US, ex rel. Escobar, et al v. Universal Health Services, Inc

Filing

OPINION issued by Jeffrey R. Howard, Chief Appellate Judge; Norman H. Stahl, Appellate Judge and David J. Barron, Appellate Judge. Published. [14-1423]

Case: 14-1423

Document: 00117083483

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Date Filed: 11/22/2016

Entry ID: 6049506

United States Court of Appeals
For the First Circuit
No. 14-1423
UNITED STATES, ex rel. JULIO ESCOBAR; CARMEN CORREA,
administratrix of the Estate of Yarushka Rivera,
Plaintiffs, Appellants,
COMMONWEALTH OF MASSACHUSETTS,
Plaintiff, Amicus Curiae,
v.
UNIVERSAL HEALTH SERVICES, INC.,
Defendant, Appellee.

APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Douglas P. Woodlock, U.S. District Judge]

Before
Howard, Chief Judge,
Stahl and Barron, Circuit Judges.

Michael Tabb, with whom Thomas M. Greene, Elizabeth Cho,
Greene LLP, were on brief for appellants.
Mark T. Stancil, with whom Donald Burke, Robbins, Russell,
Englert, Orseck, Untereiner & Sauber LLP, and Mark W. Pearlstein,
Evan D. Panich, Laura McLane, McDermott Will & Emery LLP, were on
brief for appellee.
Maura Healey, Attorney General of Massachusetts, with whom
Robert Patten and Jeffrey Walker, Assistant Attorneys General,
were on brief for amicus curiae Commonwealth of Massachusetts.
Charles S. Scarborough, Attorney, Appellate Staff, with whom
Benjamin C. Mizer, Principal Deputy Assistant Attorney General,

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Carmen M. Ortiz, United States Attorney, and Michael S. Raab,
Attorney, Appellate Staff, were on brief for amicus curiae United
States of America.
Jennifer M. Verkamp, Morgan Verkamp LLC, and Jacklyn N. DeMar,
on brief for amicus curiae Taxpayers Against Fraud Education Fund.
Jeremy W. Meisinger, Thomas R. Barker, Kristyn M. DeFilipp,
and Foley Hoag, LLP, on brief for amicus curiae National
Association of Psychiatric Health Systems.
Lawrence M. Kraus, Lawrence W. Vernaglia, Jason L. Drori, and
Foley & Lardner LLP, on brief for amicus curiae Massachusetts
Hospital Association.
John P. Elwood, Craig D. Margolis, Jeremy C. Marwell, Tirzah
S. Lollar, Christian D. Sheehan, Vinson & Elkins LLP, Kathryn
Comerford Todd, Steven P. Lehotsky, and U.S. Chamber Litigation
Center, on brief for amicus curiae Chamber of Commerce of the
United States of America.

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STAHL, Circuit Judge.
in

2009

after

receiving

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Yarushka Rivera died of a seizure

mental

health

treatment

at

Arbour

Counseling Services in Lawrence, Massachusetts, a facility owned
and

operated

("UHS").

by

Defendant-Appellee

Universal

Health

Services

UHS submitted reimbursement claims for these services to

MassHealth, the state's Medicaid agency.
Following Yarushka's death, her mother and stepfather
learned

that

Arbour

had

employed

unlicensed

and

unsupervised

personnel, in violation of state regulations -- many of whom were
involved in treating their daughter during the years leading up to
her death.

Relators subsequently brought a qui tam action against

UHS under the False Claims Act (FCA), alleging that Arbour had
employed unlicensed and unsupervised personnel, in violation of
state

regulations,

and

that

UHS

had

fraudulently

submitted

reimbursement claims to the Commonwealth, despite knowing that
they were in violation of relevant state regulations dealing with
mental health and counseling facilities.

