Category: False Certification

Critical Considerations of Implied Certification Under the FCA


In a recent case out of Kansas, the Tenth Circuit reiterated the importance of the FCA’s materiality and scienter requirements that the Supreme Court set forth in Escobar:

  1. FCA claims must satisfy materiality and knowledge requirements—both of which are rigorous and strictly enforced.
  2. A whistleblower must prove knowledge in an implied certification case—it cannot be presumed.

In U.S. ex rel. Coffman v. The City of Leavenworth, KS, a whistleblower alleged that Leavenworth fraudulently billed federal agencies for wastewater services by falsely implying compliance with environmental laws. The district court granted the city’s summary judgment motion, holding that the whistleblower failed to demonstrate that the allegedly false certifications were material to the government’s payment of monthly invoices for wastewater treatment services or that the city knowingly submitted false claims.

The Tenth Circuit affirmed, amplifying the continued trend that courts will hold relators responsible for proving both materiality and knowledge in FCA actions. The Tenth Circuit echoed Escobar, holding that the whistleblower needed to prove that the city knowingly presented a false claim to the government for payment or approval. The Tenth Circuit noted that while the whistleblower argued that she showed the city flouted environmental laws, evidence of a violation wasn’t enough. Instead, she needed to prove—and could not prove—that the city knew it was violating those laws. This was true, at least in party, because the city introduced unrebutted evidence that the Kansas Department of Health and Environment was aware of the whistleblower’s allegations but did not consider them material.

Whistleblowers cannot rely on technical violations to skate past the FCA’s materiality and knowledge requirements. They must show that a defendant knowingly presented a false claim for payment and that claims were material to the government’s decision to pay.

The Tenth Circuit’s opinion joins a growing body of caselaw across the country applying Escobar to whistleblower allegations that continue to reinforce the demanding knowledge and materiality standards under the FCA.

Second Circuit Falls in Line for FCA Pleading Requirements


On September 7, 2017, the Second Circuit realigned its stance on false certifications under the False Claims Act (“FCA”) in light of the Supreme Court’s decisions in Universal Health Services, Inc. v. United States ex rel. Escobar, 136 S.Ct. 1989, 195 L.Ed.2d 348 (2016).


In the initial action, relators brought a qui tam action under the FCA against Wells Fargo alleging the company falsely certified its compliance with banking laws in order to borrow money at favorable rates from the Federal Reserve System.[1] In Bishop v. Wells Fargo & Co., 823 F.3d 35 (2nd Cir. 2016), the Second Circuit relied on its previous holding in Mikes v. Straus, 274 F.3d 687 (2nd Cir. 2001) in upholding the district court’s dismissal of the relator’s complaint.[2] The court’s rationale for dismissing the complaint rested on two separate points: (1) an implied false certification is appropriately applied only when the underlying statute or regulation relied upon by the relator expressly states the provider must comply in order to be paid; and (2) an expressly false claim is a claim that falsely certifies compliance with a particular statute.[3] The Supreme Court granted certiorari, vacated and remanded the matter back to the Second Circuit in light of its opinion in Escobar.[4]


The Supreme Court’s holding in Escobar nullifies the Second Circuit’s holding in Mikes. In Escobar, the Supreme Court held that “a statement that misleadingly omits critical facts is a misrepresentation irrespective of whether the other party has expressly signaled the importance of the qualifying information.[5] This directly contradicts the Second Circuit’s holding that an express statement of compliance must be included in the underlying statute or regulation.

The Supreme Court also indicated that limitations on liability under the FCA must be grounded in the text of the FCA, including the well-settled meaning of common-law terms the FCA uses but does not expressly define.[6] In vacating the previous holding, the Second Circuit stated “we detect no textual support in the FCA for Mikes’s particularity requirement.”[7] The Second Circuit also acknowledged that the Escobar holding addressed Mikes’s particularity requirement in other ways.[8] Specifically, Escobar states, “Instead of adopting a circumscribed view of what it means for a claim to be false or fraudulent, concerns about fair notice and open-ended liability can be effectively addressed through strict enforcement of the FCA’s materiality and scienter requirements.”[9]

