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Along Came Escobar: Are Medicare Conditions of Participation Now Material to Payment?

Prior to the 2016 United States Supreme Court decision in Universal Health Services v. United States ex rel. Escobar, False Claims Act (FCA) liability could largely be assessed by determining whether there was an underlying violation of a Medicare Condition of Participation or Condition of Payment related to a payment in connection with Federal health care programs. Under the implied certification theory, a provider could be liable under the FCA if it submitted a claim to the federal government that implicitly certified compliance with applicable statutes, regulations, and contract requirements, because the “act of submitting a claim for reimbursement itself implies compliance.”1 Nevertheless, there was little risk of FCA liability due to a failure to comply with a Condition of Participation, whereas such liability was more likely due to non-compliance with a Condition of Payment. Following Escobar, assessment of FCA liability has shifted to a determination of whether noncompliance with applicable statutes, regulations, and contract requirements would be material to

the government’s payment decision, as opposed to whether noncompliance related to a Condition of Participation or Condition of Payment. This is to say that the non-compliance would be material if the government agency would not have paid the claim had it known of non-compliance. However, although the implied certification theory for FCA liability remains post-Escobar, the Supreme Court described the materiality standard as “rigorous” and “demanding,” ensuring that the FCA does not become “an all-purpose antifraud statute or a vehicle for punishing garden-variety breaches of contract.”2 ² Universal Health Servs., Inc. v. United States, 136 S. Ct. 1989, 2003 (2016). So, should providers review applicable statutes and regulations, particularly the Conditions of Payment and Conditions of Participation, to determine the specific basis for non-compliance and associated FCA liability? Or, should providers instead focus on the likelihood that the government agency would have paid a claim even if it had knowledge of the specific instance of non-compliance (i.e., the non-compliance was insubstantial and not material)? The answer is both. When evaluating materiality under the FCA, a statute or regulation expressly identifying a condition of payment is relevant, but not automatically dispositive. Proof of materiality can include evidence that the government agency consistently refuses to pay claims based on noncompliance with a particular statutory, regulatory or contractual requirement. Conversely, if the government agency regularly pays a particular claim in full despite its actual knowledge that certain requirements were violated, such certain Conditions of Participation, it is likely such requirements were not material.

The ruling in Escobar likely will result in new and different bases for FCA violations due to the ambiguity of the implied certification theory. Therefore, providers must be diligent in identifying and immediately addressing non-compliance in order to avoid or limit FCA liability.

¹ Mikes v. Straus, 274 F.3d 687, 697 (2d Cir. 2001).

² Universal Health Servs., Inc. v. United States, 136 S. Ct. 1989, 2003 (2016)

© Polsinelli PC, Polsinelli LLP in CaliforniaNational Law Review, Volume IX, Number 304

About this Author

Ann McCullough, Polsinelli Law Firm, Health Care Attorney

Ann McCullough offers a practical perspective to health care clients.  She has a clinical background and over 25 years of health law experience, both in private practice and as in-house counsel.

Ann has a deep understanding of the operational aspects of relating to hospitals and other health care providers, including hospital-physician financial arrangements, physician employment, medical staff, health facility licensure, Medicare enrollment, EMTALA, contracting, and regulatory compliance. 


Ryan McAteer provides around-the-clock expertise and availability to clients. Ryan’s interest in health care stems from the 2010 Patient Protection and Affordable Care Act and his prior experience working for a global medical device and equipment manufacturer. Ryan is committed to achieving positive outcomes for health care clients, including corporate and regulatory counsel, hospital and health facility merger and acquisition support, and related research and legal guidance. He has been involved in several complex hospital, health system, and pharmacy transactions and...