Laboratory Corporation of America Holdings d/b/a Laboratory Corporation of America, Petitioner, v. The State of Texas and NPT Associates, Respondents
No. 25-0127
Supreme Court of Texas
Argued February 12, 2026
On Petition for Review from the Court of Appeals for the First District of Texas
CHIEF JUSTICE BLACKLOCK filed a dissenting opinion, in which Justice Busby joined.
JUSTICE BUSBY filed a dissenting opinion.
The State asserts that LabCorp—a laboratory testing services company and Texas Medicaid participant—violated Texas administrative regulations by failing to offer the Medicaid program the
This dispute requires us to decide whether the relevant provision of the Act forbids all omissions, or only those that actually matter to the government‘s payment decision. Put differently, does the Act require the government (or qui tam relator) to show materiality in order to impose liability for an omission?
We hold yes. In banning fraud against the State, the Act taps into a deep set of background common-law principles that have always required a showing of materiality in order to render a falsehood or omission actionable. Our Legislature was well familiar with that historical pedigree, and nothing in the statutory text indicates a desire to depart from the traditional understanding of fraud.
We further find no materiality in this record. LabCorp opened its books, records, and practices to the State in 2014. Through a series of document productions, presentations, and other communications, LabCorp demonstrated the ambiguities in the relevant administrative regulations and explained its position on their proper interpretation. For seven years thereafter, through 2021, the State paid each of LabCorp‘s claims without a word of objection. The State never withheld payment, never lodged any protest, and never advised LabCorp that its
This record is incompatible with materiality. The trial court therefore correctly awarded LabCorp summary judgment. We reinstate that judgment and reverse the contrary judgment of the court of appeals.
I
We begin by unfurling the complex administrative labyrinth out of which the State‘s fraud claim arises.
A
1
The Medicaid program was created in 1965 “to subsidize state efforts to provide healthcare to families and individuals ‘whose income and resources are insufficient to meet the costs of necessary medical services.’” Medina v. Planned Parenthood S. Atl., 606 U.S. 357, 363 (2025) (quoting Armstrong v. Exceptional Child Ctr., Inc., 575 U.S. 320, 323 (2015)). Unfortunately, since its inception, Texas‘s Medicaid program has experienced “fraud, abuse, and waste” that “divert funds that could otherwise be used to provide essential health-care services.” In re Xerox Corp., 555 S.W.3d 518, 524 (Tex. 2018). In 1995, the Texas Legislature passed the Texas Medicaid Fraud Prevention Act to serve as a “powerful tool for targeting fraud against the Texas Medicaid program and securing the program‘s integrity.” Id. at 525; see generally Act of May 26, 1995, 74th Leg., R.S., ch. 824, 1995 Tex. Gen. Laws 4202-
A person commits an unlawful act if the person:
(1) knowingly makes or causes to be made a false statement or misrepresentation of a material fact to permit a person to receive a benefit or payment under a health care program that is not authorized or that is greater than the benefit or payment that is authorized;
(2) knowingly conceals or fails to disclose information that permits a person to receive a benefit or payment under a health care program that is not authorized or that is greater than the benefit or payment that is authorized;
. . .
(4) knowingly makes, causes to be made, induces, or seeks to induce the making of a false statement or misrepresentation of material fact concerning: . . .
(B) information required to be provided by a federal or
state law, rule, regulation, or provider agreement pertaining to a health care program . . . .
2
Through its administrative agencies, the State has promulgated a forest of regulations governing the Medicaid program and the healthcare providers with whom it partners. We now chart the ones that give rise to this dispute.
First there is the Texas Administrative Code. Chapter 371 concerns “Medicaid and Other Health and Human Services Fraud and Abuse Program Integrity.” See
A person is subject to administrative actions or sanctions if the person submits, or causes to be submitted, a claim for payment by the Medicaid or other HHS program: . . . (9) for an item or service where the charges for that item or service exceed the usual and customary fee the person charges to the public, privately insured persons, or private-pay persons for the same item or service . . . .
Immediately after that provision comes one governing “charges or costs” that were “discounted” for certain other payors:
A person is subject to administrative actions or sanctions if the person submits, or causes to be submitted, a claim for payment by the Medicaid or other HHS program: . . . (10) for an item or service where the charges or costs for that item or service were discounted for the public, privately insured persons, or private-pay persons for the same item or service . . . .
Chapter 371 includes a “Definitions” section that defines some 96 terms ranging from “Abuse” to “Waste.”
On top of those administrative provisions, Medicaid providers are subject to two additional sets of regulations found in program-specific documents. One is the Texas Health and Human Services Commission Medicaid Provider Agreement. Among its several dozen requirements is a “Nondiscrimination” clause, under which providers agree “to grant Medicaid recipients all discounts and promotional offers provided to the general public.” That clause further provides that:
Provider agrees and understands that free services to the general public must not be billed to the Medicaid program for Medicaid recipients and discounted services to the general public must not be billed to Medicaid for a Medicaid recipient as a full price, but rather the Provider agrees to bill only the discounted amount that would be billed to the general public.
