CERTIFICATION THEORY

EXPOSES HEALTHCARE PROVIDERS TO

EXTRAORDINARY LEGAL RISKS.

The implied certification theory imposes particular-

ly acute risks on healthcare providers. Healthcare is

perhaps the most heavily regulated industry in the

country. Providers, like amici and their members,

are subject to a complex labyrinth of thousands of

federal healthcare regulations, sub-regulatory stand-

ards, and contractual provisions, which vary from

federal program to federal program and, in the case

of Medicaid, from state to state. Indeed, by one

count, “there are 130,000 pages of government health

care rules, over 100,000 applying to Medicare” alone.

Victor E. Schwartz & Phil Goldberg, Carrots and

Sticks: Placing Rewards As Well As Punishment in

Regulatory and Tort Law, 51 Harv. J. Legis. 315, 350

(2014). As this Court has recognized, Medicare, just

one of the many federal healthcare programs, is “a

massive, complex health and safety program

... embodied in hundreds of pages of statutes and

thousands of pages of often interrelated regulations,”

Shalala vy. Ill. Council on Long Term Care, Inc., 529

U.S. 1, 13 (2000), and Medicaid is “a morass of bu-

reaucratic complexity,” Herweg v. Ray, 455 U.S. 265,

279 (1982) (Burger, J., dissenting).

Even a preliminary glance at this vast expanse of

federal healthcare regulations and standards demon-

strates that the implied certification theory is unten-

able. For instance, the Medicare program’s Condi-

tions for Coverage for healthcare organizations,

which are set forth in regulations and associated

agency commentaries from the Centers for Medicare

& Medicaid Services (CMS), consume thousands of

pages of the Federal Register. The Conditions for

9

Coverage applicable to end-stage renal care facilities,

such as those operated by the amici DaVita, Frese-

nius, and U.S. Renal Care, alone encompass hun-

dreds of pages, addressing a broad range of topics

from “Patient Safety” and “Patient Care,” 42 C.F.R.

§§ 494.30-130, to personnel issues like the training

and educational backgrounds of “social worker{[s]”

and “dietitian[s],” id. § 494.140. Others impose

amorphous record-keeping obligations like the need

to “maintain complete, accurate, and accessible rec-

ords on all patients.” Jd. § 494.170. Still others re-

late to services provided to a facility by downstream

contractors. See, e.g., id. § 413.241 (requiring facility

to “ensure that the pharmacy” that provides drugs

has the “capability” to provide them in a “timely

manner’).

Clinical laboratories such as the members of ami-

cus ACLA are subject to a similarly vast array of

rules. Such laboratories are governed by the Clinical

Laboratory Improvement Amendments (CLIA), 42

U.S.C. § 263a, which have led to over a hundred

CLIA-related entries in the Federal Register and

Code of Federal Regulations and hundreds of pages of

interpretive guidelines. See Centers for Disease Con-

trol and Prevention, Chronology of CLIA Related

Documents in the Federal Register & Code of Federal

Regulations, http://wwwn.cdc.gov/clia/_ Regulato-

ry/Chronology.aspx; CMS, State Operations Manual

Chapter 6 - Special Procedures for Laboratories and

Appendix C Survey Procedures and Interpretive

Guidelines for Laboratories and Laboratory Services.

The requirements imposed by such rules and regula-

tions are diverse—from the minimum education

standards for laboratory employees, 42° C.F.R. §

493.1351 et seq., to the information required on a la-

boratory test request form, id. § 493.1241.

10

Neither Congress nor CMS has designated any of

these diverse and far-reaching Conditions of Cover-

age requirements as a condition to Medicare’s pay-

ment of any claim for healthcare services. Indeed,

these regulations contain independent frameworks

for enforcement. See 42 C.F.R. §§ 488.604, 488.606.

So too, the CLIA rules contain a regulatory enforce-

ment mechanism for laboratories that violate those

rules. See id. §§ 493.1800—1850. And none of these

requirements is the subject of any certification con-

tained in a claims form itself. Yet under the implied

certification regime, a qui tam relator or a prosecutor

can allege that even a minor departure from the most

obscure of these provisions renders a claim for pay-

ment “false or fraudulent,” potentially subjecting a

healthcare provider to treble damages, penalties, and

exclusion from federal healthcare programs.

The concern that this vast array of rules could form

the basis for an FCA claim is well founded. Relators

have filed suits alleging that healthcare providers

committed fraud under the FCA by supposedly failing

to comply with regulations that have no clear (or even

apparent) correlation to the Government's payment

decision. See, e.g., Compl., United States ex rel.

Troxler v. Warren Clinic, Inc., No. 11-CV-808-TCK-

FHM, (N.D. Okla. Dec. 30, 2011) (alleging violation of

FCA based on alleged violation of “rule” prohibiting

medical assistants from collecting illness information

during office visits); Compl., United States ex rel. Wil-

liams v. Renal Care Group, Inc., No. 09-0738 (M.D.

Tenn. June 21, 2005) (alleging violation of FCA based

in part on failure to provide product warranties).

This tangle does not stop with alleged violations of

federal regulatory standards. Courts have held that

a healthcare provider’s alleged non-compliance with

interpretive guidance from a federal agency is a valid

11

basis for an FCA claim. See, e.g., In re Cardiac De-

vices Qui Tam Litig., 221 F.R.D. 318, 354 (D. Conn.

2004) (alleged failure to comply with the 1986 Medi-

care Hospital Manual). Under this approach, any of

the commentary in the thousands of pages of guid-

ance on Medicare Conditions for Coverage could also

support an FCA claim. See CMS, End Stage Renal

Disease (ESRD) Program Interpretive Guidance (Oct.

