After Escobar, Lower Courts Build On The “Materiality” Analysis for False Claims Act Lawsuits
It’s been just over a year since the Supreme Court’s seminal False Claims Act (“FCA”) decision Universal Health Servs., Inc. v. United States ex rel. Escobar. In the wake of Escobar, the lower courts are confronted with applying Escobar’s materiality standard to the particular facts of their cases. This article examines one of those post-Escobar decisions: Johnson v. Golden Gate National Senior Care. In Johnson, the District of Minnesota held that a nursing facility and a physical and occupational therapy provider could not obtain summary judgment on claims that they had violated the FCA by submitting Medicare claims in connection with their provision of services to nursing home residents. Nursing homes dealing with the implicated Medicare regulations and healthcare attorneys should take note of this decision.
The Supreme Court’s Escobar Decision
The FCA imposes liability when a relator-plaintiff or the government proves that a defendant has presented a claim for payment to the government: (1) that was false or fraudulent; (2) that the defendant knew was false or fraudulent; and (3) that the false or fraudulent portion of the claim was material to the government’s decision to pay the claim.
In Escobar, the Supreme Court made clear that plaintiffs can sue under an “implied false certification” theory when a defendant submits a claim to the government for payment but fails to disclose noncompliance with material statutory, regulatory, or contractual requirements. The Court held that FCA liability is not limited to violations of requirements that the government labels as “conditions of payment,” as opposed to “conditions of participation.” We discussed the Escobar holding here and here.
Post-Escobar jurisprudence necessarily will develop the standard for whether a specific type of regulatory, statutory, or contractual non-compliance resulted in a materially false claim for a specific government payment. In the words of the Supreme Court, the government’s decision to expressly identify a provision as a condition of payment is “relevant, but not automatically dispositive” of the materiality inquiry. Instead, courts should consider the government’s practice in paying or rejecting claims involving the statutory, regulatory, or contractual violation at issue.
The District of Minnesota Rebuffs the Defendants’ Materiality Argument
The Johnson decision is a good example of how the lower federal courts are addressing FCA claims after Escobar. In Johnson, the relators claimed that a nursing home and a contract provider of physical and occupational therapy services to nursing homes had submitted Medicare claims for services provided by therapy assistants acting outside the scope of their licenses. In particular, the relators argued that the defendants violated regulations requiring occupational therapy to be provided by professionals licensed in occupational therapy and physical therapy to be provided by professionals licensed in physical therapy. The relators submitted evidence regarding whether the nursing home had misrepresented the scope of its occupational and physical therapy assistants’ licensure, satisfied minimum supervision requirements, misrepresented “skilled services” under Medicare regulations, and improperly characterized group and individual therapy sessions.
The defendants moved for summary judgment, arguing in part that the alleged regulatory violations were not material because they were “conditions of participation” not “conditions of payment.” The District of Minnesota disagreed. Citing Escobar, the court ruled that “the distinction between conditions of payment and conditions of participation is not dispositive of the FCA’s materiality requirement; instead, courts engage in a fact-intensive inquiry.” The court then concluded that the summary judgment was not appropriate when fact issues remained as to the materiality of the alleged violations.
While the FCA materiality standard is “rigorous” and “demanding,” in Escobar the Supreme Court rejected the argument that materiality is too fact intensive of an inquiry for courts to ever dismiss FCA cases on a motion to dismiss or at summary judgment. Where does this materiality hurdle leave FCA defendants seeking a dismissal before trial? At a minimum, defendants should be ready to show that claimed violations were not material to obtaining payment, regardless of whether they were “conditions of payment” or “conditions of participation.” And nursing homes and contract providers should be particularly wary of claims that that their occupational therapy assistants acted outside the scope of their licenses. The Whistleblower Wire will continue to monitor the post-Escobar landscape for further developments.