The Agreement explains that “falsifying entries, concealment of a material fact, or pertinent omissions may constitute fraud and may be prosecuted under applicable federal and state law.” In signing the Agreement, providers agree to comply with Title I, Part 15, Chapter 371 of the Texas Administrative Code.
Still more requirements are set out in the Texas Medicaid Provider and Procedures Manual, to which all Texas Medicaid providers must consent as a condition for participation in the program. The
After submitting a signed claim . . . , the provider certifies [that]:
. . .
- All billed charges are usual and customary for the services provided. . . .
- The provider will not bill the [Texas] Medicaid program for services that are provided or offered to non-Medicaid patients, without charge, discounted or reduced in any fashion including, but not limited to, sliding scales or advertised specials. Any reduced, discounted, free, or special fee advertised to the public also must be offered to [Texas] Medicaid clients.
As this language shows, the Manual twice ties “discounted” fees to advertising.
B
Petitioner Laboratory Corporation of America Holdings provides a variety of lab testing services to the general public nationwide, including to Texas Medicaid enrollees. As a participant in the Texas Medicaid program, LabCorp is required to comply with all of the authorities discussed above, including the Act, Chapter 371 of the Administrative Code, the Agreement, and the Manual.
In 2013, NPT Associates sued LabCorp under the Act‘s qui tam provisions. That filing prompted the Office of the Attorney General of Texas to investigate LabCorp‘s billing practices. In 2013, OAG served a civil investigative demand (called CID for short) on LabCorp seeking information on the alleged fraudulent conduct NPT Associates identified. See
In response, LabCorp submitted to OAG three principal categories of information that will be relevant today. We will review LabCorp‘s disclosures in some detail over the next few pages, but the important takeaway is that these materials put the State on notice in 2014 of the following: LabCorp has a two-tier pricing structure; LabCorp bills all third-party payors (private insurance companies, managed-care companies, and government payors, including Medicaid) the same Patient Fee Schedule rate; LabCorp accepts lower payments from private insurers through negotiated arrangements; and LabCorp does not consider these arrangements to be “discounts” within the meaning of the billing regulations because the State‘s own guidance suggests the “discount” rules are focused only on “advertised” and “promotional” rates available to “the general public.”
First came LabCorp‘s records production. Within a year of receiving the 2013 CID, LabCorp turned over some 250,000 pages of
Then, in 2014, LabCorp met in person with OAG decisionmakers, including the then-Deputy Chief of OAG‘s Civil Medicaid Fraud Division. In that meeting, LabCorp presented the details of its billing practices and discussed how they fit with the State‘s billing regulations. Afterwards, LabCorp provided OAG with a slide-deck summary. The slide deck highlights LabCorp‘s efforts to cooperate with the State‘s 2013 CID and its compliance practices generally, and it summarizes in detail LabCorp‘s relevant billing practices.
There is no transcription of what was said at this in-person meeting, but all sides agree that the slide deck is a fair encapsulation of the discussion. First is a slide setting out “Charging and Billing Processes.” The slides highlighted that Medicaid is one of several payors with whom LabCorp partners, along with hospitals, clinics, doctors, patients, managed-care companies, and Medicare. LabCorp explained that these payors are billed according to different practices. Within the category of third-party payors, there are two billing arrangements: “fee-for-service” and “capitated agreements.” The former are billed according to a patient fee schedule, which is “negotiat[ed] by physicians on behalf of their patients.” The slide added that “Medicaid billings are based on government-set fee schedules and reimbursement rules.” By contrast, capitated agreements “are billed ‘based on a negotiated
The slide deck then explained that “[l]ike most health care providers, LabCorp distinguishes between charges and payments.” (Emphases in original.). LabCorp elaborated that on the front end, it “charges patients and all third-party payors the amounts set forth in the Patient Fee Schedule.” But on the back end, it “may accept from some third-party payors amounts based on” multiple factors, including privately negotiated rates and “fee schedules set by Medicare or Medicaid.” In other words, when a privately insured patient receives lab services, LabCorp bills the insurer the full Patient Fee Schedule rate, but LabCorp may accept a lower payment on that bill depending on different considerations, including private contractual obligations. Outside those scenarios, “LabCorp expects patients and their insurers to pay the charges set forth in the Patient Fee Schedule.”
A few months later, in 2015, LabCorp prepared and submitted a supplemental “white paper” to “outline[ ] LabCorp‘s billing practices and how those industry-standard practices comply with Texas Medicaid‘s billing requirements.” The white paper reiterated, consistent with the slide deck, that there are situations in which LabCorp accepts payment reductions from non-Medicaid payors. It explained:
LabCorp does sometimes agree to accept payments lower than its usual and customary charge from certain third-party payors. But Texas law does not require a provider to charge Texas Medicaid what the provider sometimes accepts as payment from others. Texas law requires a “usual and customary charge,” and a “charge”
and a “payment” are not the same thing. A “charge” is what a provider bills, while a “payment” is what the provider is ultimately paid.
