By Ron Kramer

Seyfarth Synopsis:  The PBGC is seeking more information on hybrid  or two-pool withdrawal liability calculation methods.  This is a sign that the PBGC may be re-evaluating its role in approving hybrid proposals, although it may be too early to tell which way it will dive, especially under a Trump administration.

The Pension Benefit Guaranty Corporation (PBGC) issued a Request For Information (RFI) , to be published January 5, 2017, asking 24 questions about hybrid or two-pool alternative arrangements for multiemployer pension plans.  Under a hybrid plan arrangement, a plan creates two pools for withdrawal liability purposes: The old pool for the “old employers,” and a new pool for “new employers” (and those old employers who “withdraw” from the old pool and move to the new pool).  New employers are generally assessed withdrawal liability under a direct attribution method, and are not subject to the unfunded vested benefit liability of the old pool.  Old pool members who agree to withdraw, pay their old pool liability, and move to the new pool often receive special considerations such as discounted withdrawal liability, lower contribution increases, and waivers of some or all potential old pool mass withdrawal liability risk. Funds began seeking PBGC approval for hybrid plans as a way to generate revenue, entice new employers to participate, and provide old employers concerned about their withdrawal liability risk a way to pay their current liability and continue to participate at a reduced risk.

Since 2011 the PBGC has received approximately 20 requests for approval of hybrid withdrawal liability arrangements.  Notable plans that have had their requests approved include the Central States and New England Teamsters Pension Funds.  When the first plans submitted their requests, the PBGC had not been asked to — nor did it — take into consideration the benefits offered existing employers to move to the new pool.  Some plans offered considerable deals in terms of discounted assessments, frozen contribution rates, and mass withdrawal relief.  In its RFI, the PBGC admits that, had it known of the terms of the settlements offered employers to move to the new pools, that “could have affected PBGC’s analysis of whether the statutory criteria [for adopting an alternative assessment method] had been satisfied.”  The PBGC has since begun to analyze proposed withdrawal liability settlement terms to see how that impacts any potential risk of loss and the overall validity of a proposed hybrid arrangement.

The PBGC in its RFI is particularly interested in learning about the terms and conditions that apply to new and existing employers that enter into hybrid arrangements, including alternative benefit schedules, special withdrawal and mass withdrawal payment terms, alternative withdrawal liability arrangements, and the pros and cons of such hybrid arrangements for participants and the PBGC as the insurer of multiemployer plans.  Some of the more interesting queries include:

l  How the PBGC should factor in discounted withdrawal liability settlements and changes to plan mass withdrawal liability rules in its determination of whether to approve a hybrid plan arrangement, and whether the PBGC should approve proposed withdrawal liability payment terms and conditions.

l  Whether plans that have adopted a hybrid model have increased their contribution base (i.e., did they add employers or at least more participating employees as intended) or retain employers that otherwise would have withdrawn.

l  Whether there have been legal challenges to the hybrid model, and what role collective bargaining played in creating and implementing such models.

l  Whether plans are considering other alternative arrangements for withdrawal liability that would address the concerns addressed by the hybrid arrangement.

The PBGC also has asked what information and resources it can provide to interested parties about the innovative means plans are using in alternative withdrawal liability arrangements and what it can provide regarding the PBGC’s process for considering hybrid models.

What is unclear is where the responses to an Obama PBGC RFI may take the Trump PBGC.  Will it assume more oversight of such arrangements, or less?  Will it support alternatives or oppose them?  As for current pending proposals, the PBGC claims the RFI is independent of and without prejudice to its ongoing review of those requests.  Yet some of those requests have been pending for a very long time.

Interested parties have 45 days to submit their comments.

By Kathleen Cahill Slaught and Shireen Yvette Wetmore

Seyfarth Synopsis: Insurer gets to pick its remedy when hospital engages in dishonest billing and illegal kickbacks…to the tune of $41 million.