3, 2008), https://;www.cms.gov/Medicare/Provider-

Enrollment-and-Certification/SurveyCertification

GenInfo/downloads/ SCletter09-0l.pdf. But, as set

forth above, Conditions for Coverage bear their own

administrative penalties, and, similarly, violations of

interpretive rules can trigger administrative repay-

ment obligations. See 42 C.F.R. Subpart C (“Suspen-

sion of Payment, Recovery of Overpayments, and Re-

payment of Scholarships and Loans”). Nothing in the

statutory or regulatory structure indicates that FCA

actions brought by whistleblowers are intended to

play a role in enforcing these rules.

Further still, according to some courts and relators,

even non-compliance with state and local regulatory

standards can trigger federal FCA liability. The

Conditions for Coverage for hospitals, such as amicus

Ardent Health Services, require hospitals participat-

ing in Medicare to be in compliance with numerous

state and local laws. See, e.g., 42 C.F.R. § 482.11 (re-

quiring hospitals to “meet[ ] standards for licensing

established by the agency of the State or locality re-

sponsible for licensing hospitals” and to “assure that

personnel are licensed or meet other applicable

standards that are required by State or local laws.”):

see also id. § 494.20 (requiring healthcare providers

to comply “with applicable Federal, State, and local

laws and regulations pertaining to licensure and any

other relevant health and safety requirements” as a

12

Medicare Condition for Coverage). Qui tam relators

have alleged that healthcare providers committed

fraud against the federal Government through their

alleged non-compliance with such local standards.

See, e.g., Second Am. Compl. United States ex rel.

Foglia v. Renal Ventures Mgmt., LLC, No. 09-cv-

01552 (D.N.J. Dec. 13, 2011) (alleging that defend-

ants violated the FCA by violating New Jersey regu-

lations mandating certain staff-to-patient ratios at

dialysis facilities); Third Am. Compl., United States

ex rel. West v. Ctr. for Diagnostic Imaging, Inc., No.

CV05-0058RSL (W.D. Wash. Sept. 16, 2010) (state

corporate practice of medicine laws); Compl., United

States ex rel. Lee v. Fairview Health Sys., No. 02-CV-

270 RHK/SRN (D. Minn. Jan. 29, 2002) (state regula-

tions prohibiting athletic trainers from providing

physical therapy services).

Apart from the sheer number of healthcare re-

quirements that providers are required to follow,

many of the requirements are hopelessly ambiguous.

To make matters worse, the Government often delib-

erately chooses—in the face of repeated calls by

healthcare providers for more precise guidance—to

leave such ambiguities unaddressed.

For example, when asked to clarify the type of

payments or benefits that would be protected under a

safe harbor to the Anti-Kickback Statute for pay-

ments for “practitioner recruitment,” the Government

“decline[d]” and said the issue would “be evaluated on

a case-by-case basis.” Final Rule, Clarification of the

Initial OIG Safe Harbor Provisions and Establish-

ment of Additional Safe Harbor Provisions Under the

Anti-Kickback Statute, 64 Fed. Reg. 63,518, 63,544

(Nov. 19, 1999). Likewise, when asked to clarify the

various “generic criteria,” such as the meaning of

“fair market value,” that the HHS Office of Inspector

13

General (“OIG”) would apply when considering

whether various business arrangements could meet

one of the safe harbors to the Anti-Kickback Statute,

OIG declined to do so, claiming that the “the subjec-

tivity or arbitrariness in applying the standards to

individual fact situations” would make a uniform set

of standards of “extremely limited value.” Final Rule,

Medicare and State Health Care Programs: Fraud

and Abuse; OIG Anti-Kickback Provisions, 56 Fed.

Reg. 35,952, 35,956 (July 29, 1991).

And more recently, when asked to clarify a vague

requirement in the Stark Law (42 U.S.C. § 1395nn)

that payments to physicians not “take[] into account”

the volume or value of referrals, the Government

again “decline[d] to do so.” Final Rule, Revisions to

Payment Policies Under the Physician Fee Schedule

and Other Revisions to Part B for CY 2016, 80 Fed.

Reg. 70,886, 71,313 (Nov. 16, 2015). These are not

isolated incidents, but a recurrent failure to clarify

the law.

Furthermore, regulatory standards applicable to

healthcare providers are sometimes inconsistent or

contradictory. For instance, situations arise in which

actions consistent with state law are nonetheless al-

leged to be violations of the FCA. See Gonzalez v.

Fresenius Med. Care N. Am., 689 F.3d 470, 478 (5th

Cir. 2012) (addressing relator’s claim that healthcare

provider violated FCA through conduct permitted by

state laws addressing physicians’ delegation of re-

sponsibilities to medical staff).

It is difficult enough for providers to wade through

this environment within the confines of the existing

administrative system without the specter of FCA lit-

igation and penalties suspended over their heads.

The implied certification theory, however, invites ea-

ger relators and prosecutors to search the dark cor-

14

ners of the federal healthcare rule books for ambigu-

ous regulatory standards and accuse healthcare pro-

viders of fraud when they interpret those rules differ-

ently. In fact, under the implied certification frame-

work, the mere allegation that a provider is not in

compliance with any such standard can burden the

provider with expensive and time-consuming qui tam

litigation for years, diverting the organization’s focus,

resources, and attention. Jnfra Part III.

Il. THE IMPLIED CERTIFICATION THEORY

IS UNJUSTIFIABLY BROAD.