(Emphases in original.). It further elaborated on how LabCorp‘s two fee schedules create differential pricing. In particular, clients (including hospitals, clinics, and doctors) are billed the Client List Price, while third-party payors, including Medicaid, get billed the same Patient Fee Schedule.
The white paper expressly acknowledged Texas‘s administrative regulations regarding usual-and-customary charges, best pricing, and discounts, but explained why LabCorp believed its practices comply fully with each. LabCorp noted, “Texas law also requires that independent laboratories like LabCorp offer to Texas Medicaid any discounted prices that were advertised to the public or billed to the general public.” However, “LabCorp neither advertises discounts to the public nor bills discounted prices to the general public.” In this situation, “Texas law requires only that LabCorp bill its ‘usual and customary’ charge to Texas Medicaid.” That view draws support from the Manual, which (as discussed above) twice describes the “discount” requirement in connection with advertising and mandates that “[a]ny reduced, discounted, free, or special fee advertised to the public also must be offered to [Texas] Medicaid clients.” Similarly, the Provider Agreement prohibits LabCorp from providing discounts or free services to the “general public.” To be sure, the white paper acknowledged that the “discount requirement is not a model of clarity.” But LabCorp maintained that the regulations are “focused only [on] discounted prices that are advertised to the public or billed to the general public. With no
In 2018—three years after receiving the white paper and four years after receiving extensive documentation responsive to the first CID—the State issued a second CID. LabCorp again provided ample documentation, and by 2019, it had produced over 800,000 pages of documents. Among the documents produced in response to the second CID were agreements between LabCorp and private health-insurance companies, updated pricing policies, internal email exchanges regarding pricing policies, and various fee schedules.
C
1
At no point after receiving the extensive documentation and information laid out above did the State express any objection regarding the lawfulness of LabCorp‘s billing practices. The State never expressed disapproval of LabCorp‘s understanding of the regulations. It never corrected LabCorp‘s approach to billing or pricing, or its view of the term “discounted.” It never disputed LabCorp‘s position, grounded in the Manual and Provider Agreement, that the “discount” requirement is best understood as applying only to “advertised” and “promotional” front-end pricing for “the general public,” not back-end negotiated payment reductions for certain payors. The State never pushed back on LabCorp‘s billing structure that separates payors into categories. It never contested LabCorp‘s practice, like that of “most health care providers,” which “distinguishes between charges and payments.” (Emphases in original.). The record contains no documents—internal or
Instead, the State continued to pay LabCorp‘s claims uninterrupted, over the course of seven years, in amounts reaching millions of dollars.
2
That changed in early 2021, when the State concluded that LabCorp had been violating the billing regulations since 2005.
In January 2021, the State intervened in the pending NPT Associates action and filed the operative petition. The State alleges that LabCorp violated Texas‘s administrative regulations, as set out above, when it submitted reimbursement claims to Texas Medicaid at higher rates than it was entitled to charge. Specifically, LabCorp allegedly failed to offer to Texas Medicaid “discounts” that it had offered to non-Medicaid payors, including Humana, Cigna, and United HealthCare, for the same services. LabCorp further provided “across-the-board” and “special price” discounts to certain health care providers. “As a result of LabCorp‘s conduct,” the State alleges, “the State reimbursed LabCorp millions of dollars more for lab testing services than it should have.”
According to the State, LabCorp‘s repeated certifications that it complied with Texas law on reimbursement claims and more than one hundred Provider Agreements—as well as its failure to disclose its unlawful conduct—constituted false statements, misrepresentations, and omissions in violation of the Act. See
LabCorp filed a traditional motion for partial summary judgment, arguing the State failed to establish the materiality of the allegedly unlawful acts. According to LabCorp, any false statements, misrepresentations, or omissions were not material because they had no impact at all on the State‘s payment decisions. The State knew of LabCorp‘s billing practices—specifically, its alleged failure to provide discounts to Texas Medicaid—yet routinely paid each claim without objection for seven years. The trial court granted the motion, denied the State‘s motion for reconsideration, and, after the remaining claims were nonsuited, rendered judgment for LabCorp. The court of appeals reversed and remanded, holding that (1)
We granted LabCorp‘s petition for review.
While no party has raised any jurisdictional concerns, we are “duty-bound to determine [our] jurisdiction regardless of whether the parties have questioned it.” In re City of Dallas, 501 S.W.3d 71, 73 (Tex. 2016).