The Supreme Court’s holding in Escobar not only nullified the Second Circuit’s holding in Mikes, it created a new standard.[10] The Supreme Court stated, “A misrepresentation about compliance with statutory, regulatory, or contractual requirement must be material to the Government’s payment decision in order to be actionable under the FCA.”[11] The Supreme Court further refined this standard stating, “materiality…cannot be found where noncompliance is minor or insubstantial.”[12]] Perhaps most significantly, the Supreme Court noted, “…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.”[13]


The Supreme Court’s new “materiality” standard in Escobar replaces the Second Circuit’s previous holding in Mikes. The practical effect of Escobar’s holding requires that qui tam actions brought on the basis of a false certification, whether expressed or implied, must be material to the government’s decision to pay a provider. However, if a provider can show that the government made a payment knowing that a provider was violating certain requirements, those requirements may not be considered material.

If you have any questions, please contact:


[[12]] Id. at 2003.[[12]]

Third Circuit Issues Decision Explaining Pleading Standards and Materiality After Escobar


On May 1, 2017, the United States Court of Appeals released an important decision interpreting the False Claim Act’s (“FCA’s”) materiality requirement in light of the Supreme Court’s 2016 decision in Universal Health Services Inc. v. United States ex rel. Escobar. The case, United States ex rel. Petratos v. Genentech, revolved around allegations regarding the cancer drug Avastin. According to the relator, Genentech allegedly conducted a “formal campaign” to suppress and conceal clinical data that would have revealed that side effects in certain patient populations were more common and severe. As a result of the campaign, the relator alleged, Genentech avoided the requirement to file adverse event reports with the FDA and avoided more-restrictive FDA labeling.  As a result, according to the relator, the use of Avastin was not reasonable and necessary in these patient populations and “the standard of care would have been to prescribe a lower dose of Avastin, a lower frequency of doses, or no dose at all.” Essentially, the relator argued, doctors would have altered their of use and prescribing practices for Avastin. The district court dismissed the case for failure to state a claim, reasoning that whether a drug is reasonable and necessary is a determination for the FDA and not individual physicians.


Although the circuit court rejected the district court’s reasoning, noting that a physician’s actions can be relevant in determining whether a service or item billed to the government is reasonable and necessary, the Third Circuit affirmed the district court decision on the grounds that relator could not establish materiality.

As noted by the court, an FCA violation involves four elements: falsity, causation, knowledge and materiality. Materiality is defined by the FCA as “having a natural tendency to influence, or be capable of influencing, the payment or receipt of money.” 31 U.S.C. § 3729(b)(4). Last year, in the groundbreaking Escobar case, as explained more fully in a previous post, the Supreme Court expounded upon the FCA’s materiality requirement, describing the requirement as “demanding” and “rigorous.” As cited by the circuit court, Escobar  stands for the proposition that “a material misrepresentation is one that goes to the ‘very essence of the bargain.'” The circuit court continued, “[m]ateriality may be found where ‘the government consistently refuses to pay claims in the mine run of cases based on noncompliance with statutory, regulatory, or contractual requirement’…On the hand it is ‘very strong evidence’ that a requirement is not material ‘if the government pays a particular claim in full despite its actual knowledge that certain requirements were violated.'” Where noncompliance is “minor or insubstantial,” materiality will not be found.

Applying Escobar to the matter before it, the Petratos Court held that the relator could not prove materiality for several reasons. First, there were no factual allegations showing that the government would not have reimbursed claims for Avastin if the alleged reporting deficiencies been cured. Indeed, the relator conceded that the government would have paid the claims with full knowledge of the noncompliance. As noted by the court, “where a relator does not plead that that knowledge of the violation could influence the government’s decision to pay, the misrepresentation likely does not have a natural tendency to influence payment.” Second, the relator failed to plead that CMS consistently refuses to pay claims like those alleged. Rather, the relator’s allegations established that CMS would continue to reimburse the claims at issue with full knowledge of the alleged noncompliance. In fact, the relator had reported Genentech’s actions to the FDA and neither the FDA nor the Department of Justice had taken any actions against Genentech as a result. In sum, the court held, the allegations were the type of minor or insubstantial noncompliance that the Supreme Court had noted would not be material and that the circuit court held are “not appropriate for a private citizen to enforce through the False Claims Act.”