The FCA is not an “all-purpose antifraud statute,”

Allison Engine Co. v. United States ex rel. Sanders,

553 U.S. 662, 672 (2008), nor a “blunt instrument to

enforce compliance with all medical regulations,”

Mikes v. Straus, 274 F.3d 687, 699 (2d Cir. 2001). In-

stead, Congress has made clear that a “false or

fraudulent claim” is the core component of an FCA

violation. 31 U.S.C. § 3729(a)(1)(A); see also United

States ex rel. Atkins v. McInteer, 470 F.3d 1350, 1357

(11th Cir. 2006) (the submission of a false claim is the

“sine qua non” of an FCA violation). The implied

certification theory is inconsistent with these key

precepts, imposing a legal fiction that the act of sub-

mitting a claim for payment constitutes an affirma-

tive representation by the submitter that it is in com-

pliance with every legal requirement applicable to it.

“Distilled to its core,” the implied certification theo-

ry “lacks a discerning limiting principle.” United

States v. Sanford-Brown, Ltd., 788 F.3d 696, 711 (7th

Cir. 2015), petition for cert. filed, 84 U.S.L.W. 3349

(U.S. Dec. 2, 2015) (No. 15-729). Under this theory,

merely submitting a claim for payment somehow

“impliedly” certifies that the claimant has complied

with every conceivable regulatory requirement or

contractual provision that could influence the Gov-

15

ernment’s decision to pay the claim. See, e.g., Pet.

App. 17 n.14. In other words, any claim for payment

can be “false or fraudulent” if it is made when the

provider is in violation of any legal standard that a

court deems—after-the-fact—to be “material” to the

Government's payment decision. As Petitioner ex-

plains, liability attaches under this theory, even if the

claim itself contains no “affirmative misstatement”

whatsoever. Petr. Br. 23—24.

The healthcare context makes the intolerable

breadth of this theory plain. This theory impermissi-

bly conflates violations of healthcare regulations with

false claims for reimbursement. Rather than focus-

ing the FCA on contractors who submit claims know-

ingly designed to deceive the Government into mak-

ing undeserved payments, implied certification em-

powers plaintiffs—typically qui tam relators—to

threaten healthcare providers with the FCA’s treble

damages and penalties based on perceived violations

of contract provisions, regulatory standards, and sub-

regulatory guidance documents. The effect is a view

of falsity that is as limitless as it sounds. Indeed, as

history has shown, supra at 10—12, the potential ba-

ses for an implied certification lawsuit are limited ef-

fectively only by the imagination of qui tam relators.

The FCA was never meant to play this unfair and

disruptive role, with its distorting impact. Indeed,

when it is used it in this manner, at least three sig-

nificant problems result—all of which confirm why

the implied certification theory of falsity should be

rejected.

1. First, the “implied certification” framework de-

prives healthcare providers of any fair notice about

what the FCA prohibits and what it does not. That is

particularly problematic as the FCA imparts “essen-

tially punitive” penalties. Vt. Agency of Nat. Res., 529

16

U.S. at 784; BMW of N. Am., 517 U.S. at 574 (Due

Process demands that a “person receive fair notice

not only of the conduct that will subject him to pun-

ishment, but also of the severity of the penalty.”).

The core problem is that the vast majority of the

thousands upon thousands of rules that have been

promulgated do not definitively state whether a re-

quirement is or is not a condition of payment. Thus,

it is generally impossible for a provider to know in

advance what conduct may trigger FCA liability un-

der the implied certification theory. Notwithstanding

this lack of notice, courts applying the implied certifi-

cation theory have imposed FCA liability for viola-

tions of a broad array of healthcare rules. See, e.g.,

United States ex rel. Bidani v. Lewis, 264 F. Supp. 2d

612, 615 (N.D. Ill. 2003) (accepting Government's

post-hoc assertion that compliance with a specific

federal law was a “material” condition of the Gov-

ernment’s reimbursement of a claim). Under the log-

ic of these cases, the operative rules for healthcare

providers become anyone’s guess, decided court-by-

court, retrospectively and on an ad hoc basis.

To be sure, some rules are labeled as a “condition of

payment.” But labeling a rule a “condition of pay-

ment,” standing alone, should mean only that a payor

agency can decline to reimburse (or administratively

recoup payment from) a provider if the provider fails

to satisfy the rule; it should not render a violation of

the rule actionable under the FCA. For FCA liability

to attach, conditions of payment must be specifically

referenced in the claim itself; providers are not on

proper notice of what they are certifying to if they

must search through the vast array of regulatory

rules to identify the “conditions of payment” to which

they are purportedly impliedly certifying.

17

The Constitution dictates that “regulated parties

should know what is required of them so they may

act accordingly.” FCC v. Fox Television Stations, Inc.,

132 S. Ct. 2307, 2317 (2012). The implied certifica-

tion theory does not put healthcare providers and

other government contractors on adequate notice of

the rules to which they are certifying compliance.

That raises substantial Due Process concerns, and

the statute should be read to avoid them. We en-

courage the Court to avoid this significant constitu-

tional problem by adopting the interpretation of the

Act set forth at Part IV, infra. See, e.g., Concrete Pipe

& Prods. of Cal., Inc. v. Constr. Laborers Pension

Trust for S. Cal., 508 U.S. 602, 629 (1993) Gnterpret-

ing federal statute narrowly to avoid Due Process

concerns).

2. Second, the implied certification theory renders

the FCA duplicative of existing remedies—a good

sign that Congress did not plan for the FCA to sweep

so far. The healthcare regulatory agencies have

numerous tools available for enforcing compliance

with federal healthcare contracts, regulations, and

guidance documents, including administrative

penalties, breach-of-contract suits, and exclusion

from participation in federal healthcare programs.