This is a theory of FCA

liability known as the "implied false certification theory."
The

district

court

granted

defendant's

motion

to

dismiss, concluding that the regulatory violations were conditions
for participation in the state Medicaid program, but were not
conditions of payment as required for a claim to be actionable
under the FCA. We reversed, holding that the regulatory violations
in question were, in fact, conditions for payment and that the

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Relators' complaint had "properly pleaded that the condition of
payment at issue was a material one," given the ubiquity of the
licensing and supervision requirements throughout the MassHealth
regulations governing the state's Medicaid program with respect to
mental health services.

United States and Commonwealth of Mass.

ex rel. Escobar v. Universal Health Servs., Inc., 780 F.3d 504,
514 (1st Cir. 2015) ("Escobar I").
UHS sought review in the Supreme Court, the Court granted
certiorari, and ruled that the implied false certification theory
can be a basis for FCA liability.
vacated

our

judgment

and

However, the Supreme Court

remanded

the

case

for

further

consideration of whether Relators' complaint sufficiently alleged
that the regulatory violations in question were material to the
government's payment decision, a requirement for an actionable FCA
claim.

Universal

Health

Servs.,

Inc.

v.

United

States

and

Commonwealth of Mass. ex rel. Escobar, 136 S. Ct. 1989, 2004 (2016)
("Escobar II").
Applying the Supreme Court's guidance on the question of
whether UHS's misrepresentations were material, we again find that
Relators' complaint sufficiently states a claim under the FCA.

We

therefore REVERSE the district court's grant of UHS' Motion to
Dismiss and REMAND for further proceedings consistent with this
opinion.

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I. Facts and Background1
Having previously had occasion to discuss the underlying
facts that gave rise to this litigation, see Escobar I, 780 F.3d
at 508-510, we briefly recount the most salient facts before
proceeding

to

an

analysis

of

the

materiality

of

the

misrepresentations alleged in Relators' Second Amended Complaint.2
A. The False Claims Act Generally
The False Claims Act, 31 U.S. § 3729 et seq., was enacted
in 1863 to address the "massive frauds perpetrated by large
contractors during the Civil War," United States v. Bornstein, 423
U.S. 303, 309 (1976), which hampered the United States' war effort.
The Act imposes civil penalties on "any person who ... knowingly
presents, or causes to be presented, a false or fraudulent claim

1

This case arises from Defendant-Appellee UHS's Motion to
Dismiss Relators' Second Amended Complaint. Following our ruling
in Escobar I, but prior to the Supreme Court's grant of certiorari,
the District Court allowed the filing of a Third and Fourth Amended
Complaint. These rulings were proper, as the mere act of filing
a petition for certiorari does not deprive the district court of
jurisdiction over the case. See United States v. Sears, 411 F.3d
1240, 1241-42 (11th Cir. 2005); see also 28 U.S.C. § 2101(f)
(noting that the trial court or the Supreme Court may issue a stay
pending disposition of a petition for certiorari). However, since
our original ruling in this case and the Supreme Court opinion in
Escobar II were both based on the factual allegations in the Second
Amended Complaint, this Court and the parties all agree that it is
that complaint that is the operative pleading at this stage.
2

Because this appeal follows the granting of a motion to
dismiss, we recite the relevant facts as they appear in Relators'
Second Amended Complaint. See Hochendoner v. Genzyme Corp., 823
F.3d 724, 728 (1st Cir. 2016).

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for payment or approval" to the government.

31 U.S.C. § 3729(a).

The

authorizing

Act

contains

qui

tam

provisions

private

individuals to sue on behalf of the United States to recover monies
that

were

obtained

misrepresentations.

from

the

government

31 U.S.C. § 3730.

by

fraudulent

To be actionable, a false

claim must be material to the government's decision to pay the
claim.

See, e.g., Escobar II, 136 S. Ct. at 2001; see also United

States ex rel. Loughren v. Unum Grp., 613 F.3d 300, 307 (1st Cir.
2010). The Act itself defines "material" to mean "having a natural
tendency to influence, or be capable of influencing, the payment
or receipt of money or property."

§ 3729(b)(4).

B. Regulatory Framework3
This case arose in the context of reimbursement claims
submitted to MassHealth, the Massachusetts Medicaid program.