Judge Lynn Hughes of the U.S. District Court for the Southern District of Texas closed out the year with a bang in Aetna Life Insurance Company v. Humble Surgical Hospital, LLC, No. Civil Action H-12-1206 (S.D. Tex. Dec. 31, 2016). The not-so-appropriately-named Humble Surgical Hospital, LLC (“Humble”) was sued by insurer Aetna for allegedly waiving patient fees and paying kickbacks to referring physicians through an elaborate, but ultimately not-so-clever, shell game in which the providers created shell LLCs and paid $3,500 annually in “administrative fees” to participate in the 300-bed hospital’s scheme.

In a scathing opinion, the court explained the scheme as follows, “Because no economically rational patient would choose [Humble] over an in-network provider, Humble paid referral fees to doctors, waived patient costs, and submitted inflated bills to Aetna.”

In a three-year period from 2010 to 2013, Humble managed to bill $41 million in fees paid by Aetna. The Court found that Humble had enticed patients with promises that their out-of-pocket costs would be equal to or less than the cost of using in-network services. Yet Humble was not part of the Aetna network, nor did it charge Aetna for services at the in-network negotiated rates. Humble also enticed the doctors with a 30% kickback–representing nearly $12 million in fees.

Clearly illegal, right? Comically, Humble attempted to argue that Aetna was not entitled to recovery because it knowingly paid Humble the amounts it charged without challenging the charges. Because Aetna did not know of the scheme, the Court said that the voluntary payment rule did not apply.

Humble also attempted to argue defenses based on preemption. The Court found that ERISA is silent regarding overpayment by providers and that recovery actions for fraud are not attempts to enforce the applicable plans. As such, the Court found that Aetna’s claims were not preempted.

Humble even attempted to argue the defense of unclean hands. The Court made short work of that: “Humble has no defense . . . [it] is filthy up to the elbows from lies and corrupt bargains.”

In the end, the Court gave Aetna a choice between three remedies:

  • $12 million – to recover the kickbacks Humble unlawfully gave to providers
  • $20 million – to recover the difference between the out-of-network fees paid and the in-network equivalents, OR
  • $41 million – to recover the total amount paid by Aetna to Humble during the three year period from 2010 to 2013.

Which would you choose?

 

 

By Ron Kramer

Seyfarth Synopsis: Seventh Circuit  finds employer still obligated to contribute to benefit funds for the life of the CBA even though the employees decertified the union.

Employers often assume that when their employees decertify a union, that any obligations an employer had under the operative collective bargaining agreement would disappear. No union, no contract.  Right?

Wrong! In Midwest Operating Engineers Welfare Fund v. Cleveland Quarry, Case Nos. 15-2628, -3221, -3861, 16-1870 (7th Cir. Dec. 20, 2016), employees in three separate IUOE bargaining units of the Company voted to decertify in 2013.  At the time, the Union and the Company were party to five year collective bargaining agreements expiring in 2015.  The Company assumed the decertification of the Union, which allowed it to set its own terms and conditions of employment, ended any contractual obligation to contribute to the multiemployer welfare and pension funds (“Funds”).

The Funds sued, and after they were successful in district court the Company appealed. The Seventh Circuit recognized that the collective bargaining agreements were unenforceable as to the Union, but found nevertheless that the Funds had the right under ERISA to bring a suit for delinquent contributions under 29 U.S.C. § 1145.  The Court based its decision on the idea that when the Funds promised to provide a level of benefits to the employees (presumably by allowing the employer to participate in the Funds under the terms of the CBAs), that created a binding contractual promise.  The Court also recognized that the Funds were third-party beneficiaries to the CBAs and thus entitled to enforce them even if the Union could no longer do so.  “[S]o far as benefit law is concerned the employees were still working ‘under the terms of’ the collective bargaining agreement.”

The Seventh Circuit is not alone in finding that an employer’s contractual obligations to participate in multiemployer funds can survive decertification, withdrawals of recognition, and disclaimers of interest. But there is a competing view.  The Ninth Circuit has recognized that when a bargaining unit ceases to exist, be it by decertification or contract repudiation given the existence of a one person bargaining unit, any existing contract becomes void, not voidable, ending the employer’s obligation to contribute to employee benefit plans. Laborers Health & Welfare Trust Fund v. Westlake Development, 53 F.3d 979 (9th Cir. 1995) (contract repudiation); Sheet Metal Workers’ Int’l Ass’n v. West Coast Sheet Metal Co., 954 F.2d 1506 (9th Cir. 1992) (decertification case were the court held “that the renewal contract became void prospectively as of the decertification of the Union”).  Notably, the Seventh Circuit did not address the Circuit split.

