United States Court of Appeals 

For the First Circuit 

No. 14-1423 

UNITED STATES, ex rel. JULIO ESCOBAR; CARMEN CORREA, 

administratrix of the Estate of Yarushka Rivera, 

Plaintiffs, Appellants, 

COMMONWEALTH OF MASSACHUSETTS, 

Plaintiff, Amicus Curiae, 

v. 

UNIVERSAL HEALTH SERVICES, INC., 

Defendant, Appellee. 

APPEAL FROM THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF MASSACHUSETTS 

[Hon. Douglas P. Woodlock, U.S. District Judge] 

Before 

Howard, Chief Judge, 

Stahl and Barron, Circuit Judges. 

 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. 

November 22, 2016 
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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 
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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. 
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I. Facts and Background1

 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 

misrepresentations alleged in Relators' Second Amended Complaint.2

A. The False Claims Act Generally 

The False Claims Act, 31 U.S. § 3729 et seq., was enacted 

in 1863 to address the "massive frauds perpetrated by large 

contractors during the Civil War," United States v. Bornstein, 423 

U.S. 303, 309 (1976), which hampered the United States' war effort. 

The Act imposes civil penalties on "any person who ... knowingly 

presents, or causes to be presented, a false or fraudulent claim 

 1 This case arises from Defendant-Appellee UHS's Motion to 

Dismiss Relators' Second Amended Complaint. Following our ruling 

in Escobar I, but prior to the Supreme Court's grant of certiorari, 

the District Court allowed the filing of a Third and Fourth Amended 

Complaint. These rulings were proper, as the mere act of filing 

a petition for certiorari does not deprive the district court of 

jurisdiction over the case. See United States v. Sears, 411 F.3d 

1240, 1241-42 (11th Cir. 2005); see also 28 U.S.C. § 2101(f) 

(noting that the trial court or the Supreme Court may issue a stay 

pending disposition of a petition for certiorari). However, since 

our original ruling in this case and the Supreme Court opinion in 

Escobar II were both based on the factual allegations in the Second 

Amended Complaint, this Court and the parties all agree that it is 

that complaint that is the operative pleading at this stage. 

2 Because this appeal follows the granting of a motion to 

dismiss, we recite the relevant facts as they appear in Relators' 

Second Amended Complaint. See Hochendoner v. Genzyme Corp., 823 

F.3d 724, 728 (1st Cir. 2016). 
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for payment or approval" to the government. 31 U.S.C. § 3729(a). 

The Act contains qui tam provisions authorizing private 

individuals to sue on behalf of the United States to recover monies 

that were obtained from the government by fraudulent 

misrepresentations. 31 U.S.C. § 3730. To be actionable, a false 

claim must be material to the government's decision to pay the 

claim. See, e.g., Escobar II, 136 S. Ct. at 2001; see also United 

States ex rel. Loughren v. Unum Grp., 613 F.3d 300, 307 (1st Cir. 

2010). The Act itself defines "material" to mean "having a natural 

tendency to influence, or be capable of influencing, the payment 

or receipt of money or property." § 3729(b)(4). 

B. Regulatory Framework3

This case arose in the context of reimbursement claims 

submitted to MassHealth, the Massachusetts Medicaid program. The 

applicable Massachusetts Code of Regulations at issue in this case, 

and operative at the time of the events in question, required 

dependent satellite programs to employ at least two full-time 

equivalent professional staff members from separate nonphysician 

 3 The regulations at issue were in effect from 2008 to 2014, 

but have since been amended, with minor revisions. References to 

the state regulations and billing codes included herein are 

therefore to the then-operative provisions, a copy of which are 

attached to MassHealth Transmittal Letter MHC-39 and accessible at 

http://www.mass.gov/eohhs/docs/masshealth/transletters-2009/mhc39.pdf. 
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core disciplines.4 130 Mass. Code Regs. § 429.422(D). The 

satellite program's staff must meet the qualifications for core 

disciplines as outlined in 130 Mass. Code Regs. § 429.424. For 

example, § 429.424 requires that staff psychiatrists must be either 

board certified or applying for such certification, or be licensed 

physicians in their second year of an accredited psychiatric 

residency. Id. § 429.424(A)(1)-(2). Staff psychologists must 

have completed a recognized doctoral program or be enrolled in 

such a program. Id. § 429.424(B). Social workers must be either 

licensed or applying for such a license, and all social workers 

(other than the chief social worker in a particular facility) must 

be under the "direct and continuous supervision of an independent 

clinical social worker." Id. § 429.424(C). While mental health 

 4 We note that the record does not firmly establish whether 

Arbour, the facility where Yarushka received treatment, was a 

"dependent" or "autonomous" satellite facility for purposes of the 

MassHealth regulations. Compare 130 Mass. Code Regs. § 429.422(D) 

