Supreme Court Gives Contractors Partial Win on Fraud Suits

WASHINGTON (Bloomberg News/TNS) -

The U.S. Supreme Court on Thursday limited the reach of a whistle-blower law designed to ferret out fraud, in a mixed ruling for health-care companies and other government contractors.

The justices unanimously told a lower court to revisit a ruling that let Universal Health Services Inc. be sued under the U.S. False Claims Act for allegedly using unlicensed and unsupervised staff at a counseling center in Massachusetts. The suit is being pressed by the parents of a girl who died of a seizure after being treated at the facility.

The lawsuit says Universal Health failed to comply with state regulations, making its request for reimbursement under the federal-state Medicaid program fraudulent.

Lower courts had been divided on the extent to which companies can be sued under the False Claims Act for violating regulations that aren’t explicitly mentioned in a government contract or a contractor’s request for payment.

Writing for the Supreme Court, Justice Clarence Thomas said companies in some cases can be sued for “implied false certification” — that is, submitting a reimbursement claim that suggests compliance with a regulation without saying so directly.

“Half-truths — representations that state the truth only so far as it goes, while omitting critical qualifying information — can be actionable misrepresentations,” Thomas said.

At the same time, Thomas said those pressing suits face a high bar in showing that a contractor’s misrepresentation was important enough to warrant legal liability for fraud. He said a misrepresentation must be “material” to the government’s decision to pay a reimbursement claim.

That standard is “demanding,” Thomas wrote. “The False Claims Act is not an all-purpose anti-fraud statute.”

The lawsuit against Universal Health is being pressed by the parents of Yarushka Rivera, who received counseling at the company’s Arbour Counseling Services in Lawrence, Massachusetts. She was diagnosed with a bipolar disorder, given medication and died of a seizure at age 17 in 2009.

The girl’s mother and stepfather claim she was repeatedly treated by people who didn’t have the qualifications the facility claimed. The person who prescribed the medicine was allegedly a nurse who lacked authority to do so without supervision.

The suit alleges that Arbour defrauded the government by submitting Medicaid claims with codes that corresponded to services other than the ones actually provided.

Thomas said Rivera’s parents “may well have” made serious enough allegations to let the suit go forward.

The parents “have alleged that Universal Health misrepresented its compliance with mental health facility requirements that are so central to the provision of mental health counseling that the Medicaid program would not have paid these claims had it known of these violations,” he wrote.

Both sides claimed victory.

“It is significant that the court remanded to the lower court to reconsider the case under the new, rigorous standard of materiality,” Universal Health’s Supreme Court attorney Roy Englert said in an email.

The family’s attorney, David Frederick, said the ruling was a “big win for taxpayers and provides a valuable set of principles for combating fraud against the government.”