The False Claims Act imposes treble damages and per-claim civil penalties, adjusted periodically for inflation, on any person who knowingly submits a false or fraudulent claim for payment to the federal government. Those calculations, detailed in False Claims Act Damages and Per-Claim Penalties, can escalate quickly once a relator or the government aggregates claims across a multi-year billing pattern. Pharmacies, hospitals, and physician practices facing a qui tam suit or a Department of Justice civil investigation increasingly find that the outcome turns on a single element: materiality. In Universal Health Services, Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016), the Supreme Court held that a misrepresentation about compliance with a statutory, regulatory, or contractual requirement is actionable under the FCA only if it is material to the government's decision to pay the claim, calling that standard rigorous and demanding. For a provider under investigation, materiality is frequently the fact that decides whether a matter survives a motion to dismiss or proceeds toward a negotiated resolution.
The Implied Certification Theory Escobar Confirmed
Before Escobar, federal appellate courts had split over whether the implied certification theory could support False Claims Act liability at all. Under this theory, a defendant violates the statute by submitting a claim for payment that implicitly represents compliance with an underlying legal requirement while omitting a known violation of that requirement. The Supreme Court upheld the theory where a claim makes specific representations about the goods or services provided and the defendant's failure to disclose noncompliance with a material requirement renders those representations misleading half-truths. The Court declined to limit the theory to requirements expressly labeled as conditions of payment, reasoning that such a label bears on materiality but does not resolve it.
Factors Courts Weigh in the Materiality Analysis
Escobar set out a list of considerations that lower courts now apply on a case-by-case basis. A requirement's express designation as a condition of payment carries weight but does not, standing alone, establish materiality. Evidence that the government consistently refuses payment once it learns of similar noncompliance supports a finding of materiality. A violation that is minor or insubstantial, rather than one that goes to the essence of the bargain between the provider and the government program, weighs against a materiality finding. The Department of Justice, which enforces the FCA through its Civil Division fraud section and United States Attorney's Offices nationwide, has continued to pursue implied certification theories after Escobar, but the Court made clear the statute is not a vehicle for penalizing every regulatory misstep a provider commits while participating in Medicare or Medicaid.
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.
Government-Knowledge Evidence as a Defense Tool
Defense counsel increasingly build the factual record around this evidentiary rule. Where a Medicare Administrative Contractor, a state Medicaid program, or another government payor has audited a provider's billing practices, corresponded with the provider about a known compliance issue, or continued to reimburse claims after receiving notice of the alleged violation, that pattern of continued payment can undercut an argument that the violation was material to the payment decision. Discovery in FCA litigation now routinely focuses on agency correspondence, audit findings, and payment histories for this reason. Circuit courts applying Escobar have credited this government-knowledge evidence at the motion to dismiss and summary judgment stages, dismissing claims where the record showed the government kept paying after learning of the conduct later challenged as fraudulent.
Why Early Legal Counsel Is Critical
It is critical that healthcare providers promptly retain healthcare defense counsel upon receiving a civil investigative demand, a subpoena, notice that a relator's complaint naming the provider has been unsealed, or any other government inquiry connected to a potential False Claims Act matter. Early legal intervention can protect the provider's rights, ensure appropriate responses to government requests, avoid inadvertent admissions, preserve the government-knowledge and materiality defenses described above, and allow counsel to communicate with investigators and opposing counsel on the provider's behalf. Delaying legal representation can significantly affect the outcome of a matter and expose the provider to unnecessary risk.
How Health Law Alliance Can Help
Health Law Alliance defends healthcare providers named in qui tam suits and False Claims Act investigations, including matters where materiality and the implied certification theory are the central issues in dispute. We work to develop the factual record on government knowledge and continued payment, challenge overbroad certification theories, and represent providers before the Department of Justice and in federal court. If your pharmacy, practice, or facility has received a civil investigative demand, a relator's complaint, or another notice connected to a False Claims Act matter, contact us for a free, confidential consultation.
