The False Claims Act’s Materiality Requirement
Under the express language of the False Claims Act (“FCA”), material means having a “natural tendency to influence or be capable of influencing” the government’s decision to pay a claim. 31 U.S.C. § 3729(a)(4).
The Escobar Decision
Under the recent Supreme Court case of United Health Servs., Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989, 2002-2003 (2016), a false statement is material if “either (1) a reasonable person would likely attach importance to it or (2) the defendant knew or should have known that the government would attach importance to it.” Miller, 840 F.3d at 503 (citing Escobar). In other words, the focus of the analysis is whether the false statement or violation had the natural tendency to “affect a reasonable government funding decision or if the defendant had reason to know it would affect a government funding decision.” Miller, 840 F.3d at 503 (citing Escobar); see also United States ex rel. Escobar v. Universal Health Servs., Inc., 842 F.3d 103, 110 (1st Cir. 2016).
Escobar endorsed a multi-factored approach in analyzing materiality and made clear that no one factor is disposition. In determining whether the violation is material, courts may consider a variety of factors including, but not necessarily limited to, “whether the provision violated is expressly labeled as a condition of payment, whether the violation is significant or ‘minor or insubstantial,’ whether the violation goes to the ‘essence of the bargain’ and whether the government took action in this or other cases where the government had knowledge of similar violations.” United States’ Statement of Interest, at 5 (United States. ex rel. Williams v. City of Brockton, No. 1:12-12193-IT (D. Mass. Sept. 19, 2016)) (internal quotation marks and citations omitted).
Applying the Escobar Standard in a Qui Tam Case Involving Fraud on the FDA
In a whistleblower case involving alleged fraud on the FDA, the questions are whether the misleading statements to the FDA influenced or were capable of influencing the FDA’s approval of the devices or in delaying a recall, and whether FDA approval (or lack thereof) would affect a “reasonable government funding decision or if the defendant had reason to know it would affect a government funding decision.” Miller, 840 F.3d at 503.
The first question – whether the false statements were capable of influencing the FDA approval – is easily proven if the drug or device is recalled. The recall is highly probative evidence that, had the FDA known the truth about the drug or device at the outset, the FDA would not have granted approval.
The second question – regarding the link between withdrawal of FDA approval and the government’s decision to pay – is essentially irrefutable: CMS will not pay for devices which do not have valid FDA approval. See 42 C.F.R. § 411.15(o); 42 C.F.R. § 405.211(C); see Medicare Program; Revised Process for Making Medicare National Coverage Determinations, 2003 WL 22213011, 68 FR 55634-01 (Sept. 26, 2003). Moreover, if a device is not reimbursable, the medical and hospital costs of the related surgery are also not reimbursable. 42 C.F.R. § 405.207 (“[P]ayment is not made for medical and hospital services that are related to the use of a device that is not covered because CMS determines that the device is not ‘reasonable’ and ‘necessary’ . . . or because it is excluded from coverage for other reasons”).
With the right set of facts, a qui tam whistleblower suing under the False Claims Act can easily meet the materiality requirement set forth by the Supreme Court in Escobar.