To prove a False Claim under the False Claims Act (FCA), the government or relator must establish three elements:
- Falsity;
- Knowledge; and
- Materiality.
In this blog post, we will explore the Falsity element. The FCA does not define “false,” but courts have established two types of falsity that can create liability under the FCA: factual falsity and legal falsity.
Factual Falsity
A claim is factually false when it misrepresents the goods or services provided to the government, or for which the government is providing reimbursement. Consider the following hypothetical demonstrating factual falsity:
A home health care agency that receives Medicare reimbursement routinely sends nurse practitioners to patients’ homes to perform check-ups and determine whether patients require further medical care. Following the pandemic, the agency had a difficult time hiring and retaining nurse practitioners, so the agency sometimes sent medical technicians to complete the in-home check-ups when nurses were not available. However, the agency consistently coded the visits for Medicare reimbursement as though licensed nurse practitioners performed the exams.
Under this scenario, the home health care agency has repeatedly submitted claims to Medicare that misrepresent the services provided; these claims are factually false. The following are other examples of factually false claims:
- Billing the government for goods that do not meet the minimum specifications in the contract
- Billing the government for project employees working full 8-hour days when, in practice, some employees worked part of the day on unrelated commercial contracts
- Upcoding medical services for Medicaid or Medicare reimbursement
Legal Falsity
Legal falsity is more complex, and courts have established several different theories of legal falsity: express false certification, implied false certification, and fraudulent inducement.
An express false certification exists when a government contractor or program participant failed to comply with its contract or applicable statutes or regulations, but falsely certified to the government that it complied. On the other hand, an implied false certification exists if a contractor submits a claim for payment to the government but fails to disclose its noncompliance with a statutory, regulatory, or contractual requirement. Fraudulent inducement occurs when a government contractor or program participant causes the government to enter into a contract through fraudulent statements or actions. Under the fraudulent inducement theory of FCA liability, every claim submitted to the government under the resulting contract is legally false.
Consider the following hypothetical demonstrating all three types of legal falsity:
A Department of Defense (DOD) solicitation requires compliance with CMMC Level 2. A contractor submits its proposal, along with a Level 2 CMMC compliance self-certification, and wins the contract. The contractor actually is not compliant with some required security controls at the time of its self-certification, and it remains non-compliant during contract performance. The contractor submits monthly invoices to DOD but fails to disclose that it is not compliant with the CMMC requirements.
Under this scenario, the contractor made an express false certification—i.e., its self-certification of compliance with CMMC Level 2 requirements—to the government during the proposal process. The contractor also may be liable for fraudulent inducement if the false self-certification induced DOD to enter the contract. Finally, the contractor could be liable under an implied false certification theory for requesting payment during performance but failing to disclose to the government that it was not in compliance with the CMMC requirements.
Other potential examples of legal falsity include the following:
- Falsely certifying to small business status to obtain a set-aside contract
- Omitting special discounts given to commercial customers when disclosing commercial sales practices during a Federal Supply Schedule negotiation
- Submitting claims for reimbursement to Medicare and Medicaid without disclosing that the provider is improperly maintaining patients’ confidential health records in violation of HIPAA
Knowledge & Materiality
The examples above demonstrate that there are many ways claims can be “false” under the FCA. However, falsity is only the first hurdle the government must clear to prove liability under the FCA. Even where the government or relator can prove that a claim is false, it must also prove that (1) the government contractor or program participant knew its claim was false or recklessly disregarded the truth or falsity of the claim, and (2) the specific falsity was material to the government’s decision to pay the claim. If the government or relator cannot establish those two additional elements, there can be no FCA liability. We will examine the FCA’s knowledge and materiality requirements in future blogs.
This is the second blog in a series on the False Claims Act, 31 USC §§ 3729, et seq., which targets any person that knowingly submits false claims for payment or false statements material to false claims to the US government. You can view our previous post on who is vulnerable to FCA liability here. There is some variation in how federal courts in different jurisdictions evaluate FCA liability, including the falsity element. If your company is facing a qui tam complaint, government subpoena, or other FCA-related issue, it is important to engage counsel quickly to preserve all available defenses, protect your legal rights, and assess your company’s specific situation based on the case law in your jurisdiction.
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