Brown, et al v. Blackstone Medical, Inc., et al

Filing

OPINION issued by Sandra L. Lynch, Chief Appellate Judge; Kermit V. Lipez, Appellate Judge and Jeffrey R. Howard, Appellate Judge. Published. [10-1505]

Case: 10-1505

Document: 00116215392

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Date Filed: 06/01/2011

Entry ID: 5554649

United States Court of Appeals
For the First Circuit
No. 10-1505
UNITED STATES OF AMERICA EX REL.
SUSAN HUTCHESON AND PHILIP BROWN,
Plaintiffs, Appellants,
v.
BLACKSTONE MEDICAL, INC.,
Defendant, Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. William G. Young, U.S. District Judge]
Before
Lynch, Chief Judge,
Lipez and Howard, Circuit Judges.
Jennifer M. Verkamp, with whom Frederick M. Morgan, Jr. and
Morgan Verkamp LLC were on brief, for appellants.
Charles W. Scarborough, Appellate Staff, Civil Division,
Department of Justice, with whom Tony West, Assistant Attorney
General, Carmen Ortiz, United States Attorney, and Douglas N.
Letter, Appellate Staff, Civil Division, Department of Justice,
were on brief, for the United States, amicus curiae.
Catherine E. Stetson, with whom Peter S. Spivack, Jonathan
L. Diesenhaus, Jessica L. Ellsworth, Lillian S. Hardy, Stephanie
L. Carman, Hogan Lovells US LLP, Douglas Hallward-Driemeier,
Kirsten V. Mayer, and Ropes & Gray LLP were on brief, for
appellee.

June 1, 2011

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LYNCH, Chief Judge. In this qui tam action brought under
the False Claims Act (FCA), 31 U.S.C. § 3729 et seq., relator Susan
Hutcheson appeals from a Rule 12(b)(6) dismissal of her claims
against Blackstone Medical, Inc. (Blackstone).
Hutcheson argues that Blackstone "knowingly" "cause[d]"
hospitals and physicians to submit materially "false or fraudulent"
claims to Medicare, Medicaid, and TRICARE in violation of 31 U.S.C.
§ 3729(a)(1) & (2).

She alleges that Blackstone engaged in a

nationwide kickback scheme to induce physicians to use its medical
devices in spinal surgeries and that Blackstone knew this scheme
would cause physicians and hospitals (unwittingly) to present
federal healthcare programs with payment claims that contained
material misrepresentations.

We need only address Hutcheson's

claims as they relate to the Medicare program.

The United States

has not intervened in this suit brought on its behalf, though it
has supported Hutcheson as an amicus, both in the district court
and on appeal.
Hutcheson and the United States argue that a claim is
"false or fraudulent" under the FCA if it does not meet a material
precondition of payment. They argue that compliance with the AntiKickback Statute (AKS), 42 U.S.C. § 1320a-7b, is a precondition for
Medicare reimbursement and thus that Blackstone, in providing the
alleged kickbacks, caused the hospitals and physicians at issue in
this suit to submit false or fraudulent claims.

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In making this

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argument, Hutcheson and the United States invoke both the specific
terms of provider agreements and hospital cost reports as well as
elements of the broader statutory scheme.

They argue, moreover,

that the hospital and physician claims at issue in this suit were
materially false or fraudulent because the alleged kickbacks would
have been capable of influencing Medicare's decision whether to pay
the claims had it been aware of them.1
Blackstone argues that a claim can only be false or
fraudulent under the FCA if it (1) misstates facts, (2) incorrectly
certifies compliance with a statute or regulation, or (3) does not
meet an express condition of payment stated in a statute or
regulation. Blackstone argues that the claims at issue here do not
meet any of these criteria.
alleged

that

the

claims

It argues that Hutcheson has neither
contain

factual

misstatements,

nor

identified an express certification or an express condition of
payment from a statute or regulation that would disallow payment in
light of the alleged kickbacks.

Blackstone also argues that even

if the claims were false or fraudulent, they were not materially
false or fraudulent because the claims made by hospitals and the
services provided by physicians were not influenced by kickbacks.

1

Hutcheson and the United States also argue that
violations of the AKS inherently render claims to federal
healthcare programs materially false or fraudulent under the FCA.
We need not reach this broader argument.
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The district court held that Hutcheson's allegations did
not state a claim under the FCA for purposes of Rule 12(b)(6).
United States ex rel. Hutcheson v. Blackstone Med., Inc., 694 F.
Supp. 2d 48 (D. Mass. 2010).

It held that the hospital claims were

not false or fraudulent, and that while the doctor claims were
false or fraudulent, those claims were not materially false or
fraudulent.

We reverse.

After

reviewing

the

facts

and

the

district

court's

analysis, we reject two purported limitations on FCA liability
Blackstone advances, one of which was adopted by the district court
and the other of which appears to draw support from the district
court's opinion.

First, we reject the argument that, in the

absence of an express legal representation or factual misstatement,
a claim can only be false or fraudulent if it fails to comply with
a

precondition

regulation.

of

payment

expressly

stated

in

a

statute

or

Second, we reject the argument that a submitting

entity's representations about its own legal compliance cannot
incorporate an implied representation concerning the behavior of
non-submitting entities. These purported limitations do not appear
in the text of the FCA and are inconsistent with our case law.
Having rejected these two purported limitations, we hold
that Hutcheson's complaint, in alleging that the hospital and
physician claims represented compliance with a material condition
of payment that was not in fact met, states a claim under the FCA

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that the hospital and physician claims for payment at issue in this
case

were

materially

false

or

fraudulent.

It

follows

that

Hutcheson has stated a claim that Blackstone knowingly caused the
submission of materially false or fraudulent claims in violation of
the FCA.

In reaching this conclusion, we do not adopt the

judicially created conceptual framework employed by the district
court, nor do we adopt any categorical rules as to what counts as
a materially false or fraudulent claim under the FCA.
I.
Hutcheson

was

employed

by

Blackstone

as

a

Regional

Manager from January 2004 until she was terminated in January 2006.
She filed this qui tam action against Blackstone on September 29,
2006.2

On November 21, 2008, more than two years later, the case

was unsealed after the United States filed a notice stating that it
would not intervene at that time because it was still investigating
the claim.
At the time Hutcheson filed her complaint, the FCA
imposed liability on any person who either "knowingly presents, or
causes to be presented to an officer or employee of the United
States Government . . . a false or fraudulent claim for payment or
approval," 31 U.S.C. § 3729(a)(1), or "knowingly makes, uses, or

2

Originally, Philip Brown was also named as a relator in
this suit.
Brown worked as an independent distributor for
Blackstone in 2004. The district court dismissed Brown for failure
to satisfy the "original source" requirement of 31 U.S.C.
§ 3730(e)(4)(B), and that dismissal has not been appealed.
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causes to be made or used, a false record or statement to get a
false or fraudulent claim paid or approved by the Government," id.
§ 3729(a)(2).
actual

A person acts "knowingly" if he or she "(1) had

knowledge

of

the

information;

(2)

acts

in

deliberate

ignorance of the truth or falsity of the information; or (3) acts
in reckless disregard of the truth or falsity of the information."
Id. § 3729(b).