(laying out staff composition requirements for dependent 

facilities) with id. § 429.422(F) (imposing more stringent 

staffing requirements for autonomous facilities, including more 

full-time personnel and greater emphasis on licensing, rather than 

supervision). In their Second Amended Complaint, as the district 

court noted, Relators "do not allege that the Arbour location in 

Lawrence is an autonomous satellite program," U.S. ex rel. Escobar 

v. Universal Health Servs., Inc., No. CIV.A. 11-11170-DPW, 2014 WL 

1271757, at *8 (D. Mass. Mar. 26, 2014). Relators, for their part, 

argued before the district court and in their briefing to this 

Court during our first encounter with the case that without the 

benefit of discovery, they were unable to verify whether Arbour 

fit the definition of a "dependent" or "autonomous" facility. We 

therefore assume, without deciding, that the applicable 

regulations are those governing dependent satellite facilities. 
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counselors are not required to be licensed, they "must be under 

the direct and continuous supervision of a fully qualified 

professional staff member." Id. § 429.424(E)(1). 

If the satellite program's staff do not meet the 

qualifications for core disciplines as described in 130 Mass. Code 

Regs. § 429.424, the staff must receive supervision from qualified 

core staff professionals of the same discipline at the parent 

center. Id. § 429.422. There are also supervision requirements 

for less experienced personnel at satellite programs, with the 

regulations providing that "[e]ach staff member must receive 

supervision appropriate to the person's skills and level of 

professional development[.] Supervision must occur within the 

context of a formalized relationship providing for frequent and 

regularly scheduled personal contact with the supervisor." Id. § 

429.422(D) (incorporating supervision requirements of § 

429.438(E)). 

When submitting claims to MassHealth, UHS used numerical 

codes corresponding to the particular types of services rendered, 

in this case individual therapy, family therapy, and group therapy. 

The definition of each of these types of services, for billing 

purposes, in Section 601 of MassHealth's then-operative Mental 
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Health Center Manual requires that they be performed "by [a] 

professional staff member as defined in 130 CMR 429.424."5

C. Facts Pertinent to Relators' Claim against UHS 

Relators allege that unbeknownst to Yarushka Rivera's 

family in the years leading up to her death, UHS's Arbour facility 

was in flagrant non-compliance with these regulations. According 

to the allegations in Relators' Second Amended Complaint, of the 

five specific individuals who treated Yarushka – Maria Pereyra, 

Diana Casado, Anna Fuchu, Maribel Ortiz and Anna Cabacoff – only 

one of them (Cabacoff) had the proper license or was under the 

proper supervision to deliver treatment to Yarushka. Neither 

Pereyra nor Casado, the counselors assigned to Yarusha, had a 

professional license and at no time during their treatment of 

Yarushka were they supervised by anyone that did. Fuchu, despite 

being held out to Yarushka's parents as an experienced "doctor" 

and representing herself as a psychologist with a Ph.D, in fact 

only had received her psychological instruction from an 

 5 The now-operative provisions no longer include an explicit 

requirement for each billing code that the therapy be provided "by 

[a] professional staff member as defined in 130 CMR 429.424," but 

instead provide that "MassHealth pays for the services represented 

by the codes listed in Subchapter 6 in effect at the time of 

service, subject to all conditions and limitations in MassHealth 

regulations at 130 CMR 429.000 and 450.000." A copy of the nowoperative regulations are attached to MassHealth Transmittal 

Letter MHC-48, and can be accessed at 

http://www.mass.gov/eohhs/docs/masshealth/servicecodes/sub6-

mhc.pdf. 
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unaccredited internet college and had her application for 

licensure rejected by the Board of Licensure of the Commonwealth 

several years before the treatment giving rise to this lawsuit. 

Ortiz was referred to Relators as a psychiatrist, when 

in fact she was a nurse, without a license to practice psychiatry. 

Ortiz prescribed Trileptal to Yarushka, a medication to which 

Yarushka had an adverse reaction. This medication was prescribed 

despite the fact that Ortiz could prescribe medications only if 

properly supervised by a board certified psychiatrist (she was 

not). Yarushka ultimately suffered a seizure, her second while 

receiving treatment at Arbour, and died. Throughout this course 

of treatment, UHS regularly sought and received reimbursement for 

these mental health services from MassHealth. 

