In U.S. ex rel. Torricer v. Liberty Dialysis-Hawaii LLC , the district court explained that the alleged violations of dialysis documentation regulations were not prerequisites for payment of individual claims, and it relied on that fact as a basis for why those violations were not material as a matter of law. 77 The district court noted that such violations were
While Escobar did not purport to limit its materiality analysis to claims based on that theory, a few courts have somewhat puzzlingly suggested that the materiality factors it identified have less importance under other theories of liability. Consider, for instance, the district court’s decision in U.S. ex rel. Bid Solve, Inc. v. CWS Marketing Group, Inc. 81 In that case, which was based on a fraudulent inducement theory, the district court rejected the defendant’s argument that its misrepresentations could not have been material since the government awarded the relevant contract and continued payments after learning about the relator’s fraud allegations. Distinguishing the implied certification claim in Escobar from the fraudulent inducement claim there, the
Most FCA allegations against healthcare
policed through an administrative process that provided for alternative sanctions instead of termination of payment, which “added attenuation” between the violation and the government’s payment decision. Similarly, in U.S. ex rel. Zaldonis v. Univ. of Pittsburgh Med. Ctr. , the district court deemed alleged violations of surgical informed consent regulations immaterial primarily because those regulations were conditions of participation subject to an administrative enforcement system that would not automatically result in the denial of the defendant hospital’s claims for payment. 78 Still, while the lack of any impact on payment should support a defense that alleged contractual or regulatory violations
defendants do not involve blatantly false statements or “obviously wrong” conduct, but instead deal with purported violations of highly technical and complex statutory and regulatory requirements.
While the lack of any impact on payment should support a defense that alleged contractual or regulatory violations are immaterial, defendants should consider that courts do require meaningful support for such a defense.
district court held that the government’s continued payments were less relevant because the initial fraud tainted all subsequent actions under the contract. As a result, in the district court’s view, the government’s continued payment was insufficient to undermine the relator’s plausible claim that the defendant’s misrepresentations were material. Likewise, in United States v. Wavefront, LLC , the district court noted that “ Escobar ’s references to noncompliance with statutory, regulatory, or contractual requirements … do not apply as logically to [a] fraudulent inducement theory.” 82 Partly for that reason, the district court rejected the defendants’ argument that “the Government’s failure to allege violations of statutory, regulatory, or contractual requirements warrant[ed] dismissal,” instead reasoning that the defendants’ misstatements in contract proposals were material to the award of the contracts – and ultimately to payment. Along the same lines, courts have also suggested that Escobar ’s materiality factors may be less important in cases involving factually false representations rather than legally false. For example, in U.S. ex rel. Gray v. Mitias Orthopaedics, PLLC , the district court explained that assessing materiality did not require examining the nature of any alleged regulatory or contractual violations because the defendant had billed the government for different – and more expensive – drugs than it supplied to patients. 83 Rejecting the defendant’s regulatory argument that the drugs it supplied were still eligible for payment, the district court described the defendant’s conduct as “clearly and obviously wrong” as a matter of “simple honesty and common sense.”
are immaterial, defendants should consider that courts do require meaningful support for such a defense. Illustrating this point, in U.S. ex rel. Prose v. Molina Healthcare of Illinois, Inc. , the Seventh Circuit reversed a district court’s dismissal of FCA claims on materiality grounds, rejecting the defendant’s “barebones assertion” that the government was aware of the material facts but had continued to pay the defendant’s claims. 79 The Seventh Circuit noted that “this argument [was] better saved for a later stage” because no one could yet “say what the government did and did not know.” Of course, relators cannot rely on merely conclusory assertions about the government’s payment decisions either. In United States v. DaVita Inc. , for example, the district court dismissed a relator’s FCA claims based on its conclusory materiality allegations. 80 The district court explained that “the mere assertion that the Government would not have fulfilled Defendants’ reimbursement claims had they known that the [care at issue] was ‘medically unnecessary’ failed to satisfy the FCA’s ‘demanding materiality standard.’” One notable aspect of Escobar was that it focused on the implied false certification theory of FCA liability – the idea that a defendant implicitly certifies compliance with material statutory, regulatory and contractual requirements by submitting a claim for payment.
77 78 79
512 F. Supp. 3d 1096 (D. Haw. 2021). 2021 WL 1946661 (W.D. Pa. May 14, 2021).
17 F.4th 732 (7th Cir. 2021).
80 2021 WL 1087769 (C.D. Cal. Feb. 1, 2021); see also, e.g., U.S. ex rel. Williams v. Med. Support Los Angeles , 2021 WL 6104016 (C.D. Cal. Nov. 29, 2021) (dismissing FCA claims on materiality grounds based in part on the lack of plausible factual allegations that the government would not have paid the defendant’s claims had it known the true facts).
81
2021 WL 4819899 (D.D.C. Oct. 15, 2021). 2021 WL 37539 (D.N.J. Jan. 5, 2021). 512 F. Supp. 3d 689 (N.D. Miss. 2021).
82 83
FALSE CLAIMS ACT UPDATE BASS, BERRY & SIMS | 13
Powered by FlippingBook