United States ex rel. Hobbs v. Medquest Assocs., Inc.,

711 F.3d 707, 717 (6th Cir. 2013). By establishing

this detailed framework of administrative penalties

and sanctions, Congress did not intend the FCA to

displace these regulatory mechanisms whenever a

qui tam relator believes that “implied” certification

might be alleged. See Alexander v. Sandoval, 532

U.S. 275, 289-91 (2001) (statutes authorizing

“agencies to enforce their regulations” indicate that a

“private remedy” is unnecessary).

18

Under the implied certification theory, private rela-

tors decide which regulatory and sub-regulatory re-

quirements warrant FCA litigation (and resulting

government investigations and the potential applica-

tion of FCA penalties) and which do not. The FCA

authorizes relators to continue a suit even after the

Government declines to intervene, and while DOJ

has the authority to dismiss cases over the objections

of relators, 31 U.S.C. § 3730(b), it virtually never ex-

ercises that authority. Because DOJ intervenes in

only a small fraction of FCA cases, providers are typ1-

cally forced to negotiate with private parties seeking

their share of a treble-damages recovery.

By permitting relators to enforce regulatory stand-

ards, the implied certification theory disrupts the

carefully calibrated regime of administrative reme-

dies reflected in essentially every federal and state

healthcare program. For instance, in the case of

Medicare, that program delegates the supervision of

healthcare providers’ compliance with federal

healthcare standards to the agencies responsible for

them. See 42 U.S.C. § 1395cc(b)(2); 42 C.F.R.

§ 488.28(a), (c), and (d); id. § 424.535(a)(1). Involving

relators in these complicated regulatory issues inter-

feres with government control of the programs

through the exercise of agency remedies for non-

compliance. Indeed, enforcement of the FCA through

the implied certification theory excuses regulators

from the obligation to regulate—in a clear and trans-

parent fashion—in favor of “burden[ing] the federal

courts with deciding whether medical services were

performed in full compliance with a host of Medicare

[and other federal healthcare] regulations.” United

States ex rel. Conner v. Salina Regional Health Ctr.,

543 F.3d 1211, 1221 (10th Cir. 2008).

19

Courts are adept at resolving cases involving actual

fraud, but “courts are not the best forum” to police all

regulatory violations in the first instance; rather, the

agencies that oversee these regulations are often bet-

ter placed. Mikes, 274 F.3d at 700. Forcing courts to

clarify federal healthcare regulations in the context of

qui tam suits—rather than letting agencies address

them—‘short-circuit[s] the very remedial process the

Government has established.” United States ex rel.

Wilkins v. United Health Grp., Inc., 659 F.3d 295, 310

(3d Cir. 2011).

3. Third, the implied certification theory encour-

ages excessive litigation over ambiguous regulatory

standards, and subjects providers to litigation costs

and collateral consequences that Congress could not

have intended. FCA litigation has exploded in the

years since the 1 plied certification theory has been

embraced by many of the lower courts. “From 1987 to

2013, the annual number of qui tam actions jumped

from 31 to 752, breaking the previous record for

number of qui tam suits in a given year by 100, which

was set the prior year.” Steven Harrison et. al.,

Health Care Fraud, 52 Am. Crim. L. Rev. 1223, 1285

(2015). Even the Justice Department has been

“struck by the sheer volume of the cases that are

brought .... under this statute.” Remarks of Stuart F.

Delery, Acting Att’y Gen. of the U.S., (June 7, 2012),

http://www .justice.gov/opa/speech/acting-assistant-

attorney-general-stuart-f-delery-speaks-american-

bar-association-s-ninth.

But the sheer number of qui tam suits tells only

part of the story of the burden imposed by the implied

certification theory An implied certification com-

plaint filed by a qui tam relator can trigger signifi-

cant costs for a provider even before it becomes a liti-

gable case. Qui tam complaints under the FCA are

20

automatically sealed upon filing, to provide the Gov-

ernment time to investigate and determine whether

to ‘ntervene. 31 U.S.C. § 3730(b)(2). These investi-

gations take time. Though the FCA provides that

complaints are to be sealed for only 60 days to allow

the government to investigate, id., in practice, it

takes an average of 13 months to two years. See Let-

ter from Ronald Weich, Assistant Att'y Gen., U.S.

Dep’t of Justice and Jim Esquea, Assistant Sec’y, U.S.

Dep’t of Health & Human Servs. to Sen. Charles E.

Grassley (Jan. 24, 2011); David Freeman Engstrom,

Private Enforcement’s Pathways: Lessons from Qui

Tam Litigation, 114 Colum. L. Rev. 1913, 1961 n.146

(2014). Providers incur significant costs during this

period cooperating with DOJ investigations.

These investigations are likely to become even more

lengthy—and complex—in the future, due to recent

changes in the federal enforcement environment.

First, as matter of DOJ policy, “all new qui tam com-

plaints are [now] shared by the Civil Division with

the Criminal Division as soon as the cases are filed ...

to determine whether to open a parallel criminal in-

vestigation” as well. Remarks of Leslie R. Caldwell,

Asst. Att’y Gen. of the United States (Sept. 17, 2014).

Any complaint filed by a qui tam relator on implied

certification grounds is, thus, automatically subject to

federal criminal investigation. Second, pursuant to

another recent policy announcement, DOJ has prom-

ised to “fully leverage its resources to identify culpa-

ble individuals at all levels in corporate cases.”

Memorandum from Sally Quillian Yates, Deputy

Att’y Gen. of the U.S. (Sept. 9, 2015) (emphasis add-

ed). In short, recent changes to DOJ policy have in-

creased the risk that DOJ will respond to a qui tam

complaint alleging implied certification by subjecting

a defendant healthcare provider to significant—and

21

costly—investigations of criminal wrongdoing and in-

dividual liability on the basis of an alleged violation

of any one of thousands upon thousands of adminis-

trative rules.

