Timing is Everything: The Sixth Circuit’s Application of the Materiality Test

By on July 16, 2018

The materiality test articulated in Escobar has become one of the most litigated issues in False Claims Act (FCA) practice. Most courts have taken to heart the Supreme Court’s direction that materiality is a “demanding” and “rigorous” test in which “minor or insubstantial” non-compliance would not qualify as material. However, a recent Sixth Circuit two-to-one decision found that noncompliance with a physician signature timing requirement sufficiently alleged materiality under Escobar, reversing the district court’s dismissal of the case. United States ex rel. Prather v. Brookdale Senior Living Communities, Inc., 892 F.3d 822 (6th Cir. 2018). This opinion arguably is inconsistent with Escobar. The better analysis of Relator’s complaint would conclude that the Relator pled insufficient facts, under the Rule 9(b) particularity standard, to suggest that the untimely physician signature somehow resulted in the government paying for home health services for which it otherwise would not have paid.

Case Summary

This decision was Relator’s second time before the Sixth Circuit litigating the complaint she filed in 2012 against Brookdale Senior Living, Inc., and related entities (Brookdale) after the government declined to intervene. The dispute centers around compliance with the regulation, 42 C.F.R. §424.22(a), which pertains to home health services. Section 424.22(a) provides that a “physician must certify the patient’s eligibility for the home health benefit,” including that the individual is home bound and eligible for home care under Medicare’s coverage rules. Subsection (a)(2) has a timing requirement for this certification; “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.” Relator alleged that she was engaged to help Brookdale deal with a large backlog of Medicare claims, including obtaining physician certifications months after a patient’s treatment began. She argued that claims with these “late” certifications violated § 424.22(a)(2) and rendered those claims false under an implied certification theory.


The court had three reasons for finding Relator sufficiently alleged materiality; 1) section 424.22(a)(2) was an express condition of payment; 2) the government paid the claims without knowledge of the non-compliance, which in the court’s view made the government’s payment of the claims irrelevant for determining materiality; and 3) section 424.22(a)(2) is a “mechanism for fraud prevention” that the government has identified in guidance, and therefore goes to “the essence of the bargain.”

There are a number of reasons why the court’s materiality holding appears inconsistent with Escobar, many of which are discussed in the unusually strong dissent. First, there is a reasonable argument about whether section 424.22(a)(2) is an express condition of payment. Even if it is, Escobar clearly states that the label the government puts on a regulation is not determinative as to materiality. Instead, the Supreme Court emphasized that the actions of the government inform whether the government viewed a particular requirement as material to distinguish between “minor or insubstantial” and material regulatory requirements. As such, many courts have appropriately required concrete allegations by the relator that the government would not have paid the claims if it had known about the non-compliance. Under this authority, the Brookdale Relator’s conclusory allegations should have failed. The Brookdale court, however, deviated from this post-Escobar authority and instead adopted the view put forward by the Department of Justice, arguing that a negative materiality inference should not be drawn if the relator is unable to identify other instances in which the government has denied payment based on the alleged non-compliance. The district court drew this negative inference, which the Sixth Circuit overruled, stating that the government would need actual knowledge of the non-compliance in order to take its payment practices into account in evaluating materiality.

Furthermore, the court’s third reason turns fraud prevention regulations on their head. Fraud prevention is the means to reach the end – that the government purchases medically necessary home health services for Medicare beneficiaries – and not the end in and of itself. If the underlying services were in fact medically necessary, then there was no fraud on the Medicare program, whether the physician signed the certification on Day 1 or Day 100. Relator did not allege any number of potential reasons why a home health claim may be fraudulent, such as the home health claims themselves were not medically necessary or the physician lied on the certification.

Instead, the court relied on several reports and guidance documents issued by the Office of Inspector General for the Department of Health and Human Services (OIG) and a 2015 Medicare Benefit Policy Manual provision (that the court concedes was not in effect that the relevant time) to show “some support” for Relator’s allegation that the government considered the timeliness of physician certifications important. OIG’s statements are arguably not dispositive in determining the government’s payment position on the timing of physician signatures because OIG is not the payor. The Centers for Medicare and Medicaid Services (CMS) is the payor. Further, while OIG has identified physician certification timeliness as creating a potential concern that could merit review of the underlying claim, OIG has not identified timeliness as a problem per se. In other words, the late certification may create risk that the underlying claim is not medically necessary that would merit auditing that claim, but OIG did not say that the late certification, in and of itself, makes the claim improper or fraudulent. Finally, the majority’s reliance on CMS’ 2015 Manual provision was misplaced: while the provision stated that it was “not acceptable” to wait until the end of the 60 day episode of care to obtain the completed certification) that provision was not in force at the time of the alleged conduct, nor did it provide that such untimeliness was categorically inexcusable or indicate whether “this delay was material” or unjustified. Opin. at 39 (dissent).


While the district court did not reach the scienter issue, the Sixth Circuit did and found that Relator’s adequately pled that Brookdale acted in reckless disregard because Brookdale allegedly engaged in a cursory reviews of records and failed to conduct an inquiry into concerns of compliance issues, which would have been “reasonable and prudent under the circumstances.” The trouble is that Brookdale would have needed to know that the timing of the physician certification was actually material to the government’s payment decision in order to arguably have any reason to conduct an inquiry into non-compliance. Of course, Brookdale did not think the timing requirement was material, and applying Escobar’s materiality test suggests Brookdale was correct.

Reconsideration Possible

Brookdale has appealed for a rehearing en banc and that request is currently pending. If the Sixth Circuit accepts the request, there is an opportunity for the court to provide additional clarification and reconsider certain troubling aspects of the opinion.

Tony Maida
Tony Maida counsels health care and life sciences clients on government investigations, regulatory compliance and compliance program development. Having served as a government official, Tony has extensive experience in health care fraud and abuse and compliance issues, including the federal and state Anti-Kickback and Stark Laws and Medicare and Medicaid coverage and payment rules. He represents clients in False Claims Act (FCA) qui tam matters, government audits, civil monetary penalty and exclusion investigations, and Centers for Medicare and Medicaid Services (CMS) suspension, and revocation actions, negotiating and implementing corporate integrity agreements, and making government self-disclosures. Read Tony Maida's full bio.