The FCA also stated that the term "knowingly"

requires "no proof of specific intent to defraud."

Id.

The

statute has since been amended, but we refer to the provisions in
force at the time of filing.3
Hutcheson's

complaint

alleges

that

Blackstone

paid

kickbacks to doctors across the country so they would use its

3

In 2009, Congress passed the Fraud Enforcement Recovery
Act (FERA), Pub. L. No. 111-21, 123 Stat. 1617 (2009), which
amended the FCA and re-designated § 3729(a)(1) as § 3729(a)(1)(A),
§ 3729(a)(2) as § 3729(a)(1)(B), and § 3729(b) as §§ 3729(b)(1)(A)
& (B). Hutcheson's amended complaint cited to the re-designated
FCA provisions. In dismissing Hutcheson's complaint, the district
court did not address the application of FERA to the FCA.
Under the revised provisions, FCA liability attaches to any
individual who "knowingly presents, or causes to be presented, a
false or fraudulent claim for payment or approval," 31 U.S.C.
§ 3729(a)(1)(A), or "knowingly makes, uses, or causes to be made or
used, a false record or statement material to a false or fraudulent
claim," id. § 3729(a)(1)(B). The amended § 3729(b) is identical
to the prior version except for internal subdivisions.
We
have
recognized
that
§
3729(a)(1)(B),
but
not
§ 3729(a)(1)(A), was made retroactive to "all claims" under the FCA
pending on or after June 7, 2008.
United States ex rel.
Loughren v. Unum, 613 F.3d 300, 306 n.7 (1st Cir. 2010) (quoting
FERA § 4(f), 123 Stat. at 1625). We have not addressed the meaning
of "claims" under FERA, and we need not do so here. Neither party
argues that § 3729(a)(1)(B) is relevantly different from the
earlier provision.
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products in certain spinal surgeries.
alleges,

included

"monthly

Entry ID: 5554649

These kickbacks, Hutcheson

payments

under

sham

consulting

agreements; paid development projects; research grants; royalties;
exorbitant and sometimes illicit entertainment expenses; high-end
travel and accommodations; speaking engagements and seminars[;] and
other illegal incentives."

Hutcheson alleged that Blackstone's

management supervised the kickback scheme and "knew that Medicare,
Medicaid, and other federal program beneficiaries represent a
significant percentage of spine-surgery patients," and that as a
result of the kickbacks, doctors across the country had performed
spinal

surgeries

on

Medicare

and

Medicaid

patients

using

Blackstone's devices.
Hutcheson argues that compliance with the AKS is a
condition of receiving payment from federally-funded healthcare
programs, including Medicare, Medicaid, and TRICARE.

The AKS

prohibits the payment and receipt of kickbacks in return for either
procuring or recommending the procurement of a good, facility, or
item to be paid in whole or in part by a federal healthcare
program.

42 U.S.C. § 1320a-7b(b).

Hutcheson alleges that through

its kickback scheme, Blackstone "knowingly cause[d]" healthcare
providers to present "false or fraudulent" claims for payment to
federal

healthcare

programs.4

The

4

complaint

focuses

on

the

Hutcheson has not distinguished between the requirements
of 31 U.S.C. § 3729(a)(1) and 31 U.S.C. § 3729(a)(2). However, she
appears to assert a violation under § 3729(a)(1). That sub-section
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submission of claims to Medicare; it only summarily references the
submission of claims to Medicaid and TRICARE, so we address these
types of claims for payment no further.5
The complaint detailed the contents of two types of
documents pertinent to the claims for Medicare reimbursement. Both
hospitals and physicians must sign a Provider Agreement in order to
establish eligibility to receive reimbursement from Medicare. This
states:
I agree to abide by the Medicare laws,
regulations and program instructions that
apply to [me]. . . . I understand that payment
of a claim by Medicare is conditioned upon the
claim and the underlying transaction complying
with such laws, regulations, and program
instructions (including, but not limited to,
the Federal anti-kickback statute and the
Stark law), and on the [provider's] compliance
with
all
applicable
conditions
of
participation in Medicare.
(Alterations in Complaint).
submit

a

Hospital

reimbursement.

Cost

Hospitals, but not doctors, must

Report

along

with

their

claims

for

This states:

refers to the submission of false or fraudulent claims, while
§ 3729(a)(2) refers to statements that accompany false or
fraudulent claims.
We need not reach questions concerning the
distinction between these provisions, which have not been asserted
by either party.
5

As the district court held, Hutcheson's complaint
"contains no allegations regarding certifications or requirements"
for federal healthcare programs other than Medicare, "such as
Medicaid and TRICARE."
United States ex rel. Hutcheson v.
Blackstone Med., Inc., 694 F. Supp. 2d 48, 65 (D. Mass. 2010).
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Misrepresentation or falsification of any
information contained in this cost report may
be
punishable
by
criminal,
civil
and
administrative
action,
fine
and/or
imprisonment under federal law. Furthermore,
if services identified in this report [were]
provided or procured through the payment
directly or indirectly of a kickback or where
otherwise
illegal,
criminal,
civil
and
administrative
action,
fines
and/or
imprisonment may result.
The signatory of the Hospital Cost Report must certify:
To the best of my knowledge and belief, it
[the Hospital Cost Report] is a true, correct
and complete statement prepared from the books
and records of the provider in accordance with
applicable instructions, except as noted. I
further certify that I am familiar with the
laws and regulations regarding the provisions
of health care services, and that the services
identified in this cost report were provided
in compliance with such laws and regulations.
The federal Centers for Medicare and Medicaid Services (CMS)
standardizes

these

forms.

Hutcheson

argues

that

the

forms

establish that claims for Medicare reimbursement may only be paid
if they comply with the AKS.

Before the district court, Hutcheson

also

has

argued

that

Congress

independently

made

clear

that

compliance with the AKS is a precondition of Medicare payment.
Blackstone moved to dismiss the case,6 raising three
arguments.

First, it argued that the complaint was barred by the

6

Blackstone also moved to transfer the case on the ground
that it was similar to a then-pending case against Blackstone in
the Eastern District of Arkansas, United States ex rel. Thomas v.
Bailey, No. 4:06CV465, 2008 WL 4853630 (E.D. Ark. Nov. 6, 2008).
The district court rejected Blackstone's transfer motion.
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FCA's first-to-file and public disclosure rules.
§ 3730(b)(5), (e)(4)(A).

Entry ID: 5554649

See 31 U.S.C.

Second, it argued that the complaint

failed to state a claim under the FCA for purposes of Rule
12(b)(6).

Third, it argued that the complaint failed to meet the

pleading standard for fraud under Rule 9(b).
The

district

court

held

that

the

case

was

not

jurisdictionally barred by the FCA's first-to-file rule or public
disclosure rule.

As to the first-to-file rule, it held that under

United States ex rel. Duxbury v. Ortho Biotech Products, L.P., 579
F.3d 13 (1st Cir. 2009), the action had sufficiently different
facts from a previously filed case, United States ex rel. Thomas v.
Bailey, No. 4:06CV465, 2008 WL 4853630 (E.D. Ark. Nov. 6, 2008),
such that it was not barred.