The court soundly rejected the relator’s arguments that the campaign was material because “if physicians would have prescribed no or less Avastin, the government would have paid less claims” and that “the relevant question is whether Genentech’s fraudulent misrepresentations were material to the physicians’ determination,” finding that the relator had conflated the FCA’s materiality and causation requirements. According to the court, the relator’s arguments were essentially a “but for” causation argument. In response, the court wrote:

The alleged fraud’s effect on physicians is relevant to the extent that it caused claims eventually to reach CMS. That is, evidence of how the claim makes its way to the government should be considered under the causation analysis, while the materiality analysis begins after a claim has been submitted. The materiality inquiry, in asking whether the government’s payment decision is affected, assumes that the claim has in fact reached the government.

Here, the Third Circuit firmly held, citing several sister circuits, that “it is the government’s materiality decision that ultimately matters…the alleged fraud must affect the United States’ payment decision to be actionable.”

Practical Takeaways

  • It is the government’s materiality decision that is dispositive. This does not change when an alleged misrepresentation flows through an intermediary in an indirect causation case.
  • A relator’s proof of causation, or proof that a claim reached the government, is irrelevant to establishing materiality.
  • FCA defendants should examine a relator’s pleadings carefully. If a relator fails to plead that knowledge of the alleged violation could influence the government’s decision to pay or that the government consistently refuses to pay claims like those alleged, the allegations will likely be susceptible to dismissal on the grounds that the relator cannot meet the FCA’s materiality requirement.
  • Federal Circuit Courts continue to consistently apply a “heightened” materiality standard in light of Escobar, rejecting the government’s arguments that Escobar represented little change.

If you have any questions, please contact:

Escobar, Back at the First Circuit


Yesterday, the First Circuit Court of Appeals issued a new opinion in Universal Health Services, Inc. v. United States ex rel. Escobar.  Applying the materiality test enunciated by the Supreme Court in June, the First Circuit reaffirmed its previous decision that the whistleblowers’ complaint sufficiently stated a claim under the False Claims Act (“FCA”) to survive the defendants’ motion to dismiss.


The whistleblowers in Escobar originally filed a FCA suit against Universal Health Services, Inc. (“UHS”) on July 1, 2011 in the United States District Court for the District of Massachusetts.  The whistleblowers alleged that UHS had failed to disclose that certain of its personnel did not comply with applicable licensing and supervision requirements, and therefore claims submitted to the government for services provided by such personnel were false under the “implied certification theory.”  The whistleblowers uncovered information that 23 UHS employees had obtained National Provider Identification numbers that misrepresented their licensure status.  The district court originally dismissed the claims for failure to state a claim, finding that the licensing and supervision requirements were conditions of participation, rather than conditions of payment, and therefore could not establish falsity under the FCA.  The First Circuit reversed, finding that the licensing and supervision requirements were conditions of payment, and therefore could establish falsity.

The Supreme Court granted certiorari to resolve a circuit split regarding the viability of the implied certification theory under the FCA.  As explained in a previous post, while the Supreme Court upheld the implied theory of certification, it placed the emphasis on whether compliance with the requirement that was violated was “material to the Government’s payment decision….”.  The Supreme Court then remanded the case to the First Circuit Court of Appeals.

First Circuit’s Opinion

The First Circuit stated that the fundamental inquiry under the materiality standard is “‘whether a piece of information is sufficiently important to influence the behavior of the recipient.'”  Applying this test, the Court found that the defendant’s alleged failure to meet the applicable licensing and supervision standards was material to the government’s decision to pay.  The Court provided the following support for its determination:

  • • Compliance with the applicable requirements was a condition of payment, which is “relevant” even if not “dispositive” to materiality; and
  • • The licensing and supervision requirements go to the “very essence of the bargain” regarding the government’s relationship with healthcare providers.

UHS argued that the government was aware of the alleged violations and yet continued to pay for related claims, which the Supreme Court listed as evidence against a finding of materiality.  In response, the First Circuit stated that it saw no evidence of the government’ actual knowledge of the defendant’s non-compliance, and furthermore that mere awareness of allegations concerning noncompliance “is different from actual knowledge” when considering materiality.