Finally, UHS's staff members at Arbour, like any health 

care practitioner who bills under Medicaid, received National 

Provider Identification ("NPI") numbers which identify the 

practitioner's level of expertise and whether the practitioner is, 

in fact, licensed. One of UHS's unlicensed counselors, Maria 

Pereyra, had a fraudulently-obtained NPI, having misrepresented 

her background and education. Relators uncovered information that 

an additional 22 UHS employees had obtained false NPI numbers that 

misrepresented their status as licensed social workers or licensed 

mental health counselors. 
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Following Yarushka's death, Relators learned that most 

of the individuals who had provided care for their daughter were 

not properly licensed or supervised. With this knowledge, they 

then filed complaints with several state agencies, including the 

Disabled Persons Protection Committee ("DPPC"), Division of 

Professional Licensure ("DPL"), and the Department of Public 

Health ("DPH"). These complaints eventually culminated in the DPH 

conducting on-the-ground inspections at Arbour during the spring 

of 2012, during which time they learned that Arbour was using 

unlicensed and unsupervised personnel. DPH issued a report in 

July of 2012 detailing its findings. 

D. Procedural Background 

On July 1, 2011, while the DPH investigation against 

Arbour was still pending, Relators brought suit against UHS in the 

United States District Court for the District of Massachusetts, 

arguing that by submitting claims for reimbursement to MassHealth, 

UHS had impliedly certified that its services were in conformity 

with the applicable licensing and supervision requirements, and 

that its failure to disclose or correct the violations made these 

reimbursement claims fraudulent under the FCA. Relators' Second 

Amended Complaint was filed in February of 2013. The district 

court dismissed the complaint pursuant to Federal Rule of Civil 

Procedure 12(b)(6), holding that Relators had failed to state a 

claim because the regulations in question were preconditions for 
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participation in the state's Medicaid program, rather than 

preconditions to reimbursement -- and that only the latter could 

be used to establish the falsity of a claim under the FCA. 

We reversed in relevant part and remanded, finding that 

a violation is material to payment if "the defendant, in submitting 

a claim for reimbursement, knowingly misrepresented compliance 

with a material precondition of payment." Escobar I, 780 F.3d at 

512. We found that "[c]ompliance with the regulations at issue 

pertaining to staff supervision and core staffing at satellite 

centers is a condition of payment by MassHealth," and noted that 

at the core of Relators' complaint was the allegation "[t]hat 

supervision at Arbour was either grossly inadequate or entirely 

lacking" and that Relators' daughter "died after receiving 

treatment that was out of compliance with over a dozen 

regulations." Id. at 517. We therefore found that the Second 

Amended Complaint had adequately stated a claim under the FCA. 

The Supreme Court granted certiorari to resolve a 

disagreement among U.S. Courts of Appeals over the validity and 

scope of the implied certification theory. The Court upheld the 

validity of the implied certification theory, holding that 

"[w]hen, as here, a defendant makes representations in submitting 

a claim but omits its violations of statutory, regulatory, or 

contractual requirements, those omissions can be a basis for 

liability if they render the defendant's representations 
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misleading with respect to the goods or services provided." 

Escobar II, 136 S. Ct. at 1999. In order for False Claims Liability 

to attach, these misleading omissions must be material to the 

government's decision to pay the claim. Whether the regulatory, 

statutory or contractual requirement in question is a 

precondiction for payment was not necessarily dispositive of 

whether the requirement is material to the decision to pay, the 

Court concluded. Id. at 2001. Rather, "[w]hat matters is ... 

whether the defendant knowingly violated a requirement that the 

defendant knows is material to the Government's payment decision." 

Id. at 1996. The Supreme Court "remand[ed] the case for 

reconsideration of whether [Relators] have sufficiently pleaded a 

False Claims Act violation." Id. at 2004. 

E. The Materiality Test 

The language that the Supreme Court used in Escobar II 

makes clear that courts are to conduct a holistic approach to 

determining materiality in connection with a payment decision, 

with no one factor being necessarily dispositive. As the Court 

observed, "materiality cannot rest 'on a single fact or occurrence 

as always determinative.'" Escobar II, 136 S. Ct. at 2001 (quoting 

Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27, 39 (2011)). 

Because the materiality requirement in the Act descends from 

"common-law antecedents," id. at 2002 (quoting Kungys v. United 

States, 485 U.S. 759, 769 (1988)), under both the FCA and under 
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the common law, materiality "look[s] to the effect on the likely 

or actual behavior of the recipient of the alleged 

misrepresentation." Id. at 2002-03 (citing Williston on Contracts 

§ 69:12 (4th ed. 2003) and the Restatement (Second) of Torts, § 

538). Materiality is more likely to be found where the information 

at issue goes "to the very essence of the bargain," Escobar II, 

136 S. Ct. at 2003, n. 5 (quoting Junius Constr. Co. v. Cohen, 257 

N.Y. 393, 400 (1931) (Cardozo, C.J.)) 

