False Claims Act Materiality Standard’s Odd Application To Payment Terms

False Claims Act Materiality Standard's Odd Application To Payment Terms

By Geoffrey Kaiser

Recently, in U.S. v. Sanofi U.S. Services Inc.,[1] the U.S. District Court for the Eastern District of Pennsylvania interpreted the U.S. Supreme Court’s ruling on materiality in Universal Health Services Inc. v. Escobar.[2]

In the process, the ruling highlighted a puzzling aspect of the Escobar ruling in which the high court discussed the relationship between an express condition of payment and materiality, and concluded that the former is not conclusive as to the latter.

In Escobar, the Supreme Court affirmed the validity of an implied false certification theory under the False Claims Act by holding that there may

be liability under the statute when a claim for payment makes specific representations about the goods or services provided, but does not disclose the claimant’s noncompliance with a material statutory, regulatory or contractual requirement that renders those representations misleading half-truths.[3]

Justice Clarence Thomas, writing for the court, clarified that such noncompliance “must be material to the Government’s payment decision in order to be actionable under the False Claims Act.”[4]

The concept of materiality as articulated in Escobar has been the subject of much analysis in ensuing judicial opinions. Escobar engaged in an extended discussion of the materiality requirement and how it should be enforced in False Claims Act cases.

Specifically, Justice Thomas wrote that while it is not necessary that an undisclosed “violation of a contractual, statutory, or regulatory provision” be “expressly designated a condition of payment” in order to trigger liability under the False Claims Act, neither is such a designation determinative, and that “[w]hether a provision is labeled a condition of payment is relevant to but not dispositive of the materiality inquiry.”[5]

The opinion continues:

A misrepresentation cannot be deemed material merely because the Government designates compliance with a particular statutory, regulatory, or contractual requirement as a condition of payment. Nor is it sufficient for a finding of materiality that the Government would have the option to decline to pay if it knew of the defendant’s noncompliance. Materiality, in addition, cannot be found where noncompliance is minor or insubstantial.      

In sum, when evaluating materiality under the False Claims Act, the Government’s decision to expressly identify a provision as a condition of payment is relevant, but not automatically dispositive. Likewise, proof of materiality can include, but is not necessarily limited to, evidence that the defendant knows that the Government consistently refuses to pay claims in the mine run of cases based on noncompliance with the particular statutory, regulatory, or contractual requirement. Conversely, 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. Or, if the Government regularly pays a particular type of claim in full

despite actual knowledge that certain requirements were violated, and has signaled no change in position, that is strong evidence that the requirements are not material.[6]

This discussion has been interpreted by lower courts as requiring a holistic approach to the issue of materiality in which one considers multiple nonexclusive and nondispositive factors, including whether a requirement is denominated a condition of payment, whether the violation is minor or insubstantial and whether the government pays claims despite knowing of a violation.[7]

As analyzed in Escobar, materiality under the False Claims Act can be proven or disproven by how the government behaves in handling claims with full knowledge of a claimant’s noncompliance, irrespective of whether the government has designated a particular requirement a condition of payment which, again, is not dispositive.

In Sanofi, the court applied this concept of materiality in a False Claims Act case involving alleged kickbacks to induce the prescription of a cancer drug. In its ruling denying summary judgment, the court discussed the Escobar materiality standard.

Using a hypothetical referenced in the Escobar decision, the court explained:

[I]f Congress passed a law that government contractors could not be paid unless they only used American-made staplers, and a given contractor failed to disclose that its office used a single Canadian-made stapler, that may well satisfy the “legal falsity” requirement. But the violation may fail the “materiality” requirement if it was so insubstantial that the government would have paid the contractor even if it knew of the violation.[8]

Certainly, the court’s conclusion in Sanofi that designation of a condition of payment by Congress is not dispositive on the issue of materiality would seem to follow logically from the Supreme Court’s ruling in Escobar that “[a] misrepresentation cannot be deemed material merely because the Government designates compliance with a particular statutory, regulatory, or contractual requirement as a condition of payment.”[9]

And yet, there is much to question here. Presumably, the part of the government that is paying the claims is an executive branch agency, but if Congress — another part of the government — designates a requirement a condition of payment, no agency may override that decision. Arguably, this makes the condition material as a matter of law.[10]

When the Supreme Court held in Escobar that, to be actionable under the False Claims Act, an instance of noncompliance must be material to the government’s payment decision, surely it did not mean that any executive branch agency may unilaterally dictate what is material to such a payment decision by taking unlawful action contrary to a statutory mandate imposed by Congress.

