United States Ex Rel. Escobar v. Universal Health Services, Inc.
2016 U.S. App. LEXIS 21072
| 1st Cir. | 2016Background
- Yarushka Rivera died in 2009 after treatment at Arbour Counseling Services, a facility owned by Universal Health Services (UHS); UHS submitted reimbursement claims to MassHealth (Massachusetts Medicaid).
- Relators (Yarushka’s parents) learned Arbour employed unlicensed or unsupervised staff who treated Yarushka and alleged UHS nevertheless billed MassHealth as if services met state licensing/supervision requirements.
- Relators brought a qui tam suit under the False Claims Act (FCA), asserting an implied false certification theory: billing MassHealth implied certification of compliance with material statutory/regulatory requirements.
- The district court dismissed under Rule 12(b)(6), holding the state regulations were conditions of program participation, not conditions of payment, and thus not actionable under the FCA.
- The First Circuit in Escobar I reversed, finding the complaint plausibly alleged the regulations were conditions of payment and material; the Supreme Court in Escobar II affirmed the theory but remanded to assess whether the complaint sufficiently pleaded materiality under a demanding, holistic standard.
- On remand the First Circuit (this opinion) holds the Second Amended Complaint adequately alleges materiality under the Supreme Court’s standards and reverses the dismissal, remanding for further proceedings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether billing MassHealth implied certification that services complied with licensing/supervision regulations (implied false certification) | Relators: billing implied certification of compliance; Arbour used unlicensed/unsupervised staff so claims were false | UHS: regulatory requirements are mere preconditions to program participation, not conditions of payment actionable under the FCA | Implied certification theory is viable and Relators sufficiently alleged implied certification in prior proceedings; materiality remains the key question on remand |
| Whether the alleged regulatory violations were material to the government’s payment decision under Escobar II | Relators: licensing/supervision requirements are central to MassHealth and would influence payment decisions — thus material | UHS: government payments despite alleged knowledge of violations is strong evidence of non-materiality | Court: regulatory status as a condition of payment and centrality of licensing/supervision support materiality; complaint plausibly alleges materiality |
| Whether evidence that the government paid claims despite knowledge of violations defeats materiality at the motion-to-dismiss stage | Relators: no allegation MassHealth had actual knowledge of violations for the specific claims at issue before suit; discovery may show otherwise later | UHS: any government payment despite awareness indicates non-materiality per Escobar II | Court: no evidence in the complaint that MassHealth actually knew of violations when it paid the claims; payment-with-knowledge is strong but not dispositive, and plaintiffs need not plead unrelated government payment practices at this stage |
| Whether the complaint survives Rule 12(b)(6) after Escobar II’s demanding materiality standard | Relators: allegations show centrality of requirements and absence of actual government knowledge of violations for the billed claims | UHS: Escobar II narrows implied certification; plaintiffs haven’t pleaded the stringent materiality showing | Court: applying Escobar II holistically, the complaint sufficiently alleges materiality to survive dismissal |
Key Cases Cited
- United States v. Bornstein, 423 U.S. 303 (discusses FCA origins and purpose)
- United States ex rel. Escobar v. Universal Health Servs., Inc., 780 F.3d 504 (1st Cir. 2015) (First Circuit’s initial Escobar decision finding regulatory noncompliance could be condition of payment)
- Universal Health Servs., Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989 (Sup. Ct. 2016) (Escobar II) (validated implied certification theory and set demanding, holistic materiality standard)
- Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27 (discusses materiality as a holistic inquiry)
- United States ex rel. Winkelman v. CVS Caremark Corp., 827 F.3d 201 (1st Cir. 2016) (applies Escobar materiality standard; materiality tied to influence on recipient behavior)