Employers lucky enough to have employees decertify prior to contract expiration cannot assume their obligations to the funds necessarily end. Consult counsel before making any rash moves you may live to regret.

By Mark Casciari and Chris Busey

Seyfarth Synopsis: The Supreme Court’s grant of certiorari in three Church Plan cases presents the possibility that many Church Plans thought for years to be exempt from ERISA rules, including its funding rules, will now have to comply with the statute. It also presents a possible issue of Article III standing — even though not part of the issue on which the Court granted certiorari — whether some of the plaintiffs are unable to sue in federal court because they allege the risk of an injury in the future, but not a concrete injury at present.

It has been widely reported that the Supreme Court soon could require over $1 billion in new defined benefit plan funding with the stroke of a pen when it decides whether Church Plans thought for years to be exempt from ERISA funding rules are really not exempt.  The three Courts of Appeal opinions now being reviewed by the Court are: Rollins v. Dignity Health, 830 F.3d 900 (9th Cir. July 26, 2016); Stapleton v. Advocate Health Care Network, 817 F.3d 517 (7th Cir. Mar. 17, 2016); and Kaplan v. St. Peters Healthcare System, 810 F.3d 175 (3d Cir. Dec. 29, 2015). In each of these cases, employees of the hospital systems alleged that the pension plans maintained by their employers were misclassified as ERISA-exempt.

We have been monitoring developments in these cases (see our previous blog posts here and here), and now the Supreme Court’s decision to review the Rollins, Stapleton, and Kaplan opinions presents the possibility of a nationwide reclassification of many Church Plans, with enormous consequences, especially in the funding context. The funding consequences arise because ERISA funding rules are more exacting than the funding standards under which the plans at issue have been governed.

The Supreme Court will consider a question of statutory interpretation. ERISA Section 3(33)(A) defines an exempt Church Plan as one established and maintained “by a church or by a convention or association of churches which is exempt from tax.” The issue becomes whether ERISA’s church-plan exemption applies if a plan is maintained by a tax-qualifying church-affiliated organization, or if the exemption applies only where a church established the plan. Each of the Courts of Appeal under review declined to defer to the IRS’s opinion–expressed in a 1983 memorandum from the IRS General Counsel–that Church Plans include those maintained by a church-affiliated organization regardless of the identity of the entity that established the plan. The Supreme Court’s question presented explicitly references, as well, the 30-plus-year history of Church Plan classifications by the federal Department of Labor and Pension Benefit Guaranty Corporation that correspond to that of the IRS.

One sleeping issue in these cases may have implications for ERISA litigation generally. The Court’s Church Plan decision may intersect with its recent decision in Spokeo Inc. v. Robbins, 136 S.Ct. 1540 (2016). Spokeo dealt with the U.S. Constitution’s Article III standing precondition to any federal lawsuit, and said that a plaintiff must allege a “concrete injury” to bring suit (see here and here for additional background). The plaintiffs in the Church Plan cases under review allege a number of ERISA violations that have occurred as a result of a possible misclassification of their pension plans. These include that the plans failed to meet ERISA’s funding, fiduciary and reporting and disclosure requirements. To be sure, some plaintiffs also allege a clearly concrete injury — for example, an actual loss of benefits due to the plan’s vesting schedule that fails to meet ERISA minimums. But under Spokeo, it is unclear if alleged funding, fiduciary and reporting and disclosure “injuries,” in the absence of a specific, personal harm, or non-speculative risk of harm, would pass muster as sufficiently concrete. Although the Supreme Court did not request briefing on the Article III issue, it may address a lack of Article III standing, as a question of subject matter jurisdiction may arise at any point in federal litigation. ERISA litigators should read the coming Church Plan decision to see if it contains an Article III analysis that has implications beyond the Church Plan context. If it does not, litigators nonetheless should be aware that the last word on the intersection of Spokeo and ERISA will not yet be written.

