In a unanimous decision last week that impacts healthcare providers, vendors and health plans that receive Medicare and Medicaid reimbursements or contract with federal health care programs, the United States Supreme Court in Universal Health Services v. United States ex rel. Escobar held that a defendant may be liable under the implied certification theory under the False Claims Act (FCA) and clarified on how the materiality requirement of the FCA should be enforced.  Our colleagues from the Government Contracts Group analyzed the Court’s opinion, the legal and factual context in which it arose, and its likely effect on contractors and stakeholders in a “Feature Comment” published in The Government Contractor.

The high court resolves the conflict as to the validity and scope of the so-called implied certification theory.  The eight-member panel determined that there may be FCA exposure where a claim for payment makes specific representations about goods or services provided, and the defendant fails to disclose noncompliance with a material statutory, regulatory, or contractual requirements that makes those representations “misleading half-truths.”

At the same time, the Court also rejected the First Circuit’s expansive view that any violation is deemed to be material if the defendant knows that the government would merely be entitled to refuse payment were it aware of the violation.  The Court made clear that the question of whether violation of a law, regulation, or contractual provision is material to the government’s decision to pay will be analyzed according to common law tort and contract principles.  The question is not whether the Government could refuse payment based on the violation at issue, but something more – whether the government was objectively likely to do so or the defendant knew that the government would refuse payment.

Earlier this week, the Department of Veterans Affairs (“VA”) announced a seismic shift in policy that opens VA Schedule 65 IB to covered drugs that do not comply with the Trade Agreements Act (19 U.S.C. §2501 et seq.) (“TAA”).  While the VA’s prior policy prohibited contractors from offering TAA non-compliant drugs from on  a Federal Supply Schedule (“FSS”) contract, the VA’s new policy requires “that all covered drugs, regardless of county of substantial transformation, be available on a 65 I B FSS contract.”

TAA Overview

Under the TAA, the Buy American Act is waived for end products that are “substantially transformed” in so-called “designated countries”; i.e. those countries with which the U.S. is a party to bilateral and multilateral free trade agreements as well as certain other countries receiving preferential treatment (“Least Developed” and “Caribbean Basin” countries). At the same time, the TAA prohibits the procurement of end products whose country of origin is a non-designated country (e.g., China, India, Malaysia).  The TAA has a “non-availability” exception where the end products required are not offered, or cannot be fulfilled by U.S. or designated country end products.   However, VA policy prohibited contracting officers from making non-availability determinations for FSS contracts – until now.

Continue Reading Department of Veterans Affairs Announces Shift in Trade Agreements Act Policy