An important element of liability under the False Claims Act (FCA) is proof that an alleged misrepresentation is material to the government’s payment decision. In its 2016 decision in Universal Health Services, Inc. v. United States ex rel. Escobar, the Supreme Court emphasized that the FCA’s materiality requirement is “demanding” and “rigorous.”1 Although the Court offered examples of how to evaluate materiality, it did not articulate clear standards for what constitutes a materially false misrepresentation. As decisions from the past year illustrate, lower courts are continuing to develop standards for analyzing and deciding this issue in the wake of the Escobar decision.

Courts generally apply a demanding materiality requirement at all
stages of litigation

Consistent with Escobar, courts have dismissed complaints that make only conclusory allegations of materiality. Generalized allegations that a government payment is conditioned upon compliance with a statutory, regulatory, or contractual requirement is insufficient; instead, courts have required relators to include specific factual allegations demonstrating how a false representation of compliance actually affected, or was likely to affect, the government’s decision to make payment to the defendant.

For example, the Fifth Circuit in United States ex rel. Porter v. Magnolia Health Plan, Inc. affirmed the dismissal of a complaint alleging a Medicaid contractor violated the FCA by using licensed professional nurses for jobs that required registered nurses (RNs), concluding the relator failed to allege that such staffing practices would have impacted Medicaid payment decisions.2 The court found that underlying contracts did not require services be performed by an RN, and even if state law required the use of RNs, “broad boilerplate language generally requiring a contractor to follow all laws” in the contracts was “too general” to support a finding of materiality.3

In contrast to recent cases dismissing (or affirming the dismissal of) FCA claims on materiality grounds, the Second Circuit recently held the demanding materiality standard was met in United States v. Strock, which involved set aside contracts for service-disabled, veteran-owned small businesses (SDVOSBs).4 The government alleged the defendant was not eligible for the set aside contracts it won and never would have won the contracts had it not falsely claimed to be an SDVOSB.5 The district court granted the motion to dismiss, holding that the government must sufficiently allege that the defendant’s SDVOSB status was material to its decision to pay the defendant’s claims, not just to its decision to award the defendant SDVOSB contracts.6 The Second Circuit disagreed, holding that, “at least in fraudulent inducement cases, the government’s ‘payment decision’ under Escobar encompasses both its decision to award a contract and its ultimate decision to pay under that contract.”7

The rigorous materiality requirement is also enforced at summary judgment. The Tenth Circuit in United States ex rel. Janssen v. Lawrence Memorial Hospital affirmed summary judgment for a hospital accused of defrauding Medicare. The qui tam relator alleged that the hospital misreported patient arrival times to gain additional Medicare reimbursement and falsely certified compliance with a provision of the Deficit Reduction Act to obtain a $5 million payment awarded to hospitals that trained employees on the provisions of the FCA.8 The court emphasized the need under Escobar to analyze the effect on the likely or actual behavior of the recipient of the alleged misrepresentation, rather than focusing on how a “reasonable person” might have behaved.9 Applying that standard, the court found materiality lacking.10 Despite evidence the defendant had knowingly falsified patient arrival times, the court found that the alleged falsification affected only a “subset of a subset” of data reported under certain inpatient and outpatient quality reporting programs, such that the relator failed to demonstrate the falsified data ultimately impacted Medicare reimbursement.11 The Tenth Circuit dispensed with the relator’s allegations related to compliance certifications as “precisely the type of garden-variety compliance issues” that “did not translate into FCA liability.”12 

Finally, the Eleventh Circuit in Ruckh v. Salus Rehab., LLC affirmed the district court’s grant of judgment as a matter of law in favor of defendants on a subset of the relator’s claims, while reversing on the other, showing that Escobar materiality can also meaningfully limit the reach of the FCA after trial.13 On the relator’s Medicaid claims alleging defendants submitted false claims to Medicaid based on a failure to maintain care plans, the court held that “scant” evidence supported relator’s claim that completing care plans was a condition of payment under the applicable regulations.14 By contrast, the relator’s Medicare claims that the defendants defrauded Medicare by “upcoding” and “ramping” were material. Although the district court found “an entire absence of evidence” of materiality for those claims, the Eleventh Circuit concluded there was “plain and obvious materiality” because the defendants’ claims indicated that defendants provided more services than they actually delivered, which translated into larger payments than they were truly owed.15 Consequently, the Eleventh Circuit reversed the district court as to the relator’s Medicare claims and concluded evidence of materiality supported a jury verdict of $85 million, or $255 million when trebled, down from the original $348 million entered following the jury verdict.16

Courts continue to cite government inaction as probative evidence of immateriality

A number of courts have continued to endorse the proposition that government inaction, after learning of alleged fraud, demonstrates a lack of materiality. In so ruling, courts have confirmed the need for FCA defendants to focus on government knowledge, and to obtain discovery on the government’s awareness of allegations of misconduct.

