In a break with other Circuits, the First Circuit recently reaffirmed its broad definition of a “false statement’ under the False Claims Act. United States ex rel. Escobar v. Universal Health Services, Inc., No. 14-1423 (1st Cir. Mar. 17, 2015). Notably, the court continues to take a “broad view of what may constitute a false or fraudulent statement to avoid ‘foreclosing FCA liability in situations that Congress intended to fall with the Act’s scope.’” Id. at 14.
This case arose from the treatment and untimely death of the plaintiffs’ daughter at Arbour Counseling Services, a mental-health facility owned by the defendant. The plaintiffs allege that Arbour violated state and federal law by allowing untrained and unlicensed employees to treat their daughter, and by further allowing these employees to be supervised by a psychiatrist that was not board certified. Following a state investigation, the plaintiffs brought a state and federal FCA suit alleging that Arbour submitted fraudulent medical claims that presupposed that the medical providers were properly licensed and supervised. The district court dismissed the case because the regulations at issue were not a precondition to payment. The First Circuit reversed.
The First Circuit initially recounted the ways in which other courts have defined falsity. The Second and Tenth Circuits, for example, distinguish factual falsity from legal falsity. See, e.g., United States ex rel. Conner v. Salina Reg’l Health Ctr., Inc., 543 F.3d 1211, 1217 (10th Cir. 2008); Mikes v. Straus, 274 F.3d 687, 696-97 (2d Cir. 2001). Meanwhile, the Third Circuit further distinguishes legal falsity between implied and express certification of compliance with conditions of payment. See United States ex rel. Wilkins v. UnitedHealth Grp., Inc., 659 F.3d 295, 305-06 (3d Cir. 2011). Although the First Circuit had the opportunity to follow the lead of one of these courts, it ultimately deferred reaching that issue in favor of holding that “noncompliance with conditions of payment is sufficient to establish the falsity of a claim for reimbursement.” In other words, the court found that Massachusetts imposes supervision requirements on providers such as Arbour, and thus, the state may reimburse Arbour’s claim only if Arbour satisfies the supervision preconditions.
Unlike at least the Second, Third, and Tenth Circuits, the First Circuit declined to expressly embrace “a distinction between conditions of payment and conditions of participation.” Though this split in authority is notable in its own right, this case remains relevant nevertheless due to the First Circuit’s willingness to broadly define falsity at the pleading stage.