As to the public disclosure rule, it

held that though Blackstone's alleged kickback scheme had been
publicly disclosed in a complaint in another action, Berrios v.
Blackstone Medical, Inc., No. 05-17339 (Brevard Co., Fla., filed
May 16, 2005), Hutcheson's claims were not barred because she was
an "original source" within the meaning of the FCA.

See 31 U.S.C.

§ 3730(e)(4)(B).
On the merits, the district court dismissed Hutcheson's
complaint for failure to state a claim under Rule 12(b)(6).
Drawing on case law from beyond this circuit, the district court
outlined a framework it thought appropriate to analyze claims under
the FCA.

It held that to state a claim under the FCA, a plaintiff

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must allege that the defendant "(1) knowingly presented or caused
to be presented, (2) a false claim, (3) to the United States
government, (4) knowing its falsity, (5) which was material, (6)
seeking payment from the federal treasury."
Supp. 2d at 61.
shorthand

for

Hutcheson, 694 F.

The district court's definition of "false," a

"false

or

fraudulent,"

and

its

definition

of

"material" are particularly relevant on appeal.
Although the FCA itself does not contain the following
distinctions, the district court construed the statute such that a
claim is "false or fraudulent" if it is either "factually false" or
"legally false."

A factually false claim, it held, is a claim "in

which

or

the

goods

services

provided

are

either

incorrectly

described, or make [a] claim for a good or service never provided."
Id. at 62.

A legally false claim, it held, is a claim in which "a

party certifies compliance with a statute or regulation as a
condition to government payment, but did not actually comply with
the statute or regulation."

Id.

The district court further construed the statute such
that

a

claim

can

be

legally

false

either

"under

an

express

certification theory" or "under an implied certification theory."
Id. Under the express certification theory, a claim is false if it
expressly certifies compliance with a statute or regulation yet
fails to meet the requirements of that statute or regulation.

Id.

Under the implied certification theory, a claim is false when the

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claimant makes no express certification of "compliance with a
statute or regulation, but by submitting a claim for payment,
implies that it has complied with any preconditions to payment"
contained in statutes or regulations.

Id. at 63, 66.

The district court also held that claims are "materially"
false if they have "a natural tendency to influence, or be capable
of influencing, the payment or receipt of money or property" from
the government. Id. at 64 (quoting United States ex rel. Longhi v.
Lithium Power Techs., Inc., 575 F.3d 458, 470 (5th Cir. 2009))
(internal quotation marks omitted).

It held that "materiality is

a separate element of a claim under the [FCA]" such that "analysis
of whether the claim is false vel non ought not be based on the
materiality of the false statement."

Id. at 63.

Applying this framework, the district court held that
Hutcheson's

complaint

failed

to

identify

a

claim

that

materially false or fraudulent for purposes of the FCA.7

was
The

district court divided its analysis between Hutcheson's allegations
concerning claims filed by hospitals and her allegations concerning
claims filed by physicians.
As to the hospital claims, the district court held that
these claims were not false or fraudulent.

It did not address the

possibility that the claims were factually false.

7

Under the

In light of this holding, it did not address whether
Hutcheson had pled fraud with sufficient particularity under Rule
9(b).
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express certification theory, the district court held that (1) the
Hospital Cost Report was not specific enough to create an express
certification of compliance with the AKS, and (2) although the
Provider Agreement created such a certification, "as written, this
certification is specific to the party seeking reimbursement." Id.
at 66 & n.13.

Under the implied certification theory, it held that

the relevant statutes and regulations did not expressly condition
Medicare

payment

on

compliance

with

the

AKS,

and

that

a

precondition to payment "cannot be hidden in an enrollment form."
Id. at 66.
As to the physician claims, the district court held these
claims were not materially false or fraudulent.

The court held

that doctors who, while receiving kickbacks, submitted claims to
Medicare for surgeries utilizing Blackstone products, had submitted
expressly false certifications of compliance with the AKS. Id. It
also held that Hutcheson had sufficiently alleged that Blackstone
"knowingly caused the submission of these false claims."

Id.

Nonetheless, the district court held that the claims were not
materially false or fraudulent because they sought reimbursement
for the physicians' services, not for their use of the Blackstone
devices.

Id. at 66-67.

The court stated that because Hutcheson

had not alleged that the kickbacks induced doctors to submit claims
for "medically unnecessary surgeries," the misrepresentations had
not influenced the government's payment decisions.

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II.
Hutcheson timely appealed and her appeal is supported by
the United States.

We review de novo the grant of a motion to

dismiss under Rule 12(b)(6), accepting as true all well-pleaded
facts, analyzing those facts in the light most hospitable to the
plaintiff's theory, and drawing all reasonable inferences for the
plaintiff.
2008).
forth

Gagliardi v. Sullivan, 513 F.3d 301, 305 (1st Cir.

A suit will be dismissed if the complaint does not set
"factual

allegations,

either

direct

or

inferential,

respecting each material element necessary to sustain recovery
under some actionable legal theory."

Id. (quoting Centro Medico

del Turabo, Inc. v. Feliciano de Melecio, 406 F.3d 1, 6 (1st Cir.
2005)) (internal quotation marks omitted).
This

appeal

concerns

whether

Hutcheson's

complaint

identified a false or fraudulent claim that is material within the
meaning of the FCA.8

The parties agree that a claim is false or

8

Blackstone argues that the district court's dismissal may
be affirmed on the independent grounds that (1) the suit is barred
by the FCA's public disclosure provision and (2) Hutcheson has
failed to adequately plead fraud under Rule 9(b). The district
court rejected Blackstone's first argument and did not reach its
second argument. We reject both of these arguments.
As to the first argument, it is clear that this action is not
barred because Hutcheson was an "original source of the
information" under 31 U.S.C. § 3730(e)(4). Blackstone's argument
to the contrary primarily concerns whether allegations that either
(1) pertained to the time when Hutcheson was not employed by
Blackstone, or (2) were added to Hutcheson's amended complaint,
thereby failed to meet the "original source" requirements under 31
U.S.C. § 3730(e)(4)(B). Even if those particular allegations are
barred, and we do not decide the question, the other allegations
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fraudulent if it contains factual misstatements on its face.9
advance

different

theories

as

to

when

a

claim

is

They

false

or

fraudulent due to a legal misrepresentation. Hutcheson argues that
a claim is false or fraudulent due to legal misrepresentation if it
fails to meet a "condition of payment" and there is a "material
nexus"

between

the

"wrongful

conduct"

and

"the

government's

decision to expend funds." Blackstone argues that a claim is false
or fraudulent due to legal misrepresentation if it (1) incorrectly
certifies compliance with a statute or regulation or (2) fails to
meet an express condition of payment stated in a statute or
regulation.
We need not weigh the abstract merits of these competing
theories. The two theories overlap in significant part: all claims
that would be false or fraudulent under Blackstone's theory would

remain. As to these remaining allegations, Blackstone only argues
that Hutcheson insufficiently alleged that she "provided the
information to the Government before filing" as required by 31
U.S.C. § 3730(e)(4)(B).
Hutcheson's complaint stated that she
disclosed the allegations to the United States Attorneys' Office
for the Middle District of Florida in the "Summer of 2006" "prior
to filing." This is more than enough.
As to the second argument, Rule 9(b) is not a proper
alternative ground for affirmance.
The district court never
considered this argument.
It is up to the court in the first
instance to weigh the adequacy of the complaint for purposes of
Rule 9(b) and, if appropriate, to provide "an opportunity to
correct [any] pleading deficiencies." United States ex rel. Poteet
v. Bahler Med., Inc., 619 F.3d 104, 115 (1st Cir. 2010).
9

The parties describe this state of affairs differently.
Hutcheson refers to it as "facial falsity," while Blackstone refers
to it as "factual falsity." Both parties contrast this type of
falsity with "legal falsity."
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also be false or fraudulent under Hutcheson's, but not vice versa.
The underlying legal dispute concerns two issues.