By: Alexius O’Malley and Sam Schwartz-Fenwick

Seyfarth Synopsis: A Court ruled that under the Affordable Care Act, an ERISA governed plan exclusion cannot unequivocally bar emergency medical care related to injuries sustained in a fireworks explosion.

Recently, a federal court in Minnesota addressed whether a participant in a self-funded ERISA-governed welfare plan, could recover $225,000 in medical care and expenses incurred for injuries participant sustained in an explosion while igniting mortar-style fireworks on Independence Day 2015.  In Henrikson v. Choice Products USA, LLC, 16-CV-1317 (MJD/LIB), 2016 WL 6143357 (D. Minn. Oct. 20, 2016), the plan had denied the benefit claim due to its illegal activities exclusion for medical care. In challenging the benefit denial, Plaintiff raised a mix of claims under ERISA, common-law and the Affordable Care Act (ACA).

The Court found that the illegal activities exclusion was unambiguous. It further found the exclusion was not void as a matter of public policy. In so finding the Court rejected Plaintiff’s novel theory that because “everyone” lights fireworks on Independence Day, applying the illegal activities exclusion would be improper

The Court found it could not determine on a motion to dismiss whether the illegal activities exclusion extended to firework use. It noted the plan was ambiguous as to which law governed the illegality of an activity. Plaintiff argued that the plan was ambiguous in that the applicable law could be Minnesota (Plaintiff’s residence, where igniting fireworks is illegal), Wisconsin (the employer’s home state, where the plan was given effect, where igniting fireworks is legal), or Federal (due to ERISA preemption, where no federal law exists that would render ignition of fireworks illegal). The appropriate governing law for criminal activity would typically be the state in which the act occurred, nonetheless, the Court declined to rule on that issue at the motion to dismiss stage and found Plaintiff’s ambiguity argument plausible.

The Court further found that because the plan at issue was a “group health plan” under the ACA and that Plaintiff sufficiently pled that the plan covers some services in an emergency department of the hospital, it was “facially plausible” that the ACA would require the plan to provide “emergency services” and could not deny such coverage. The ACA does not mandate that a “group health plan” cover emergency services, but it does mandate that if a plan does cover “emergency services” those services must be reimbursed at the same level in-network and out-of-network. A ruling that the ACA requires coverage for emergency services would be a very broad expansion of the law.

This decision highlights the importance of ensuring that plan language is clearly drafted so as to avoid preventable ambiguity. The decision further underscores plaintiffs’ utilization of the ACA to increase the theories and remedies available in ERISA benefits cases.

By: Amanda Sonneborn and Thomas Horan

Be careful what you ask for. The Plaintiff in a recent case from the Central District of California learned that lesson when the Plan’s re-evaluation of her claim for benefits revealed that she was apparently working as a stunt coordinator and stunt actress, despite having received disability pension payments for nearly ten years. In Hoffman v. Screen Actors Guild-Producers Pension Plan, the Plaintiff sought to convert her disability pension to an “occupational disability pension” to receive the additional benefit of health coverage. The Plan denied her request, finding a lack of evidence that her disability (severe depression) had resulted from her employment as a stunt actress. The Benefits Committee denied her appeal of that decision, and Plaintiff brought suit to challenge that determination. No. 2:16-cv-01530, 2016 WL 6537531 (C.D. Cal. Nov. 2, 2016).

The district court granted the Plan’s original motion for summary judgment on May 3, 2012. The Ninth Circuit reversed that decision, finding that the Plan had failed to provide Plaintiff a full and fair review, and directed that the case be remanded to the Plan to obtain a second medical opinion. The Plan submitted Plaintiff’s file for consideration by two panels, including six different specialists. Five specialists reached the conclusion that Plaintiff had never been “totally disabled” under the Plan. The sixth found that she could work in jobs that met certain criteria.

The review also revealed that Plaintiff had continued working as a stunt coordinator since 2004, despite receiving disability pension benefits because she was “unable to work.” Plaintiff’s personal website, LinkedIn profile, and IMDb page listed stunt and acting credits from 2004 through 2010. Plaintiff removed these posts after Defendants brought them to the court’s attention in supplemental pleading.