In that regard, Congress is the final say on whether a condition of payment is minor or insubstantial.

That being so, nothing an agency may do in choosing to pay claims despite full knowledge of noncompliance with a statutory condition of payment should render such a violation immaterial to the government’s payment decision.

Likewise, it is fair to question whether an agency that expressly designates a requirement as a condition of payment in its own regulations may ignore those regulations in paying claims notwithstanding knowledge that such condition has not been satisfied, Moreover, it is fair to question whether doing so renders compliance with that regulation immaterial to the government’s payment decision.[11]

While an agency may sometimes waive its own regulations, that is the exception rather than the rule.[12] Any waiver presumably needs to be a result of deliberate agency action rather than mere inadvertence or the consequence of agency personnel without waiver authority paying claims in violation of agency regulations.

The Supreme Court’s conclusion in Escobar that “the Government’s decision to expressly identify a provision as a condition of payment is relevant, but not automatically dispositive” thus is difficult to square with basic principles governing and limiting agency action.

Why is the express designation of a provision as a condition of payment not dispositive? Arguably, it must be dispositive where it is Congress making the designation by statute, and also where it is the agency paying the claims that makes the designation by regulation, at least when there is no evidence that the agency has otherwise validly waived its own regulatory condition.

It is not as though the Supreme Court has not recognized the concept of materiality as a matter of law. In the securities fraud context, the High Court has noted:

[Where] established omissions are so obviously important to an investor, that reasonable minds cannot differ on the question of materiality … the ultimate issue of materiality appropriately [may be] resolved as a matter of law by summary judgment.[13]

Even in the Escobar decision itself, the court did “not foreclose the possibility that a statutory requirement may be so central to the functioning of a government program that noncompliance is material as a matter of law.”[14]

The question then is why Escobar treated express conditions of payment as relevant, but not automatically dispositive on the issue of materiality, without also addressing well-worn legal principles limiting agency action in violation of statutory and regulatory mandates. It will be interesting to see how case law under the False Claims Act continues to evolve in this area and whether more courts will be required to grapple with this particular aspect of Escobar’s ruling on materiality.

Geoffrey R. Kaiser is the founder of Kaiser Law Firm PLLC.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

  • United States ex rel. Gohil v. Sanofi U.S. Servs. , 02-2964, 2020 U.S. Dist. LEXIS 131083 (E.D. Pa. July 21, 2020).
  • Universal Health Services, Inc. v. U.S. ex rel. Escobar, 136 S. Ct. 1989 (2016).
  • at 1999-2000.
  • at 1994.
  • at 2001.
  • at 2003-2004.
  • Sanofi U.S. Services Inc., 2020 WL 4260797 at *14.
  • at *13.
  • Escobar, 136 S. Ct. at 2003.
  • See, e.g., Lyng v. Payne, 476 U.S. 926, 937 (1986) (“no … rule or regulation can confer on the agency any greater authority than that conferred under the governing statute” and “a contract entered by an agency may not override statutory limitations”); In re Aiken County, 725 F.3d 255, 260 (D.C. Cir. 2013) (“the President and federal agencies may not ignore statutory mandates or prohibitions merely because of policy disagreement with Congress”).
  • S. v. Krieger, 773 F.Supp. 580, 584 (S.D.N.Y. 1991) (“Where, as here, Congress has delegated to an administrative agency the power to give meaning to statutory provisions or to promulgate standards, regulations adopted by the administrative agency in the exercise of that delegated authority have the force of law . . . and the agency is therefore bound by its own regulations.”) (citations omitted).
  • Woerner v. Small Business Admin., No. 89–2674 98, 1990 WL 109018 (D.D.C. Jul. 17, 1990) (“whether an agency is entitled to waive adherence to its own regulations turns on whether the regulations were intended to confer important procedural benefits upon the parties before the agency or whether they are merely procedural rules for the orderly transaction of agency business” and if the latter, “an agency will be required to adhere to its own regulations where the complaining party will suffer ‘substantial prejudice’ in the absence of such adherence”).
  • TSC Indus. v. Northway Inc., 426 U.S. 438, 450 (1976) (internal quotation marks omitted).
  • S. ex rel. Brown v. Celgene Corporation, 226 F.Supp.3d 1032, 1049 (C.D. Cal. 2016).