The

applicable Massachusetts Code of Regulations at issue in this case,
and operative at the time of the events in question, required
dependent satellite programs to employ at least two full-time
equivalent professional staff members from separate nonphysician

3

The regulations at issue were in effect from 2008 to 2014,
but have since been amended, with minor revisions. References to
the state regulations and billing codes included herein are
therefore to the then-operative provisions, a copy of which are
attached to MassHealth Transmittal Letter MHC-39 and accessible at
http://www.mass.gov/eohhs/docs/masshealth/transletters-2009/mhc39.pdf.

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core disciplines.4

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130 Mass. Code Regs. § 429.422(D).

The

satellite program's staff must meet the qualifications for core
disciplines as outlined in 130 Mass. Code Regs. § 429.424.

For

example, § 429.424 requires that staff psychiatrists must be either
board certified or applying for such certification, or be licensed
physicians in their second year of an accredited psychiatric
residency.

Id. § 429.424(A)(1)-(2).

Staff psychologists must

have completed a recognized doctoral program or be enrolled in
such a program.

Id. § 429.424(B).

Social workers must be either

licensed or applying for such a license, and all social workers
(other than the chief social worker in a particular facility) must
be under the "direct and continuous supervision of an independent
clinical social worker."

Id. § 429.424(C).

4

While mental health

We note that the record does not firmly establish whether
Arbour, the facility where Yarushka received treatment, was a
"dependent" or "autonomous" satellite facility for purposes of the
MassHealth regulations. Compare 130 Mass. Code Regs. § 429.422(D)
(laying out staff composition requirements for dependent
facilities) with id. § 429.422(F) (imposing more stringent
staffing requirements for autonomous facilities, including more
full-time personnel and greater emphasis on licensing, rather than
supervision). In their Second Amended Complaint, as the district
court noted, Relators "do not allege that the Arbour location in
Lawrence is an autonomous satellite program," U.S. ex rel. Escobar
v. Universal Health Servs., Inc., No. CIV.A. 11-11170-DPW, 2014 WL
1271757, at *8 (D. Mass. Mar. 26, 2014). Relators, for their part,
argued before the district court and in their briefing to this
Court during our first encounter with the case that without the
benefit of discovery, they were unable to verify whether Arbour
fit the definition of a "dependent" or "autonomous" facility. We
therefore
assume,
without
deciding,
that
the
applicable
regulations are those governing dependent satellite facilities.

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counselors are not required to be licensed, they "must be under
the

direct

and

continuous

professional staff member."
If

the

satellite

supervision

of

a

fully

qualified

Id. § 429.424(E)(1).
program's

staff

do

not

meet

the

qualifications for core disciplines as described in 130 Mass. Code
Regs. § 429.424, the staff must receive supervision from qualified
core staff professionals of the same discipline at the parent
center.

Id. § 429.422.

There are also supervision requirements

for less experienced personnel at satellite programs, with the
regulations

providing

that

supervision

appropriate

to

"[e]ach
the

staff

person's

member
skills

must
and

receive

level

of

professional development[.] Supervision must occur within the
context of a formalized relationship providing for frequent and
regularly scheduled personal contact with the supervisor."
429.422(D)

(incorporating

supervision

requirements

Id. §
of

§

429.438(E)).
When submitting claims to MassHealth, UHS used numerical
codes corresponding to the particular types of services rendered,
in this case individual therapy, family therapy, and group therapy.
The definition of each of these types of services, for billing
purposes, in Section 601 of MassHealth's then-operative Mental

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Health Center Manual requires that they be performed "by [a]
professional staff member as defined in 130 CMR 429.424."5
C. Facts Pertinent to Relators' Claim against UHS
Relators allege that unbeknownst to Yarushka Rivera's
family in the years leading up to her death, UHS's Arbour facility
was in flagrant non-compliance with these regulations.

According

to the allegations in Relators' Second Amended Complaint, of the
five specific individuals who treated Yarushka – Maria Pereyra,
Diana Casado, Anna Fuchu, Maribel Ortiz and Anna Cabacoff – only
one of them (Cabacoff) had the proper license or was under the
proper supervision to deliver treatment to Yarushka.