First, the

parties dispute whether a claim may be false or fraudulent for
failure to meet an implied legal condition of payment that is found
in a source other than a statute or regulation.

Second, the

parties dispute whether representations made by a submitting entity
with respect to its own legal compliance may encompass a legal
precondition of payment applicable to non-submitting entities.
III.
Before we turn to these two purely legal issues and the
specific pleadings in Hutcheson's complaint, we comment briefly on
the conceptual divisions the district court employed. The district
court's analysis turned on distinctions between (1) factually false
or fraudulent claims and legally false or fraudulent claims, as
well as, (2) claims rendered legally false or fraudulent by an
"express

certification"

and

claims

rendered

fraudulent by an "implied certification."

legally

false

or

The parties dispute the

value of these distinctions, but this dispute is an abstract one.
We decline to employ the district court's categories here.
In adopting these two distinctions, the district court
did draw on case law from some other circuit courts.

In the

context of the FCA's lengthy history, which dates back to its
enactment during the Civil War, see United States v. Rivera, 55
F.3d 793, 709-10 (1st Cir. 1995), these judicially created formal

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categories are of relatively recent vintage.

Entry ID: 5554649

They have not been

adopted by the Supreme Court or this court.
The distinction between factually and legally false or
fraudulent claims appears to derive from a 2001 decision of the
Second Circuit.

See Mikes v. Straus, 274 F.3d 687, 696 (2d Cir.

2001) (citing Robert Fabrikant & Glenn E. Solomon, Application of
the Federal False Claims Act to Regulatory Compliance Issues in the
Health Care Industry, 51 Ala. L. Rev. 105, 111-12 (1999)).

The

distinction between express and implied certification appears to
have emerged in circuit case law in a series of decisions at
roughly the same time.

See Shaw v. AAA Eng'g & Drafting, Inc., 213

F.3d 519, 531-33 (10th Cir. 2000); United States ex rel. Siewick v.
Jamieson Sci. & Eng'g, Inc., 214 F.3d 1372, 1376 (D.C. Cir. 2000);
Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 786 n.8
(4th Cir. 1999)).
At least three circuits have since applied these two
distinctions in concert.

See United States ex rel. Kirk v.

Schindler Elevator Corp., 601 F.3d 94, 113-14 (2d Cir. 2010), rev'd
on other grounds, 131 S. Ct. 1885 (2011); United States ex rel.
Lemmon v. Envirocare of Utah, Inc., 614 F.3d 1163, 1167-69 (10th
Cir. 2010); United States ex rel. Quinn v. Omnicare Inc., 382 F.3d
432, 441 (3d Cir. 2004).10

None of these cases addressed the

10

Drawing on the opinion below, three district court
decisions in this circuit have as well. See United States ex rel.
Lisitza v. Johnson & Johnson, Nos. 07-10288-RGS & 05-11518-RGS,
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possibility of imposing FCA liability on a defendant who had caused
another entity to present a materially false or fraudulent claim
for payment to the government.
Courts have created these categories in an effort to
clarify how different behaviors can give rise to a false or
fraudulent claim. Judicially-created categories sometimes can help
carry out a statute's requirements, but they can also create
artificial barriers that obscure and distort those requirements.
The text of the FCA does not refer to "factually false" or "legally
false" claims, nor does it refer to "express certification" or
"implied

certification."

"certification" at all.

Indeed,

it

does

not

refer

to

See United States ex rel. Hendow v. Univ.

of Phoenix, 461 F.3d 1166, 1172 (9th Cir. 2006) (refusing to give
the term "certification" a "paramount and talismanic significance"
in part because it does not appear in the text of the FCA).

In

light of this, and our view that these categories may do more to
obscure than clarify the issues before us, we do not employ them
here.
IV.
Two purely legal issues are raised on appeal concerning
when implied misrepresentations and third-party actions can give

2011 WL 673925, at *10, (D. Mass. 2011); United States ex rel. Rost
v. Pfizer, Inc., 736 F. Supp. 2d 367, 375-76 (D. Mass. 2010);
United States ex rel. Westmoreland v. Amgen, Inc., 707 F. Supp. 2d
123, 133 (D. Mass. 2010).
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rise to a false or fraudulent claim under the FCA.

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The district

court erroneously adopted a categorical rule with respect to the
first of these issues, and appeared to reason within the confines
of an erroneous categorical rule with respect to the second.
As to the first issue, the district court held that a
claim can only be false or fraudulent for impliedly misrepresenting
compliance with a legal condition of payment if that condition is
found expressly stated in "the relevant statute or regulations."
Hutcheson, 694 F. Supp. 2d at 63.

As to the second, the district

court held that because the CMS forms only made representations
about the submitting entity and because Hutcheson identified no
statute

or

regulation

conditioning

Medicare

payment

on

AKS

compliance, unlawful actions taken by a third party about which the
hospital neither knew nor had reason to know could not render the
hospital claims in this case false or fraudulent.

Id. at 66.

Blackstone defends the categorical rule adopted by the
district court in the first holding and advances a categorical rule
to defend the second holding.
can

only

be

false

misrepresentation

if

or
it

Blackstone argues that (1) a claim

fraudulent
fails

to

due

to

comply

an
with

implied
the

legal
express

requirements of a statute or regulation, and (2) a certification
that represents a submitting entity's compliance with certain legal
requirements cannot incorporate an implied representation about the
conduct of non-submitting entities.

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We reject both arguments.

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Implied Conditions of Payment
The

district

court

gave

little

explanation

for

its

holding that a claim can only be impliedly false or fraudulent for
non-compliance with a legal condition of payment if that condition
is expressly stated in a statute or regulation.

It stated that a

claim for payment can be false if submission "implies that [the
claim] has complied with any preconditions of payment." Hutcheson,
694 F. Supp. 2d at 62 (citing United States ex rel. Conner v.
Salina Reg'l Health Ctr., Inc., 543 F.3d 1211, 1218 (10th Cir.
2008); United States ex rel. Augustine v. Century Health Sys.,
Inc., 289 F.3d 409, 415 (6th Cir. 2002); Mikes 274 F.3d at 699).
It then agreed with the Mikes decision that liability under the
"implied theory" should be restricted "to compliance with expressly
stated preconditions of payment found in the relevant statute or
regulations."

