United States: Sixth Circuit 2-1 Ruling Addresses False Claims Act Materiality And Scienter Standards

In Short

The Decision: A divided Sixth Circuit panel held that allegations of submitting late-signed supporting documents to Medicare could plead False Claims Act ("FCA") materiality and scienter.

The Reasoning: Timing regulations were material because they were express conditions of payment intended by Medicaid guidance to prevent fraud; scienter was adequately pled because the defendant allegedly knew of compliance issues but did not investigate.

The Implications: The Sixth Circuit may not be applying the FCA's materiality and scienter precedents with the rigor apparently required by recent Supreme Court precedent, although Judge McKeague's strong dissent and a pending en banc petition may help.

A recent decision by a divided Sixth Circuit panel illustrates that circuit courts continue to wrestle with the FCA's materiality and scienter requirements following the Supreme Court's decision in Universal Health Services v. Escobar. In United States ex rel. Prather v. Brookdale Senior Living Communities, Inc., the Sixth Circuit reversed a Tennessee District Court's dismissal of an FCA qui tam suit. In our view, the decision does not apply Escobar's "demanding" materiality standard or its scienter holding with the rigor the U.S. Supreme Court appeared to contemplate. The decision's implications, however, may be limited to its unique facts.

Further, Judge McKeague wrote a strong dissent. The dissent explains how the majority appears to depart from Escobar and may suggest arguments for other appellate courts and entities facing similar issues in other parts of the country.

The defendants recently filed their petition for rehearing en banc, asking the entire Sixth Circuit to reconsider what they argued was the majority's misapplication of Escobar on both materiality and scienter grounds. If granted, the en banc Sixth Circuit could provide significant further guidance on these important issues.


We previously addressed Brookdale's extended procedural background and the district court's opinion granting the defendants' motion to dismiss. Briefly, the defendants (collectively "Brookdale") provide home health services to seniors and receive reimbursements through Medicare. To receive reimbursement under Medicare Parts A and B, a physician must sign a certification of need either "at the time the plan of care is established or as soon thereafter as possible." Relator Prather alleged that the defendants waited too long to obtain the signatures, rendering subsequently submitted requests for payment false under an implied false certification theory. The complaint made no allegation that Brookdale submitted requests for payment that lacked the required certification—only that the certifications sometimes were not signed by doctors (or billed by Brookdale) until after the services were provided.

The district court agreed with the relator that the timing of the certification was a condition of payment and therefore could support FCA falsity under an implied certification theory if signed too late. But it recognized Escobar's holding that whether a regulatory violation is a condition of payment is just one factor in determining whether the violation is "material" under the FCA.

The district court held that the complaint did not sufficiently plead that Medicare was likely to deny reimbursement because of a late-dated certification of need. It noted that the relator failed to identify any examples where the government denied a claim on those grounds, "weighing strongly in favor of a conclusion that the timing requirement [was] not material." Additionally, in reviewing "numerous CMS publications," the court found that the timing requirement did not go to the "essence of the bargain" that the government struck. Certification prior to claim submission, not the precise timing of the pre-submission certification, was what actually mattered, making the relator's allegations immaterial. The district court dismissed the case and did not reach Brookdale's independent scienter argument.

The Majority Appears to Relax Escobar's Materiality and Scienter Standards

On appeal, a divided Sixth Circuit panel reversed. While citing Escobar as the controlling law, the majority held that the lower court erroneously "drew a negative inference" from the relator's failure to identity examples where the government had previously denied a Medicare claim based on the timing of certifications. At the motion to dismiss stage, that failure does not "weigh[] strongly" in favor of dismissal, but instead simply "provides no support for the conclusion that the timing requirement is material." The court's holding on this point was echoed the United States' position in an amicus brief submitted even though it did not intervene in the case.

Without any past government practice to guide its analysis, the majority asked whether the alleged "non-compliance is minor or insubstantial" or instead goes "to the very essence of the bargain." The majority pointed out that the timing regulations were express conditions of payment and that Medicare guidance documents demonstrated that the regulations were intended to prevent fraud. It concluded that a reasonable person would want to know whether a counterparty had complied. It further rejected an argument that the United States' failure to intervene showed that the regulation was not material. As a result, it concluded that the relator adequately pled FCA materiality.

The majority also addressed the FCA's scienter requirement under Escobar, even though the district court did not. The court held the complaint pled scienter adequately to avoid dismissal.

