In a landmark ruling, the U.S. Supreme Court held that a defendant can be liable under the False Claims Act for submitting claims to the government while knowingly violating material legal or contractual obligations. The case, Universal Health Services, Inc. v. United States ex rel. Escobar, No. 15-7 (decided June 16, 2016), clarified that billing for services while out of compliance with material requirements can constitute fraud—even if those requirements are not explicitly labeled as “conditions of payment.”
The Court emphasized that a False Claims Act violation occurs when a provider submits claims to the government while impliedly certifying compliance with regulations or contract terms that are material to payment decisions. What matters is not how the government labels the requirement, but whether the defendant knowingly violated a material condition—one that could influence the government’s decision to pay.
In the words of the Court:
“What matters is not the label that the Government attaches to a requirement, but whether the defendant knowingly violated a requirement that the defendant knows is material to the Government’s payment decision.” — Escobar, at pp. 12–14
Before Escobar, some lower courts had limited FCA liability to violations of statutes or regulations explicitly designated as “conditions of payment.” The Escobar decision rejects that narrow approach, confirming that material noncompliance—even if not formally labeled—can lead to False Claims Act liability. However, the Court also made clear that not every minor or technical violation gives rise to a claim. The key test is materiality: whether the violation has a natural tendency to influence the government’s payment decision.
The Escobar ruling significantly strengthens the government’s hand in combatting fraud and expands protections for whistleblowers who expose providers billing for services while out of compliance with critical program requirements. Read more about the case here.
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