In March 2016, the Benefits Committee both denied Plaintiff’s appeal as to her “occupational disability pension” and terminated her disability pension. Plaintiff again sued to challenge that determination. The parties agreed that the Plan gave discretion to the administrator, and the court applied an abuse of discretion standard. The court found that the decision to deny Plaintiff benefits was neither arbitrary nor capricious.

The court found that the Benefits Committee had given Plaintiff a clear, reasoned explanation of its decision, and that it was rationally based on two reports, from six different medical specialists, as well as on Plaintiff’s various internet profiles. As the Committee did not abuse its discretion, the court found that Plaintiff lacked standing to challenge the Plan’s failure to comply with disclosure requirements, as she lacked a colorable claim on her suit for benefits.

This case demonstrates the value of thoroughly investigating a claim for benefits, and documenting the investigation. What plaintiffs say in court filings or claims for benefits is not always consistent with what they say in other arenas. This decision shows that courts are willing to consider evidence that plaintiffs’ social media or internet presence can disprove their claims to be totally disabled or otherwise unable to work.

By: Amanda Sonneborn and Jules Levenson

Seyfarth Synopsis: Court excludes evidence of Social Security disability award issued after the final decision issued on plaintiff’s claim for plan disability benefits.  The decision accentuates the importance of fighting to limit the evidence before a Court on review of a plan administrator’s decision.

Just like football is a game of inches, a recent case from the Northern District of Ohio reminds us that the outcome of a denial-of-benefits appeal can sometimes turn on quirks of timing.  In Folds v. Liberty Life Assurance Co., the Plaintiff had successfully sought benefits for his Crohn’s disease under his own-occupation disability plan and had been receiving benefits for 10 months when Defendant questioned his continuing eligibility and ultimately determined that he was no longer eligible for benefits. No. 15-CV-00354, 2016 WL 5661615 (N.D. Ohio September 30, 2016).

Plaintiff unsuccessfully then appealed twice, with his second appeal being decided only four days before the Social Security Administration awarded him benefits. Id. at *6.  He then sued claiming that the denial of benefits was arbitrary and capricious, based in part on the failure to consider the SSA decision, as well as a host of other reasons, including failure to conduct an independent medical exam, reliance on Defendant’s own physicians’ file review, failure to consider a letter from Plaintiff’s primary care physician and failure to consider a vocational report.

In a significant victory for Defendant, the Court struck the SSA decision because it had been issued after the conclusion of the appeal process and was therefore not part of the administrative record. In light of this ruling, the Court refused to consider the SSA decision, which had been submitted by Plaintiff to “show how a neutral body would analyze the very same set of facts,” holding that that the decision was not properly before the Court. Id. 

This case serves as a victory for plan administrators who often engage in heated battles with plaintiffs who seek to ever expand the scope of administrative records.  The decision here can be used by administrators as strong support for the proposition that courts should only consider the evidence before the administrators at the time of decision when reviewing those administrator’s decisions.

By: Danielle Vera and Sam Schwartz-Fenwick

Seyfarth Synopsis: Currently before the  Supreme Court are two petitions regarding the thorny legal question of which organizations can qualify for ERISA’s Church-plan exemption. If the Supreme Court grants certiorari and follows the recent Third and Seventh Circuit Court decisions, then all Church-affiliated organizations (e.g. church affiliated hospitals, daycares, and adoption agencies) will have to bring their existing plans into compliance with ERISA, likely at a substantial cost both to their bottom line and to their religious mandate.    

In the fall term, the Supreme Court may address an ERISA question with broad ranging impact on the First Amendment. Specifically, currently before the Court are petitions in two cases (Saint Peter’s Healthcare System v. Kaplan and Advocate Health Care Network v. Stapleton) where the appellate court found that benefit plans established by religious hospitals (Church-affiliated organizations) are not eligible for ERISA’s Church-plan exemption and therefore are subject to ERISA..