Given the First Circuit’s previous ruling and its previous broad interpretation of the implied certification theory, this outcome is not unexpected.  However, it does provide additional insight into how courts will apply the Supreme Court’s materiality standard.

The First Circuit continued to emphasize the fact that the regulations at issue were a condition of payment, which indicates that the condition of payment vs. condition of participation distinction will continue to be important in future FCA cases.  The court’s discussion regarding the impact of the government’s actual knowledge of violations on materiality could also have interesting implications on self-disclosure.

Although the First Circuit specifically declined to review this point, the opinion indicates that self-disclosing a violation to the government could potentially cut off FCA liability for future claims, or even for all implicated claims, if the government continues paying for such claims after the self-disclosure, as such violation might not be considered material.

Practical Takeaway

While likely the end of the road for Escobar, this opinion demonstrates how a circuit that had adopted one of the broader interpretations of the implied certification theory can use the materiality standard to continue to support that broad interpretation.  It is also interesting to contrast the First Circuit’s application of Escobar‘s materiality standard in support of its previous broad interpretation to the Seventh Circuit’s application of that same standard in support of its previous narrow interpretation, discussed here.

If you have any questions, please contact:

David B. Honig at or (317) 977-1447; or
Your regular Hall Render attorney.

Seventh Circuit: Implied Certification Claims Remain a Heavy Lift

In light of the Supreme Court’s recent decision in Universal Health Services v. Escobar, the Seventh Circuit revisited its prior ruling in United States ex rel. Nelson v. Sanford-Brown, Ltd, a case alleging that a college receiving federal subsidies violated the False Claims Act (“FCA”) by maintaining discriminatory recruiting and retention practices. The Seventh Circuit addressed a narrow issue on review: whether the Relator’s implied certification claim – that the court previously ruled could not survive summary judgment – could be resurrected in light of Universal Health. The court held that the claims could not survive summary judgment and thereby reinforced its long-standing skepticism of FCA liability under an implied certification theory.


Sanford-Brown College (the “College”) received federal subsidies under the Higher Education Act by way of entering into a Program Participation Agreement (“PPA”) with the U.S. Government. The PPA included familiar boilerplate language used across federal agencies that required the College to affirm that as a condition for the subsidies, it would comply with all statutory, regulatory and contractual requirements relating to Title IV.

The Relator alleged that the College’s recruiting and retention practices violated the affirmation it would abide by the requirements under Title IV.  Linking these alleged violations to the broad affirmation to abide by the law, the Relator pursued an implied certification theory under the FCA.

In its original decision, the Seventh Circuit affirmed the trial court’s grant of summary judgment in favor of the College. Relying on the distinction between conditions of payment and conditions of participation, the court forcefully rejected the Relator’s argument, characterizing implied certification claims as an imprecise mechanism for “enforcing violations of conditions of participation.” The court reasoned that these claims “lack a discerning limiting principal” and would hold the College implicitly liable for any violation of “thousands of pages of federal statutes and regulations incorporated by reference into the PPA.”

After the Supreme Court’s ruling in Universal Health – discussed in more detail here – the court reviewed its decision in Nelson on remand.

The Seventh Circuit Rejects the Relator’s Implied Certification Claims

The Seventh Circuit revisited the narrow portion of its previous decision and applied the two-part test set forth in Universal Health to evaluate the Relator’s implied certification claims.

  1. Does the claim at issue request payment and make specific representations regarding the goods or services being provided?
  1. Was the defendant’s failure to disclose its noncompliance material to the specific statutory, regulatory or contractual requirement allegedly violated?

In Nelson, the Seventh Circuit held that neither requirement was met.

First, the Seventh Circuit held that the Relator put forth no evidence that the College had made any specific representations to the Government regarding its claims for payment, “much less false or misleading representations.” The Relator’s mere speculation that such representations occurred was insufficient.

Second, relying upon the ”’rigorous’ and ‘demanding'” materiality standard under the FCA, the Seventh Circuit held the alleged violations were immaterial to the subsidies the College received. Under the FCA’s materiality requirement, evidence must demonstrate that the government was likely to, or actually did, reject claims for payment based on similar violations. It is insufficient to demonstrate only  that “the government would have the option to decline” payment had it known of the violations.