"The materiality standard is demanding," as the False 

Claims Act is not "'an all-purpose antifraud statute' or a vehicle 

for punishing garden-variety breaches of contract or regulatory 

violations." Id. at 2003 (internal citation omitted). 

Materiality "cannot be found where noncompliance is minor or 

insubstantial." Id. Nor is it sufficient for a finding of 

materiality that the Government would have the option to decline 

to pay if it knew of the defendant's noncompliance." Id. 

The Court then laid out several specific factors that 

might contribute to determining materiality: 

[p]roof of materiality can include, but is not 

necessarily limited to, evidence that the defendant 

knows that the Government consistently refuses to pay 

claims in the mine run of cases based on noncompliance 

with the particular statutory, regulatory, or 

contractual requirement. Conversely, if the Government 

pays a particular claim in full despite its actual 

knowledge that certain requirements were violated, that 

is very strong evidence that those requirements are not 

material. Or, if the Government regularly pays a 

particular type of claim in full despite actual 
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knowledge that certain requirements were violated, and 

has signaled no change in position, that is strong 

evidence that the requirements are not material. 

Id. at 2003-04. In a case decided after (and citing) Escobar II, 

this Court concluded that in assessing materiality in connection 

with a different section of the False Claims Act, the fundamental 

inquiry is "whether a piece of information is sufficiently 

important to influence the behavior of the recipient." United 

States ex rel. Winkelman et al. v. CVS Caremark Corp., 827 F.3d 

201, 211 (1st Cir. 2016). These standards of materiality guide 

this Court's analysis in Relators' case on remand. 

II. Analysis 

Applying the holistic approach to determining 

materiality laid out by the Supreme Court, we have little 

difficulty in concluding that Relators have sufficiently alleged 

that UHS's misrepresentations were material. We reach this 

conclusion for three reasons. First, Relators have alleged in 

their Second Amended Complaint that regulatory compliance was a 

condition of payment -- itself a "relevant" though "not 

dispositive" factor in determining materiality. Escobar II, 136 

S. Ct. at 2001. Second, the centrality of the licensing and 

supervision requirements in the MassHealth regulatory program, 

which go to the "very essence of the bargain," id. at 2003, n. 5, 

of MassHealth’s contractual relationships with various healthcare 
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providers under the Medicaid program, is strong evidence that a 

failure to comply with the regulations would be “sufficiently 

important to influence the behavior” of the government in deciding 

whether to pay the claims. Winkelman, 827 F.3d at 211. And third, 

while the Supreme Court observed that "if the Government pays a 

particular claim in full despite its actual knowledge that certain 

requirements were violated, that is very strong evidence that those 

requirements are not material," Escobar II, 136 S. Ct. at 2003-

04, the Court did not state that such knowledge is dispositive. 

In any case, the factual allegations contained in Relators' Second 

Amended Complaint are limited to reimbursement claims filed by UHS 

during the course of their daughter's treatment and prior to the 

filing of the litigation in July of 2011, and there is no evidence 

in the record that MassHealth paid those claims to UHS despite 

knowing of the violations. 

A. The Regulatory Requirements 

Looking "to the effect on the likely or actual behavior 

of the recipient of the alleged misrepresentation," id. at 2002, 

we first note that the government conditioned MassHealth's 

payments on compliance with the licensing and professionalism 

regulations. See 130 Mass Code Reg. § 429.441(A). While not 

automatically "dispositive," such a designation is "relevant to 

... the materiality inquiry." Escobar II, 136 S. Ct. at 2001. 
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Additionally, in this case, regulatory compliance is not 

merely a condition of payment; rather, MassHealth's decision to 

have a series of regulations in place to ensure that clinical 

mental health counselors, psychiatrists and psychologists are of 

sufficient professional caliber to treat patients strongly 

counsels in favor of a finding that compliance with these 

regulations is central to the state's Medicaid program and thus 

material to the government's payment decision. In describing 

Relators' Second Amended Complaint, the Supreme Court noted that 

the Relators "have alleged that Universal Health misrepresented 

its compliance with mental health facility requirements that are 

so central to the provision of mental health counseling that the 

Medicaid program would not have paid these claims had it known of 

these violations." Escobar II, 136 S. Ct. at 2004. The Supreme 

Court concluded that "[a]nyone informed that a social worker at a 

Massachusetts mental health clinic provided a teenage patient with 

individual counseling services would probably——but wrongly——

conclude that the clinic had complied with core Massachusetts 

Medicaid requirements," Escobar II, 136 S. Ct. at 2000, and we 

suggested a similar conclusion in our first encounter with this 

case. See Escobar I, 780 F. 3d at 514 ("The express and absolute 

language of the regulation in question, in conjunction with the 

repeated references to supervision throughout the regulatory 
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scheme, 'constitute dispositive evidence of materiality.'") 

