In one of the first post-Escobar decisions applying the Supreme Court’s guidance on materiality under the False Claims Act, a federal district court in California has concluded that bare-bones allegations that ‘the government would not have paid a claim’ do not satisfy Rule 9(b). The case involves allegations that defendants submitted false claims to federal healthcare programs for diagnostic sleep studies and sleep disorder-related medical devices. After DOJ intervened and filed an intervention complaint, defendants moved to dismiss on several grounds, including on the ground that DOJ’s implied certification claims failed adequately to plead materiality. DOJ’s Intervention Complaint contained bare-bones allegations of materiality.

Specifically:

2. This action alleges that from April 4, 2002 to present, Defendants knowingly submitted, or caused to be submitted, false claims to Medicare for diagnostic sleep studies performed in locations that violated federal law and/or performed by technologists who were not licensed or certified, in violation of federal law. Defendants also knowingly submitted, or caused to be submitted, false claims to Medicare for durable medical equipment (“DME”) based on those studies, and supplied such DME in violation of federal law. As a result of this fraudulent conduct, Defendants received millions of dollars from the Medicare program. The United States would not have paid Defendants’ claims had it known of Defendants’ fraudulent conduct.

73. Defendants billed Medicare for tests performed by employees who had no license or certification by any State entity or national credentialing body. National Government Services, Palmetto, and Noridian would not have paid the claims for sleep and titration tests submitted by Defendants if they had been aware that the tests were not performed by licensed or registered personnel, as required.

97. Despite the fact that Defendants were knowingly providing false NPI numbers and addresses for sleep and titration tests on the Form CMS-1500s (or their electronic equivalent), Defendants expressly certified, by signing and submitting the Form CMS-1500s (or their electronic equivalent), that their claims for payment were true, accurate, and complete, and that the claims complied with all applicable Medicare laws, regulations, and program instructions. The United States would not have paid for Defendants’ claims had it known of Defendants’ fraudulent conduct.

126. Claims submitted to Medicare for DME dispensed by Amerimed are false. Defendants wrongfully submitted, or caused the submission of, claims for this DME to Medicare, and Defendants wrongfully received money from Medicare for such DME. Medicare would not have paid for the DME had it known it was dispensed by Amerimed, an unapproved supplier.

The Court found these allegations insufficient to establish materiality under Rule 9(b). Emphasizing that the Supreme Court’s admonition that the “materiality standard is demanding,” the district court noted that while DOJ asserted in these paragraphs of the complaint that the government would not have paid Defendants’ claims had they known of Defendants’ fraudulent conduct, it “does not explain why.” This type of bare-bones allegation, the court concluded, “does not meet Universal Health Services’ heightened materiality standard: While Universal Health Services held that payment being conditioned on compliance with regulations could be evidence that a misrepresentation was material, it also explained that this did not necessarily make a misrepresentation material.” Recognizing that DOJ “did not have the benefit of Universal Health Services’ guidance on materiality” when it drafted the operative complaint, the court dismissed the implied certification claim with leave to replead.

The court did not give specific guidance on what additional types of factual allegations it would deem sufficient, and it remains unclear whether DOJ will seek to replead the implied certification claims given that the court also found that DOJ had adequately pleaded other theories of FCA liability. In any event, the opinion provides support for the conclusion that bare bones allegations that ‘the government would not have paid’ are no longer sufficient to plead materiality after Escobar. A copy of the court’s opinion can be found here.