Moreover, the court reiterated its previous position that the government’s actual knowledge of violations, but continued payment for the good or service, continues to be uniquely strong evidence undercutting the materiality requirement. Here, the government had already examined the College’s alleged violations, continued making subsidy payments under the PPA and determined not to impose administrative penalties or terminate the agreement.

Having failed to meet either requirement of the two-part test under Universal Health, the Seventh Circuit reaffirmed the district court’s grant of summary judgment  in the College’s favor.

Practical Takeaway

How the Seventh Circuit readdressed FCA implied certification claims is important for health care providers and government contractors. It rebuts expectations that Universal Health would invite a deluge of implied certification claims that could dramatically remake the FCA landscape.


Taken broadly, the court’s decision makes it clear that it remains largely skeptical of implied certification claims. Despite being just three and a half pages long, the decision is a ‘greatest hits’ of Seventh Circuits previous opinions that reiterate its strong apprehension of implied certification FCA claims.

More narrowly, the Seventh Circuit’s application of the Universal Health decision sets a high bar to clear for Relators and the government pursuing FCA cases under an implied certification claims.

In short, the more things change, the more things stay the same – at least in the Seventh Circuit.

If you have any questions, please contact:

Drew B. Howk at or (317) 429-3607;

Ritu K. Cooper at or (202) 370-9584;

J. Patrick Garcia at or (443) 951-7043;

David B. Honig at or (317) 977-1477; or

Your regular Hall Render attorney.

Government Challenges “Materiality” Standard of Escobar


Ever since the Supreme Court’s June 16, 2016 decision in Universal Health Services, Inc. v. United States ex rel. Escobar, a False Claims Act (“FCA”) case upholding the theory of implied certification, significant discussion has commenced regarding the Court’s “new” FCA materiality standard. How the appellate courts define materiality under the FCA, post-Escobar, will have a significant impact on the future of FCA litigation. Recently, the United States government (the “Government”) argued for an expansive definition of materiality through the filing of an amicus brief in the Eleventh Circuit.

Background: Escobar

In Escobar, as explained in a previous post, the Court placed the focus of an implied certification analysis on whether compliance with the requirement that was violated was “material to the Government’s payment decision….” [1]. With regard to the FCA’s materiality requirement, the Court stated that “[t]he materiality standard is demanding,” that “materiality looks to the effect on the likely or actual behavior of the recipient of the alleged misrepresentation” and that a “misrepresentation is material only if it would likely induce a reasonable person to manifest his assent.”[2]

The Government’s Take

In an amicus brief submitted in U.S. ex. rel. Marsteller v. Tilton,[3] the Government argued that the term “material” is already defined under the FCA as “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)) and that the Escobar decision did nothing to change this definition. The Government stated that:

Although the Court in Escobar described the materiality requirement as “demanding,” and clarified that a violation is not material because the government has the legal right to refuse payment because of that violation, no matter how insubstantial, nothing in Escobar actually imposed a heightened test beyond the “natural tendency” test codified in the False Claims Act, entrenched in the common law, and applied in numerous courts of appeals…. [4]

Regarding the “natural tendency” test, the Government argued that a court should take a “holistic” approach, focusing on the “tendency or capacity of the undisclosed violation to affect the government decision maker.” [5] The Government stressed that “there is no requirement that the misrepresentation be likely to affect the ultimate decision itself.” Id. In fact, in the Government’s view, “a FCA plaintiff need not demonstrate that the government would in fact have refused payment, nor need a plaintiff even show that refusal was likely to result.” [6] Moreover, under the Government’s approach, the factors enunciated in Escobar are neither exhaustive nor individually dispositive and should only be evaluated as part of the overall materiality assessment to determine whether the violation had a natural tendency to influence the decision to pay a claim. The Government also stated its belief that under this approach, a determination on materiality will “likely…be a determination for a jury.” [7]


The Government’s amicus brief does not seek clarification of Escobar. Rather, it asks the Court of Appeals to reject the clear pronouncement in Escobar and instead adopt its preferred definition. The court already rejected the Government’s proposed interpretation, stating:

We need not decide whether §3729(a)(1)(A)’s materiality requirement is governed by §3729(b)(4) or derived directly from the common law. Under any understanding of the concept, materiality “look[s] to the effect on the likely or actual behavior of the recipient of the alleged misrepresentation.”[8]

The Government’s new amicus brief appears to be a request that the Eleventh Circuit Court of Appeals disregard the clear language of Escobar in favor of its preferred interpretation of the statute. At a minimum, it seems, the Government is hoping for a ruling that materiality is always a jury question with full knowledge that most FCA cases end in settlement if they cannot be successfully challenged by a motion to dismiss or a motion for summary judgment.

