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FCA Qui Notes
June 25, 2019

License to Bill: West Virginia Takes Closer Aim on Materiality

Qui Notes: Unlocking the False Claims Act

"Materiality" in the context of False Claims Act actions based on false implied certification becomes better understood with each post-Escobar decision. The Southern District of West Virginia added another bit of helpful guidance this month.

In United States of America, ex rel. Cortney Taylor v. Michael J. Boyko, M.D., et al., 2019 WL 2423283 (S.D.W.V. June 7, 2019), the court referenced the "rigorous" materiality standard announced in Escobar, 136 S. Ct. 1989 (2016), and followed by the Fourth Circuit in U.S. v. Triple Canopy, 857 F.3d 174 (4th Cir. 2017), as providing the appropriate foundation to dismiss the relator's claims of false Medicare billings. The case involved invoices submitted by a medical center for services rendered after its state business and medical licenses had been revoked. The licenses were revoked ten months before services were rendered to the relator, due to failure to file an annual report and filing fee, and Medicare was not notified. The court recognized that Medicare required the medical center to follow all applicable laws and regulations, including maintaining the requisite licenses. Nevertheless, the court determined that billing for services without these business licenses would not satisfy the materiality requirement. This ruling may come as a surprise to those who have studied the facts of Escobar—another instance where the defendants lacked appropriate licensure but one where that deficiency was resoundingly found to be material by the First Circuit.

The court in Taylor observed that "the regulatory violation and licensing issue here was not 'central' to the services provided to patients" and "there are no allegations that [the] license status impacted the core medical services provided…or the qualifications of the medical personnel providing care…." Nor did the relator allege that Medicare had ever refused to pay claims in similar circumstances, or that the defendants knew such claims would be rejected. Consequently, the factors that have established materiality in other settings were not present. In Escobar, the court noted, the practitioners lacked medical licenses, which related to their qualifications to provide the services central to the claim. There was no evidence that the government paid claims knowing that the providers are unqualified. Likewise, in Triple Canopy, security guards failed marksmanship requirements, which the court found obviously material to the payment claims as a matter of "common sense." The West Virginia court concluded that neither the Escobar factors nor the "common sense" considerations in Triple Canopy would render the alleged loss of a business license due to missing paperwork and fees as sufficiently material to establish FCA liability.

The court also rejected the complaint for insufficient allegations of scienter. Only one defendant received notice of the license revocation. The court refused to infer that all defendants knew the licenses had been revoked, that Medicare would consequently refuse to pay claims, or that the defendants chose to defraud Medicare rather than attending to the paperwork and filing a nominal fee. There was, the court stressed, no "significant benefit by failing to comply with the applicable regulation…by relying on unqualified personnel or failing to perform claimed services altogether. The allegations presented do not plausibly lead to the conclusion that the defendants knowingly chose to submit false claims, rather than spending a few minutes and a few dollars to renew [the] business and medical licenses." The reasonable inference was negligent conduct, not willful fraud.

This decision gives a glimmer of hope to defense counsel observing the development of post-Escobar jurisprudence. Although the First Circuit had strong words for defendants who operated without proper licensing, the West Virginia court opted instead for a more nuanced approach. By recognizing the distinction between purely administrative business licensing matters and medical licensing related to provider qualifications, the court kept the "materiality" focus on contract performance impacts and patient consequences rather than following a bright-line rule about licensure. Precedent such as this makes way for the conversation about materiality to continue its evolution in a sensible way.

© Arnold & Porter Kaye Scholer LLP 2019 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.