In the wake of the Supreme Court’s False Claims Act (FCA) decision in United Health Services v. United States ex rel. Escobar (Escobar), which affirmed and constrained the implied certification theory based on the materiality of the subject of the implied certification, the end of 2017 has seen a number of appellate decisions grappling with the materiality standard. In particular, the Escobar decision, which Venable first reported on in June of 2016, held that the implied certification theory can create FCA liability when:
Each claim for payment that a federal funding recipient makes against a grant or cooperative agreement is subject to federal and state False Claims Acts. Grantees who submit noncompliant claims can face liability that can impose steep damages and penalties. Understanding what constitutes a “false claim” and how to respond to reports of false claims are essential for all federal fund recipients.
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As discussed in our December 2015 and May 2016 Federal Grant & Contract News for Nonprofits newsletters, in Universal Health Services v. Escobar, the U.S. Supreme Court (the Court) considered whether the theory of “implied certification” would remain a viable theory of liability under the federal False Claims Act (FCA). Last week, the Court upheld that theory. As the Court explained, under that theory, when “a defendant makes representations in submitting a claim but omits its violations of statutory, regulatory, or contractual requirements, those omissions can be a basis for liability if they render the defendant’s representations misleading with respect to the goods or services provided.” However, for a recipient of federal funds to be liable under the FCA for violations of statutory, regulatory, or contractual requirements, those requirements must be “material.” The Court’s decision largely examined what it meant for a statutory, regulatory or contractual requirement to be “material.” Given that grants and cooperative agreements are largely governed by regulation, this is a significant doctrine for nonprofit federal grantees.
An underappreciated section of the federal Bipartisan Budget Act of 2015 garnered renewed attention this month when federal agencies began issuing rulemakings to increase civil penalties, including those under the FCA. Section 701 of the Bipartisan Budget Act of 2015, titled the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 (the Act) (amending the Federal Civil Penalties Inflation Adjustment Act of 1990), requires federal agencies to increase the level of civil monetary penalties through an interim final rulemaking by August 1, 2016. Federal agencies are further required to make annual adjustments by January 15 every year thereafter.
On April 19, 2016, the U.S. Supreme Court (the Court) heard oral arguments in Universal Health Services (UHS) v. Escobar, a case that will decide whether “implied certification” will remain a viable theory of liability under the federal False Claims Act (FCA). Under the theory, a claim for payment can be considered “false” when the individual or entity seeking payment is noncompliant with a statutory, regulatory, or contractual provision, even if compliance with the provision is not an express condition of payment. The case could have far-reaching effects for nonprofit grant recipients of federal funds that are subject to innumerable and ever-changing regulations, as well as a myriad of contractual terms. Venable has discussed the case in a previous alert.
According to the U.S. Department of Justice (DOJ), a former nonprofit contractor employee was sentenced to 46 months in prison for his role in a bribery scheme involving a federal program in Afghanistan and conspiracy to structure financial transactions to avoid certain reporting requirements.
In Potterf v. The Ohio State University, et al., the court emphasized that in order for a grantee to be found liable under the False Claims Act for an alleged false statement made in order to receive grant funding, that false statement must be material to the government’s decision to award the grant to the nonprofit. The materiality standard is an important threshold for the defendants under the False Claims Act that can shield grantees from frivolous allegations. In the Potterf case, the owner of a gym, Ohio Fit Club, LLC, brought an FCA lawsuit under the statute’s qui tam provision against Ohio State University and a researcher at the University, Steven T. Devor. Devor conducted a study focused on more than forty members of the plaintiff’s gym and published his findings in an article the relator the plaintiff alleged helped Devor to bolster his reputation. The plaintiff further alleged that the University and Devor falsified the results of a fitness study. The plaintiff asserted that the defendants’ falsified results aided in their ability to obtain $273 million in subsequent grants from the National Institutes of Health (NIH).
On Friday, December 4, 2015, the Supreme Court of the United States (SCOTUS) granted review in United States v. United Health Services, Inc., 780 F.3d 504 (1st Cir. 2015) cert. granted in part, 84 U.S.L.W. 30337 (U.S. Dec. 4, 2015) (No. 15-7), to determine important issues about the scope of the federal False Claims Act (FCA), 31 U.S.C. § 3729, a statute that makes it unlawful for any person to knowingly submit a false or fraudulent claim for payment to the federal government. The FCA applies to both federal contractors and recipients of federal grant and cooperative agreement assistance. The steep damages associated with an FCA violation (three times the damage sustained by the government, plus civil penalties of $5,500 to $11,000 per claim) have enabled the federal government in recent years to recover billions of dollars from various entities, including numerous nonprofit organizations, in both court victories and FCA settlements.
The University of Florida recently agreed to pay $19,875,000 to settle an alleged civil False Claims Act (31 U.S.C. § 3729) violation brought by the U.S. Department of Justice (DOJ), on behalf of the U.S. Department of Health and Human Services (HHS). According to DOJ, the university overcharged employee salaries to a grant, inflated the cost of services performed by an affiliate, and directly charged equipment and supplies that were not within the scope of the relevant grant. The university first discovered some of the issues in 2006 during an internal audit of the school’s grant-reimbursement system. Although the school made some changes to its reimbursement system at that time, the government first learned of the incident in 2009 during a routine federal audit.
Earlier this month, in Gary Siebert v. Gene Security Network, Inc., No. 3:11-cv-01987-JST (N.D. Cal. Feb. 4, 2015), a federal jury found that a grantee that allegedly submitted false claims to the National Institute of Health in relation to a Federal award did not violate the False Claims Act (FCA). Under the FCA, 31 U.S.C. § 3729 et seq., any person who “knowingly” presents or causes to be presented a false claim for payment shall be liable to the United States for civil penalties of $5,500 to $11,000 plus three times the amount of damage sustained by the Federal Government. According to a former employee, the grantee made misstatements to the Government about its ability to track workers’ time, claiming that the organization’s lack of internal controls prevented it from determining whether the grant money was spent properly. A former employee of the grantee brought the suit as a qui tam action.
On December 1, 2014, MCCCD agreed to pay $4.08 million to resolve allegations that it submitted false claims to the Corporation for National and Community Service (CNCS) concerning AmeriCorps state and national grants. MCCCD obtained AmeriCorps funding for Project Ayuda, a program that proposed to engage students in national service. In order to receive an AmeriCorps education award up to $5,350, a student had to meet certain service-hour requirements. Between 2007 and 2010, MCCCD allegedly falsified student timesheets and improperly certified that students had completed the required number of service hours to be eligible for an education award. According to the complaint, students counted hours for activities toward the requirements that did not qualify for an AmeriCorps education award. For more information regarding the settlement and allegations, click here and here.