Practical Takeaways

  • The Government is arguing for a materiality requirement that is significantly less demanding than outlined by the Supreme Court, which would significantly increase the scope of potential FCA liability.
  • The Government’s view of materiality being a determination for a jury would have a large implication for the future progress of FCA litigation as, if adopted, it would be difficult to challenge materiality by a motion to dismiss (although the sufficiency of a pleading under Federal Rule of Civil Procedure 9(b) could still be challenged) or even by a motion for summary judgment.
  • As the appellate and district courts interpret Escobar, it is even more vital that a provider facing potential FCA liability be represented by experienced counsel who will advocate for a straightforward interpretation of Escobar and the FCA’s materiality requirement.

If you have any questions, please contact:

9th Circuit Issues Blockbuster Medicare Advantage FCA Decision


The 9th Circuit Court of Appeals just issued a blockbuster ruling in U.S. ex rel. Swoben v United Healthcare et al., ruling that United Healthcare, WellPoint, Aetna and other major health insurance providers must answer to a whistleblower’s complaint that they defrauded the Medicare Advantage program.

The Medicare Advantage Program, also known as Medicare Part C, is a capitated health insurance program offered through private insurance companies. Rather than paying fees for individual services, the Medicare program makes monthly payments based upon the health status of participants. The health status is based upon diagnosis codes for services to individual patients, as selected by physicians and other health care providers. The insurers, who receive the capitated payments, are required to certify the accuracy of the diagnosis codes.

The whistleblower alleged that the health insurance companies performed one-sided retrospective reviews that were structured to identify services that were under-coded, allowing the insurer to increase their payments but not to identify over-coded services. As a result, the whistleblower alleged, the insurers’ certification of the risk adjustment data was false and caused the government to over-pay the capitation rate.

The defendants argued that they could not be held accountable for the accuracy of codes submitted by health care providers and that there was no duty to affirmatively act to identify unsupported codes.

The court rejected both of the arguments. First, it stated that it was not suggesting that the insurance company could be held responsible for incorrect coding by providers but for falsely certifying that the coding was correct. And second, it stated that the insurers had an affirmative duty to have effective compliance programs in place and that they could be liable under the FCA for submitting certifications with reckless disregard for, or deliberate ignorance of, their accuracy, if the whistleblower’s allegations were true.

The insurance companies’ errors were in creating one-sided reviews calculated to identify under-coding and conceal over-coding. By creating such a review, the court ruled, the companies could be acting in deliberate ignorance of the truth or falsity of their certifications or were acting in reckless disregard for the truth or falsity of their certifications.

The court ruled that the whistleblower’s fourth amended complaint stated a claim and was sufficiently pled, and it reversed the trial court’s dismissal with prejudice. The insurance companies will now have to answer and defend against the whistleblower’s allegations.

 If you have any questions, please contact David B. Honig at or (317) 977-1447 or your regular Hall Render attorney.

Supreme Court Accepts Implied Certification – With a Twist


The U.S. Supreme Court issued its decision today in Universal Health Services, Inc. v. United States ex rel. Escobar, and it will have an enormous effect on False Claims Act (“FCA”) cases throughout the nation.

In Escobar, the FCA case was based upon the theory that counseling was provided by practitioners who were not properly licensed according to state regulations. However, the counseling was actually provided, and the licensing regulations did not specifically state they were conditions of payment. This is an “implied certification” theory as the actual claims were not false but the submission of the claims impliedly certified compliance with statutes and regulations.

The Defendant argued that the “implied certification” theory could not apply unless the statute or regulation violated explicitly stated compliance was a condition of payment.