All of these factors create an unlevel playing field,

to the detriment of healthcare providers and other

government contractors. The “dirty little secret” of

FCA litigation is that “given the civil penalty provi-

sion and the costs and risks associated with litiga-

tion, the rational move for [FCA defendants] is to set-

tle the action even if the [plaintiffs] likelihood of suc-

cess is incredibly small.” Robert Salcido, DOJ Must

Reevaluate Use of False Claims Act In Medicare Dis-

putes, Wash. Legal Found., at 4 (Jan. 7, 2000),

http://goo.g/YyZTdS. Indeed, the FCA’s punitive

structure “places great pressure on defendants to set-

tle even meritless suits.” John T. Boese & Beth C.

McClain, Why Thompson Js Wrong: Misuse of the

False Claims Act to Enforce the Anti-Kickback Act, 51

Ala. L. Rev. 1, 18 (1999).2

2 The pressure to settle is particularly robust in the health

care context given the FCA’s draconian “per-claim” civil penal-

ties provision and the potential for exclusion from participation

in federal healthcare programs. See 31 U.S.C. § 3729(a); 28

C.F.R. § 85.3(a)(9). Providers, including amici, frequently sub-

mit claims for reimbursement for as little as $10. The govern-

ment, however, routinely seeks to impose civil penalties of up to

$11,000 on each individual claim. Under such an approach, the

potential exposure quickly dwarfs the amount of reimbursement

at issue and the incentive to settle increases.

22

Ill. THE FCA’S “MATERIALITY” AND “SCIEN-

TER” REQUIREMENTS DO NOT ADE-

QUATELY PROTECT PROVIDERS FROM

IMPLIED CERTIFICATION’S EXCESSIVE-

LY BROAD REACH.

Given the high costs of complex litigation and the

FCA’s otherwise overbroad scope, it is not sufficient

to rely on the statute’s “materiality” and “scienter”

requirements to protect healthcare providers and

other government contractors from the overbreadth of

the implied certification theory. Although the theo-

ry’s defenders often insist that these requirements

can be used to screen out meritless claims,’ experi-

ence demonstrates that this retort is badly misguided

and just plain wrong at a practical level.

1. Fundamentally, the “materiality” and “scienter”

requirements cannot provide any real limits on the

FCA if the statute is not interpreted to apply a com-

mon sense notion of what makes a claim “false or

fraudulent” in the first instance. If a claim can be

deemed “false or fraudulent” by virtue of a provider's

non-compliance with any of the thousands of re-

quirements buried in a “morass” of regulation,

He-weg, 455 U.S. at 279, (Burger, J., dissenting), the

notion that a defendant’s conduct must be “material”

is rendered meaningless. Likewise, if a claim can be

“false or fraudulent” because FCA liability may arise

from thousands of pages of federal regulations, feder-

al sub-regulatory materials, state requirements, and

local regulations, the notion that a defendant must be

3 See, e.g., United States v. Triple Canopy, Inc., 775 F.3d 628,

637 (4th Cir. 2015) (“The best manner for continuing to ensure

that plaintiffs cannot shoehorn a breach of contract claim into

an FCA claim is ‘strict enforcement of the Act’s materiality and

scienter requirements.”), petition for cert. filed, 83 U.S.L.W.

3905 (U.S. June 8, 2015) (No. 14-1440).

23

shown to have acted knowingly or recklessly is illuso-

ry.

Moreover, the fact that an implied certification al-

legation may not satisfy these separate, independent

elements of an FCA violation is no reason to loosen

the Act’s requirements for the element at issue

here—namely, what qualifies as a “false or fraudu-

lent claim.” See, e.g., Mikes, 274 F.3d at 696—97. It is

difficult to imagine Congress had such a counterintu-

itive and backwards approach in mind when it enact-

ed a statute whose title begins with the word “False

Claims.” 31 U.S.C. § 3729(a)(1)(A) (emphasis added).

2. Setting aside the flawed premise of the argument

that “materiality” and “scienter” should be relied up-

on to cabin abuses of the implied certification theory,

these elements do not in fact serve that function. As-

sessing either element frequently necessitates an in-

depth, subjective, and fact-bound inquiry that is both

difficult to forecast and costly to litigate. In the heav-

ily regulated healthcare sphere, the resulting uncer-

tainty imposes immense costs, while depriving amici

and their members (and others) of the notice needed

to tailor compliance to the Government’s priorities.

The FCA should be interpreted in a fashion that al-

lows providers clearly to prioritize compliance issues,

target limited resources appropriately, and meaning-

fully reduce liability risk by doing so. Without that,

failure is inevitable and the incentive to commit to a

compliance program is actually undermined.

a. Materiality, in particular, is a malleable, broad,

and amorphous concept that evades consistent or

predictable treatment. This makes it an ineffective

limitation on the breadth of implied certification for

at least two reasons.

24

First, whether a particular legal obligation is con-

sidered “material” to the Government’s payment deci-

sions typically is decided retroactively. The FCA de-

fines the term “material” broadly to mean “having a

natural tendency to influence, or be capable of influ-

encing, the payment or receipt of money or property.”

