Search Team

Search by Last Name
Banner image

Commercial Litigation

False Claims Act: Recent First Circuit Opinion on Remand in U.S. ex rel. Escobar v. United Health Services

December 1, 2016

Commercial Litigation

False Claims Act: Recent First Circuit Opinion on Remand in U.S. ex rel. Escobar v. United Health Services

December 1, 2016

Back to Fish's Litigation Blog


Earlier this year, the U.S. Supreme Court’s important opinion in Universal Health Services, Inc. v. U.S. ex rel. Escobar, 136 S. Ct. 1989 (2016), dealt with the issue of whether a so-called “implied certification” that a defendant submitting a claim for payment under a federal government program has complied with applicable laws, regulations or contract requirements may form a basis for False Claim Act liability, even though the defendant made no “express certification” of compliance. In its opinion in Escobar, the U.S. Supreme Court confirmed that an “implied certification” may, indeed, be held liable under such circumstances since “liability for fail­ing to disclose violations of legal requirements does not turn upon whether those requirements were expressly designated as conditions of payment.”

A notable aspect of the Supreme Court’s Escobar opinion was its treatment of the issue of “materiality.” The FCA defines the term “material” to mean “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). Naturally, for a failure to comply with a particular statutory, regulatory or contractual requirement to provide a basis for FCA liability, the requirement must have been one that is considered “material” to the Government’s decision to pay the claim. Notably, the Supreme Court considered the role of Government knowledge – if the Government consistently refused to pay similar claims where it knew of like violations, then the materiality of the requirement is bolstered, but, “[c]onversely, 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.” 136 S. Ct. at 2003-04.

Because the case had originally been dismissed by the trial court at the pleadings stage, the case was remanded to the courts below to determine whether the relators’ allegations adequately asserted an “implied certification” case against the defendant Universal Health Services based on violations that were “material” to the decision to pay Medicaid claims, following the Supreme Court’s guidance. The regulations in question were ones requiring, among other things, that psychiatric specialists employed in UHS’s mental health facilities possess credentials suitable for their disciplines (e.g., a requirement that staff psychiatrists be either board certified in psychiatry or have applied for board certification). In its November 22, 2016, opinion, the First Circuit, referring to the “centrality” of such requirements to the mental health programs implemented by UHS, “go to ‘the very essence of the bargain” with Massachusetts Medicaid.

Turning to UHS’s contention that the Government “knew” of its non-compliance with the licensing/supervision regulations, yet paid its claims anyway, the First Circuit declined to dismiss the Relators’ claims on that ground, saying:

[T]here is no evidence in the complaint that MassHealth, the entity paying the Medicaid claims, had actual knowledge of any of these allegations (much less their veracity) as it paid UHS’s claims. Because we find no evidence that MassHealth had actual knowledge of the violations at the time it paid the claims at issue, we need not decide whether actual knowledge of the violations would in fact be sufficiently strong evidence that the violations were not material to the government’s payment decisions so as to support a motion to dismiss in this case.

Slip Opin. at 20.

The First Circuit’s discussion of “Government knowledge” of a defendant’s noncompliance with regulations helps to provide perspective on this element of the “materiality” inquiry. The First Circuit’s opinion emphasizes the “holistic” nature of the materiality requirement, so that even the Government’s (or, more specifically, the particular paying agency’s) “knowledge” at the time of payment of a defendant’s actual violations (as opposed to merely “alleged” ones), while perhaps “strong evidence” of non-materiality, is not dispositive of the issue. “As the [Supreme] Court observed, ‘materiality cannot rest “on a single fact or occurrence as always being determinative” * * * *” Slip Opin. at 13 (citations omitted). Thus, mere “Government knowledge” of the allegations of wrongdoing made in a Relator’s FCA complaint would appear to fall well short of the mark.

Related Tags

False Claims Act
commercial litigation
in Universal Health Services
Inc. v. U.S. ex rel. Escobar

Blog Authors

Tommy Jacks | Of Counsel

Tommy Jacks is Of Counsel to the Austin office of Fish & Richardson. His practice emphasizes general commercial litigation. Mr. Jacks has over 45 years of experience in general litigation on a wide range of complex commercial, trade secrets, qui tam, class action, professional...

Leave a Reply

Your email address will not be published. Required fields are marked *