In recent days, Justices of this Court have identified jurisdictional concerns arising from qui tam actions brought under the Act. See generally In re Novartis Pharms. Corp., 722 S.W.3d 720 (Tex. 2025) (statement of Young and Sullivan, JJ., respecting denial of petition for writ of mandamus). We recently considered a mandamus petition involving a civil-remedy action brought by a private relator under the Act without the State‘s intervention. Id. The defendant argued that the qui tam relator lacked constitutional standing because it was not injured by the alleged unlawful acts. Id. at 721; see Heckman v. Williamson County, 369 S.W.3d 137, 154 (Tex. 2012). We denied mandamus relief without resolving that argument, though two Justices wrote separately to urge that in an appropriate case, we “ought to take up this important subject.” Novartis, 722 S.W.3d at 722 (statement of Young and Sullivan, JJ.).
Here, by contrast, the State has intervened. The State seeks to recoup a classic pocketbook injury—the loss of funds—caused by the defendant‘s allegedly unlawful conduct. See Busse v. S. Tex. Indep. Sch. Dist., ___ S.W.3d ___, 2026 WL 1279764, at *4 (Tex. May 8, 2026) (“Indeed, we have recognized the type of pocketbook injury complained of here as a quintessential form of injury-in-fact sufficient to confer standing.”). This is enough to assure us that “at least one named
III
The first issue we must decide is whether
A
1
We first restate the core principles that guide our analysis. As always, the statutory text controls, City of San Antonio v. Realme, 731 S.W.3d 342, 349-50 (Tex. 2026), and “our primary objective is to give effect to the Legislature‘s intent as manifested in the enacted language,” Am. Nat‘l Ins. Co. v. Arce, 672 S.W.3d 347, 354 (Tex. 2023). Critical here is the bedrock directive that statutory text “must always be read ‘in context—not isolation.’” Pub. Util. Comm‘n of Tex. v. Luminant Energy Co., 691 S.W.3d 448, 460 (Tex. 2024) (quoting State v. Hollins, 620 S.W.3d 400, 407 (Tex. 2020)). Statutory text should not be read in a vacuum. Instead, “[w]e ‘give meaning to every word in a statute, harmonizing each provision‘, while ‘consider[ing] the context and
Those principles have special force here, where we confront a statute focused on the prevention of fraud—one of the oldest wrongs known to our law. When statutes draw from areas of law with rich common-law pedigrees, they “are to be interpreted and applied according to their common-law meanings.” ANTONIN SCALIA & BRYAN A. GARNER, READING LAW: THE INTERPRETATION OF LEGAL TEXTS 320 (describing this “age-old principle”). Courts often describe this concept with an analogy to gardening: “a common-law term . . . when transplanted into the statutory law, ‘brings the old soil with it.’” Paxton v. Am. Oversight, 716 S.W.3d 535, 540 (Tex. 2025) (citation omitted); see also United States v. Hansen, 599 U.S. 762, 778 (2023) (explaining that when statutory text invokes a common-law term, the term brings the “old soil” of its common-law origins). Accordingly, a statutory reference to fraud generally must be construed “against the backdrop of common law” fraud. Marino v. Lenoir, 526 S.W.3d 403, 409 (Tex. 2017).
We set aside that principle only when the Legislature has clearly directed us to do so. Our precedents require “the Legislature‘s clear repudiation” in order to depart from a statutory term‘s common-law origins. Taylor v. Tolbert, 644 S.W.3d 637, 650 (Tex. 2022); see also City of Houston v. Manning, 714 S.W.3d 592, 596 n.8 (Tex. 2025) (“Abrogating common-law claims is disfavored and requires a clear
The principal dissent faults our reliance on common-law principles in this context, arguing that because “[t]he common law developed to govern and guide the private economy, not to govern and guide the sovereign,” it exerts little interpretive force over a statutory scheme that protects taxpayers and the State from misuse of public funds. Post at 2 (Blacklock, C.J., dissenting). But courts frequently rely on the common law to interpret federal statutes that implicate both private and governmental interests—including criminal statutes involving fraud against the government. As far back as 1952, for example, the U.S. Supreme Court held that criminal intent is an element of the crime of knowing conversion of government property, despite the omission of “intent” from the statutory provision. Morissette v. United States, 342 U.S. 246, 263 (1952). The Court reasoned that “where Congress borrows terms of art”—like “knowing”—that have “accumulated the legal tradition and meaning of centuries of practice, it presumably knows and adopts the cluster of ideas that were attached to each borrowed word in the body of learning from which it was taken.”
Courts have done the same in more recent times. In Sekhar v. United States, the U.S. Supreme Court held that attempting to compel the Comptroller Office‘s general counsel to recommend investment in a fund was not “extortion”—i.e., “obtaining of property from another”—under the Hobbs Act,
2
We now discuss the origins of common-law fraud that form the backdrop of the Act before concluding that no “clear repudiation” of the common law is present here.