Both the Third and Seventh Circuits found that the defendant healthcare organizations did not qualify for the ERISA Church-plan exemption, as they were Church affiliated organizations not Churches. They reasoned the Church-plan exemption was very limited and only applied to plans established by a church, or by a convention or association of churches. The courts found that the exemption does not apply to plans established and maintained by a Church-affiliated organization. In reaching this holding, the courts rejected the arguments that both the legislative history and text of ERISA support a broad Church-plan exemption that extends to Church affiliated organizations.

While a Circuit split has not yet emerged on this issue, there is still a significant chance that the Supreme Court will grant certiorari, given that these cases touch on the limits of the Federal government to regulate religion.

As a practical matter, if the Supreme Court affirms the rulings of the Circuit Court it will be difficult financially for many of these plans to comply with ERISA. Subjecting formerly exempt plans to the strictures of ERISA places high monetary demands on Church-affiliated organizations that maintain pension plans. For instance, the plan will be subjected to ERISA disclosure requirements and compliance with the funding requirements of the Pension Protection Act of 2006. In addition, an affirmance of the Circuit Courts’ holdings will cause many plans to make amendments that contradict the religious tenets of the Church with which they affiliate. For instance, retirement and welfare plans, suddenly subject to ERISA, will likely be very limited in their ability to limit health and survivor benefits to opposite-sex spouses (a core tenet of many religious entities that maintain Church plans). Even if the Supreme Court were to affirm the Circuit Courts’ holdings, it is certain that the plans, relying on the decision in Hobby Lobby, would argue that their religious right to provide benefits in accord with their religious tenets should control. How the Supreme Court will ultimately decide that issue has broad implications for employers and plan sponsors as it will help clarify the line between an employer’s freedom of religion, and an employee’s entitlement to certain benefits under anti-discrimination laws.

By:  Jim Goodfellow and Mark Casciari

Seyfarth Synopsis: The U.S. Department of Labor has recently issued its new regulation expanding the definition of fiduciary under ERISA, but there are a number of lawsuits challenging the authority of the DOL to issue the regulation — stay tuned to see how the DOL fares in the courts.  

In April, the Department of Labor issued new regulations under ERISA related to individuals who offer investment advice to ERISA plans, their fiduciaries, or participants for a fee.

The DOL now says that a fiduciary is someone who provides recommendations or advice for a fee to a plan, a plan fiduciary, a plan participant, or an IRA owner for a fee regarding: (1) the advisability of acquiring, holding, disposing, or exchanging plan or IRA assets; (2) the investment of assets after those assets are rolled over, transferred, or distributed from a plan or IRA; and (3) the management of those assets. The new regulation became effective on June 7, 2016.

Investment advisers and other groups are not taking this new rule lying down, and the DOL now faces a number of separate lawsuits, which allege that the DOL overstepped its rule making authority when it issued its new regulation.  Five of those lawsuits have been consolidated into one action in the United States District Court for the Northern District of Texas, and a hearing in that consolidated action has been set for November 17, 2016. Another lawsuit has been filed in the United States District Court for the District of Kansas.

In yet another suit, National Association for Fixed Annuities v. Perez, 16-cv-01035 (D.D.C.), the parties are briefing a motion for a preliminary injunction filed by the plaintiff association. The plaintiff association has argued, among other things, that implementing the new rule will have irreparable harm on the fixed annuity industry because the new fiduciary definition will cause jobs to hemorrhage. In addition, the plaintiff argues that the DOL has expanded fiduciary liability far beyond Congress’ intent when it passed ERISA–according to the plaintiff, ERISA fiduciary status is meant to cover only those who provide ongoing management of the plan or its assets.

The DOL has responded with a cross motion for summary judgment and a memorandum in opposition, arguing that its regulation comports with ERISA, and that the plaintiff is playing Chicken Little as to the harm to its membership.

Stay tuned. This surely will wind up before one or more Courts of Appeal and perhaps the Supreme Court.

An Expanding Universe of Healthcare Provider Liability:  The United States Supreme Court Endorses “Implied False Certification” under the False Claims Act

By Jonathan Braunstein and Nabeel Ahmad

http://www.seyfarth.com/JonathanBraunstein

http://www.seyfarth.com/NabeelAhmad

 

Seyfarth Synopsis:

In Universal Health Services Inc. v. U.S. et al. ex rel. Escobar et al., the United States Supreme Court found a healthcare provider liable under the False Claims Act (“FCA”) for material omissions on its claim for payment because the claim made specific representations, and the provider’s failure to disclose its noncompliance with regulatory requirements made those representations misleading.