The United States government, on the other hand, argued that implied certification was sufficient to make the falsity material. Additionally, the government argued, any claim submitted in violation of a statute or regulation that was an express condition of payment, no matter how trivial, would be a per se violation of the FCA.

The Court rejected both arguments.

It started with the language of the FCA, which imposes liability for a “material” false statement. It first ruled that implied false certification could form the basis for an FCA case if (a) the claim both requests payment and makes specific representations about the goods or services provided; and (b) failure to disclose statutory, regulatory or contractual violations are “actionable half-truths,” knowing failures to fully disclose relevant information.

The Court then addressed the “condition of payment” question.

The Court first rejected the argument that an implied certification case requires an explicit condition of payment. Rather, the violation must be “material,” as determined from a fact-based analysis. If, for example, a provider knows or should know the violation would be material to the government’s payment decision, it is irrelevant whether the statute, regulation or contract explicitly identifies it as a condition of payment. If the provider knows that the government refused to pay similar claims for such violations, submission of such claims could create FCA liability.

The Court then rejected the government’s argument that any explicitly identified condition of payment could form the basis for an FCA lawsuit, no matter how trivial. The language of the statute, regulation or contract is not relevant to the determination, the Court ruled. The only relevant issue to materiality is the government’s actual payment decision. If, for example, the government routinely pays claims submitted in violation of a regulation that is explicitly identified as a condition of payment, that violation would not be material to the payment decision and could not be the basis for an FCA claim.

The Court, by rejecting both arguments, refused to consider the existence or non-existence of condition of payment language as the touchstone for an FCA implied certification case. Instead, it ruled that materiality was a factual analysis determined by the provider’s knowledge and the government’s previous behavior in the face of such violations.

Health Care Takeaway

The Escobar decision is a significant event in False Claims Act law. No longer can providers rely upon the distinction between “conditions of payment” and “conditions of participation” in assessing potential risks. Instead, they must look to the possible violation itself, the likelihood that it will be relevant to the government’s payment decisions and the government’s previous behavior in response to such violations.

If you have any questions, please contact David B. Honig at or (317) 977-1447 or your regular Hall Render attorney.

Sixth Circuit Rejects HITECH FCA Complaint


The Sixth Circuit Court of Appeals, in US ex rel. Sheldon v. Kettering Health Network, affirmed the dismissal of a False Claims Act (“FCA”) suit alleging fraud based upon certifications of compliance with the HITECH Act and a data breach.

The HITECH Act, or Health Information Technology for Economic and Clinical Health Act, encourages the adoption of electronic medical records. Providers receive incentive payments for adopting EMR and meeting certain “meaningful use” objectives and compliance requirements. Data security is included in those requirements.

Kettering Health Network (“KHN”), the defendant in the action, is a health network that includes hospitals and physicians. KHN certified that it implemented a system to protect electronic data as part of its HITECH certifications, and KHN did receive incentive payments.

Vicki Sheldon was the qui tam relator, or whistleblower, in the action. Her husband, Duane Sheldon, was having an affair with an employee, and the latter two accessed Mrs. Sheldon’s protected health information. Mrs. Sheldon was advised of this breach by a letter from KHN, which she argued demonstrated a per se violation of the HITECH Act and, therefore, the FCA.

The court explicitly rejected that argument, noting that the HITECH Act and subsequent regulations required a security risk assessment, security updates and correction of “identified security deficiencies,” all of which had been performed. It did not perfect prevention of breaches. CMS itself anticipated security deficiencies and required ongoing efforts to identify and correct them.

Health care providers can read this Sixth Circuit decision, which is binding in Kentucky, Michigan, Ohio and Tennessee, and persuasive in other jurisdictions, to offer protection from the FCA where electronic data breaches occur notwithstanding compliance with the HITECH Act.

If you have any questions, please contact David B. Honig at or (317) 977-1447 or your regular Hall Render attorney.

“I refute it thus.” The FCA and “Valueless” Damages Claims

Some court decisions are so marvelous, so great at cutting through all the legal argument and theoretical absurdity, that they deserve to be quoted at length. On February 4, 2016, the Hon. Raymond M. Kethledge of the Sixth Circuit Court of Appeals wrote just such an opinion. What follows is the first paragraph of that opinion in its entirety.

Continue Reading →