Id. (citing Mikes, 274 F.3d at 700).

To be clear,

the district court held both that implied conditions of payment can
only be found in statutes and regulations, and that these sources
must expressly state the obligation.

We reject both requirements.

Blackstone defends this holding in two ways.

First, it

argues that this court should follow case law from beyond this
circuit

that

it

asserts

applied

this

rule.

In

particular,

Blackstone relies on the Second Circuit's decision in Mikes, 274
F.3d 687, the Ninth Circuit's decision in Ebeid ex rel. United
States v. Lungwitz, 616 F.3d 993 (9th Cir. 2010), and the Tenth

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Circuit's decision in Conner, 543 F.3d 1211.

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Second, Blackstone

argues that a rule contrary to the one adopted by the district
court would yield broader FCA liability than Congress intended. It
argues that such a rule would "encompass all violations of law or
regulations" by parties that interact with entities that submit
claims for government payment.
Both of these arguments fail. This court is not bound by
the case law Blackstone cites, and the text of the FCA does not
exhibit an intent to limit liability in this fashion.
Neither party argues that this court or the Supreme Court
has expressly spoken to whether a precondition of payment must be
explicitly stated in a statute or regulation to give rise to a
false or fraudulent claim.

Although Hutcheson has invoked the

Supreme Court's decision in United States ex rel. Marcus v. Hess,
317 U.S. 537 (1943), and this court's decision in Murray & Sorenson
v. United States, 207 F.2d 119 (1st Cir. 1953), she has not argued
that these cases speak directly to the issue here. These decisions
did not distinguish between factual and legal misrepresentations
and

so

had

no

reason

to

address

the

precise

source

of

the

government's expectation that the claims at issue in those cases
would be unaffected by collusion, see Hess, 317 U.S. at 544-45, and
inside tips, see Murray & Sorenson, 207 F.2d at 123-24.
It is true that the Second Circuit held in Mikes that
"implied false certification is appropriately applied only when the

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underlying statute or regulation upon which the plaintiff relies
expressly states the provider must comply in order to be paid."
Mikes, 274 F.3d at 700 (first emphasis added).

It is also true

that the Ninth Circuit used similar, but not identical, language in
Ebeid, holding that "[i]mplied false certification occurs when an
entity has previously undertaken to expressly comply with a law,
rule, or regulation."

Ebeid, 616 F.3d at 998; see also United

States ex rel. Hopper v. Anton, 91 F.3d 1261, 1267 (9th Cir. 1996)
(stating, in more general terms, that "[m]ere regulatory violations
do not give rise to a viable FCA violation").
Other courts, however, have found that a claim may be
false or fraudulent due to an implied representation of compliance
with a precondition of payment that is not expressly stated in a
statute or regulation.

The Tenth Circuit's decision in Conner,

upon which Blackstone mistakenly relies, held that for purposes of
"an implied false certification theory, . . . the analysis focuses
on the underlying contracts, statutes, or regulations themselves to
ascertain whether they make compliance a prerequisite to the
government's payment." Conner, 543 F.3d at 1218 (emphasis added).
The Tenth Circuit has found claims false or fraudulent because a
defendant failed to comply with the terms of underlying contractual
provisions.

See Shaw, 213 F.3d at 531-32; see also Lemmon, 614

F.3d at 1170 (finding that a defendant's failure to comply with
certain regulations whose requirements were incorporated into a

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government contract rendered a claim false or fraudulent).

The

D.C. Circuit also recently held that non-compliance with contract
terms may give rise to false or fraudulent claims, even if the
contract does not specify that compliance with the contract term is
a condition of payment.

United States v. Sci. Applications Int'l

Corp. (SAIC) 626 F.3d 1257, 1269 (D.C. Cir. 2010).
In SAIC, the court rejected the defendant's argument that
legal preconditions of payment must be expressly designated as such
to give rise to false or fraudulent claims.

Id. at 1268.

It held

that "nothing in the statute's language specifically requires such
a rule" and that adopting one could "foreclose FCA liability in
situations that Congress intended to fall within the Act's scope."
Id. In response to the defendant's argument that its holding would
overextend liability under the FCA, the court stated that this
concern does not call for "adopting a circumscribed view of what it
means for a claim to be false or fraudulent," but rather calls for
"strict

enforcement

requirements."

of

the

Id. at 1270.

Act's
We agree.

materiality

and

scienter

Like the rule advanced by

the defendant in SAIC, the rule advanced by Blackstone that only
express

statements

in

statutes

and

regulations

can

establish

preconditions of payment is not set forth in the text of the FCA.
We are not persuaded, moreover, by the concerns that
prompted the Second Circuit to adopt such a rule in Mikes, nor are
we persuaded that the Second Circuit would extend that rule to

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situations like the one before us.11

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The plaintiffs in Mikes

alleged that Medicare claims submitted by the defendant health care
providers were false or fraudulent because the underlying medical
treatment had failed to meet a standard of care.
at 696.

Mikes, 274 F.3d

The court reasoned that to find these claims false or

fraudulent would allow the government and relators to supplant
private plaintiffs in medical malpractice suits.

Id. at 700.

The

risk of federalization of what have been private party tort actions
is not a foregone conclusion of declining to adopt a rule that
preconditions of payment must be expressly stated in a statute or
regulation; nor is that risk sufficient to justify such a rule.
This is so because other means exist to cabin the breadth
of the phrase "false or fraudulent" as used in the FCA.

The text

of the FCA and our case law make clear that liability cannot arise
under the FCA unless a defendant acted knowingly and the claim's
defect is material.12 The knowledge requirement is expressly stated

11

The Second Circuit has since applied the standard in
Mikes outside the Medicare context. See United States ex rel. Kirk
v. Schindler Elevator Corp., 601 F.3d 94, 115 (2d Cir. 2010), rev'd
on other grounds, 131 S. Ct. 1885 (2011).
In that decision,
however, the court held that the submitted claim failed to comply
with a precondition of payment expressly stated in a statute. We
are unaware of any decision by the Second Circuit finding that a
claim was not false or fraudulent where the claim failed to meet a
material contract term. Cf. United States v. Sci. Applications
Int'l Corp. (SAIC) 626 F.3d 1257, 1270 (D.C. Cir. 2010).
12

The parties contest the proper place of this materiality
requirement in the analysis under the FCA. Hutcheson argues that
a claim can only be legally false or fraudulent if the legal defect
is material.
Blackstone argues, in keeping with the district
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in the statute and defined at 31 U.S.C. § 3729(b), and this court
has "long held that the FCA is subject to a judicially-imposed
requirement

that

the

allegedly

false

claim

or

statement

be

material."13

United States ex rel. Loughren v. Unum Grp., 613 F.3d

300, 306-07 (1st Cir. 2010).
B.