New York Cardiology to Pay $2 Million False Claims Settlement


  • Defendants accused of violating FCA in patient referral scheme
  • Using false records to justify procedures also alleged

New York Cardiology PC and a former physician will pay $2 million to the U.S. and New York to resolve claims they defrauded Medicare and Medicaid in violation of the False Claims Act by engaging in an unlawful rent payment arrangement to get patient referrals, according to a filing in a New York federal court.

The defendants, who were also accused of falsifying records to justify medical procedures, admit they engaged in the alleged conduct, a settlement agreement filed Wednesday with the U.S. District Court for the Eastern District of New York said.

The physician, Ghanshyam Bhambhani, pleaded guilty in 2018 to one count of conspiracy to pay healthcare kickbacks, and sentenced to 34 months in prison with three years of supervised release, the settlement said.

“This case reflects the importance of using all the tools in the government’s arsenal, both civil and criminal, to hold unscrupulous medical providers accountable,” said Geoffrey R. Kaiser, a whistleblower attorney and Principal of Kaiser Law Firm PLLC, in a press release.

Kaiser represented whistleblower FNU-LLC, which filed the false claims suit in 2014.

Judge Carol Bagley Amon presided over the case.

The case is United States ex rel. FNU-LNU LLC v. N.Y. Cardiology PC , E.D.N.Y., No. 14-4581, settlement agreement 8/19/20 .

To contact the reporter on this story: Daniel Seiden in Washington at dseiden@bloomberglaw.com

To contact the editors responsible for this story: Rob Tricchinelli at rtricchinelli@bloomberglaw.com; Nicholas Datlowe at ndatlowe@bloomberglaw.com



On June 26, 2020, Principal Deputy Assistant Attorney General Ethan P. Davis delivered remarks on the False Claims Act before the U.S. Chamber of Commerce in Washington, D.C.  During his remarks, Davis clearly signaled that the Department of Justice (“DOJ”) will be moving aggressively under the FCA to prosecute unscrupulous fraudsters who would seek to profit off the current COVID-19 public health emergency.  

Davis declared that “[DOJ] will energetically use every enforcement tool available to prevent wrongdoers from exploiting the COVID-19 crisis,” and that “[i]n that effort, the False Claims Act is one of the most effective weapons in our arsenal.”  Specifically, Davis explained that “[DOJ] will deploy the False Claims Act against those who commit fraud related to the various COVID-19 stimulus programs, like the Paycheck Protection Program and the Main Street Credit Facility” that were created under the CARES Act.   

The Paycheck Protection Program (“PPP”) offers loans to provide incentives for small businesses to retain employees on payroll, and those loans are forgiven if businesses those employees are retained for eight weeks and the money is used for payroll, rent, mortgage interest, or utilities.  Thus far, the PPP has issued forgivable loans totaling more than $500 billion. Davis explained that those receiving such loans are required to certify compliance with the program’s conditions, and when seeking forgiveness of the loan, must certify that the funds were used for eligible costs.  If the borrower offers false certifications, FCA liability may result. Given that the federal government is injecting enormous financial resources into the economy, Davis stressed that “vigorous FCA enforcement is more important than ever to ensure that taxpayer dollars are spent as intended,” and that “the Civil Division’s Fraud Section has implemented a number of initiatives to identify, monitor, and investigate potential violations of the FCA in this area,” including coordination within DOJ and with other agencies to “identify potential program vulnerabilities and safeguard PPP funds, as well as to identify any potential wrongdoing that warrants investigation.”

Likewise, Davis addressed the fraud risks involving other assistance programs like the Main Street Credit Facility (“MSCF”), which provides loans to small and medium-sized businesses that require financial assistance to maintain their operations during the current public health emergency, and the Provider Relief Fund (“PRF”), under which HHS has been providing billions of dollars to providers “on the front lines of the COVID-19 crisis.” 

The MSCF requires funding recipients to comply with certain requirements, including eligibility requirements, and Davis stated that DOJ “will use the False Claims Act to hold accountable those who knowingly attempt to skirt those requirements.”  Likewise, providers who receive funds under the PRF must agree to various terms and conditions, including that they have provided or are providing care to those with actual or possible cases of COVID-19, and must agree to restrictions on balance billing patients.  Davis emphasized that “[w]here a provider knowingly violates these requirements, the False Claims Act may come into play.”

