Last month, a U.S. District Court in the Middle District of Florida overturned judgments totaling $347,864,285 returned by a jury under the federal False Claims Act (FCA) and Florida’s state equivalent against the owners and operators of 53 specialized nursing facilities in Florida, determining that the plaintiffs’ allegations failed to satisfy the “demanding” and “rigorous” materiality standard endorsed by the Supreme Court in its 2016 Escobar decision. In an order released January 11, 2018, the District Court reversed the jury’s conclusions and granted the defendants judgment as a matter of law.

The case –  United States of America and State of Florida ex rel. Angela Ruckh v. Salus Rehabilitation, LLC et al. – arises from allegations that the defendants failed to maintain comprehensive care plans as “ostensibly required by a Medicaid regulation” (in the words of the District Court), and that the defendants failed to properly document, and improperly up-coded, nursing services billed to Medicare (practices the District Court in part refers to as “a handful of paperwork defects”). In response, the District Court observed that the plaintiffs “offered no meaningful and competent proof” that either the state or federal government would have deemed the defendants’ alleged noncompliance “material to each government’s decision to pay the defendants and, consequently, that each government would have refused to pay the defendants.” The District Court stated that both governments had knowledge of the allegations of non-compliance, and because neither government ceased reimbursement of the defendants or even threatened to do so, “the judgments cannot stand.”

Notably, in reaching its decision the District Court conducted an extensive analysis of the Escobar decision that looked beyond the facts of the instant case to craft a post-Escobar framework for FCA analyses. The District Court stated that Escobar “necessarily means” that non-compliance with a statute, rule, or a contract, which is disclosed or discovered by the United States, is not actionable under the implied false certification theory of FCA liability “if the United States pays notwithstanding the disclosed or discovered non-compliance.” This approach is consistent with conclusions reached by other courts in the aftermath of Escobar, but could be construed to go beyond Escobar (which states that regular government payment for a particular type of claim despite its actual knowledge that certain requirements were violated is “strong evidence” the requirements are not material, absent any signal of a change in the government’s position). The District Court explains that the rigorous materiality and scienter standards endorsed by Escobar and upheld in this decision are necessary to “ensure fairness and avoid traps, zaps, and zingers” that can arise for providers within the “pervasively regulated and monitored” health care industry.

The District Court concludes with a warning to the government, that each day “the government continues to pay for a good or service, notwithstanding some known or unknown non-compliance… the greater the practical impediment to proof of materiality.” This conclusion is notable for its inclusion of “unknown non-compliance” alongside that which is “known” to the government, and indicates that the materiality and scienter standards under the FCA are likely to be the subject of continued litigation within Florida and across the country.