Non-Submitting Party Conduct
The district court appeared to employ the concept of

certification such that a claim can be false or fraudulent only if
the submitting entity knew or should have known of the underlying
falsehood or fraudulence.

Under the express certification theory,

the district court held that the certifications in the Provider
Agreement and Hospital Cost Report created "no obligation on the
part of the signatory to determine whether the entire transaction
complied" with the AKS.
holding

that

the

Hutcheson, 694 F. Supp. 2d at 66.

relevant

statutes

and

regulations

After

did

not

court's opinion, that these are two separate inquiries, such that
a claim can be false or fraudulent without being materially so. We
decline to resolve this semantic dispute, which has no bearing on
the outcome of this case. It is uncontested that only false or
fraudulent claims that are materially false or fraudulent can give
rise to liability under the FCA.
13

In Loughren, we noted that the Supreme Court had recently
found a materiality requirement applicable to 31 U.S.C.
§ 3729(a)(2) & (a)(3). Loughren, 613 F.3d at 307 (citing Allison
Engine Co., Inc. v. United States ex rel. Sanders, 128 S. Ct. 2123,
2126, 2130 (2008)). We held that this holding did not disturb "our
previous reading of a materiality requirement into the statute more
generally," id., and held as well that the FERA amendment to the
FCA that incorporated an explicit materiality requirement into the
former § 3729(a)(2) did not alter this conclusion, id. at 307 n.8.
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establish AKS compliance as a precondition of Medicare payment, the
district court concluded its analysis with the statement that
"[t]he Amended Complaint contains no allegations that the hospitals
themselves received kickbacks, or that they knew or should have
known about the kickbacks received by the doctors."

Id. at 66.

In its description of the concept of certification, the
district

court

did

not

explicitly

requirement for submitting entities.
claim

is

[expressly

legally
or

false

impliedly]

"where
with

a
a

outline

such

a

knowledge

It stated, however, that a
party

statute

certifies
or

compliance

regulation

as

a

condition to government payment," but that party "did not actually
comply with the statute or regulation." Id. at 62 (emphasis added)
(citing Conner, 543 F.3d at 1217; Quinn, 382 F.3d at 440-41;
Siewick, 214 F.3d at 1375-76; Harrison, 176 F.3d at 785-87; United
States ex rel. Thompson v. Columbia/HCA Healthcare Corp., 125 F.3d
899, 902 (5th Cir. 1997); Hopper, 91 F.3d at 1265-66).
Building on this aspect of the district court's analysis,
Blackstone

argues

that

when

a

submitting

entity

expressly

represents its own legal compliance, its representations cannot
encompass a pre-condition of payment applicable to non-submitting
entities.

It again advances two arguments.

First, it argues that

"no court has held that a hospital's truthful certification" can be
rendered false "by the acts of an unrelated third party somewhere
in the supply chain."

Second, it argues that if unlawful third-

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party actions could render a claim false or fraudulent on account
of a submitting entity's truthful certification, FCA liability
would extend to any prohibited behavior "by participants in a
marketplace

that

involves,

at

some

point

in

a

series

of

transactions, a government program," and thus beyond the scope
intended by Congress.
The categorical limitation Blackstone advances does not
appear in the text of the statute and is inconsistent with both the
statutory text and binding case law.

The FCA imposes liability on

any person who "knowingly presents, or causes to be presented" to
the

government

"a

false

or

fraudulent

claim

for

payment

or

approval," 31 U.S.C. § 3729(a)(1) (emphasis added), or "knowingly
makes, uses, or causes to be made or used, a false record or
statement to get a false or fraudulent claim paid or approved by
the

Government,"

id.

3729(a)(2)

(emphasis

added).

When

the

defendant in an FCA action is a non-submitting entity, the question
is whether that entity knowingly caused the submission of either a
false or fraudulent claim or false records or statements to get
such a claim paid.

The statute makes no distinction between how

non-submitting and submitting entities may render the underlying
claim or statements false or fraudulent.
To

the

extent

that

Blackstone

seeks

to

locate

its

proposed limitation in the concept of certification, we repeat that
the text of the FCA does not employ this concept.

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a Ninth Circuit decision for the proposition that "[v]iolations of
laws, rules, or regulations alone do not create a cause of action
under the FCA.

It is the false certification of compliance which

creates liability . . . ."

Hopper, 91 F.3d at 1266.

Blackstone

omits, however, that decision's qualification that this statement
holds

"when

certification

government benefit."

Id.

is

a

prerequisite

to

obtaining

a

At any rate, as the Ninth Circuit made

clear in a later case, "because the word 'certification' does not
appear in 31 U.S.C. § 3729(a)(1) or (a)(2), there is no sense in
parsing it with the close attention typically attending an exercise
in statutory interpretation.

So long as the statement in question

is knowingly false when made, it matters not whether it is a
certification, assertion, statement, or secret handshake; False
Claims liability can attach."

Hendow, 461 F.3d at 1172.

The Supreme Court has long held that a non-submitting
entity

may

be

liable

under

the

FCA

for

knowingly

causing

a

submitting entity to submit a false or fraudulent claim, and it has
not conditioned this liability on whether the submitting entity
knew or should have known about a non-submitting entity's unlawful
conduct.

In Hess, 317 U.S. 537, the Court held that the language

of the FCA "indicate[s] a purpose to reach any person who knowingly
assisted in

causing

grounded in fraud."

the

government

Id. at 544-45.

this aspect of Hess.

to

pay

claims

which

were

The Court has since reaffirmed

More than thirty years later, in United

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States v. Bornstein, 423 U.S. 303 (1976), it held a subcontractor
liable under the FCA for causing a contractor to submit claims
seeking payment for materials that, apparently unbeknownst to the
contractor, were labeled incorrectly.
This court has followed suit.

Id. at 309-313.
In Murray & Sorenson, 207

F.2d 119, we held that the defendant had caused the submission of
false or fraudulent claims because the government contract bids it
relayed to a submitting entity had been secretly inflated in
response to tips about the government’s willingness to pay. Id. at
123-24.

We have made clear that unlawful acts by non-submitting

entities may give rise to a false or fraudulent claim even if the
claim is submitted by an innocent party.

See Rivera, 55 F.3d at

710-12 (stating that a "false claim may be presented through an
innocent third party" (citing Bornstein, 423 U.S. at 309)); see
also Scolnick v. United States, 331 F.2d 598 (1st Cir. 1964)
(holding

a

party

liable

under

the

FCA

when

it

submitted

a

mistakenly issued government check to a bank and the bank submitted
the check to the government).
These cases do not hold that a submitting entity's
representations concerning its own conduct somehow immunize a nonsubmitting entity from liability under the "causes" clauses of the
FCA.

Nor does Blackstone cite any other decision from the Supreme

court or this court that says that.

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Blackstone attempts to distinguish the cases Hutcheson
cites concerning third-party liability under the FCA as inapposite
because they dealt with "factually false" rather than "legally
false" claims.

The decisions do not speak in terms of these newly

created categories, which are not in the text of the FCA.