31 U.S.C. § 3729(b)(4). Unless Congress or an agency

states so expressly, providers are left to guess ex ante

what regulatory standards have a “natural tendency”

or “capab[ility] of influencing” Government payment

decisions on any given claim.‘

Thus, far from resolving anything, the materiality

standard just compounds one of the main problems

with the implied certification theory: the lack of ad-

vance notice about which violations of the litany of

4 This definition was added to the FCA in 2009 via amend-

ments passed by Congress as part of the Fraud Enforcement and

Recovery Act of 2009 (“FERA”). Pub. L. No. 111-21, § 4, 123

Stat. 1617, 1621-25 (2009). Prior to the FERA amendments,

however, many courts had read into the FCA an implicit mate-

riality requirement, but had split on how to define it. See John

T. Boese, The Past, Present, and Future of “Materiality” Under

the False Claims Act, 3 S.L. Univ. J. Health Law & Pol'y 291,

294 & n.17 (2010) (collecting cases). DOJ initially advanced the

notion that a materially false claim is one that is “capable of

influencing’ or [that] ‘has a natural tendency to influence’ the

government's decision to pay,” in response to a narrower “pre-

requisite for payment” standard emerging from some courts. Id.

at 299-301. These Government efforts to expand the definition

of materiality were generally successful, id. at 300-01, and ul-

timately were codified in the FERA amendments. The result is a

statute that “definfes}] ‘material’ such that a falsity might be

considered material even if it had no actual impact on the gov-

ernment’s payment decision.” Robert Fabrikant, Paul E. Kalb,

M.D., Mark D. Hopson, Pamela H. Bucy & James C. Stansel,

Health Care Fraud: Enforcement and Compliance § 4.01[3][d][ii]

(2016).

25

statutes, regulations, and sub-regulatory guidance

documents are actionable under the FCA.

All providers can do under these circumstances is

hazard an educated guess, but educated guesses are

just that—guesses. A guess, by definition, does not

provide the certainty that a law subjecting providers

to punitive sanctions demands. See Fox Television

Stations, 132 S. Ct. at 2317 (“{[RJjegulated parties

should know what is required of them so they may

act accordingly.”). In other words, rather than fixing

the implied certification theory’s fair notice problem,

the materiality standard magnifies it.

The impact is profound. Healthcare providers

spend enormous sums on compliance programs every

year. But even the most robust compliance program

cannot prevent every violation of every regulatory re-

quirement, and limited resources may be misallocat-

ed when there is no guidance available to distinguish

meaningfully between issues that can and cannot

give rise to FCA violations. Effective compliance pro-

grams require clear direction, but the broad and am-

biguous materiality standard does not provide it.

Greater clarity—which is offered by the proposal

we outline below, infra Part I[V—would allow provid-

ers to direct compliance resources towards rules that

are truly material to the Government—i.e., rules that

the Government deems important enough to express-

ly, specifically, and unambiguously reference in a

claim form, or statutes Congress has expressly, spe-

cifically, and unambiguously identified as predicates

for a violation of the FCA.

Second, healthcare providers cannot effectively rely

on lack of materiality as a defense early in litigation

when meritless FCA complaints should be dismissed.

The reason for this is that the materiality inquiry

26

typically is so fact-bound that healthcare providers

rarely prevail on the issue at the motion-to-dismiss

stage. See, e.g., New York v. Amgen Inc., 652 F.3d

103, 110-11 (1st Cir. 2011) (‘[W]hether the claims at

issue misrepresented compliance with a material pre-

condition of payment ... is a fact-intensive and con-

text-specific inquiry.”). Defending even meritless im-

plied certification suits, therefore, often requires pro-

ceeding through expensive discovery, then to sum-

mary judgment or even trial.5

b. The FCA’s “scienter” requirement serves no bet-

ter as a firewall against meritless claims and unnec-

essarily expensive qui tam litigation. It too requires

a fact-intensive analysis that frequently is ill-suited

for resolution in the early stages of a case and costly

to litigate. Although FCA liability attaches only if

the provider has “actual knowledge” that the claim is

false or fraudulent, or acts in “deliberate ignorance”

or “reckless disregard” of its truth or falsity, 31

U.S.C. § 3729(b)(1)(A), pleading such knowledge is

virtually pro forma in FCA complaints. This often

propels even meritless cases to summary judgment or

5 By way of example, in United States ex rel. Williams v. Renal

Care Group, Inc., 696 F.3d 518, 531 (6th Cir. 2012), the court of

appeals reversed a grant of summary judgment against amicus

Fresenius for alleged FCA violations based on alleged non-

compliance with a series of minor, technical regulatory stand-

ards, “including honoring warranties, filling orders from its own

inventory or via contract, and maintaining an appropriate place

of business.” The Sixth “ircuit ultimately concluded that “de-

fendants are correct, irrespective of whether they in fact violated

the regulations,” because “[t]he False Claims Act is not a vehicle

to police technical compliance with complex federal regulations.”

Id. at 532. This victory was somewhat pyrrhic in the end, how-

ever, a8 amicus spent vast sums defending the suit after both

the motion to dismiss and summary judgment stages failed to

screen out the meritless claims.

27

trial, where costs multiply exponentially before pro-

viders have any meaningful opportunity to defeat the

claims.®

This is particularly true in healthcare cases. As-

sessing a providers “knowledge” of the regulatory

standard that supposedly served as the basis for the

implied certification can, depending on the circum-

stances, require courts to consider a broad “variety of

evidence,” including, but often not limited to, “wheth-

er the defendant sought, received and followed legal

advice, whether the defendant acted in conformity

with others in the industry, and whether the defend-

ant reasonably believed that its interpretation was

consistent with the government's.” United States ex

rel. Saldivar v. Fresenius Med. Care Holdings, Inc.,

No. 1:10-CV-1614-AT, 2015 WL 7293156, at *32 (N.D.

Ga. Oct. 30, 2015), appeal docketed, No. 15-15497

(11th Cir. Dec. 8, 2015).