Fraud-based claims have roots in the English common law that long predate our Nation‘s founding. See 1 WILLIAM BLACKSTONE, AN ANALYSIS OF THE LAWS OF ENGLAND 102 (5th ed. 1766). In the 18th century, Sir William Blackstone described the legal principle that deeds “must [not] be founded upon . . . fraud or collusion.” 2 WILLIAM BLACKSTONE, THE COMMENTARIES ON THE LAWS OF ENGLAND 252 (4th ed. 1876). Our Nation‘s earliest legal scholars, including Justice Story, have described at length the common-law origins of fraud claims. 1 JOSEPH STORY, COMMENTARIES ON EQUITY JURISPRUDENCE 213-14 (5th ed. 1849) (“Fraud . . . includes all acts, omissions, and concealments, which involve a breach of . . . duty, trust, or confidence, justly reposed, and are injurious to another.”).
Early sources confirm that materiality has always been a critical component of a viable common-law fraud claim. In the 17th century, Sir
Ample authority from the U.S. Supreme Court and our Court agree that misrepresentations and false statements must be material in order to create an actionable fraud claim. As early as 1813, the U.S. Supreme Court explained that “[a] false representation, though no breach of the contract, if material, avoids the policy on the ground of fraud.” Livingston v. Md. Ins. Co., 11 U.S. 506, 535 (1813) (emphasis added). In its early years, this Court confirmed the same. Indeed, our earliest pronouncements define fraud with reference to “a material fact.” See Mitchell v. Zimmerman, 4 Tex. 75, 75 (1849) (“Where a party intentionally misrepresents a material fact or produces a false
The same is true for fraud claims based on omissions. As the U.S. Supreme Court observed in recent years, “[c]ommon-law fraud has long encompassed certain misrepresentations by omission.” Universal Health Servs., Inc. v. United States ex rel. Escobar, 579 U.S. 176, 187 (2016). We, too, have framed fraud claims in terms of “material omissions.” E.g., Eagle Props., Ltd. v. Scharbauer, 807 S.W.2d 714, 723 (Tex. 1990). And in discussing the elements of a claim of fraud by nondisclosure, we have emphasized that the defendant must have “deliberately failed to disclose material facts.” Bombardier Aerospace Corp. v. SPEP Aircraft Holdings, LLC, 572 S.W.3d 213, 219-20 (Tex. 2019).5
All this venerable jurisprudence led the U.S. Supreme Court to conclude in more recent times that “the common law could not have conceived of ‘fraud’ without proof of materiality.” Neder, 527 U.S. at 22. The Restatement (Second) of Torts confirms the same. Section 538 of the Restatement, “Materiality of Misrepresentation“—confirms the
B
In its efforts to combat fraud against the government, the Act—which, we remind the reader, was previously known as the Texas Medicaid Fraud Prevention Act, and now is called the Texas Health Care Program Fraud Prevention Act—taps into the rich common-law tradition discussed above. We therefore must interpret its text consistent with “the backdrop of common law,” Marino, 526 S.W.3d at 409, unless there is a clear legislative directive otherwise, Taylor, 644 S.W.3d at 650. And because that backdrop includes and has always required a showing of materiality, we must conclude that absent legislative repudiation, Section 36.002(2) requires the government or relator to prove that an omission was material.6
In arguing that Section 36.002(2) rejects a materiality requirement, the State makes two principal textual arguments. Neither persuades us.
1
First, the State notes that nothing in Section 36.002(2) expressly references materiality. But silence is not repudiation. We cannot “infer from the absence of an express reference to materiality” that the Legislature “intended to drop that element from” fraud claims brought under the Act. Neder, 527 U.S. at 23; Taylor, 644 S.W.3d at 650. More is required to repudiate the centuries-old principle that fraud claims carry a materiality requirement. See Neder, 527 U.S. at 23.
Moreover, the Legislature‘s reliance on the verb “permits” suggests the Legislature did not disclaim a materiality requirement. Under Section 36.002(2), a concealment or failure to disclose information is only actionable if it “permits” an improper payment. See
2
The State and the principal dissent next argue that because other parts of Section 36.002 expressly reference materiality, Section 36.002(2)‘s failure to do the same must imply the Legislature rejected a materiality requirement for omissions. See
First, the principle is strongest when the two provisions are otherwise identical, so as to make the omission conspicuous. See, e.g., Ineos USA, 505 S.W.3d at 564 (applying presumption when the first statutory list included “a property owner, contractor, or subcontractor” and the second included “an owner, a contractor, or a subcontractor or an employee of a contractor or subcontractor” (emphasis added)). Such parallelism is lacking here. Paragraph (1) describes “a false statement
Moreover, our duty to “harmoniz[e]” Paragraph (2) with its statutory neighbors strongly counsels in favor of finding a materiality requirement. Luminant, 691 S.W.3d at 460; READING LAW at 167 (discussing the “whole-text canon“), 180 (discussing the “harmonious-reading canon“). The State‘s view would require us to accept that the Legislature treated an affirmative but immaterial lie more leniently than an equally immaterial omission. That is implausible. The statute, after all, exists to “target[ ] fraud against the Texas Medicaid program,” Xerox Corp., 555 S.W.3d at 525, and it would make little sense to conclude, based on nothing more than a negative inference, that the Legislature sought to condemn omissions more strenuously than falsehoods.