Neither

Pereyra nor Casado, the counselors assigned to Yarusha, had a
professional license and at no time during their treatment of
Yarushka were they supervised by anyone that did.

Fuchu, despite

being held out to Yarushka's parents as an experienced "doctor"
and representing herself as a psychologist with a Ph.D, in fact
only

had

received

her

psychological

5

instruction

from

an

The now-operative provisions no longer include an explicit
requirement for each billing code that the therapy be provided "by
[a] professional staff member as defined in 130 CMR 429.424," but
instead provide that "MassHealth pays for the services represented
by the codes listed in Subchapter 6 in effect at the time of
service, subject to all conditions and limitations in MassHealth
regulations at 130 CMR 429.000 and 450.000." A copy of the nowoperative regulations are attached to MassHealth Transmittal
Letter
MHC-48,
and
can
be
accessed
at
http://www.mass.gov/eohhs/docs/masshealth/servicecodes/sub6mhc.pdf.

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unaccredited

internet

Page: 10

college

Date Filed: 11/22/2016

and

had

her

Entry ID: 6049506

application

for

licensure rejected by the Board of Licensure of the Commonwealth
several years before the treatment giving rise to this lawsuit.
Ortiz was referred to Relators as a psychiatrist, when
in fact she was a nurse, without a license to practice psychiatry.
Ortiz prescribed Trileptal to Yarushka, a medication to which
Yarushka had an adverse reaction.

This medication was prescribed

despite the fact that Ortiz could prescribe medications only if
properly supervised by a board certified psychiatrist (she was
not).

Yarushka ultimately suffered a seizure, her second while

receiving treatment at Arbour, and died.

Throughout this course

of treatment, UHS regularly sought and received reimbursement for
these mental health services from MassHealth.
Finally, UHS's staff members at Arbour, like any health
care practitioner who bills under Medicaid, received National
Provider

Identification

("NPI")

numbers

which

identify

the

practitioner's level of expertise and whether the practitioner is,
in fact, licensed.

One of UHS's unlicensed counselors, Maria

Pereyra, had a fraudulently-obtained NPI, having misrepresented
her background and education.

Relators uncovered information that

an additional 22 UHS employees had obtained false NPI numbers that
misrepresented their status as licensed social workers or licensed
mental health counselors.

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Following Yarushka's death, Relators learned that most
of the individuals who had provided care for their daughter were
not properly licensed or supervised.

With this knowledge, they

then filed complaints with several state agencies, including the
Disabled

Persons

Professional

Protection

Licensure

Health ("DPH").

Committee

("DPL"),

and

("DPPC"),

the

Division

Department

of

of

Public

These complaints eventually culminated in the DPH

conducting on-the-ground inspections at Arbour during the spring
of 2012, during which time they learned that Arbour was using
unlicensed and unsupervised personnel.

DPH issued a report in

July of 2012 detailing its findings.
D. Procedural Background
On July 1, 2011, while the DPH investigation against
Arbour was still pending, Relators brought suit against UHS in the
United States District Court for the District of Massachusetts,
arguing that by submitting claims for reimbursement to MassHealth,
UHS had impliedly certified that its services were in conformity
with the applicable licensing and supervision requirements, and
that its failure to disclose or correct the violations made these
reimbursement claims fraudulent under the FCA.

Relators' Second

Amended Complaint was filed in February of 2013.

The district

court dismissed the complaint pursuant to Federal Rule of Civil
Procedure 12(b)(6), holding that Relators had failed to state a
claim because the regulations in question were preconditions for

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participation

in

the

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state's

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Medicaid

program,

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rather

than

preconditions to reimbursement -- and that only the latter could
be used to establish the falsity of a claim under the FCA.
We reversed in relevant part and remanded, finding that
a violation is material to payment if "the defendant, in submitting
a claim for reimbursement, knowingly misrepresented compliance
with a material precondition of payment."
512.