As with materiality, these scienter questions are

expensive and time-consuming to litigate. Indeed, by

way of example, it took five-and-a-half years after a

complaint was filed against amicus Fresenius for a

district court to grant summary judgment and hold

that Fresenius had not knowingly made false certifi-

6 The FCA allows defendants who prevail in litigation to seek

attorney's fees from the relator in limited circumstances, but, in

practice, this is rarely an effective tool in implied certification

cases. The FCA provides that, if the Government declines to

intervene and the relator proceeds with the action, the court

may award a prevailing defendant “reasonable attorneys’ fees

and expenses,” but only if the relator’s claims were “clearly friv-

olous, clearly vexatious, or brought primarily for the purposes of

harassment.” 31 U.S.C. § 3730(d)(4). In light of all the regula-

tory ambiguity just described, it typically is quite challenging for

a healthcare provider to show that an implied certification alle-

gation meets this standard even in the most meritless of cases.

28

cations. Id. at *30. Scienter was hardly an effective

gatekeeper against this allegation.

Quite apart from cost, the scienter analysis also re-

quires providers to answer many of the questions

that a proper reading of the “falsity” requirement

should require the Government to answer in the first

instance. In particular, healthcare providers defend-

ing against a scienter allegation often contend that

their view of the relevant law, even if “erroneous, was

not objectively unreasonable.” Safeco Ins. Co. of Am.

v. Burr, 551 U.S. 47, 69 (2007). But that defense—

even when it is available’7—transfers onto providers

both the responsibility to clarify ambiguous and often

obscure federal program requirements and the bur-

den to defend their interpretations as objectively rea-

sonable. That is unreasonable; it is it is the responsi-

bility of agencies to produce a coherent, transparent

set of expectations and obligations after notice to and

comment from providers. It makes little sense to

tarnish healthcare providers as “fraudsters” based on

an interpretation of an ambiguous regulation that

may be announced for the first time by a court in the

context of litigation.

In sum, neither the materiality nor knowledge ele-

ments of the FCA cure the problems raised by the

implied certification theory of falsity. The only solu-

tion is to restore the FCA to its intended scope as a

statute designed to sanction the submission of false

claims.

7 Notably, DOJ has argued that a healthcare provider's “objec-

tively reasonable” interpretation of a regulation is not alone suf-

ficient to defeat liability. See, e.g., U.S. Opp. to Wyeth’s Mot. for

Summary Judgment at 30-45, United States ex rel. Kieff v. Wy-

eth, No. 03-cv- 12366 (D. Mass. Dec. 16, 2011) (Dkt. No. 286).

29

IV. THE FCA SHOULD BE INTERPRETED AS

INTENDED—i.e., TO REQUIRE A CLAIM

THAT IS ACTUALLY FALSE OR FRAUDU-

LENT.

As the foregoing makes clear, the implied certifica-

tion theory has enabled qui tam relators and prosecu-

tors to assert alleged violations of the FCA well out-

side the boundaries of what the FCA permits. The so-

lution to this problem is to reject the theory and to

interpret the Act as it was intended to be applied.

1. The FCA prohibits the knowing submission of “a

false or fraudulent claim for payment or approval.”

31 U.S.C. § 3729(a)(1)(A). The trigger for liability is

front-and-center in the statute: there must be, among

other elements, a “claim for payment” that is “false or

fraudulent.” Id. The Act does not silently grant rela-

tors or the Government license to infer from a claim

for payment that the submitter has certified compli-

ance with any and all regulatory standards and con-

tractual provisions that conceivably might apply to

its business.

Thus, a proper reading of the FCA carefully cabins

what constitutes a “false or fraudulent claim.” A

claim can be “false or fraudulent” in three scenarios.

First, a claim may be false or fraudulent if it misrep-

resents the goods or services provided. That is, a

claim may be “false” if it falsely states the facts (for

example, that medical care was provided or that a

clinical laboratory service was performed when it was

not). Such a circumstance is, indeed, the classic sce-

nario the FCA was designed to target. See, ¢.g.,

Cong. Globe, 37th Cong., 3d Sess. 952, 955 (1863) (de-

scribing delivery of ammunition “filled not with the

proper explosive materials for use, but with saw-

dust” as a false or fraudulent claim under the FCA).

30

Second, a claim may be false or fraudulent if it con-

tains a false certification of compliance with a rule

that is expressly, specifically, and unambiguous-

ly referenced on the claims form and which itself is

unambiguous.

Third, a claim may be false or fraudulent if the un-

derlying services were performed in violation of a

statute that Congress itself has expressly, specifical-

ly, and unambiguously declared renders claims for

those services false within the meaning of the FCA.

Congress knows precisely how to do this, having

amended the Anti-Kickback Statute explicitly to de-

fine a claim submitted in violation of that statute as a

“false or fraudulent claim” under the FCA. See 42

U.S.C. § 1320a-7b(g) (“[A] claim that includes items

or services resulting from a violation of this section

constitutes a false or fraudulent claim for purposes of

[the FCA].”).

This three-part test is simple for courts to apply

and easy for providers to understand. Moreover, un-

like the endlessly pliable implied certification theory,

it provides clear notice of what the FCA prohibits,

and therefore avoids the Due Process concerns raised

by the implied certification theory. Fox Television

Stations, 132 S. Ct. at 2317.

2. To ensure clarity and proper notice under the

FCA, it is necessary also to ensure that express certi-

fications are truly express, otherwise government

contractors will continue to face the threat of improp-

erly broad liability under the Act. This is critically

important in the healthcare sphere, where providers

routinely are required to make hopelessly broad and

inherently ambiguous (even meaningless) representa-

tions in some existing claim forms. These certifica-

tions are far too vague and ambiguous to avoid the

31

Due Process issue, or the threat to the proper func-

tioning of a regulatory regime.