Davis also indicated that DOJ’s enforcement actions may include civil prosecution of private equity firms investing in companies receiving CARES Act funding.  According to Davis, “[w]hen a private equity firm invests in a company in a highly-regulated space like health care or the life sciences, the firm should be aware of laws and regulations designed to prevent fraud” and that if that firm “takes an active role in illegal conduct by the acquired company, it can expose itself to False Claims Act liability.” Davis warned that “[w]here a private equity firm knowingly engages in fraud related to the CARES Act, [DOJ] will hold it accountable.”

At the same time, Davis assured his audience that, consistent with the FCA not being an “all-purpose anti-fraud statute” designed for “garden-variety breaches of contract or regulatory violations,” DOJ would not pursue businesses for making “immaterial or inadvertent technical mistakes in processing paperwork, or that simply and honestly misunderstood the rules, terms and conditions, or certification requirements.”  Rather, Davis stressed that DOJ would “pursue cases only where the borrower knowingly failed to comply with material legal obligations and certifications” and that companies who have acted in good faith “will have nothing to fear from [DOJ],” which is “concerned only with actionable fraud.”

Given the hundreds of billions of taxpayer dollars that Congress has appropriated in response to the COVID-19 pandemic, and DOJ’s determination to use the FCA to recover any amounts taken through fraud, we can expect to see many such cases filed over the course of the next year and beyond.  Whistleblowers who uncover and bring such FCA cases on behalf of the government are eligible to receive 15%-30% of any recovery.  If you have information concerning any such fraud schemes, Kaiser Law Firm, PLLC will be happy to assist you in evaluating the merits of the case.  Just call toll free at 844-800-6657 or complete an email contact form on our website: https://kaiserfirm.com/contact-us/

An Overview of the False Claims Act


The False Claims Act gives assurance to workers who are fought back against by a business in light of the representative’s cooperation in a qui tam activity. The assurance is accessible to any representative who is terminated, downgraded, undermined, bugged or in any case victimized by their boss in light of the fact that the worker examines, documents or takes an interest in a qui tam activity.

Think You Have a Case? Speak With Kaiser Law Firm, PLLC – False Claims Act Law Firm

Whistleblowers offer a significant support by exposing extortion that blocks powerful administration and wastes citizen cash. Experienced lawful portrayal improves the opportunity that your case will be effectively settled and your informant recuperation will be ensured. A legal advisor can likewise assist with guaranteeing that your employer doesn’t make retaliatory move against you for recording a case.

Before you blow the whistle, talk with the broadly perceived New York City law office of Kaiser Law Firm, PLLC During a free case audit we’ll clarify the entirety of your lawful rights and alternatives as they relate to the False Claims Act.



Geoffrey R. Kaiser, Esq.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act created a $175 billion Provider Relief Fund (“PRF”) for expenses and lost revenues attributable to the coronavirus pandemic.  Those funds are being disbursed through “General” and “Targeted” distributions.  Significantly, all providers retaining funds must sign an attestation and accept the terms and conditions associated with payment, and keeping the funds after 90 days is viewed as acceptance of those terms and conditions. Further, the Department of Health and Human Services (“HHS”) stated that it reserves the right to audit Provider Relief Fund recipients in the future and collect any PRF amounts that were used inappropriately. The requirement that providers agree to specific terms and conditions in accepting funding immediately raises the prospect that the government might not merely request that funds improperly obtained or utilized be returned, but that may also pursue providers under the False Claims Act (“FCA”) for accepting funding under false pretenses.  If that happens, the provider may be liable for up to three times the amount of the funding accepted plus civil monetary penalties, and those who uncover and bring such FCA cases on behalf of the government are eligible to receive 15%-30% of any recovery.

Among other things, a provider must certify (1) that it was eligible to receive the funds (because it providers or provided after January 31, 2020, diagnoses, testing, or care for individuals with possible or actual cases of COVID-19); (2) that the funds were used as permitted (i.e., to prevent, prepare for, and respond to coronavirus); (3) that it will not use the payment to reimburse expenses or losses that have been reimbursed from other sources or that other sources are obligated to reimburse; and (4) that for care provided to actual or presumptive COVID-19 patients, it will not engage in prohibited balance billing by charging a patient an amount greater than what the patient would otherwise be required to pay to an in-network provider. Violating any of these conditions could create a predicate for the government to argue that the provider violated the FCA.

