When Abraham Lincoln signed the False Claims Act (FCA) into law in 1863, it was a legislative reaction to a series of sensational congressional investigations into war profiteers’ sale of phony provisions and useless equipment to the U.S. government during the Civil War. Contractors who agreed to provide 100-pound bags of flour filled many of the bags with sand. Munitions suppliers demanded full payment (at exorbitant, wartime prices) for rusted, nonfunctioning weapons gleaned from scrap heaps. It was not a leap to find claims that sand was flour, or that a rusted flintlock was an Army rifle, were objectively false; these were not just breaches of contract, but out-and-out frauds. Congress stepped in to stop this “plundering of the public treasury,” and the FCA imposed penalties on those who sought to defraud the U.S. government and its taxpayers.

The anti-fraud language and principles of the False Claims Act today still read much as they did in Lincoln’s day, even though the statute itself never defined “false or fraudulent.” The FCA’s consequences of trebled damages, attorneys’ fees, civil penalties, and qui tam enforcement mechanisms are severe and pervasive by design. The compelling need to protect taxpayers and the public fisc by rooting out and punishing corruption or fraud in government contracting remains as vital now as at any time in our nation’s history. But Honest Abe would be amazed (and likely troubled) by how far the Department of Justice and the Third Circuit have recently stretched the statutory language and intent of the FCA in a case awaiting certiorari before the United States Supreme Court.

In Care Alternatives v. U.S. et al. ex rel. Druding et al., USSC Case No. 20-371, the Supreme Court is asked to resolve a crucial circuit split as to whether statements of opinion can be “false” and subject to FCA liability, or whether the statute instead demands evidence of “objective falsity.” The specific issue presented is whether a physician’s honestly held clinical judgment about the terminal illness of patients requiring hospice care reimbursed under Medicare can be “false” under the FCA and expose that physician to treble damages and penalties based solely on a difference of opinion with another doctor hired by a relator or by the government.

This case has potentially far-reaching implications—and not just for the hospice providers and doctors at the center of that case. Any business that receives funds under a federal program or procurement is now at risk if it performs work or provides certifications that implicate subjective judgment, opinion, or, more broadly, the reasonable interpretation of ambiguous statutes, regulations, or contract provisions. Opinions, unlike facts, are rarely (if ever) “true” or “false.” The threat of imposing FCA liability over mere differences of opinion or discretionary judgments could easily convert simple contract or compliance disputes into unnecessary, full-blown FCA claims—with untold and potentially disastrous consequences for federal contractors.

In Care Alternatives, four former employees of a hospice care provider (none of whom are physicians) filed a qui tam action in 2008 alleging that the provider submitted false reimbursement claims for hospice care for patients who were not eligible for Medicare hospice coverage. (The Medicare statute provides that a patient is eligible for hospice coverage when both an attending physician and a hospice medical director independently certify “based on their clinical judgment” that the individual is “terminally ill,” meaning that the “the individual’s life expectancy is 6 months or less.”) After investigating the relators’ charges for seven years, the government declined to intervene in the case. The relators and their counsel nevertheless pressed their claims, alleging that the hospice had violated the FCA by falsely certifying that patients were terminally ill and/or falsely certifying that patients’ hospice care should be extended.

The only evidence of this purported “falsity” was an expert report filed by the relators’ paid expert, who reviewed medical records of forty-seven patients more than ten years after the hospice had submitted its certifications to CMS. Of those patients, the relators’ expert agreed that most were properly certified and that many were in fact eligible for either certification or recertification at some point in time. That said, the expert also testified that in his view, one-third of the terminal illness certifications or recertifications were not adequately supported by the medical records. The expert’s opinion was based only on a post hoc review of the cold records—he neither treated nor even met any of these patients.

It seems intuitive and obvious that the district court got it right when it granted summary judgment for the hospice and against the relators. The district court was guided by a recent decision of the Northern District of Alabama (subsequently affirmed by the Eleventh Circuit) that presented almost identical facts and held that “a mere difference of opinion between physicians, without more, is not enough to show falsity” in an FCA case involving hospice claims. Druding v. Care Alternatives, Inc., 346 F. Supp. 3d 669, 685 (D.N.J. 2018), rev’d and remanded sub nom. United States v. Care Alternatives, 952 F.3d 89 (3d Cir. 2020), citing United States v. AseraCare, Inc. 176 F.Supp.3d 1282, 1283 (N.D. Ala. 2016). The District Court also cited decisions from other circuit courts that required evidence of an “objective falsehood” for conduct to qualify as “false or fraudulent” under the FCA. Id. But the Third Circuit rejected the “objective falsity” standard adopted by numerous other circuits, holding that “a physician’s expert testimony challenging a hospice certification creates a triable issue of fact for the jury regarding falsity” under the FCA. See Care Alternatives, 952 F.3d at 101.

If the Supreme Court grants certiorari, it will resolve not only an important question concerning Medicare hospice reimbursements, but a much broader issue under the FCA generally. Can the government use the FCA and its treble liability and $23,331 per invoice penalties provisions not just to root out and punish actual fraud, but also to punish routine, good‑faith professional business judgments that may be shown incorrect with the benefit of hindsight, or with which the government simply disagrees? This is a slippery and dangerous slope, indeed.

One example many federal contractors will recognize is cited in an amicus brief that the United States Chamber of Commerce and the Pharmaceutical Research and Manufacturers of America submitted last week in support of Care Alternatives’ cert petition: the cost-reimbursement principle and relevant regulations that provide an “allowable cost” (i.e., a cost the government will reimburse) must, per force, also be “reasonable.” See FAR 31.201-2(a)(1). What constitutes reasonableness is very much a matter of perspective and judgment based on a fact-intensive analysis determined by after-the-fact weighing of various factors that are often unknown before the contractor’s performance is complete. A contractor’s good-faith certification that its costs are reasonable and supported by such an analysis cannot be objectively false, even if the government may disagree with that analysis. If the Third Circuit’s view is adopted by the Supreme Court, it is not hard to imagine the explosion of “unreasonable cost” qui tam actions filed by relators challenging contractors’ reasonableness certifications as false. What should be an ordinary contract dispute that could be resolved either by the parties or before a Board of Contract Appeals would be transformed into an FCA case where the contractor faces the legal costs and burden that accompany the threat of trebled damages, penalties, and potential debarment.

The Care Alternatives case threatens to stretch the 150-plus years of FCA jurisprudence beyond the breaking point, incentivize opportunistic relators, and unnecessarily tempt the government to abuse the awesome power of the FCA over matters of opinion rather than falsity or fraud. The FCA is rooted in the objective falsity requirement, and it is essential to maintaining reasonable limits on the FCA’s reach. The ghost of Honest Abe and the eyes of federal contractors across the country will surely be watching the outcome of this case very closely.