On June 9, 2008, the United States Supreme Court limited the scope of the False Claims Act (FCA) with its opinion in Allison Engine Co. v. United States ex rel. Sanders, a decision that potentially calls into question the applicability of the FCA to Medicaid claims. The FCA is a federal statute that allows individuals to sue on behalf of the federal government for false claims made to the federal government. In a unanimous ruling the Supreme Court addressed whether a plaintiff asserting a claim under the FCA must show a relationship between the making of the false claim presented to a third party and the payment or approval of the false claim by the United States Government. Relying on the plain language of the statute, the Supreme Court held that the fact that a false statement is submitted to a third party who uses government funds to pay the claim is not enough. Rather, the claim must be actually paid or approved by the Government, even if it is presented to a third party in the first instance. The test for liability is whether the defendant intended that the false statement be material to the Government's decision to pay or approve the claim itself.
The Allison Engine case involved claims submitted to shipyards contracting with the U.S. Navy to build destroyers. The shipyards, in turn, contracted with various subcontractors to assist in building the destroyers, who then subcontracted further for various components necessary to build the ships. Former employees of one sub-subcontractor believed their products to be defective and filed a qui tam suit on behalf of the federal government, arguing knowing submission of bills to the contractor for defective components. (Waller Lansden's bulletin on the arguments heard by the Supreme Court in the Allison Engine case is available at this link.)
The Sixth Circuit reversed the District Court's determination that only claims presented to the federal government, and not to entities that receive federal funds, are actionable under the FCA. The Sixth Circuit ruled that while one section of the FCA, 31 U.S.C. § 3729(a)(1), explicitly requires that claims be presented to the federal government, sections (a)(2) and (a)(3) simply require that the defendant knowingly submitted a false statement to get a claim paid with government funds.
In a unanimous opinion written by Justice Alito, the Supreme Court took a contrary view and clarified the extent of presentment necessary to a claim under the FCA, 31 U.S.C. § 3729(a)(2) and (a)(3). The Court held a plaintiff asserting a section (a)(2) claim must prove a defendant "intended that the false statement be material to the Government's decision to pay or approve the false claim." The Court's ruling draws a fine distinction between the actionable submission of a false statement to a prime contractor with the intent that it will be used to get the Government to pay the subcontractor's claim, and the submission of a false statement to a prime contractor that is not intended to serve as a condition of payment by the Government.
Further, even though the Supreme Court did not find an express presentment requirement in section (a)(2), it did find that the plain language of section (a)(2) requires that the false statement have a material effect on the Government's decision to pay the false claim. That means it is not enough that a claim be paid by a contractor or grantee using federal funds. Rather, a defendant cannot be held liable under the FCA unless the defendant intends that the Government actually pay or approve the payment based upon the false claim and the Government's payment of the claim depends upon that false claim. Likewise, for section (a)(3) claims dealing with conspiracy to defraud the government, it must be established that the conspirators agreed to make use of a false statement that would have a material effect on the Government's decision to pay the false or fraudulent claim.
The practical effects of this ruling will extend far beyond the confines of Naval shipyards. Indeed, the FCA has been used primarily against healthcare providers, who receive large portions of their revenues from government healthcare programs. One issue that remains open is whether the federal FCA can be used in cases involving claims submitted to State Medicaid agencies. The Supreme Court's holding in Allison Engine suggests not.
In Allison Engine, the Supreme Court stressed that the FCA must be interpreted according to its plain language, and section (a)(1) speaks explicitly of claims presented to "the United States." Even though the subsections that follow speak of "the Government," that term should not be construed as referring to any government, state or local, but rather to the United States Government. As such, although state Medicaid agencies receive partial federal funding, the Supreme Court determined a federal funding source is not, alone, sufficient to bring a case under the FCA. Neither providers nor state Medicaid agencies submit Medicaid claims to the federal government for approval and reimbursement, and the federal government does not pay or approve actual Medicaid claims. Rather, these claims are submitted to and paid by state Medicaid agencies. Applying the Allison Engine test, it appears the false statement is not material to the federal government's decision to pay or approve the Medicaid claim, and thus federal FCA liability will not follow. Moreover, states have their own enforcement authority, and many have their own State False Claims Act statutes, making the use of the federal FCA less necessary in the Medicaid context.
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