The Holding

On June 16, 2016, the Supreme Court considered and endorsed the “implied false certification” theory of liability under the False Claims Act. Specifically, the Supreme Court held a defendant may be liable for a material omission on a claim for payment if the claim makes specific representations, and the defendant’s failure to disclose its noncompliance with a statutory, regulatory, or contractual requirement renders those representations misleading. Going even further, the Supreme Court held that a defendant may be liable even if the requirement that the defendant did not comply with was not an express condition of payment.

The Underlying Facts

A beneficiary of a state Medicaid program received counseling services at a mental health facility owned and operated by Universal Health. The beneficiary died after suffering an adverse reaction to medication prescribed by the facility. After the beneficiary’s death, her guardians learned that the vast majority of the facility’s employees were not licensed or authorized to prescribe medication or offer counseling without supervision. The guardians filed a qui tam action against Universal Health alleging that it had violated the FCA under the “implied false certification theory” of liability.

The Supreme Court’s Analysis

In a unanimous decision written by Justice Thomas, the Supreme Court agreed with plaintiffs. First, the Supreme Court considered whether submitting a claim without disclosing violations of statutory, regulatory, or contractual requirements constituted an actionable misrepresentation under the FCA. Finding that it did, the Court wrote that by submitting claims for payment using payment codes corresponding to specific services, Universal Health represented that specific types of treatment were provided. The facility’s staff members made further representations by using National Provider Identification numbers corresponding to specific job titles. By conveying this information without disclosing the facility’s many violations, Universal Health’s claims constituted actionable misrepresentations.

Second, the Supreme Court considered Universal Health’s argument that FCA liability should be limited to undisclosed violations of express conditions of payment. The Court disagreed, and held that this argument was not supported by the text of the statute or the statute’s scienter requirement. According to the Court, a defendant can have actual knowledge that a condition is material even if not expressly designated as a condition of payment.

Third, the Supreme Court clarified the FCA’s materiality requirement and held that the Government’s decision to specify a provision as a condition of payment is relevant, but not dispositive. The Supreme Court noted that it is not sufficient for a finding of materiality that the Government would have declined to pay a claim if it knew of the defendant’s noncompliance.  Materiality also cannot be found if the defendant’s noncompliance with statutory, contractual, or regulatory requirements is minor or insubstantial. Moreover, payment of a claim despite actual knowledge that certain requirements were violated is strong evidence that those requirements are not material. The Supreme Court vacated the First Circuit Court of Appeal’s ruling because its materiality standard was too broad.

Takeaway for ERISA plans: The Supreme Court’s Endorsement of Implied False Certification Liability Will Help ERISA Plans Defend Provider Collection Actions, Prosecute Overpayment Recovery Actions, and Deter Future Fraud

Although this case involved claims for payment under the FCA, the ruling is of great relevance and aid to ERISA plans. Claim submissions by providers to ERISA benefit plans often contain actionable material omissions and concealments akin to “implied false certifications” under the FCA.

If providers concealed material information on their claim submissions to ERISA benefit plans, they should not be able to recover allegedly owed but unpaid claims. The “implied certification” theory under the FCA can be cited by ERISA plans in support of affirmative defenses (such as unclean hands) to collection actions brought by providers.

Similarly, ERISA plans should be able to claw back overpayments induced by the providers’ material omissions and concealments. Fraudulent omissions, concealments and “implied false certifications” support claims by ERISA Plans under state law (see e.g., Cal. Civil Code 1710, sub. 3) to recover overpayments and offset future amounts owed.

Health care fraud, waste and abuse have a significant impact on our economy. Public agencies and private companies are focused on controlling costs and are increasing anti-fraud efforts.  Hopefully, the Supreme Court’s decision will serve as a fraud deterrent going forward. We fully expect to see many more civil and criminal healthcare fraud and provider billing disputes involving “implied false certification” in the near future.