HHS has stated that it will have significant anti-fraud monitoring of the distributed funds and will provide oversight as required in the CARES Act to ensure appropriate use of the money.  Therefore, providers who accept money without being eligible or use money in unauthorized ways run a risk that their behavior will come under scrutiny.  The guidance identifies various expenses and lost revenues that are considered eligible for reimbursement.  Some qualifying expenses include: 

  • supplies used to provide healthcare services for possible or actual COVID-19 patients; • equipment used to provide healthcare services for possible or actual COVID-19 patients;
    • workforce training;
    • developing and staffing emergency operation centers;
    • reporting COVID-19 test results to federal, state, or local governments;
    • building or constructing temporary structures to expand capacity for COVID-19 patient care or to provide healthcare services to non-COVID-19 patients in a separate area from where COVID-19 patients are being treated; and
    • acquiring additional resources, including facilities, equipment, supplies, healthcare practices, staffing, and technology to expand or preserve care delivery. 

Qualifying “lost revenues” attributable to coronavirus may include revenues lost as a consequence of fewer outpatient visits, canceled elective procedures or services, or increased uncompensated care, and may use the funding to cover any cost that the lost revenue would otherwise have paid for, provided that the cost is one which prevents, prepares for or responds to coronavirus. Examples of such costs might include employee or contractor payroll, employee health insurance, rent or mortgage payments, equipment lease payments and electronic health record licensing fees.  When the health emergency is over, providers also are expected to return any unused PRF money that they were unable to spend on authorized expenses or losses.  If the provider uses the funding for unauthorized categories of expenses and revenues that are unrelated to COVID-19, there is always the potential for FCA liability.

Given the enormous amount of funding allocated to the PRF and rushed into the marketplace, it is inevitable that unscrupulous providers will seek to take advantage of the program through fraud.  If you have information concerning any such fraud schemes, Kaiser Law Firm, PLLC will be happy to assist you in evaluating the merits of the case.  Just call toll free at 844-800-6657 or complete an email contact form on our website: https://kaiserfirm.com/contact-us/



National disasters bring out the best in some of us, and the worst in others. While health care workers battle heroically on the front lines of the coronavirus pandemic, fraudsters seek to profit off the pain of their fellow citizens. The False Claims Act (”FCA”) frequently has been used by the federal government as an enforcement tool to address such misconduct, including after Hurricane Katrina to recover disaster relief funds taken by fraudulent contractors, and after the 2008 Financial Crisis to hold accountable financial institutions for the fraudulent sale of defective mortgage loans to government-sponsored entities like Fannie Mae.

The same can be expected in connection with the current crisis presented by the coronavirus pandemic, as government investigations into the use of emergency relief funding authorized to confront the crisis are initiated. In a March 16 memorandum issued to all United States Attorneys, the Attorney General directed that every U.S. Attorney’s Office “prioritize the detection, investigation, and prosecution of all criminal conduct related to the current pandemic.” And while many of the fraud examples included in the memo (such as the sale of fake cures for COVID-19 and phishing emails from entities posing as the World Health Organization or the Centers for Disease Control and Prevention) would not be expected to impact federal or state treasuries, it is easy to imagine other frauds, including large-scale ones, that could be directed at government programs and be suitable for prosecution under the FCA and its various state analogs.

Given the disproportionate impact the virus has had on nursing homes and senior facilities, there could be claims arising from allegations of substandard care amounting to “worthless services” that could be actionable under the FCA. Certain emergency waivers granted under certain conditions for the Stark Self-Referral Law and HIPAA privacy rule could also lead to allegations of fraud if such waivers are obtained or utilized under false pretenses. Moreover, the flood of new government funding created through emergency legislation passed by Congress in recent weeks allocates hundreds of millions of dollars for pandemic-related purposes to various agencies, including, among others, the Federal Emergency Management Agency, Department of Health and Human Services, Department of Veterans Affairs, Department of Transportation and Department of Housing and Urban Development. Millions of dollars in funding also has been set aside for funding-related oversight and investigation by Offices of Inspector General, as such massive public spending obviously creates fresh opportunities for fraud against the government by those seeking to exploit the current crisis for personal gain.

If you are aware of fraud being perpetrated against the government arising from the current health crisis, the FCA may be available to you in pursuing claims on the government’s behalf and sharing in any resulting recovery. If you think you may have evidence of such fraud, and wish to discuss the potential for instituting a lawsuit under the FCA, please call or use the contact form on this website (https://kaiserfirm.com/contact-us/) and you will be contacted promptly for an evaluation of your allegations.

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