Escobar I, 780 F.3d at

We found that "[c]ompliance with the regulations at issue

pertaining to staff supervision and core staffing at satellite
centers is a condition of payment by MassHealth," and noted that
at the core of Relators' complaint was the allegation "[t]hat
supervision at Arbour was either grossly inadequate or entirely
lacking"
treatment

and

that

that

regulations."

Relators'

was

out

of

Id. at 517.

daughter

"died

compliance

after

with

over

receiving
a

dozen

We therefore found that the Second

Amended Complaint had adequately stated a claim under the FCA.
The

Supreme

Court

granted

certiorari

to

resolve

a

disagreement among U.S. Courts of Appeals over the validity and
scope of the implied certification theory.
validity

of

the

implied

certification

The Court upheld the
theory,

holding

that

"[w]hen, as here, a defendant makes representations in submitting
a claim but omits its violations of statutory, regulatory, or
contractual requirements, those omissions can be a basis for
liability

if

they

render

the

defendant's

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misleading

with

respect

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to

the

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goods

or

services

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provided."

Escobar II, 136 S. Ct. at 1999. In order for False Claims Liability
to attach, these misleading omissions must be material to the
government's decision to pay the claim.
statutory

or

precondiction

contractual
for

payment

Whether the regulatory,

requirement
was

not

in

question

necessarily

is

a

dispositive

of

whether the requirement is material to the decision to pay, the
Court concluded.

Id. at 2001. Rather, "[w]hat matters is ...

whether the defendant knowingly violated a requirement that the
defendant knows is material to the Government's payment decision."
Id.

at

1996.

The

Supreme

Court

"remand[ed]

the

case

for

reconsideration of whether [Relators] have sufficiently pleaded a
False Claims Act violation."

Id. at 2004.

E. The Materiality Test
The language that the Supreme Court used in Escobar II
makes clear that courts are to conduct a holistic approach to
determining materiality in connection with a payment decision,
with no one factor being necessarily dispositive.

As the Court

observed, "materiality cannot rest 'on a single fact or occurrence
as always determinative.'" Escobar II, 136 S. Ct. at 2001 (quoting
Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27, 39 (2011)).
Because the materiality requirement in the Act descends from
"common-law antecedents," id.

at 2002 (quoting Kungys v. United

States, 485 U.S. 759, 769 (1988)), under both the FCA and under

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the common law, materiality "look[s] to the effect on the likely
or

actual

behavior

of

the

recipient

of

the

alleged

misrepresentation." Id. at 2002-03 (citing Williston on Contracts
§ 69:12 (4th ed. 2003) and the Restatement (Second) of Torts, §
538). Materiality is more likely to be found where the information
at issue goes "to the very essence of the bargain," Escobar II,
136 S. Ct. at 2003, n. 5 (quoting Junius Constr. Co. v. Cohen, 257
N.Y. 393, 400 (1931) (Cardozo, C.J.))
"The materiality standard is demanding," as the False
Claims Act is not "'an all-purpose antifraud statute' or a vehicle
for punishing garden-variety breaches of contract or regulatory
violations."

Id.

at

2003

(internal

citation

omitted).

Materiality "cannot be found where noncompliance is minor or
insubstantial."

Id.

Nor is it sufficient for a finding of

materiality that the Government would have the option to decline
to pay if it knew of the defendant's noncompliance."

Id.

The Court then laid out several specific factors that
might contribute to determining materiality:
[p]roof of materiality can include, but is not
necessarily limited to, evidence that the defendant
knows that the Government consistently refuses to pay
claims in the mine run of cases based on noncompliance
with
the
particular
statutory,
regulatory,
or
contractual requirement. Conversely, if the Government
pays a particular claim in full despite its actual
knowledge that certain requirements were violated, that
is very strong evidence that those requirements are not
material.
Or, if the Government regularly pays a
particular type of claim in full despite actual

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knowledge that certain requirements were violated, and
has signaled no change in position, that is strong
evidence that the requirements are not material.

Id. at 2003-04.