On top of that, the ease with which an omission can be recast as a misrepresentation—and vice versa—strongly suggests they should be
We thus find little force in the State‘s insistence in its briefing that the categories are demarcated clearly and distinguished easily. All of the alleged unlawful acts here—LabCorp‘s false statements, misrepresentations, and omissions—are bound up in the same underlying conduct. For example, the State alleges that LabCorp made misrepresentations by certifying it would comply with the law and unlawful omissions by failing to disclose its unlawful conduct. The State does not explain what meaningful difference separates the two.
Finally, for the reasons noted above, the verb “permits” naturally bakes in some component of materiality. This substantially downgrades
* * *
For the above reasons, properly interpreting statutory text and context against the backdrop of the common law, we conclude that Section 36.002(2) requires a showing of materiality. A plaintiff bringing a suit under the Act must demonstrate that a “conceal[ment] or fail[ure] to disclose information” mattered to the State‘s payment decision in order for its Section 36.002(2) claim to be actionable.
IV
We next decide whether the trial court correctly granted LabCorp summary judgment by concluding that any false statements, misrepresentations, or omissions were immaterial as a matter of law. The Act defines “[m]aterial” as “having a natural tendency to influence or to be capable of influencing,”
On this record, we conclude that LabCorp‘s alleged false statements, misrepresentations, and omissions were not material.8
A
We first must assess how this type of claim fits with the summary-judgment standard.
1
LabCorp sought traditional summary judgment and thereby took on a burden to establish that no genuine issue of material fact exists and that it is entitled to judgment as a matter of law.
When mapped onto the Act, this standard poses a conceptual challenge. Section 36.002 requires a showing of materiality, and LabCorp therefore must show that its alleged unlawful acts—false statements, misrepresentations, and omissions regarding its compliance with the law—were immaterial to the State‘s payment decisions. But how can one conclusively establish that alleged actions and inactions were not material? Courts have always recognized the inherent difficulty in proving a negative. E.g., State Farm Mut. Auto. Ins. Co. v. Matlock, 462 S.W.2d 277, 278 (Tex. 1970) (mentioning “[t]he difficulty in proving a negative“); 20801, Inc. v. Parker, 249 S.W.3d 392, 397 (Tex. 2008) (“As a practical matter, proving a negative is always difficult and frequently impossible.“). The task is all the more daunting here, where
At the same time, there must be some way a defendant can conclusively establish that the alleged unlawful acts did not have a natural tendency to influence the State‘s payment decisions. We hold today that the defendant can do so by offering competent evidence of undisputed facts that, when viewed as a whole, are incompatible with materiality. Cf.
When the defendant does so, the burden then “shifts to the non-movant“—here, the State—to present evidence “disprov[ing] or rais[ing] an issue of fact as to at least one of” the elements of the claim or defense on which the movant seeks judgment: here, the materiality of the unlawful acts. Amedisys, Inc. v. Kingwood Home Health Care, LLC, 437 S.W.3d 507, 511 (Tex. 2014); Walker v. Harris, 924 S.W.2d 375, 377 (Tex. 1996). The State (or qui tam relator) must create a fact issue with evidence, not arguments, sufficient to permit a reasonable factfinder to conclude that the alleged unlawful acts had a natural tendency to influence the State‘s payment decision.
2
Our Court has not had occasion to elaborate on the types of evidence that bear on this analysis, but we find substantial guidance in
One time-honored principle of fraud holds that a party may “deprive himself of all right to relief” if he knows of allegedly fraudulent conduct yet continues to deal with the other party. STORY, supra, at 230; see id. at 230-31 (explaining that a party may “lose all title to legal and equitable relief” if “he knew all the facts, and with such full information he continued to deal with the party“). This is because if a party knows a representation is false, “it cannot be said to influence his conduct.” Id. at 230. We believe that principle informs Section 36.002‘s materiality analysis.
So too does the federal courts’ approach to the False Claims Act, which defines “material” much the same as the Act: “having a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property.”
Drawing on that analysis, our own caselaw, and the background common-law fraud principles discussed above, we see several categories of evidence that a defendant might marshal to negate materiality. The first, and most critical, involves what the government knew and how it acted in light of that knowledge. We agree with Escobar: the government‘s continued payment despite its actual or imputed knowledge of a violation is at least “very strong evidence” of immateriality, and in some cases may be conclusive. Id. at 195. The evidence in this category would include proof that the defendant disclosed its practices to the government; that the government had access to the relevant data; and that the government continued paying claims, renewing contracts, and maintaining the defendant‘s enrollment in the program. The longer the period of knowing payment and the more complete the government‘s knowledge, the stronger the inference of immateriality.
