When is a false claim “material” under the False Claims Act?

Not every false statement violates the False Claims Act (FCA).  Instead, a false statement must be “material.”  A statement is material if it is sufficiently important to affect government decision-making.  The FCA specifically defines “material” as “having a natural tendency to influence, or be capable of influencing, the payment or receipt of property” by the government. 

The Supreme Court interpreted the FCA’s materiality requirement in Universal Health Services v. U.S. ex rel. Escobar.  It characterized the standard as “demanding” and “rigorous.”  It cannot be met where “noncompliance is minor or insubstantial.” 

At common law, materiality required proof that a reasonable person would attach importance to a statement or that the defendant knew that the recipient of the statement attached importance to it. 

Courts have identified several factors to consider when evaluating materiality: (1) whether the government explicitly identifies a requirement as a condition of payment; (2) whether the government consistently refuses to pay based on noncompliance with a requirement; (3) conversely, whether the government regularly pays claims despite actual knowledge of noncompliance; and (4) whether the noncompliance goes to the “very essence of the bargain.” 

No single factor is automatically dispositive.  Instead, each bears on the broader question of whether a statement is likely to influence government decision-making.

Ultimately, determining materiality requires close consideration of the potential misstatement, the legal requirements that apply, and the government’s past decision-making. 

To learn more about the False Claims Act and other whistleblower programs, go to www.mololamken.com and follow us on LinkedIn.  “Brilliant lawyers with courtroom savvy” — Benchmark Litigation.  Copyright MoloLamken LLP 2023.