“Factually False” Billings are Sufficient Basis for FCA Action

A federal district court in Illinois, in United States ex rel. Morgan v. Champion Fitness, Inc. et al., No. 1:13-cv-1593 (C.D. Ill, October 19, 2018), recently considered whether the materiality requirement set forth by the U.S. Supreme Court in Universal Health Servs., Inc. v. United States and Massachusetts, ex rel. Escobar, 136 S. Ct. 1989 (2016) applies outside the context of “implied false certification” claims under the False Claims Act (FCA).

In Escobar, the High Court articulated a rigorous concept of materiality to be applied in “implied false certification” cases, ruling that FCA liability will turn on whether an alleged misrepresentation regarding compliance with a statutory, regulatory or contractual requirement (a type of “legal falsity”) was material to the government’s payment decision. In the Morgan case, the District Court considered a motion to dismiss a whistleblower’s allegations that the defendants billed Medicare for physical therapy services that were not actually rendered, as evidenced by billing purporting to show a therapist providing therapy to two patients in two locations simultaneously. The defendants argued that Escobar’s materiality requirement applied because the relator allegedly asserted an “implied false certification” theory.

The Court rejected this reasoning, concluding that the relator was not asserting a “legally false” claim, but rather a “factually false” claim based on billings for services that were not actually rendered. The Court observed that “the materiality standard may or may not apply in cases where factually false claims are alleged,” but that it really did not matter in this case because the Court could not conceive of anything “more material than whether or not services were provided” and that “it is unsurprisingly clear that the Government only intends to reimburse therapists for physical therapy actually performed.”