Relatedly, the authority of the state officials made aware of the potential wrongdoing may bear on the materiality analysis. If the defendant has disclosed the potential regulatory violation to low-level government employees, who exert no meaningful control over policy or enforcement, and who in turn take no action, the inference of immateriality is weaker. But when the defendant‘s actions are made
Another evidentiary category may be the government‘s treatment of similar violations by other providers. Again, we agree with Escobar: whether the government “consistently refuses to pay claims” based on similar noncompliance or instead “regularly pays” them informs materiality. 579 U.S. at 195. If the State has a pattern of paying claims from other providers who engage in the same practices, that suggests the requirement at issue is immaterial to payment decisions. See id.
Other relevant considerations include whether the requirement was a formal condition of payment, or merely a general regulatory obligation. Violations of the former are more likely material; violations of the latter are less so. See id. at 194. Was the violation substantial or minor? Noncompliance that goes to the very essence of the bargain is more likely material than “minor or insubstantial” noncompliance. Id. And violations of a statute duly ratified by elected officials in the Texas Legislature are more likely material than noncompliance with one of thousands of ambiguous administrative pronouncements promulgated by regulatory agencies.10
B
The crux of LabCorp‘s summary-judgment motion is that the State knew the relevant aspects of LabCorp‘s billing practices in 2014, yet continued to pay LabCorp‘s claims without objection for seven years. According to LabCorp, the State‘s conduct over this extended period demonstrates that any alleged false statements, misrepresentations, and omissions regarding LabCorp‘s legal compliance were not material to the State‘s payment decisions.
To support that argument, LabCorp offered several categories of competent summary-judgment evidence. First, it provided two declarations from LabCorp employees that further explained LabCorp‘s billing practices; confirmed that the State did not deny a claim on any basis related to the billing regulations, including the “discount” requirement; and confirmed that billing data produced to the State reflects that United HealthCare “paid lower rates in certain circumstances for a [LabCorp] test than the retail price” charged to Medicaid. LabCorp further submitted the slide deck that formed the basis of its discussion with OAG decisionmakers in 2014, and the 2015 white paper elaborating on that discussion, both of which we discussed in detail above. See supra Part I.B. LabCorp also provided the trial court with the State‘s Objections and Responses to LabCorp‘s Requests for
The slide deck and white paper discuss LabCorp‘s billing practices in detail and highlight the exact practices that, seven years later, would form the basis of the State‘s fraud claim. To summarize the above discussion: In 2014, the State knew that LabCorp maintains a two-tier pricing structure; that LabCorp bills all third-party payors (including Medicaid) the same Patient Fee Schedule rate; that LabCorp accepts lower payments from private insurers through negotiated arrangements; and that LabCorp does not consider these arrangements to be “discounts” within the meaning of the billing regulations because the State‘s own guidance suggests the “discount” rules are focused only on “advertised” rates available to “the general public.” That information was presented to OAG decisionmakers, including the then-Deputy Chief of OAG‘s Civil Medicaid Fraud Division. LabCorp further established with competent (and undisputed) evidence that the State continued to pay each of LabCorp‘s claims for years without objection.
As this evidence shows, the alleged infractions here turn not on the purported violation of a statute enacted by the Legislature, but on noncompliance with administrative billing regulations that address “usual and customary fees” and “discounted” charges without defining those terms. Invoking the Manual‘s and Agreement‘s guidance, LabCorp argues that these regulations speak to rates “advertised to the public” or “promotional offers provided to the general public.” LabCorp asserts, and the State does not dispute, that it bills all third-party payors the same usual and customary fees; any differential comes on the back end,
Viewing this evidence as a whole, LabCorp carried its initial summary-judgment burden of conclusively establishing that its alleged unlawful acts did not have a “tendency to influence or to be capable of influencing” the State‘s payment decision.
C
We turn now to the State‘s burden “to present evidence “disprov[ing] or rais[ing] an issue of fact as to at least one of” the elements of the claim or defense on which LabCorp seeks judgment: materiality. Amedisys, Inc., 437 S.W.3d at 511. As we read the record, the State‘s summary-judgment showing consisted of several forms of evidence and related arguments. We discuss each.
First, in its summary-judgment motion and in this Court, the State argues that LabCorp‘s disclosures do not negate materiality because LabCorp did not expressly confess in the 2014 presentation and 2015 white paper that it was violating Texas law. We disagree. LabCorp
Second, and relatedly, the State argues that LabCorp never fully disclosed the extent of its allegedly unlawful conduct. The State acknowledges the evidence LabCorp proffered, but suggests it did not actually put the State on notice of all of LabCorp‘s alleged regulatory violations. The State dismisses LabCorp‘s disclosures as “deliberately muddy” and claims that nothing LabCorp provided allowed the State to determine whether LabCorp actually complied with the billing regulations.
