Sixth Circuit Reverses Dismissal of FCA Claim for Second Time, Finding Timeliness of Physician Certifications for Home Health Care Material to Medicare Payment Decisions

The Sixth Circuit recently reversed the dismissal of a qui tam relator’s complaint under the False Claims Act (“FCA”), holding that the defendant’s claims presented to the government contained material omissions. See U.S. ex rel. Prather v. Brookdale Senior Living Communities, Inc., et al., No. 17-5826 (6th Cir. 2018). The issue arose from the defendant home health care provider’s failure to timely submit physician certifications required for Medicare reimbursement. The Sixth Circuit concluded—disagreeing with the district court—that the relator had sufficiently alleged the materiality of the provider’s violation of a Medicare regulation requiring physician certifications attesting to a patient’s need for home health services. More specifically, the Sixth Circuit held that under the materiality standard articulated in Universal Health Services, Inc. v. U.S. ex rel. Escobar, 136 S. Ct. 1989 (2016), the provider’s alleged noncompliance with the timing and signature requirements for the certifications under 42 C.F.R. § 424.22(a)(2) was a material omission capable of influencing the government’s decision to pay the claims. Notably, however, the appeal produced a divided opinion—an indication of the divergent application of Escobar.


The relator, Marjorie Prather, filed a complaint in 2012 against Brookdale Senior Living Inc. and related entities (collectively, “Brookdale”) which operate senior living communities and provide home health care services. Prather, who was formerly employed by Brookdale as a Utilization Review Nurse, alleged that in September 2011, Brookdale held a backlog of roughly 7,000 unbilled Medicare claims worth approximately $35 million, and that she was hired to complete these claims. Prather was responsible for reviewing cases to ensure compliance with Brookdale’s policies and applicable laws, and for resolving documentation and coverage issues. She alleged that she frequently encountered claims with a missing physician certification.

The physician certification is required by 42 C.F.R. § 424.22(a), which provides that a “physician must certify the patient’s eligibility for the home health benefit,” including, among other things, that the individual needs medical services and that a plan for treatment has been established. Subsection (a)(2) provides: “The certification of need for home health services must be obtained at the time the plan of care is established or as soon thereafter as possible and must be signed and dated by the physician who establishes the plan.” Prather alleged that she notified Brookdale of compliance problems but was ignored. She claimed that physician certifications were often obtained months after a patient’s treatment began, in violation of § 424.22(a)(2).

Prather’s complaint was previously dismissed on Brookdale’s motion for failure to comply with Federal Rule of Civil Procedure 9(b). Prather appealed this dismissal to the Sixth Circuit, which reversed and remanded without addressing Escobar. On remand, Prather amended her complaint to address Escobar’s pleading standards, but Brookdale again successfully moved to dismiss on the basis that Prather failed to adequately plead the elements of materiality and scienter under Escobar. The district court dismissed Prather’s complaint with prejudice, finding she failed to sufficiently plead materiality, but did not address scienter.

Application of Escobar’s Materiality Threshold

In Escobar, the Supreme Court held that for a misrepresentation of compliance with a statutory or regulatory requirement to be actionable under the FCA, the misrepresentation “must be material to the Government’s payment decision.” 136 S. Ct. at 2002. After Escobar, materiality involves three factors: (1) “the Government’s decision to expressly identify a provision as a condition of payment”; (2) whether “the Government consistently refuses to pay claims in the mine run of cases based on noncompliance with the particular statutory, regulatory, or contractual requirement” or “if the Government regularly pays a particular type of claim in full despite its actual knowledge that certain requirements were violated, and has signaled no change in position”; and (3) whether the “noncompliance is minor or insubstantial” or if it goes “to the very essence of the bargain.” Id. at 2003-04 & 2003 n.5.

In Prather, it was key to the district court’s decision that Prather was required to allege some type of past government action in order to demonstrate the materiality of Brookdale’s omission of its noncompliance with § 424.22(a)(2). The district court faulted Prather for not identifying an instance where the government denied payment based on a violation of this regulation. The Sixth Circuit held that this was error and explained, “it would be illogical to require a relator (or the United States) to plead allegations about past government action in order to survive a motion to dismiss when such allegations are relevant, but not dispositive.” Slip Op. at 14. Moreover, the adverse inference the district court applied from the absence of such allegations “improperly inverses the pleading standard.” Id. Instead, because Prather had alleged that the government did not know that the claims the defendants submitted were false, the government’s responses to Brookdale’s claims or any other claims that violated § 424.22(a)(2) has no bearing on the materiality analysis. Id. at 15.

Split Opinion

The dissent agreed on this point, acknowledging that the lack of information regarding the government’s past payment habits “does not technically hurt Prather; it has just removed one of her weapons.” Slip Op. at 32. However, the dissent noted that even though “Prather need not present us with this information now . . . she still needs to present something to satisfy Rule 9(b),” and her remaining allegations failed to do so. The interpretation of the remaining materiality factors, namely (a) whether the timing provision is an express condition of payment, and (b) whether Brookdale’s alleged non-compliance with this provision went to “the very essence of the bargain” was the basis for the divided opinion.

On the former point, the majority held that the timing requirement is an express condition of payment because under the regulation, the “required certification is not a certification unless it complies with all provisions of § 424.22(a).”  Slip Op. at 12. The dissent agreed, but maintained that Escobar required the analysis to go further: “Escobar requires that we look beyond this bare fact and ask about the importance of the requirement under the circumstances of this case.” Id. at 32. The dissent maintained that the method by which a provider discloses a violation to the government illuminates this point. But the majority explained that the mechanisms by which a provider discloses violations are not relevant because an implied false certification theory of liability is premised on the notion that a party submitting a claim to the government is required to disclose its noncompliance with material statutory or regulatory requirements. Thus, “a provider who has committed a material violation cannot submit a claim in silence—regardless of whether its claim form has a box for reporting violations.” Id. at 13 n.5.

The other major point of disagreement between the majority and dissent was whether the timeliness of the physician certification goes to “the essence of the bargain.” Prather referred to numerous agency guidance documents in her complaint, including 2015 guidance from the Centers for Medicare and Medicaid Services (“CMS”) which stated that: “It is not acceptable for HHAs to wait until the end of a 60-day episode of care to obtain a completed certification/recertification.” While this 2015 guidance was not in effect at the time of the alleged conduct, the majority found that this supported Prather’s allegation that the government consistently emphasized the importance of the timing requirement. Slip Op. at 16-18. The dissent strongly disagreed, explaining that “Escobar made it clear that only significant regulatory violations can be the basis for silent-fraud liability,” and that Prather had not explained how or why Brookdale’s omission of its violations defrauded the government. Slip Op. at 38. Although the dissent conceded that Prather came close to such an explanation via reliance on the 2015 CMS guidance, this did not go far enough. The dissent cited the Sixth Circuit’s earlier decision in Prather I, noting that when the majority interpreted § 424.22(a)(2)’s timing requirement, the court “expressly refused to say that such lateness was categorically inexcusable.” Id. at 39. Thus, the dissent posited that if such lateness was sometimes justified, it did not follow that a violation of § 424.22(a)(2) “always goes to the very essence of the bargain.” Id. Moreover, if delay were justified in certain circumstances, the dissent faulted Prather for not explaining “why this delay is material” in light of this flexible standard. Id.

Implications for Future Cases

The sharp differences of opinion in Prather—even among judges on a single panel within the same circuit—signal the extent of disagreement over Escobar’s materiality standard. Check back as we continue to examine further application of the doctrine.