Materiality is Critical to a False Claims Allegation

A United States District Court (Middle District of Florida, Tampa Division) vacated a $350 million jury verdict against Salus Rehabilitation, an operator of specialized nursing facilities, under the Federal False Claims Act (FCA). The Judge ruled that the relator (a Qui Tam relator - the Government did not enjoin this particular suit) failed to establish that Salus' failure to (i) maintain comprehensive care plans and (ii) sign and date documents were material to payment decisions by Medicaid.

The Whistleblower alleged that Salus failed to maintain comprehensive care plans for each patient and failed to properly sign and date documents as required by the Medicaid program. A Jury agreed and the $350 million judgment was levied against Salus.

But wait a minute. Were these significant infractions? The Federal Judge ruled that the Whistleblower failed to offer evidence of materiality. Under a previous case, the Court ruled that an FCA claim on an implied false certification theory fails if the non-compliance is disclosed to, or discovered by, the United States; and if the United States pays notwithstanding the disclosed or discovered non-compliance. Thus, for a relator to prevail on an FCA claim, the defendant must know, or reasonable should know, that its non-compliance was material when it sought payment, and the defendant's misrepresentation must be material to the Government's decision to pay.

In the Salus case, the Court found no evidence on how the Government might have addressed the disputed practices and the lack of evidence left the jurors to guess. According to the Court, the Government was and is aware of the disputed practices, aware of this action, aware of the allegations, aware of the evidence, and aware of the judgments for the relator. But the Government never ceased to pay or even threatened to stop paying Salus for the services provided to patients.

The controlling question in this case is whether the Government would refuse to pay a provider on a large scale because of a dispute about the method or accuracy of payment after the Government  permitted the practice to remain in place for years without complaint or inquiry. Every day that the Government continues to pay for a good or service, the greater the practical impediment to proof of materiality.

You can read the full decision here.