For instance, the Fifth Circuit in Porter noted the government took no action after the relator informed the relevant agency and local U.S. Attorney’s Office of the underlying allegations several years before filing suit, as part of its justification for affirming dismissal of the complaint.17 The court noted that the agency continued to pay the company and renewed its contract multiple times, even after the relator’s suit was unsealed.18

In Janssen, the Tenth Circuit emphasized that the Centers for Medicare and Medicaid Services (CMS) investigated the relator’s central allegations, did nothing in response, and continued to pay the hospital’s Medicare claims.19 Although CMS may not have independently verified the alleged noncompliance – and thus may not have had “actual knowledge” of the alleged infractions – the court concluded that CMS’s “inaction in the face of detailed allegations from a former employee suggests immateriality.”20 Thus, the court focused on the government’s awareness of allegations, rather than actual knowledge of noncompliance. The court specifically acknowledged that the First Circuit, in Escobar on remand, held that “awareness of allegations concerning noncompliance with regulations is different from knowledge of actual noncompliance,”21 but it distinguished that holding based on the different procedural posture: Escobar arose on a motion to dismiss while the disposition in Janssen came on a motion for summary judgment.22 Additionally, the Tenth Circuit said it gave “little weight” to the Department of Justice’s decision to decline to intervene in the suit, reasoning that to do otherwise would “undermine the purposes of the FCA.”23

The Eleventh Circuit in Ruckh acknowledged evidence that defendants had self-disclosed certain deficiencies in care plans that served as the basis for the relator’s allegations to state Medicaid officials − citing to a lack of evidence that the state had refused reimbursement or sought recoupment − in concluding the materiality standard had not been satisfied.24

Courts have begun to apply Escobar’s materiality guidance in the criminal context

As anticipated, the Supreme Court’s guidance on materiality in Escobar has taken root in the criminal context, as prosecutors, defendants, and courts look to the real-world impact of criminal defendants’ alleged fraud on the government.

For example, in United States v. Clark, one defendant, after being convicted of multiple counts of fraud for obtaining Small Business Administration set-aside contracts under false pretenses, moved for judgment of acquittal notwithstanding the verdict. The district court granted the motion as to four counts related to the submission of false claims.25 Citing the “rigorous” Escobar materiality standard, the court concluded the evidence was insufficient to establish a false material fact.26 In particular, the court concluded that a failure to disclose to the government certain details regarding the extent of the defendant’s involvement in projects involving other entities was immaterial, and that even if those facts had been disclosed to the government, it “may still have paid” on the invoices.27

Looking ahead

Going forward, we anticipate courts will continue to enforce the materiality requirement to limit attempts to use the FCA as an “all-purpose antifraud statute” or “vehicle for punishing garden-variety breaches of contract or regulatory violations.”28 Just as relators will seek to frame allegations and develop evidence of materiality consistent with these requirements, so too should FCA defendants actively seek evidence of government knowledge of the underlying allegations of fraud, as well as other evidence of immateriality, as central components of a potential defense. Time will tell whether the different standards applied by federal courts in determining materiality will converge or, instead, continue to give rise to different approaches for analyzing this fact-intensive issue.


1. Universal Health Servs., Inc. v. United States ex rel. Escobar (Escobar), 136 S. Ct. 1989, 2003, 2004 n.6 (2016).
2. United States ex rel. Porter v. Magnolia Health Plan, Inc., 810 F. App’x 237, 238, 242 (5th Cir. 2020).
3. Id. at 242. 
4. United States v. Strock, No. 19-4331, 2020 WL 7062274 (2d Cir. Dec. 3, 2020).
5. Id. at *1.
6. United States v. Strock, No. 15-CV-0887-FPG, 2019 WL 4640687, at *8 (W.D.N.Y. Sept. 24, 2019), aff’d in part, vacated in part, rev’d in part, No. 19-4331, 2020 WL 7062274 (2d Cir. Dec. 3, 2020).
7. Strock, 2020 WL 7062274, at *6.
8. United States ex rel. Janssen v. Lawrence Memorial Hospital, 949 F.3d 533, 535 (10th Cir. 2020). 
9. Id. at 541.
10. Id. at 545–46.
11.  Id. at 538, 543–44.
12. Id. at 545.
13. Ruckh v. Salus Rehab., LLC, 963 F.3d 1089, 1109 (11th Cir. 2020).
14. Id.
15. Id. at 1104–05. 
16. Id. at 1094, 1111.
17. Porter, 810 F. App’x at 238, 242. 
18. Id
19. Janssen, 949 F.3d at 542.
20. Id
21. Id
22. Id. at 542 n.13
23. Id. at 542 n. 12. Other courts, however, have concluded that the government’s decision to decline to intervene in a qui tam suit may be relevant to the materiality analysis. See, e.g., Polansky v. Exec. Health Res., Inc., 422 F. Supp.3d 916, 938 (E.D. Pa. 2019) (noting that the government’s actions in the litigation − “declining to intervene and moving for dismissal” − were “probative of the lack of materiality of [the relator’s] claims”).
24. ?
25. United States v. Clark, No. 1:19-CR-148, 2020 WL 830057, at *1, 10–12 (N.D. Ohio Feb. 20, 2020) (the court dismissed three counts of submitting false claims in violation of 18 U.S.C. § 287 and one count of conspiracy to submit false claims in violation of 18 U.S.C. § 286). 
26. Id. at *10–11.
27. Id.
28. Escobar, 136 S. Ct. at 2003.