In healthcare fraud prosecutions under the Anti-Kickback Statute (42 U.S.C. § 1320a-7b(b)), the knowing or willful solicitation or receipt, either directly or indirectly, of any remuneration (including kickbacks, bribes or rebates) in exchange for the referral of patients for items or services covered by a federal healthcare program is a criminal offense. In the seminal case of United States v. Greber, 760 F.2d 68 (3d Cir. 1985), the Third Circuit articulated the “one purpose test,” where so long as “one purpose” of a payment is to induce a referral, a criminal conviction may be sustained under the Anti-Kickback Statute, even if there are other, legitimate purposes for the payment. Greber’s “one purpose test” has been widely adopted in Anti-Kickback prosecutions.

On June 16, 2016, however, the United States Supreme Court in United Health Services, Inc. v. U.S. ex rel. Escobar (“Escobar”), 136 S.Ct. 1989 (2016), resolved a circuit split over the validity and scope of the implied certification theory of liability under the False Claims Act (“FCA”), which may affect defendants’ criminal liability under the “one purpose test” in the future. In Escobar, the Supreme Court held that the implied false certification theory can be a basis for FCA liability under certain circumstances. Under the implied false certification theory, a defendant impliedly certifies compliance with the conditions of payment upon submission of a Medicaid claim. A defendant faces liability where the defendant knowingly fails to disclose noncompliance with a statutory, regulatory or contractual requirement in its claim, which renders specific representations about the goods or services provided misleading. To be actionable, the Court found that the misrepresentation must be material to the Government’s payment decision, a “demanding” and “rigorous” requirement. A misrepresentation is not material merely because a particular statutory, regulatory or contractual requirement is deemed a condition of payment by the government. Moreover, the Court held that materiality “cannot be found where noncompliance is minor or insubstantial.” Rather, any understanding of materiality must look “to the effect on the likely or actual behavior of the recipient of the alleged misrepresentation.”

The Supreme Court’s discussion of materiality has broad implications, and leaves room for litigation of whether materiality is satisfied on a case-by-case basis. Arguably, the materiality standard in Escobar renders the “one purpose test” articulated by Greber and its progeny obsolete. If the inducement of referrals need only be “one purpose” of payments rendered for professional services, then by definition it need not be a significant purpose, thereby calling the government’s ability to satisfy the materiality requirement into question. In the future, a defendant may therefore be able to rely on Escobar in arguing that, even if the inducement of referrals was “one purpose” of a payment, it was not material to the decision to use certain medical services. The key for defendants in healthcare prosecutions will be to submit carefully crafted proposed jury instructions that require the government to prove not that one purpose of the payment was to induce referrals, but rather that it was material to the payment decision. Because the Supreme Court vaguely defined materiality in Escobar, defendants should argue that the materiality requirement applies broadly, beyond the context of FCA litigation. If the government may no longer rely on the “one purpose test” it will have a more difficult time obtaining convictions in healthcare fraud cases where only an arguably insubstantial purpose of remuneration is the inducement of referrals.