The majority noted several allegations that it believed showed reckless disregard. It pointed to the relator's allegation that employees reviewing claims prior to submission were generally "instructed to review the claims only cursorily" and "to ignore any problems." Second, specifically with regard to the timing of certifications, the relator pled an internal Brookdale email acknowledging that physicians could be uncomfortable signing certifications after services were provided. Finally, the relator alleged that Brookdale had alerted employees that the defendants' submission practices "might prompt an audit from Medicare."

According to the majority, "[o]nce the defendants had been informed ... that there may be compliance issues, they had an obligation to inquire into whether they were actually in compliance with all appropriate regulations." The defendants' alleged failure to conduct an inquiry that is "reasonable and prudent under the circumstances" was therefore sufficient to satisfy the FCA's scienter requirement on a motion to dismiss.

The Dissent Emphasizes that Relator Did Not Satisfy Escobar

Judge McKeague wrote a strong dissent in response to the majority's analysis, emphasizing that it was inconsistent with Escobar's guidance. As to materiality, the dissent explained that because the FCA is an anti-fraud statute, Fed. R. Civ. P. 9(b) required the relator to explain with particularity that the alleged errors "were significant enough to influence the government's actual payment decisions, not merely its abstract legal rights."

Further, the dissent emphasized that the relator made no allegation that the government had ever denied payment based upon the timing of certification signatures. This indicated that the complaint did not satisfy the "rigorous" Escobar materiality standard. More importantly, the Medicare form used to submit a reimbursement request also had no space to disclose the timing of supporting certifications. In fact, Medicare guidance and regulations did not "even hint that any late signatures are so important to ... audit or payment decisions that a provider would be expected to disclose them every time." The dissent therefore believed that the government was "not looking for the information that Brookdale omitted," suggesting that the "information is probably not material."

The dissent next explained that absent allegations indicating that the government actually had the allegedly false information in front of it when making a payment decision, omissions should only be considered "material" if they went to the "essence of the bargain." For instance, the government is entitled to presume that guns it orders can actually shoot. But the mere timing of an otherwise-valid certification that services are medically necessary, unlike the certification itself, should not rise to that level.

Building upon his materiality analysis, Judge McKeague also argued that the relator failed to "allege facts plausibly showing that Brookdale knew omitting the explanations would influence the government's payment decisions or that it recklessly disregarded that possibility." Although the relator alleged that employees were told to ignore compliance issues, there was no allegation that this instruction applied to the certification signatures at issue in the case; the whole point of the billing review that eventually led the relator to file suit was to obtain certification signatures.

Similarly, once the signatures were obtained, there was no requirement that the defendants affirmatively justify the timing of certification signatures during the billing process. As a result, Brookdale reasonably could have believed that it was complying once it obtained the certification signatures to support its billing requests, negating scienter.


The majority in Brookdale does not appear to be applying Escobar's "demanding" materiality requirement at the motion to dismiss stage with the rigor contemplated by the Supreme Court. Nevertheless, the defendants can argue that Brookdale's applicability may be limited to circumstances where the regulation at issue was an express condition of payment that the applicable agency had emphasized as an anti-fraud tool.

As for the FCA's scienter requirement, the Brookdale majority allowed the relator to proceed by pointing to allegations that Brookdale knew of compliance issues, knew that failure to comply could lead to a potential audit, and failed to conduct a reasonable inquiry to verify its compliance with all appropriate regulations. Given that negligence is insufficient to establish liability, see, e.g., United States ex rel. Williams v. Renal Care Grp., Inc., 696 F.3d 518, 530-31 (6th Cir. 2012), the Sixth Circuit used those allegations to hold that the relator pled that Brookdale acted knowingly under the FCA.

The majority's conclusions could be significantly modified, however, if the Sixth Circuit accepts Brookdale's request to reconsider the case en banc. That petition is currently pending with the full court.

Three Key Takeaways

  1. The Sixth Circuit may not be applying the FCA's materiality and scienter precedents with the rigor apparently required by recent Supreme Court precedent.
  2. Judge McKeague's strong dissent provides compelling materiality and scienter arguments for other jurisdictions.
  3. Stay tuned for possible en banc Sixth Circuit review and ongoing application of Escobar in courts around the country.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

J. Andrew Jackson
B. Kurt Copper
Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions