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 held that FCA liability can attach for violating statutory or regulatory requirements, whether or not those requirements were designated in the statute or regulation as conditions of payment.
In particular, the Escobar Court held that “liability can attach when the defendant submits a claim for payment that makes specific representations about the goods or services provided, but knowingly fails to disclose the defendant’s noncompliance with a statutory, regulatory or contractual requirement. In these circumstances, liability may attach if the omission renders those representations misleading.” 136 S. Ct. 1989, 1995 (2016). The Court articulated the following factors governing the materiality analysis, 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 Fifth Circuit’s recent decision in United States ex rel Lemon v. Nurses To Go, Inc., No. 18-20326 (5th Circuit 2019) clarifies the materiality analysis in the context of a hospice services FCA claim:
Condition of Payment
Section 1395f(a)(7) of the Medicare statute lists a number of certifications that are “conditions of . . . payment for” hospice services relevant to this case, including a requirement that “payment for services furnished” may be made “only if” the certification, face-to-face encounter, and plan-of-care requirements are made. And Medicare regulations for hospice services require certifications regarding terminal illness. Therefore, fraudulent certifications of compliance with these statutory and regulatory requirements violate conditions of payment under § 1395f(a)(7) and are material.
Whether Government Would Deny Payment
A relator need not plead allegations about past government action in order to survive a motion to dismiss.
Substantial or Minor Noncompliance
A violation is material if a reasonable person “would attach importance to [it] in determining his choice of action in the transaction” or “if the defendant knew or had reason to know that the recipient of the representation attaches importance to the specific matter `in determining his choice of action,’ even though a reasonable person would not.” Escobar, 136 S. Ct. at 2003, 2002-03. As a patient must be certified as terminally ill to be eligible for Medicare, false terminally-ill certifications may lead the government to make a payment which it would not otherwise have made. Therefore, charging for services without certifying that the patients are first eligible for those services can be a material violation.
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).
- Submitting a false hospice certification. See, e.g., Druding v. Care Alternatives, Inc., 164 F. Supp. 3d 621, 629 (D.N.J. 2016); United States ex rel. Fowler v. Evercare Hospice, Inc., No. 11-CV-00642-PAB-NYW, 2015 WL 5568614, at *7 (D. Colo. Sept. 21, 2015) (“the requirement that physicians’ certifications are accompanied by clinical information and other documentation that support a patient’s prognosis is a condition of payment under applicable Medicare statutes and regulations.”); see also, e.g., United States ex rel. Hinkle v. Caris Healthcare, L.P., No. 3:14-CV-212-TAV-HBG, 2017 WL 3670652, at *9 (E.D. Tenn. May 30, 2017) (“the government’s complaint alleges that defendants’ written certifications were false, in that the documentation for certain patients did not support a prognosis of terminal illness.”).
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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