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United States ex rel. Escobar v. Universal Health Services, Inc.

United States Court of Appeals, First Circuit

November 22, 2016

UNITED STATES, ex rel. JULIO ESCOBAR; CARMEN CORREA, administratrix of the Estate of Yarushka Rivera, Plaintiffs, Appellants,
v.
UNIVERSAL HEALTH SERVICES, INC., Defendant, Appellee. COMMONWEALTH OF MASSACHUSETTS, Plaintiff, Amicus Curiae,

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

          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, 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.

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

          STAHL, Circuit Judge.

         Yarushka Rivera died of a seizure in 2009 after receiving mental health treatment at Arbour Counseling Services in Lawrence, Massachusetts, a facility owned and operated by Defendant-Appellee Universal Health Services ("UHS"). 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 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. However, the Supreme Court vacated our judgment and 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.

         I. Facts and Background[1]

         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 ...


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