Nor

would Blackstone's effort to retroactively categorize these cases
work even if we accepted its terms, which we do not.
While Bornstein, Rivera, and Scolnick arguably involve
misrepresentations of a strictly factual nature,14 Hess and Murray
& Sorenson involve misrepresentations related to a legal status.
As we held in Murray & Sorenson, "in Hess there was an implied
false representation that the bids were competitive, and in this
case there was an implied false representation that the bids were
at a figure which the corporate defendant would have submitted in
competition instead of at a somewhat higher figure" due to the tip.
Murray & Sorenson, 207 F.2d at 124.

These claims did not misstate

a fact; they implied that the defendants had not engaged in certain
illicit behaviors that would disqualify them from payment. Neither
decision identified a statute, regulation, or certification as the

14

This proposition is more contestable with respect to
Scolnick than Bornstein and Rivera. The claim for payment at issue
in Scolnick did not misrepresent a fact about the mistakenly issued
government check. Rather, the claim implicitly represented that
the check was valid and thus met the legal conditions of payment.
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of

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legal

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precondition

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of

payment

the

Entry ID: 5554649

respective

defendants had failed to meet.15
None

of the

cases relied

on

by

Blackstone

and

the

district court, moreover, address when the actions of a nonsubmitting entity can give rise to a false or fraudulent claim.
Each of these cases concerned whether claims submitted by the
defendant, rather than claims a defendant caused a third party to
submit, were false or fraudulent under the FCA. See, e.g., Conner,
543 F.3d 899 (claim submitted by defendant hospital); Quinn, 382
F.3d 432 (claim submitted by defendant pharmacies); Siewick, 214
F.3d 1372 (claim submitted by defendant corporation); Thompson, 125
F.3d 899 (claim submitted by defendant health care provider);
Hopper,

91

F.3d

1261

(claim

submitted

by

defendant

school

district). We cannot adopt Blackstone's categorical rule, which is
at odds with the holdings of controlling decisions of both this
court and the Supreme Court.
Blackstone cannot evade this conclusion by arguing that
in the absence of the rule it proposes FCA liability will stretch

15

At oral argument, Blackstone introduced an additional
argument that the claims in Hess and Murray & Sorenson were false
because the submitting entity had "passed along" a false
certification by the defendants, who had not submitted claims
themselves.
However, neither decision gave this rationale for
finding the claims at issue false or fraudulent. Nor is it clear
that this description fits the facts in either case; neither
decision speaks in detail of the materials the defendants gave to
the submitting entities.
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too broadly to non-submitting entities.16

Entry ID: 5554649

First, we cannot rewrite

statutes. Second, the policy concerns are overblown. Only persons
who

knowingly

submit

or

cause

the

submission

of

a

false

fraudulent claim can be held liable for violating the FCA.

or
The

term "causes" is hardly boundless; it has been richly developed as
a constraint in various areas of the law.

See, e.g., W. Page

Keeton et al., Prosser and Keeton on Torts § 41-44 (5th ed. 1984)
(discussing causation in tort law).

And contrary to Blackstone's

argument, as the Supreme Court has held, in enacting the FCA
"Congress wrote expansively, meaning 'to reach all types of fraud,
without qualification, that might result in financial loss to the
Government.'"

Cook Cnty., Illinois v. United States ex rel.

16

At oral argument, Blackstone raised a related argument
that if claims that contain legal misrepresentations unbeknownst to
the submitting entity could be false or fraudulent, submitting
hospitals would be required to return these payments as
"overpayments" under a provision of the new Patient Protection and
Affordable Care Act (PPACA), Pub. L. No. 111-148, 124 Stat. 119
(2010). See 42 U.S.C. § 1320a-7k(d).
Blackstone and the United States dispute the extent to which
enforcement of this requirement would be subject to the
government's discretion. The United States contends that it may
choose to pursue the architects of a kickback scheme rather than
penalize innocent submitting hospitals.
Blackstone argues that
regardless of such a decision by the government, private relators
can sue innocent submitting hospitals under the PPACA. See id.
§ 1320-7k(d)(3) (citing 31 U.S.C. § 3729(b)(3)).
This dispute is tangential to the question at hand, and we do
not discuss it further. As Blackstone acknowledges, the Supreme
Court has held that claims may be false or fraudulent even when the
submitting entity was unaware of the underlying falsehood or
fraudulence. This argument amounts to the assertion that these
holdings only apply to so-called factually false claims and not to
so-called legally false claims. As we have noted, the text of the
FCA and the relevant case law makes no such distinction.
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Chandler, 538 U.S. 119, 129 (2003) (quoting United States v.
Neifert-White Co., 390 U.S. 228, 232 (1968)).
V.
Having rejected Blackstone's efforts to narrow the text
of the statute and thereby justify dismissal of the case, we turn
to the question of whether Hutcheson's complaint identified a
materially false or fraudulent claim.

Hutcheson and Blackstone

disagree as to whether the language and legislative history of the
AKS, as well as a recent amendment to the statute in the Patient
Protection and Affordable Care Act (PPACA), Pub. L. No. 111-148,
124 Stat. 119 (2010), establish that AKS compliance is, without
more, a precondition of Medicare payment.17

We need not address

this dispute, as we hold that the Provider Agreement and Hospital
Cost

Report

forms

identified

in

Hutcheson's

complaint

are

sufficient to support her claim.
As

we

explain

below,

the

claims

presented

to

the

government in this case, as alleged, represented that there had
been compliance with a material precondition of payment that had
not been met.

We do not categorize this representation as one of

law or fact, nor do we categorize it as either express or implied.
We also do not address whether this representation constituted a

17

The amendment in question states that a "claim that
includes items or services resulting from a violation of" the AKS
"constitutes a false or fraudulent claim for purposes of" the FCA.
42 U.S.C. § 1320a-7b(g).
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Entry ID: 5554649

"certification" within the meaning of case law from beyond this
circuit.

These formal categories, as we have discussed, are

nowhere mentioned in the statute.

We first address whether the

claims at issue here misrepresented compliance with a precondition
of payment so as to be false or fraudulent and then address whether
those misrepresentations were material.
A.

Misrepresentation
Hutcheson argues that the Provider Agreement and Hospital

Cost Report forms make clear that compliance with the AKS is a
precondition of Medicare payment.

In addition to raising the

categorical arguments rejected above, Blackstone argues that the
Provider Agreement and Hospital Cost Report forms did not identify
this precondition with sufficient specificity to render the claims
at issue in this case false or fraudulent.

As to the hospital

claims, Blackstone argues that these forms did not create an
express or implied representation that anyone other than the
submitting hospital had complied with the AKS. As to the physician
claims,

Blackstone

argues

that

while

the

Provider

Agreement

represented physician compliance with the AKS, this representation
only extended to claims that would not have been made in the
absence of kickbacks.
The Provider Agreement, drafted by CMS, requires that
hospitals and physicians acknowledge that they "understand that
payment of a claim by Medicare is conditioned upon the claim and

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Case: 10-1505

the

Document: 00116215392

underlying

transaction

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Date Filed: 06/01/2011

complying

with

regulations and programs instruction."
Agreement

specifically

identifies

"the

Entry ID: 5554649

[Medicare's]

(Emphasis added.)
Federal

laws,
The

anti-kickback

statute" as one of only two enumerated examples of the relevant
"laws, regulations, and program instructions." This language makes
clear that the federal Medicare program will not pay claims if the
underlying transaction that gave rise to the claim violated the
AKS.

