Give an Inch, Take a Mile: The Seventh Circuit Extends Escobar\u27s Implied False Certification Theory

The False Claims Act, or “FCA,” is currently the largest weapon the government wields against healthcare fraud and abuse. In 2016, the Supreme Court in Escobar held that the controversial implied false certification theory—which has become particularly popular in the health care industry—is recognized as a basis of liability under the False Claims Act. The implied false certification theory provides that when an organization submits claims for reimbursement to the government, it impliedly represents that it is compliant with all obligations that are material to its agreement with the government. Since Escobar, a circuit split has erupted over which types of evidence tend to show the materiality of implied representations under this theory of liability. The Seventh Circuit, however, has diverged completely from the playing field. The Seventh Circuit, in its recent case United States ex rel. Prose v. Molina Healthcare of Illinois, Inc., held that managed care organizations should know which contractual requirements are material to their agreements with the government based purely on their membership in the medical services industry. Managed care organizations, which already must navigate a minefield of compliance requirements, face dire repercussions from the Seventh Circuit’s holding—especially from litigious relators who may now base their theories of fraud and abuse on what amounts to mere speculation. The Seventh Circuit’s acceptance of such meager evidence of materiality to establish liability under the implied false certification theory wholly departs from the Supreme Court’s guidance in Escobar and the subsequent circuit split