In a case decided after (and citing) Escobar II,

this Court concluded that in assessing materiality in connection
with a different section of the False Claims Act, the fundamental
inquiry

is

"whether

a

piece

of

information

is

sufficiently

important to influence the behavior of the recipient."

United

States ex rel. Winkelman et al. v. CVS Caremark Corp., 827 F.3d
201, 211 (1st Cir. 2016).

These standards of materiality guide

this Court's analysis in Relators' case on remand.
II. Analysis
Applying
materiality

laid

the
out

holistic

by

the

approach

Supreme

Court,

to
we

determining
have

little

difficulty in concluding that Relators have sufficiently alleged
that

UHS's

misrepresentations

conclusion for three reasons.

were

material.

We

reach

this

First, Relators have alleged in

their Second Amended Complaint that regulatory compliance was a
condition

of

payment

--

itself

a

"relevant"

dispositive" factor in determining materiality.
S. Ct. at 2001.

though

"not

Escobar II, 136

Second, the centrality of the licensing and

supervision requirements in the MassHealth regulatory program,
which go to the "very essence of the bargain," id. at 2003, n. 5,
of MassHealth’s contractual relationships with various healthcare

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providers under the Medicaid program, is strong evidence that a
failure to comply with the regulations would be “sufficiently
important to influence the behavior” of the government in deciding
whether to pay the claims.

Winkelman, 827 F.3d at 211.

And third,

while the Supreme Court observed that "if the Government pays a
particular claim in full despite its actual knowledge that certain
requirements were violated, that is very strong evidence that those
requirements are not material,"

Escobar II, 136 S. Ct. at 2003-

04, the Court did not state that such knowledge is dispositive.
In any case, the factual allegations contained in Relators' Second
Amended Complaint are limited to reimbursement claims filed by UHS
during the course of their daughter's treatment and prior to the
filing of the litigation in July of 2011, and there is no evidence
in the record that MassHealth paid those claims to UHS despite
knowing of the violations.
A. The Regulatory Requirements
Looking "to the effect on the likely or actual behavior
of the recipient of the alleged misrepresentation," id. at 2002,
we

first

note

that

the

government

conditioned

MassHealth's

payments on compliance with the licensing and professionalism
regulations.

See 130 Mass Code Reg. § 429.441(A).

While not

automatically "dispositive," such a designation is "relevant to
... the materiality inquiry."

Escobar II, 136 S. Ct. at 2001.

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Additionally, in this case, regulatory compliance is not
merely a condition of payment; rather, MassHealth's decision to
have a series of regulations in place to ensure that clinical
mental health counselors, psychiatrists and psychologists are of
sufficient
counsels

in

professional
favor

of

caliber
a

to

finding

treat

that

patients

compliance

strongly

with

these

regulations is central to the state's Medicaid program and thus
material to the government's payment decision.

In describing

Relators' Second Amended Complaint, the Supreme Court noted that
the Relators "have alleged that Universal Health misrepresented
its compliance with mental health facility requirements that are
so central to the provision of mental health counseling that the
Medicaid program would not have paid these claims had it known of
these violations."

Escobar II, 136 S. Ct. at 2004.

The Supreme

Court concluded that "[a]nyone informed that a social worker at a
Massachusetts mental health clinic provided a teenage patient with
individual

counseling

services

would

probably——but

wrongly——

conclude that the clinic had complied with core Massachusetts
Medicaid requirements," Escobar II, 136 S. Ct. at 2000, and we
suggested a similar conclusion in our first encounter with this
case.

See Escobar I, 780 F. 3d at 514 ("The express and absolute

language of the regulation in question, in conjunction with the
repeated

references

to

supervision

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throughout

the

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scheme,

'constitute

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dispositive

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evidence

of

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materiality.'")

(internal citations omitted).
We

reaffirm

our

previous

conclusion

on

this

score.