Consider CMS Form 1500, which is the standard

claims form that physicians and many other

healthcare providers use to submit claims to Medi-

care, Medicaid, and other federal healthcare pro-

grams. United States ex rel. Cieszyski v. LifeWatch

Servs., Inc., No. 13-cv-4052, 2015 WL 6153937, at *2

(N.D. Ill. Oct. 19, 2015). It states:

In submitting this claim for payment from

federal funds, I certify that: ... this claim,

whether submitted by me or on my behalf by

my designated billing company, complies

with all applicable Medicare and/or Medi-

caid laws, regulations, and program instruc-

tions for payment including but not limited to

the Federal anti-kickback statute and Physi-

cian Self-Referral law (commonly known as

Stark law).

CMS, Health Insurance Claim Form (Form 1500),

https://www.cms.gov/Medicare/CMS-Forms/CMS-

Forms/Downloads/CMS1500.pdf (emphasis added).

Although this statement appears on a claims form,

because it fails to expressly, specifically, and unam-

biguously identify relevant prerequisites to payment,

it fails to offer providers fair notice. Nonetheless, re-

lators frequently leverage this catch-all provision to

transform alleged violations of obscure, ambiguous

regulations into alleged acts of fraud. And unfortu-

nately, they have had significant success in convinc-

ing courts to adopt this sort of untethered application

of the FCA. See, e.g., Cieszyski, 2015 WL 6153937

(denying motion to dismiss complaint alleging that

defendant defrauded Medicare by submitting Form

1500 when in violation of a Medicare regulation pro-

hibiting technicians located outside the United States

32

from remotely conducting cardiac monitoring tests on

patients in U.S. healthcare facilities).

Various iterations of CMS Form 855, which provid-

ers complete when applying to participate in the

Medicare program, pose related problems. They too

contain catch-all provisions that state as follows: “I

agree to abide by the Medicare laws, regulations and

program instructions that apply,” and “I understand

that payment of a claim by Medicare is conditioned

upon the claim and the underlying transaction com-

plying with such laws, regulations, and program in-

structions.” See CMS, Medicare Enrollment Applica-

tion, Physicians and Non-Physician Practitioners

(Form 855]), https://www.cms.gov/Medicare/CMS-

Forms/CMS-Forms/Downloads/cms855i.pdf. Relators

routinely latch onto these utterly unbounded, limit-

less statements in Medicare enrollment forms as the

basis for implied certification FCA suits. See, e.g.,

United States v. Amsurg Corp., No. 2:12-CV-02218-

TLN, 2014 WL 7336671, *7 (E.D. Cal. Dec. 24, 2014).

Unfortunately, some courts have endorsed this ap-

proach. Id. (“Although Defendants were not required

to submit an explicit certification of compliance along

with each claim for payment, the certification is im-

plied in the language of Form 855—B.”).

Attaching FCA liability to such a statement is in-

appropriate for three reasons. First, the statement in

the enrollment form is not connected to any certifica-

tion on a claim for payment. Second, the “laws, regu-

lations, and program instructions” language is non-

specific. Third, any theory that holds healthcare pro-

viders liable for fraud based on forward-looking

promises to comply with all applicable Medicare laws

and regulations is not express, clear, and unambigu-

ous, and thus “lacks a discerning limiting principle.”

Sanford-Brown, 788 F.3d at 711. As noted, it is im-

33

possible under this kind of “certification” for a pro-

vider to know ex ante which of the countless laws and

regulations in this broad universe are conditions to

payment under the FCA, and which are not.®

* * *

The implied certification regime transforms the

FCA into a mechanism for attacking healthcare pro-

viders at will, without meaningful notice. Neither

the FCA’s text nor its purpose supports this interpre-

tation of the Act or Congressional intent. The theory

should thus be rejected in favor of an interpretation

of the Act such as the one amici propose, which stead-

fastly adheres to the Act’s central requirement of a

false claim as the cornerstone of liability. Adoption of

this interpretation would provide adequate notice,

dramatically reduce wasteful and unproductive qui

tam \itigation, allow healthcare providers appropri-

ately to focus their compliance efforts, and ultimately

strengthen the federal healthcare system for the ben-

efit of the beneficiaries of that system.

8’ Importantly, under our proposed rule, the statute does not

permit providers who lie upon enrolling in federal healthcare

programs to avoid liability so long as their subsequent claims for

payment are factually accurate. As this Court recognized in

United States v. Neifert-White Co., 390 U.S. 228 (1968), the FCA

permits liability on promissory-estoppel grounds. /d. at 232.

That subjects a provider to punishment if it makes an express,

specific, and unambiguous misrepresentation in an enrollment

application, not intending to comply with that certification at

the time it makes it, and later submits a claim for payment at-

tempting to benefit from that fraud. Our formulation—like the

Act—simply requires that the provider engage in actual

“fraud{}.” Id. (emphasis added).

34

CONCLUSION

The judgment of the court of appeals should be re-

versed.

Respectfully submitted,

Scott D. STEIN PAUL E. KALB, M.D.*

BRENNA E. JENNY WILLIAM A. SARRAILLE

SIDLEY AUSTIN LLP BRIAN P. MORRISSEY

One South Dearborn St. JOSHUA J. FOUGERE

Chicago, IL 60603 NICHOLAS J. GILES

(312) 853-7000 SIDLEY AUSTIN LLP

1501 K Street, NW

Washington, DC 20005

(202) 736-8000

pkalb@sidley.com

Counsel for Amici Curiae

January 26, 2016 * Counsel of Record