Throughout 2017, the lower courts built upon the standard for determining materiality under the False Claims Act (FCA) established by the U.S. Supreme Court in Universal Health Servs., Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016) (“Escobar”). In Escobar, decided in June 2016, the Court endorsed the “implied false certification” theory of liability under the FCA, premised on a “rigorous” and “demanding” element of “materiality.” As expected, this decision triggered a spate of litigation over what “materiality” means, and how to apply this requirement.
By way of background, the Court held that the “implied false certification” theory has two elements:
- “the claim does not merely request payment, but also makes specific representations about the goods or services provided,” and
- the defendant’s “failure to disclose noncompliance with material statutory, regulatory, or contractual requirements makes those representations misleading half-truths.”
The Court described the materiality standard as centered on “the likely or actual behavior” of the agency that made the payment decision, not whether the agency had the legal authority to deny payment, as argued by the Department of Justice (DOJ) prior to the Court’s decision. To be material, the Court reasoned, the misrepresentation must go to the essence of the bargain, and noncompliance cannot be “minor or insubstantial.” The Court noted that materiality can be determined based on a number of factors – none of which are dispositive – and held that a court’s decision, though fact-specific, still could lead to dismissal on a motion to dismiss or at summary judgment. Those looking for additional background on the Escobar decision should see our Health Care Enforcement Defense Advisory. Continue Reading Health Care Enforcement Year in Review and 2018 Outlook: The False Claims Act’s Materiality Standard as Established by Escobar Continues to Evolve