But the State does not meaningfully dispute that it knew about LabCorp‘s two-tier pricing system and that LabCorp accepts lower payments from some payors pursuant to various considerations, including contractual obligations. Nor could it: LabCorp expressly said as much in the 2014 presentation and the 2015 white paper. That the State did not know which private insurers remitted individualized payments does not matter. The State‘s core theory of liability turns on the same practices LabCorp disclosed. The State did not deny a claim on
Notably, the State does not base its materiality theory on the dollar value of the alleged wrongdoing. This is not a case where the State knew of violations of the billing regulations but reasonably believed they were de minimis, only to later uncover the full extent of wrongdoing and realize with surprise that its financial losses were substantial. The magnitude of a violation is certainly a proper consideration in the materiality analysis. See Escobar, 579 U.S. at 194. Here, while the State may not have known the full details of which payments LabCorp accepted from which payors, nothing in the record suggests the State reasonably believed that the practices it now labels unlawful carried insignificant monetary value.
Third, the State highlights in this Court that compliance with the billing regulations is a condition of payment. Similarly, it argued at summary judgment that as a matter of law, because noncompliance with the Provider Agreement is a basis to deny a claim, LabCorp‘s violations are necessarily material. The U.S. Supreme Court rejected that exact argument in connection with the federal FCA‘s materiality requirement, and we do the same here. Escobar, 579 U.S. at 181. In Escobar, the federal government urged, just as the State does here, that “any statutory, regulatory, or contractual violation is material so long as the defendant knows that the Government would be entitled to refuse payment were it aware of the violation.” Id. at 195. Yet the unanimous U.S. Supreme Court explained that “even when a requirement is expressly designated a condition of payment, not every violation of such
Fourth, the State‘s summary-judgment motion wrongly conflates evidence of a violation with evidence of materiality. For example, the State‘s summary-judgment evidence includes LabCorp‘s Facility Participation Agreement with United HealthCare, and other evidence showing that LabCorp offered “fee-matching” to a former LabCorp account. But evidence of an alleged regulatory violation is not evidence of materiality. As discussed further below, it neither creates a fact issue as to LabCorp‘s awareness of the purportedly unlawful conduct, nor explains why the State continued to pay LabCorp‘s claims. Likewise, the State‘s summary-judgment evidence about a different State‘s settlement with LabCorp and various proposed amendments to federal law do not bear on whether these alleged unlawful acts mattered to the State.
Finally, we emphasize what the State did not show. The State‘s summary-judgment evidence does not explain why the State continued to pay LabCorp‘s claims, if not because the alleged unlawful acts were immaterial. For example, the evidence does not show the State continued paying because it was concerned about disruption of patient care. And the evidence does not point to any enforcement action by the State or any disapproval of LabCorp‘s billing practices after it conducted its investigations. Finally, to the extent the State falls back on arguments about the “muddy” nature of LabCorp‘s disclosures, such “arguments are not evidence,” Aerotek, Inc. v. Boyd, 624 S.W.3d 199, 208 (Tex. 2021), and cannot create a fact issue precluding summary judgment. See Walker, 924 S.W.2d at 377 (“After the defendant produces
D
Before concluding, we pause to offer some words of caution about today‘s decision.
First, we do not hold—in fact, we expressly disclaim—that anytime the State becomes aware of a potential regulatory violation, it must immediately cease payment, or else forevermore forfeit a claim under the Act. To the contrary, the Administrative Code allows the State to continue payment while disapproving of the practice at issue by levying any of many administrative enforcement actions, including “prepayment review of all claims or certain specific claims,”
We likewise emphasize that the State is entitled to a reasonable time to investigate suspected potential regulatory violations. As a federal court has observed as to the False Claims Act, “[t]he Government must be given time to investigate and determine whether the accusations have merit and whether to intervene in the action.” United States ex rel. Longo v. Wheeling Hosp., Inc., No. 5:19-CV-192, 2019 WL 4478843, at *7 (N.D. W. Va. Sept. 18, 2019). The same is true here—but the State must perform any investigation with diligence, and it must make regulated parties aware of its concerns. At some point, following extended government inaction, there must come a time when a court necessarily concludes that the alleged misconduct at issue is not material. Cf. Escobar, 579 U.S. at 195.
Finally, nothing in our opinion today should be misconstrued to suggest that estoppel runs against the government in this context. City of Hutchins v. Prasifka, 450 S.W.2d 829, 835 (Tex. 1970) (“[W]hen a unit of government is exercising its governmental powers, it is not subject to estoppel.“). And we agree with our dissenting colleagues that “HHSC employees do not have the power to authorize LabCorp to overcharge the State of Texas.” Post at 4 (Blacklock, C.J., dissenting). Nothing in our decision today constrains the State‘s ability to enforce actual regulatory violations going forward.
For the foregoing reasons, we reverse the court of appeals’ judgment and reinstate the trial court‘s judgment.
Kyle D. Hawkins
Justice
OPINION DELIVERED: June 19, 2026