The Agreement makes no exception for instances in which that

"underlying transaction" violated the AKS because of the actions of
a third party like Blackstone.
The Hospital Cost Report, also drafted by CMS, further
underscores that hospitals submitting claims represent compliance
with the AKS.

The form states that "if services identified in this

report [were] provided or procured through the payment directly or
indirectly of a kickback . . . fines and/or imprisonment may
result."

It also requires that the hospital's representative sign

a statement certifying that he or she is "familiar with the laws
and regulations regarding the provisions of health care services,
and that the services identified in this cost report were provided
in compliance with such laws and regulations."18

This makes it

abundantly clear that AKS compliance is a precondition of Medicare

18

Blackstone focuses on the first sentence of this
certification, which is qualified by the phrase, "[t]o the best of
my knowledge." The second statement, however, is accompanied by no
such qualification.
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payment and makes no exceptions for violations caused by third
parties like Blackstone.
These two documents are more than specific enough to make
clear that the claims submitted by hospitals represented that any
underlying transactions had not involved third party kickbacks
prohibited by the AKS.

Blackstone advances a formalistic reading

of the documents to avoid the conclusion that these forms recognize
this precondition of Medicare payment.

It also seeks to divert

attention from this clear language by focusing on whether the
hospitals knew of the underlying kickbacks, a fact that has no
bearing on Blackstone's potential liability under the FCA.

The

reading Blackstone proposes would not only strain the language of
the documents; it would systematically excuse from FCA liability
non-submitting entities who cause the submission of claims that
fail to meet that stated precondition.
The Provider Agreement is also sufficiently clear to
establish that the claims submitted by physicians represented that
the underlying transactions did not involve kickbacks to physicians
prohibited by the AKS.

The physicians agreed that payment from

Medicare is conditioned on compliance with the AKS, yet allegedly
accepted kickbacks in violation of the AKS. Blackstone argues that
the physician claims nonetheless were not false or fraudulent
because the claims were for services that would have been provided
in the absence of the alleged AKS violations.

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This argument does

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not address the complaint's allegation that under the express terms
of the Agreement, the "underlying transaction" violated the AKS and
therefore that the resulting claims were ineligible for payment.19
Instead, it addresses whether these claims were materially false or
fraudulent, which we address separately.
These allegations of misrepresentation, we hold, are
sufficient to state a claim that the hospital and physician claims
for payment at issue here were false or fraudulent.

This holding

is consistent with those of other courts that have found claims
false or fraudulent for non-compliance with a contract term.
See SAIC, 626 F.3d at 1269; Shaw, 213 F.3d at 531-32; see also
Lemmon, 614 F.3d at 1170.

To be clear, we are not creating a rule

that non-compliance with a contractual condition is any more
necessary to establish that a claim is false or fraudulent than
non-compliance with an express statute or regulation, or an express
misrepresentation on a form submitted with payment. We now turn to
the question of whether the claims in this case failed to comply
with a material condition of payment for purposes of the FCA.
B.

Materiality

19

Blackstone argues that "a hospital's purchase of a device
used in an inpatient surgical procedure is not a transaction that
underlies or is a part of the physician's request for payment for
physician services."
This argument, however, does not address
whether a physician's receipt of kickbacks is a transaction
underlying that physician's provision of services associated with
the products involved in the kickback scheme.
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Blackstone makes two arguments that the hospital and
physician misrepresentations were not material. As to the hospital
claims, Blackstone argues that a payment mechanism rendered any AKS
non-compliance irrelevant to the payment of claims.

Hospitals, it

argues, classify patients within "diagnosis-related groups" (DRGs)
and

receive

a

set

payment

for

treating

patients

in

regardless of the particular services provided.20

a

As

group
to the

physician claims, Blackstone reiterates the argument it advanced
that these claims did not misrepresent AKS compliance.

It argues

that the physicians submitted claims for their services conducting
medically necessary surgeries, not for the devices allegedly used
because of Blackstone's kickbacks.
In Loughren, this court held that a false statement is
material if it has "a natural tendency to influence, or [is]
capable of influencing, the decision of the decisionmaking body to
which it was addressed."

Loughren, 613 F.3d at 307 (alteration in

original) (quoting Neder v. United States, 527 U.S. 1, 16 (1999))
(internal quotation marks omitted).
after

the

district

court's

Although Loughren was decided

decision,

20

this

standard

is

not

Blackstone has not expressly cast this argument as one
concerned with materiality. Rather, it has argued that a claim
related to a "diagnosis-related group" cannot be false or
fraudulent because the claim does not address the particular
services used in the treatment of a patient. To the extent this
argument concerns whether a sufficiently specific misrepresentation
occurred, we reject it for the same reasons we rejected
Blackstone's other arguments concerning the specificity of hospital
misrepresentations.
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relevantly different from the one the district court employed. See
Hutcheson, 694 F. Supp. 2d at 64. Express contractual language may
"constitute dispositive evidence of materiality," but materiality
may be established in other ways, "such as through testimony
demonstrating that both parties to the contract understood that
payment was conditional on compliance with the requirement at
issue."

SAIC, 626 F.3d at 1269.
We cannot say that, as a matter of law, the alleged

misrepresentations in the hospital and physician claims were not
capable of influencing Medicare's decision to pay the claims.

See

Ocasio-Hernández v. Fortuño-Burset, No. 09-2207, 2011 WL 1228768,
at *14 (1st Cir. Apr. 1, 2011) (citing Bell Atl. Corp. v. Twombly,
550 U.S. 554, 556 (2007)).

The intricacies of the DRG system do

not alter the clear language of the Provider Agreement and the
Hospital Cost Report forms.

Nor does the fact that the physician

claims sought payment for services rather than devices somehow
render the fact that the physicians accepted kickbacks irrelevant
under the language of the Provider Agreement.
If kickbacks affected the transaction underlying a claim,
as Hutcheson alleges, the claim failed to meet a condition of
payment.

Blackstone's argument that Medicare would excuse these

violations because of a bureaucratic mechanism or because of an
implicit medical necessity requirement impermissibly cabins what
the

government

may

consider

material.

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Neither

the

Provider

Case: 10-1505

Document: 00116215392

Agreement

nor

the

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Hospital

Cost

Date Filed: 06/01/2011

Report

forms

speak

Entry ID: 5554649

of

such

exceptions recognized by Medicare. We find Hutcheson's allegations
sufficient to show, for purposes of this motion to dismiss, that
the kickbacks were capable of influencing Medicare's decision as to
whether to pay the hospital and physician claims.
VI.
For

the

foregoing

reasons,

we

reverse

the

district

court's dismissal of Hutcheson's complaint under Rule 12(b)(6) for
failing to identify a materially false or fraudulent claim within
the meaning of the FCA, and we remand for further proceedings
consistent with this opinion.
So ordered.

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