Materiality and the False Claims Act
The False Claims Act (FCA) defines “material” as “having a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property.” 31 U.S.C. § 3729(b)(4). In United States ex rel. Escobar v. Universal Health Servs., Inc., the Supreme Court articulated the following factors to determine materiality, with no one factor being necessarily dispositive:
- whether compliance with a statute is a condition of payment;
- whether the violation goes to “the essence of the bargain” or is “minor or insubstantial”;
- whether the government consistently pays or refuses to pay claims when it has knowledge of similar violations; and
- whether the government would likely refuse payment had it known of the regulatory violations.
The Escobar Court noted:
The materiality standard is demanding. The False Claims Act is not “an all-purpose antifraud statute,” Allison Engine, 553 U.S., at 672, 128 S.Ct. 2123 or a vehicle for punishing garden-variety breaches of contract or regulatory violations. A misrepresentation cannot be deemed material merely because the Government designates compliance with a particular statutory, regulatory, or contractual requirement as a condition of payment. Nor is it sufficient for a finding of materiality that the Government would have the option to decline to pay if it knew of the defendant’s noncompliance. Materiality, in addition, cannot be found where noncompliance is minor or insubstantial . . . when evaluating materiality under the False Claims Act, the Government’s decision to expressly identify a provision as a condition of payment is relevant, but not automatically dispositive. Likewise, proof of materiality can include, but is not necessarily limited to, evidence that the defendant knows that the Government consistently refuses to pay claims in the mine run of cases based on noncompliance with the particular statutory, regulatory, or contractual requirement. Conversely, if the Government pays a particular claim in full despite its actual knowledge that certain requirements were violated, that is very strong evidence that those requirements are not material. Or, if the Government regularly pays a particular type of claim in full despite actual knowledge that certain requirements were violated, and has signaled no change in position, that is strong evidence that the requirements are not material.
Escobar, 136 S.Ct. at 2003-04.
Examples of Material False Claims
Examples of material false claims include:
- A drug company Seeking and obtaining payment for off-label uses of certain drugs. See U.S. ex rel. Brown v. Celgene Corp., 226 F. Supp. 3d 1032 (C.D. Cal. 2016).
- A private security company submitting false weapons qualifications for the services of protective services personnel who had not fulfilled the required weapons training. United States ex rel. Beauchamp v. Academi Training Center, Inc., 220 F. Supp. 3d 676 (E.D. Va. 2016).
Note that the federal government’s payment of a claim after it learns of untruthful certifications or attestations about compliance with regulatory or contractual duties is not a shield from liability. See Campie v. Gilead Sciences, Inc., 862 F.3d 890, 906 (9th Cir. 2017).
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