(internal citations omitted). 

We reaffirm our previous conclusion on this score. 

MassHealth has made it clear in its regulations that it expects 

that individuals in the business of providing mental health 

services in the Commonwealth have adequate training and 

professional credentials. Compliance, or lack thereof, with these 

regulations seem to us the textbook example of representations 

that would "likely ... induce a reasonable person to manifest his 

assent," Escobar II, 136 S. Ct. at 2003 (citing Restatement 

(Second) of Contracts, § 162(2)), in determining whether to pay 

for the healthcare services. Indeed, we struggle to think of a 

misrepresentation-by-omission that would give rise to a breach 

more material to the government's decision to pay. 

While we recognize that the FCA is not "a vehicle for 

punishing garden-variety breaches of contract or regulatory 

violations," Escobar II, 136 S. Ct. at 2003, UHS's alleged 

misrepresentations were not garden-variety breaches. At the core 

of the MassHealth regulatory program in this area of medicine is 

the expectation that mental health services are to be performed by 

licensed professionals, not charlatans. To use the Civil War-era 

example cited at oral argument in Escobar II, UHS's violations in 

the instant case are as central to the bargain as the United States 
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ordering and paying for a shipment of guns, only to later discover 

that the guns were incapable of firing. Id. at 2001. 

B. The Government's Actions 

 The defendant’s primary argument on remand is that the 

government continued to pay the claims at issue despite knowledge 

that UHS was not in compliance with the applicable regulations in 

the manner alleged. Citing the Supreme Court’s ruling in the 

present dispute, they argue that, while not dispositive, such 

payment practices constitute “strong evidence” of non-materiality. 

Id. at 2004. We find defendant’s argument to be unconvincing for 

two reasons. 

 First, reviewing the factual allegations in the Second 

Amended Complaint and accepting them as true, as we must for 

purposes of evaluating a 12(b)(6) motion, we see no evidence that 

MassHealth continued to pay claims despite actual knowledge of the 

violations. Relators' Second Amended Complaint only cites 

reimbursements paid up to "the filing of this litigation" on July 

1, 2011. It would appear that DPH did not conclusively discover 

the extent of the violations until March of 2012, well after the 

commencement of the litigation. Even assuming, on the most 

generous reading of the Second Amended Complaint for UHS, that 

various state regulators had some notice of complaints against 

Arbour in late 2009 and 2010, mere awareness of allegations 

concerning noncompliance with regulations is different from 
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knowledge of actual noncompliance. Additionally, there is no 

evidence in the complaint that MassHealth, the entity paying 

Medicaid claims, had actual knowledge of any of these allegations 

(much less their veracity) as it paid UHS's claims. Because we 

find no evidence that MassHealth had actual knowledge of the 

violations at the time it paid the claims at issue, we need not 

decide whether actual knowledge of the violations would in fact be 

sufficiently strong evidence that the violations were not material 

to the government's payment decision so as to support a motion to 

dismiss in this case. 

 Second, the specific claims identified by Relators only 

pertain to Yarushka's treatment, which ended with her death in 

October 2009. Their allegations plausibly make out a claim that 

those payments, for the unlicensed and unsupervised treatment 

their daughter received, were fraudulent. We see no reason to 

require Relators at the Motion to Dismiss phase to learn, and then 

to allege, the government's payment practices for claims unrelated 

to services rendered to the deceased family member in order to 

establish the government's views on the materiality of the 

violation. Indeed, given applicable federal and state privacy 

regulations in the healthcare industry, it is highly questionable 

whether Relators could have even accessed such information. 
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III. Conclusion 

While it may be the case that MassHealth continued to 

pay claims to UHS despite becoming aware that they were not in 

compliance with the pertinent regulations at the Arbour facility, 

and this information may come to light during discovery, at this 

time Relators have stated a claim under the FCA sufficient to 

survive a Motion to Dismiss. Applying the Supreme Court's holistic 

approach to determining materiality, we conclude that UHS's 

alleged misrepresentations were material when looking "to the 

effect on the likely or actual behavior of the recipient of the 

alleged misrepresentation." Escobar II, 136 S. Ct. at 2002. 

We therefore REVERSE the district court's grant of UHS's 

Motion to Dismiss the Second Amended Complaint and REMAND to the 

district court for further proceedings.