MassHealth has made it clear in its regulations that it expects
that

individuals

services

in

the

in

the

business

Commonwealth

professional credentials.

of

providing

have

adequate

mental

health

training

and

Compliance, or lack thereof, with these

regulations seem to us the textbook example of representations
that would "likely ... induce a reasonable person to manifest his
assent," Escobar II, 136 S. Ct. at 2003 (citing Restatement
(Second) of Contracts, § 162(2)), in determining whether to pay
for the healthcare services.

Indeed, we struggle to think of a

misrepresentation-by-omission that would give rise to a breach
more material to the government's decision to pay.
While we recognize that the FCA is not "a vehicle for
punishing

garden-variety

violations,"

Escobar

II,

breaches
136

S.

of
Ct.

contract

or

at

UHS's

2003,

misrepresentations were not garden-variety breaches.

regulatory
alleged

At the core

of the MassHealth regulatory program in this area of medicine is
the expectation that mental health services are to be performed by
licensed professionals, not charlatans.

To use the Civil War-era

example cited at oral argument in Escobar II, UHS's violations in
the instant case are as central to the bargain as the United States

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Entry ID: 6049506

ordering and paying for a shipment of guns, only to later discover
that the guns were incapable of firing.

Id. at 2001.

B. The Government's Actions
The defendant’s primary argument on remand is that the
government continued to pay the claims at issue despite knowledge
that UHS was not in compliance with the applicable regulations in
the manner alleged.

Citing the Supreme Court’s ruling in the

present dispute, they argue that, while not dispositive, such
payment practices constitute “strong evidence” of non-materiality.
Id. at 2004.

We find defendant’s argument to be unconvincing for

two reasons.
First, reviewing the factual allegations in the Second
Amended Complaint and accepting them as true, as we must for
purposes of evaluating a 12(b)(6) motion, we see no evidence that
MassHealth continued to pay claims despite actual knowledge of the
violations.

Relators'

Second

Amended

Complaint

only

cites

reimbursements paid up to "the filing of this litigation" on July
1, 2011.

It would appear that DPH did not conclusively discover

the extent of the violations until March of 2012, well after the
commencement of the litigation.

Even assuming, on the most

generous reading of the Second Amended Complaint for UHS, that
various state regulators had some notice of complaints against
Arbour in late 2009 and 2010, mere awareness of allegations
concerning

noncompliance

with

regulations

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is

different

from

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knowledge of actual noncompliance.

Entry ID: 6049506

Additionally, there is no

evidence in the complaint that MassHealth, the entity paying
Medicaid claims, had actual knowledge of any of these allegations
(much less their veracity) as it paid UHS's claims.

Because we

find no evidence that MassHealth had actual knowledge of the
violations at the time it paid the claims at issue, we need not
decide whether actual knowledge of the violations would in fact be
sufficiently strong evidence that the violations were not material
to the government's payment decision so as to support a motion to
dismiss in this case.
Second, the specific claims identified by Relators only
pertain to Yarushka's treatment, which ended with her death in
October 2009.

Their allegations plausibly make out a claim that

those payments, for the unlicensed and unsupervised treatment
their daughter received, were fraudulent.

We see no reason to

require Relators at the Motion to Dismiss phase to learn, and then
to allege, the government's payment practices for claims unrelated
to services rendered to the deceased family member in order to
establish
violation.

the

government's

views

on

the

materiality

of

the

Indeed, given applicable federal and state privacy

regulations in the healthcare industry, it is highly questionable
whether Relators could have even accessed such information.

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III. Conclusion
While it may be the case that MassHealth continued to
pay claims to UHS despite becoming aware that they were not in
compliance with the pertinent regulations at the Arbour facility,
and this information may come to light during discovery, at this
time Relators have stated a claim under the FCA sufficient to
survive a Motion to Dismiss. Applying the Supreme Court's holistic
approach

to

determining

materiality,

we

conclude

that

UHS's

alleged misrepresentations were material when looking "to the
effect on the likely or actual behavior of the recipient of the
alleged misrepresentation." Escobar II, 136 S. Ct. at 2002.
We therefore REVERSE the district court's grant of UHS's
Motion to Dismiss the Second Amended Complaint and REMAND to the
district court for further proceedings.

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