The United States Supreme Court’s landmark decision in Escobar, which we have discussed previously, upheld the use of the implied certification theory where the implied certification of statutory/regulatory compliance is material to the government’s decision to pay the claims at issue. See generally Universal Health Servs., Inc. v. United States and Commonwealth of Mass. ex rel. Escobar, 136 S. Ct. 1989 (2016) (“Escobar I”). After setting forth this standard, the Supreme Court remanded Escobar to the First Circuit “for consideration of whether [Relators] have sufficiently pleaded a False Claims Act violation.” In United States ex rel. Escobar v. Universal Health Servs., Inc., 2016 WL 687650 (1st Cir. Nov. 22, 2016) (“Escobar II”), the First Circuit applied the Supreme Court’s framework and determined that the relators had adequately alleged an FCA violation.

The Escobar relators alleged that Universal Health Services, Inc. (“UHS”) sought reimbursement for mental health services provided by practitioners who did not meet the regulatory requirements for training, supervision, and/or credentials under Massachusetts’ Medicaid program (MassHealth). The First Circuit found that UHS’s alleged misrepresentations were material for three reasons:

  1. The relators alleged that compliance with MassHealth regulations was a condition of payment. The Court in Escobar I noted that this was a “relevant,” though “not dispositive,” factor when determining materiality.
  2. The First Circuit held that MassHealth’s licensing, credentialing, and supervision regulations “go to the ‘very essence of the bargain’” between MassHealth and its contracted providers. Thus, the First Circuit concluded that UHS’s requests for reimbursement for services rendered by providers who were not properly licensed or did not have the proper supervision “would be ‘sufficiently important to influence the behavior’ of the government in deciding whether to pay the claims.”
  3. While defendants argued that the government’s continued payment of UHS claims was “strong evidence” of non-materiality, the First Circuit declined to dismiss the Second Amended Complaint because (1) the Massachusetts Department of Public Health likely did not learn the extent of the regulatory violations until after the original complaint was filed, and (2) the pleadings did not suggest that MassHealth, which is the entity that was paying the claims at issue, had knowledge of the violations at the time of payment.

The First Circuit noted that discovery may establish MassHealth’s knowledge of UHS’s noncompliance with the pertinent regulations during the time period that it was paying the relevant claims, which would affect the court’s evaluation of materiality. However, because the case was at the pleadings stage, the First Circuit concluded that UHS’s alleged representations were material and the relators were entitled to proceed with their FCA claims.