American Health Lawyers Association 2015 Fundamentals of Health Law Introduction to the False Claims Act

Defense—Materiality.

1. Overview of Materiality Element.

   1. United States ex rel. Miller v. Weston Educ., Inc., 784 F.3d 1198 (8th Cir. 2015).

• 
  Former employees of a college alleged that the college altered grade and attendance records to maximize Title IV funds and brought an FCA action alleging numerous theories of FCA liability.
  
• 
  The college argued that the “falsified grade and attendance records did not cause improper disbursement or retention of Title IV funds, and thus were not material to government funding decisions.” Id. at 1207. However, the Eighth Circuit disagreed, holding that participation in Title IV was conditioned on compliance with adequate recordkeeping, and that the college represented it would maintain adequate records in order to enter into a written program participation agreement (PPA). Id. at 1208. The court held that the college “could not have executed the PPA without stating it would maintain adequate records. And without the PPA, [the college] could not have received any Title IV funds. This forms a ‘causal link’ between the promise and the government’s disbursement of funds.” Id.
  
• 
  The court also noted that actual harm is not an element of materiality. Id. at 1209.
  

1. United States ex rel. Lemmon v. Envirocare of Utah, Inc., No. 09-4079, 2010 WL 3025021 (10th Cir. Aug. 4, 2010).

• 
  Former employees of government contractor brought qui tam claims under the FCA, alleging that the contractor violated its contractual and regulatory obligations by improperly disposing of hazardous waste and falsely representing to the government that it had fulfilled its obligations.
  
• 
  The Tenth Circuit held that the FCA’s materiality requirement makes a false certification actionable “only if it leads the government to make a payment which, absent the falsity, it may not have made.” Id. at *4 (emphasis added). The Plaintiffs, therefore, were not required to show conclusively that the Government would not have paid Defendant if it were aware of the falsity.
  

1. United States ex rel. Longhi v. Lithium Power Techs., Inc., 575 F.3d 458 (5th Cir. 2009), cert denied, 130 S. Ct. 2092 (2010).

• 
  Relying on FERA’s adoption of the “natural tendency to influence” test, the Fifth Circuit adopted a broader materiality requirement than the “outcome materiality” test it had previously advanced. Id. at 470.
  
• 
  Specifically, the Fifth Circuit held that materiality requires only a showing “that the false or fraudulent statements have the potential to influence the government’s decisions.” Id. (emphasis added). Under this standard, the Court concluded that the defendant’s false statements were material and violated the FCA.
  

1. United States v. Bourseau, 531 F.3d 1159, 1163-64 (9th Cir. 2008).

• 
  Hospital operators were alleged to have submitted false claims for cost reports that included improper expenses.
  
• 
  The Ninth Circuit recognized that the FCA contains an implicit materiality requirement, specifically in the § 3729(a)(7) reverse false claims context. Id. at 1170-71.
  
• 
  Defendants argued that the inclusion of the improper claims on hospital cost reports was immaterial because the fiscal intermediaries did not actually review the cost reports in making payment decisions. The court rejected this argument, applying the “natural tendency” test of materiality to conclude “Appellants’ cost report entries were material because they had the potential effect, or natural tendency, to decrease the amount . . . owed Medicare in overpayments, despite the fact that cost reports were never audited.” Id. at 1171.
  

1. United States ex rel. Sanders v. N. Am. Bus Indus., Inc., 546 F.3d 288, 290 (4th Cir. 2008).

• 
  Relator filed qui tam action under the FCA alleging that the defendant underpaid duties on bus frames it imported from Hungary and falsely certified that buses it manufactured using those frames were eligible for federal subsidies.
  
• 
  After examining whether the alleged false statements and conduct had a “natural tendency to influence” or were “capable of influencing” the government, the court held that the false statements were immaterial. Id. at 299.
  

1. United States v. Rogan, 517 F.3d 449, 452 (7th Cir. 2008).

• 
  The Seventh Circuit held that omissions in a hospital’s reimbursement claims, which failed to disclose that illegal referrals had occurred or that kickbacks had been paid, were material to the government’s claims under the FCA.
  
• 
  The court applied the “capable of influencing” the government’s payment decision standard, which would apply “even if those who make the decision are negligent and fail to appreciate the statement’s significance.” Id. at 452.
  

1. 
   
   Download 124.46 Kb.
   
   Share with your friends: