PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

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No. 22-1035

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### UNITED STATES OF AMERICA and STATE OF NEW

JERSEY ex rel VICTORIA DRUDING; BARBARA BAIN; LINDA COLEMAN; RONNI O'BRIEN

v.

CARE ALTERNATIVES

Victoria Druding, Barbara Bain, Linda Coleman, and Ronni O'Brien, Appellants

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On Appeal from the United States District Court for the District of New Jersey (District Court No. 1-08-cv-02126) Honorable Juan R. Sanchez, Chief District Judge

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Argued on April 25, 2023

Before: KRAUSE, BIBA S, and RENDELL, Circuit Judges

(Filed: August 25, 2023)

Ross Begelman [ARGUED]

Marc M. Orlow Begelman Orlow & Melletz

411 Route 70 East

Suite 245 Cherry Hill, NJ 08034 Counsel for Appellants2 Amanda Mundell [ARGUED] United States Department of Justice

Civil Division

7236 950 Pennsylvania Avenue NW Washington, DC 20530

Charles W. Scarborough United States Department of Justice Appellate Section

Room 7244 950 Pennsylvania Avenue NW Washington, DC 20530

Counsel for Amicus Curiae United States of America, in Support of Appellants

Jacklyn DeMar Taxpayers Against Fraud

1220 19th Street NW

Suite 501 Washington, DC 20036

Counsel for Amicus Curiae Taxpayers Against

Fraud Education Fu nd, in Support of Appellants

Jeffrey S. Bucholtz [ARGUED] King & Spalding 1700 Pennsylvania Avenue NW

Suite 900 Washington, DC 20006

Craig Carpenito King & Spalding

1185 Avenue of the Americas New York, NY 10036

William H. Jordan Jason Popp

Alston & Bird

1201 W Peachtree Street3 One Atlantic Center, Suite 4900 Atlanta, GA 30309

Steven L. Penaro

Alston & Bird

90 Park Avenue

12th Floor New York, NY 10016

Counsel for Appellee

John P. Elwood Arnold & Porter Kaye Scholer

601 Massachusetts Avenue NW

Suite 1121 Washington, DC 20001

Counsel for Amici Curiae Chamber of Commerce of the United St ates of America and Pharmaceutical Research and Manufacturers of America, in Support of Appellee

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OPINION OF THE COURT

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KRAUSE, Circuit Judge

.

The False Claims Act (“ FCA”), 31 U.S.C. § 3729, et

seq ., is a flexible, far-reaching tool that empowers the federal government and private individuals acting in the government’s name, known as relators, to bring claims for fraud against the

United States. At the same time, it is not “an all-purpose

antifraud statute or a vehicle for punishing garden-variety

breaches of contract or regulatory violations.” Universal Health Servs., Inc. v. Un ited States ex rel. Escobar , 579 U.S. 176, 194 (2016). So when a go vernment contractor submits a claim for payment but fails to di sclose a statutory, regulatory, or contractual violation, that claim does not automatically trigger FCA liability. Instead, the Act requires that the contractor’s alleged viola tion be, among other things, “material” to the government’s decision to pay. Id. at 192-93.4 And in Escobar , the Supreme Court identified various factors

to assist courts in evaluating materiality.

In this case, the District Court granted summary judgment to the Defendant, Care Alternatives, Inc. (“Care Alternatives”), a New Jersey hospice provider, for lack of materiality based principally on the government’s continued reimbursement of Care Alternatives even after being made aware of its deficient documentation required by regulation.

Because the District Court assi gned dispositive weight to a single Escobar factor, government action, while overlooking

the factors that could have we ighed in favor of materiality— and despite an open dispute ov er the government’s “actual knowledge,” 579 U.S. at 195—we will vacate the District Court’s grant of summary judgm ent and remand for further proceedings consistent w ith this opinion.

I. Background

Defendant Care Alternatives is a for-profit hospice provider that operates in New Jersey. It employs teams of

clinicians known as “Interdi sciplinary Teams” (“IDTs”), consisting of registered nurses , chaplains, social workers, home health aides, and therapists. JA 6. These groups work alongside independent physic ians who serve as hospice

medical directors. The IDTs meet regularly to review patient care plans and discuss patients who are up for recertification of

their need for hospice care.

The Relator-Appellants (“Re lators”) are former employees of Care Alternatives, some of whom were clinicians who participated in IDTs. They brought this action under the False Claims Act alleging that Care Alternatives submitted claims for Medicare reimbursement despite inadequate documentation in the patients’ medical records supporting hospice eligibility, as required by 42 C.F.R. § 418.22(b)(2) (2011).

Before reviewing the specifics of Relators’ claims and the circumstances leading to th is appeal, we will review the requirements that hospice providers must meet to qualify for

Medicare reimbursement and the False Claims Act.5 A. Medicare Hospice Benefit

In 1982, Congress create d the Medicare Hospice Benefit, an amendment to th e Social Security Act that authorized Medicare beneficiaries to receive coverage for hospice care. See Tax Equity and Fiscal Responsibility Act of 1982, Pub. L. No. 97-248, § 1 22, 96 Stat. 324, 356-63. Hospice care is considered pa lliative care, meaning it is “patient and family-centered car e that optimizes quality of life by anticipating, preventing, and treating suffering.” 42 C.F.R. § 418.3 (2021). It aims to “mak [e] [a terminally ill] individual as physically and emotionally co mfortable as possible.” 48 Fed. Reg. 56,008, 56,008 (Dec . 16, 1983). A patient who has been certified as eligible for hos pice care and elects to receive the Hospice Benefit waives the right to Medicare payment for “curative” care that is designed to treat the individual’s

condition. See 42 U.S.C. § 1395d(d)(2)(A)(ii).

For a patient to be eligib le for Medicare hospice benefits, and for a hospice provider to be entitled to bill for such benefits, a patient must be certified as “terminally ill,” see 42 C.F.R. §§ 418.20, meaning “that the individual has a medical prognosis that his or her life expectancy is 6 months or less if the illness runs its normal course,” id . § 418.3. There are two principal components of that certification: it must (1) be signed by at least one physic ian, and (2) be accompanied by “[c]linical information and ot her documentation that support the medical prognosis” of te rminal illness in the medical

record. Id. § 418.22(b).

To satisfy the first component , physician certification, an individual’s “attending physician” and the hospice’s

“medical director” must “cer tify in writing . . . that the individual is terminally ill . . . based on the physician’s or

medical director’s clinical judgment regardin g the normal

course of the individua l’s illness.” 42 U.S.C. § 1395f(a)(7)(A)(i). This certific ation must be obtained at the time a patient is admitted to hospice, id. , and renewed at ninety days and every sixty days thereafter, id. at § 1395f(a)(7)(A)(ii).

To satisfy the second component, medical documentation, “[c]linical information and other documentation that support th e medical prognosis must6 accompany the certification and must be filed in the [patient’s]

medical record with the written certification.” 42 C.F.R. § 418.22(b)(2); see also id. § 418.22(b)(3) (requiring

certification to include a “brief narrative explanation of the clinical findings that support[] a li fe expectancy of 6 months or less”). As the Center for Me dicare and Medicaid Services (“CMS”), the agency that admini sters the Hospice Benefit, has explained: “A hospice needs to be certain that [a] physician’s clinical judgment can be supported by clinical information and other documentation that provide a basis for the certification of

6 months or less if the illness r uns its normal course. A signed certification, absent a medically sound basis that supports the clinical judgment, is not suffi cient for application of the hospice benefit[.]” 70 Fed. Reg. 70,532, 70,534-35 (Nov. 22, 2005).

B. False Claims Act

The False Claims Act “imposes significant penalties on

those who defraud th e Government.” Escobar , 579 U.S. at

180. The Act makes liable “an y person who . . . knowingly presents, or causes to be presen ted, a false or fraudulent claim for payment or approval” to the government. 31 U.S.C. § 3729(a)(1)(A).

The government may bring FCA actions directly. Id. § 3730(a). Alternatively, as ha ppened in this case, “a private person, known as a relator, may bring a qui tam civil action” in the government’s name. Cochise Consultancy, Inc. v. United

States ex rel. Hunt , 139 S. Ct. 1507, 1510 (2019); see also 31 U.S.C. § 3730(b). In such cases, the government may “intervene in the action” after investigating the relator’s allegations. Cochise Consultancy, Inc. , 139 S. Ct. at 1510 (citations omitted). If, as here , the government declines to intervene, the relator may still “pursue the action.” Id. (citation omitted). The relator is entitled to “a share,” generally between 15 and 30 percent, “of any proceeds from the action.” Id. (citations omitted).

To prevail on an FCA claim, the relator must prove that the defendant (1) made a false st atement, (2) with scienter, (3) that was material, (4) causi ng the government to make a

payment. Escobar , 579 U.S. at 181-82; United States ex rel7 Petratos v. Genetech Inc. , 855 F.3d 481, 487 (3d Cir. 2017) (citations omitted). “Materiali ty,” the Court explained in

Escobar , turns on a variety of factor s such as: (1) whether the government has expressly design ated the legal requirement at issue as a “condition of paymen t”; (2) whether the alleged

violation is “minor or insubsta ntial” or instead goes to the “essence of the bargain” between the contractor and the government; and (3) whether th e government made continued payments, or does so in the “min e run of cases,” despite “actual knowledge” of the violation. See 579 U.S. at 19 3 n.5, 194-95 (quotation and citations omitted). As this Court and our sister circuits have repeatedly rec ognized, this is a “holistic,” totality-of-the-circumstances inquiry. 1

C. Factual and Procedural History

1 See, e.g.

, United States ex rel. Int’l Bhd. of Elec.

Workers Loc. Union No. 98 v. Farfield Co. , 5 F.4th 315, 342 (3d Cir. 2021) (“A materiality inquiry under the FCA is a holistic, totality-of-the-circums tances examination[.]”); United States ex rel. Lemon v. Nurses To Go, Inc. , 924 F.3d 155, 161 (5th Cir. 2019) (“No one factor is dispositive, and our inquiry is holistic.”); United States ex rel. Foreman v. AECOM

, 19 F.4th 85, 110 (2d Cir. 2021), cert. denied , 142 S. Ct. 2679 (2022) (same (quoting Lemon , 924 F.3d at 161)); United States

ex rel. Prather v. Brookdale Senior Living Cmtys., Inc. , 892 F.3d 822, 831 (6th Cir. 2018) (“ The analysis of materiality is

holistic . . . None of these cons iderations is dispositive alone, nor is the list exclusive.”) ( quotations and internal quotation marks omitted); United States ex rel. Escobar v. Universal
Health Servs., Inc. , 842 F.3d 103, 109 (1st Cir. 2016); United States ex rel. Campie v. Gilead Scis., Inc. , 862 F.3d 890, 906 (9th Cir. 2017) (citation omitted); United States ex rel.

Sorenson v. Wadsworth Bros. Constr. Co. , 48 F.4th 1146, 1157 (10th Cir. 2022) (citation omitted); United States ex rel. Janssen v. Lawrence Mem’l Hosp. , 949 F.3d 533, 541 (10th Cir. 2020); Yates v. Pinellas Hemato logy & Oncology, P.A. , 21 F.4th 1288, 1300 (11th Ci r. 2021) (citation omitted); United States ex rel. Bibby v. Mortg. Invs. Corp. , 987 F.3d 1340, 1347 (11th Cir. 2021).8 Relators brought this suit under the qui tam provision of

the FCA. Pursuant to that provision, they filed their Complaint under seal in 2008 and provide d the government with the information upon whic h they intended to rely so that the government could make an inform ed decision as to whether it

would intervene and take over the case. 31 U.S.C. § 3730(b)(2). 2 They alleged that Care Alternatives submitted

fraudulent reimbursement clai ms to CMS between 2006 and 2007, in violation of the FCA. Their theory is that although each claim had a physician certif ication of terminal illness, there was inadequate clinical documentation supporting that diagnosis, in violatio n of 42 C.F.R. § 418.22(b)(2). According to Relators, § 418.22(b)(2) is the “cornerstone” of the Medicare Hospice Benefit becaus e without suffici ent clinical documentation supporting a physician’s certification, there is no way “to ensure that the [p hysician’s] certification is accurate,” and thus, that hosp ice care goes to its intended beneficiaries. Reply Br. 12, 15.

In 2015, seven years after the Complaint was filed, the government notified the Distri ct Court that it would not

intervene but that it nevertheless wi shed to remain an interested party in the proceedings. Relators opted to proceed independently and served the operative First Amended Complaint upon Ca re Alternatives. 3

During discovery, the parties produced extensive evidence addressing whether Care Alternatives admitted patients with insufficiently docu mented need for hospice care. This included dueling expert opi nions. Relators’ expert, Dr. Robert Jayes, M.D., prepared a report as to whether the

2 As discussed below, the Department of Health andHuman Services, Office of the Inspector General (“HHSOIG”) also issued a subpoena in November 2009 for the medical records of 112 patient s and a variety of corporate policies, internal documents , and employee emails.

3 Care Alternatives moved to dismiss, and the Court granted the motion in part, dismissing Relators’ claims regarding altered documentation a nd violations of the federal Anti-Kickback statute, but not Relators’ FCA claims regarding inappropriate hospice certifications, which are now before us.9 physician certifications were accompanied by supporting

documentation. He examined the reco rds of forty-seven patients and opined that the docu ments did not support hospice eligibility in thirty-five percen t of those patients’ hospice certification periods. In his view, any reasonable physician

would have reached th e same conclusion.

Care Alternatives’ expert , Dr. Christopher Hughes, M.D., disagreed. For each certifica tion that Dr. Jayes reviewed, Dr. Hughes opined that a physician could have reasonably determined that the prognosis for each patient was

six months or less.

Discovery also included the depositions of several former Care Alternatives empl oyees, including Relators, who

testified to whether Care Alternatives admitted or recertified patients who did not have a docum ented need for hospice care

and to Care Alternatives’ awareness of these alleged

violations. 4 In addition, Relators produced an expert report prepared by Al Palentchar, a Ce rtified Public Accountant, who calculated, based on Dr. Jaye s’ schedule of inadequately documented patient billings, th at Care Alternatives had improperly charged over $3. 6 million to Medicare.

At the close of discovery, Care Alternatives moved for summary judgment, arguing that Relators could not make out

the elements of an FCA claim. In the ruling that gave rise to the first appeal in this case, the District Court granted that motion based solely on failu re to show falsity. Druding v. Care Alts., Inc. , 346 F. Supp. 3d 669, 68 5, 688 (D.N.J. 2018). It

viewed the mere “difference of opinion” between experts regarding the accuracy of a patie nt’s prognosis as insufficient to create a triable dispute of fact as to the element of falsity.

Id. at 688 (citation omitted). It th erefore concluded that: “there [wa]s no factual evidence” th at certifying doctors made “knowingly false” certifications. Id . We reversed, explaining that “FCA falsity simply asks whether the claim submitted to the government as reimbursable was in fact reimbursable, based on the conditions for paym ent set by the government.”

United States ex rel. Dr uding v. Care Alts., Inc. , 952 F.3d 89,

4 Their testimony is summarized infra Section III.B.1.10 97 (3d Cir. 2020) (citations omitte d). So the District Court

should have consider ed evidence (such as Dr. Jayes’ report)

that was relevant to whether Ca re Alternatives complied with regulatory requirements, incl uding that the physician’s certification be accompanied by “‘[c]linical information and other documentation that sup port the medical prognosis [of terminal illness].’” Id. (quoting 42 C.F.R. § 418.22(b)(2)).

Because there was substantial ev idence of Care Alternatives’ noncompliance with this requirement, we held summary judgment on falsity to be improper and remanded for the District Court’s disposition of the other issues raised on summary judgment: scienter, causation, and materiality. Id. at

101.

On remand, the District Co urt found suffi cient evidence of scienter, 5 but granted summary judgment based on lack of materiality and, a fortiori , causation. Specifically, it found “no

evidence” that Care Alternatives ’ “insufficiently documented

certifications . . . were material to the Government’s decision to pay.” JA 16. Its reasoning was that “[t]he Government

could see what was or was not submitted to it by Care Alternatives along with its clai ms seeking payment” yet never “refused any of Care Altern atives’ claims, despite the inadequacy or missing supporti ng documentation or where compliance with 42 C.F.R. § 418.22 was otherwise lacking.”

Id. at 17. And it faulted Relators for failing to present evidence that “the Government’s apparent disregard of the inadequacies in Care Alternatives’ billing do cumentation was not the result of its having concluded those in adequacies were immaterial to its decision to make those paym ents anyway,” or that “the Government ever stopped reimbu rsing Care Alternatives after

it was made aware of the fals e, inadequately supported physician certifications.” Id. As a result, it concluded: “Relators have failed to create a genuine factual dispute as to the issue of materiality[.]” Id. at 18.

5 On that point, it concluded: “[t]he [] evidence clearly reflects knowledge on Care Alternatives’ part that its medical documentation did not always support the physician-signed certifications of hospice necess ity and thus di d not always comply with the Medicare/Med icaid regulations governing payment.” JA 14.11 This appeal followed.

II. Jurisdiction and Standard of Review

We have jurisdiction based on 28 U.S.C. § 1291. The District Court had jurisdiction under 28 U.S.C. § 1331.

We exercise plenary review of a district court’s grant of summary judgment. Reedy v. Evanson , 615 F.3d 197, 210 (3d Cir. 2010) (citation omitted). Summary judgment is appropriate “if the movant sh ows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Thomas v. Cumberland Cnty.

, 749 F.3d 217, 222 (3d Cir. 2014 ) (quoting Fed. R. Civ. P. 56(a)) (internal quotation mark s omitted). When deciding a motion for summary judgment, “[a]ll reasonable inferences from the record must be drawn in favor of the nonmoving party” and the court “may not weigh the evidence or assess credibility.” MBIA Ins. Corp. v. Royal Indem. Co. , 426 F.3d 204, 209 (3d Cir. 2005).

III. Discussion

Relators contend that summary judgment was premature because a reasonable ju ry could have concluded that

Care Alternatives’ submission of hospice reimbursement claims for patients with insuffi ciently document ed need for hospice care was a “material” vi olation under the FCA. In Relators’ view, Escobar ’s first and second factors—whether the legal requirement is a “cond ition of payment,” and whether the alleged violations were “[]substantial,” respectively— weigh in favor of materiality, while Escobar ’s third factor— government action—is neutral. See 579 U.S. at 193 n.5, 194-

95. We consider these factors below.

A. Whether 42 C.F.R. § 418.22(b)(2) Was an Express Condition of Payment

The first factor that Escobar identifies as relevant to materiality is whether the gover nment “expressly identif[ied] a provision as a condition of payment.” Id. at 194.12 Here, it is undisputed that § 418.22(b)(2)’s documentation requirement is a condition of payment. Per CMS regulation, hospice provid ers may not bill CMS for their services without “[c]lini cal information and other documentation that support the medical prognosis [accompanying] the certificatio n and [] filed in the medical

record.” 42 C.F. R. § 418.22(b)(2).

The question for us is what import to assign this designation. To that end, we are guided by Escobar , which indicates “[w]hether a provis ion is labeled a condition of payment is relevant to but not dispositive of the materiality inquiry.” 579 U.S. at 190. It is relevant because the government’s decision to expre ssly designate a provision as a condition of payment may “signa l[] the importance” of that provision. Id. at 191. But it is not dispositive , because the mere fact that the government has the “option to decline to pay if it knew of the defendant’s noncompliance,” id. at 194, does not mean that the government is likely to exercise that option, or that it routinely does so, see id. at 193 (“Under any understanding of the c oncept, materiality [l]ooks to the effect on the likely or actual behavior of the recipient of the alleged misrepresentation.”) (quotation and internal quotation marks omitted). Thus, for example, “[ i]f the Government contracts

for health services and adds a requirement that contractors buy American-made staplers,” a contractor who “submits a claim

for those services but fails to disclose its use of foreign staplers” does not commit a ma terial violation if the government routinely pays such claims. Id. at 195.

Equipped with this guidance, we conclude that the mere fact that § 418.22(b)(2) is iden tified as a condition of payment does not, in and of itself, suppor t a finding of materiality; and thus, this designation does not necessarily preclude summary judgment. See id. at 194 (“Nor is it sufficient for a finding of materiality that the Governme nt would have the option to decline to pay if it knew of the defendant’s noncompliance”). However, it is “‘certai nly probative evidence of materiality.’”

United States ex rel. Lemo n v. Nurses To Go, Inc. , 924 F.3d 155, 161 (5th Cir. 2019) (quoting United States ex rel. Rose v. Stephens Inst. , 909 F.3d 1012, 1020 (9 th Cir. 2018)). And here,

Relators have adduced evidence that bears on the importance of § 418.22(b)(2)’s documentation requirement and the13 substantiality of Care Altern atives’ alleged violations. 6 Under these circumstances, a jury should have been permitted to weigh § 418.22(b)(2)’s condition of payment status alongside

Escobar ’s other factors.

B. Whether Care Alternatives’ Alleged Violations of 42 C.F.R. § 418.22( b)(2) Were “Minor or

Insubstantial” or Instea d Went to the “Essence of the Bargain”

Escobar ’s second factor asks whether the “noncompliance is minor or insubs tantial,” 579 U.S. at 194, or instead went to “the very essence of the bargain” between the contractor and the government, id. at 193 n.5 (quotation omitted). Care Alternatives argue s that its purported violations of 42 C.F.R. § 418.22(b)(2) are insignificant because “[e]very patient” who is “part of this la wsuit[] had a certification of hospice eligibility, signed by an a ppropriate physician . . . and [n]o one is disputing that th e staff at Care Alternatives provided good, compassionate care.” Answering Br. 32-33 (quotation omitted). But the phy sicians’ signatures and the overall quality of care provided by Care Alternatives is neither here nor there. Instead, Escobar spotlights whether the

contractor’s alleged violations are “minor or insubstantial.”

6 Cf. Farfield , 5 F.4th at 344-46 (affirming denial of summary judgment where Davis-Beacon Act payroll requirement was condition of pa yment, which “support[ed] the District Court’s materiality fi nding” along with a lack of “evidence of past relevant Government (in)action”; and evidence showing that complia nce was “essential to the bargain”); Bibby , 987 F.3d at 1352 (reversing summary judgment where “both the re quirement’s designation as a condition of payment and its ce ntrality to the government program favor materiality” desp ite “countervailing evidence of the VA’s knowledge and its reaction to noncompliance” because “[t]o resolve the issu e by weighing conflicting evidence was error”) (citation omitted); United States ex rel. Miller v. Weston Educ., Inc. , 840 F.3d 494, 50 4 (8th Cir. 2016) (reversing summary judgment where “conditioning [of payment], the significance of the requirement[,] and the government’s acts show that the recordkeeping promise was material”).14 579 U.S. at 194. An d here, those alleged violations are Care Alternatives’ certifications of pa tients with insufficient clinical documentation to support a termin al diagnosis, as required by § 418.22(b)(2). So we will examine the importance of § 418.22(b)(2) and the magnitude of Care Alternatives’ alleged

violations.

1. Significance of 42 C.F.R. § 418.22(b)(2)

CMS has made clear that “[ a] signed certification, absent a medically sound basis that supports the clinical judgment, is not sufficient fo r application of the hospice

benefit.” 70 Fed. Re g. at 70,534-35. Why? Because “[a] hospice needs to be certain that [a] physician’s clinical judgment can be supported by clinical information and other documentation that provide a basi s for the certification of 6

months or less if the illness runs its normal course.” Id. at 70,534 (emphasis added). Put differently, CMS never meant to give physicians unchecked authority to certify patients as hospice eligible. So § 418.22( b)(2)’s requirement that physicians’ signed certifications be supported by the patients’ medical records is an essential form of oversight.

More fundamentally, § 418.22(b)(2) protects the public fisc and the overall integrity of the Medicare hospice program. By requiring that “clinical information . . . support” a terminally ill prognosis, § 41 8.22(b)(2) helps ensure that hospice care goes to those who ac tually need it and protects Medicare funds from wrongfully claimed payments. See

Lemon , 924 F.3d at 163 (finding it “apparent” that “false terminally-ill certifications may lead the govern ment to make a payment which it would not otherwise have made” (quotation omitted)). 7 Conversely, it ensures that patients who are not terminally ill do not receive hospi ce benefits, and therefore, that they remain eligib le for curative care. See 42 U.S.C. § 1395d(d)(2)(A)(ii).

7 See also Report of Dr. Robert L. Jayes 1, United States

ex rel. Druding v. Care Alternatives , No. 1:08-cv-02126 (D.N.J. 2021), ECF No. 135-6, Ex. 19 (Part I) (“Jayes Report”) (highlighting “the possibility of fraud in the Medicare Hospice Program”).15 In sum, § 418.22(b)(2)’s documentation requirement “addresse[s] a foundational part of the Government’s” Medicare hospice program, and thus, “false certifications simply [are] not ‘minor or insubstantial’ violations.” United

States v. Luce , 873 F.3d 999, 1007 (7th Cir. 2017) (quoting

Escobar , 579 U.S. at 194). 8

2. Severity of Care Alternatives’ Alleged

Violations

Nor is § 418.22(b)(2) significant only in the abstract. Relators have put forward ample evidence that Care

Alternatives’ actual violations of § 418.22(b)(2) were not

“minor or insubstantial.” Escobar , 579 U.S. at 194. That evidence, “viewed in the light mo st favorable to [Relators],” Reedy , 615 F.3d at 209 (quotation omitted), shows that (1) Care

Alternatives’ documentation defici encies were pervasive; (2)

Care Alternatives was awar e of the gravity of its noncompliance; and (3) Care Alternatives’ patients were potentially ineligible, as a medi cal matter, for hospice care.

Beginning with the scope of Care Alternatives’ alleged violations, this is not a case about occasional noncompliance. Rather, as the District Court fo und, “there is [] significant

evidence in the reco rd . . . that Care Alternatives had longstanding problems with ma intaining necessary and proper documentation.” JA 11. In addition to Relators’ expert, Dr. Jayes, who opined that forty-five percent of the files he reviewed did not suppo rt hospice eligibility, Druding v. Care Alternatives, Inc. , No. 08-2126, 2021 WL 5923883, at *3 (D.N.J. Dec. 15, 2021), Care Alternatives’ former CEO Sam

Veltri observed that “‘it was a cons tant, constant fight to make sure the documentation was good,’ i.e. that it was ‘accurate,’ ‘clinical, ‘made sense,’ and ‘m ade its way to the charts,’” id. at *4. Indeed, as a 2007 internal audit revealed, Care

Alternatives’ “maintenance of th e clinical records [wa]s below standard,” due to, inter alia , “documentation issues and information missing that is required for reimbursement,

8 See also Bibby , 987 F.3d at 1348 (considering the “centrality” of compliance with a particular government regulation to the overall “goal” of the program) (quotation omitted); Escobar , 842 F.3d at 110 (same).16 regulatory and accrediting standards.” JA 2110. The percentage of randomly audited charts containing all necessary data in 2007 was only 56.5% in the first quarter, 53.9% in the second quarter, 54.1% in the th ird quarter, and 43.6% in the fourth quarter. Id. at 13. In view of this evidence, a reasonable jury could find that Care Alternat ives’ violations were not just isolated incidents but were part of a pattern of significant noncompliance. Cf. United States ex rel. Int’l Bhd. of Elec.

Workers Loc. Union No. 98 v. Farfield Co. , 5 F.4th 315, 347 (3d Cir. 2021) (contract or’s misclassifications of more than $150,000, over the course of two years, on 105 separate occasions “were not minor or insubstantial”).

Care Alternatives’ leadership also clearly understood the importance of § 418.22(b )(2) compliance, which could further support a materiality finding. See id. at 345 (“Farfield’s clear appreciation that Davi s-Beacon violations would ‘ likely ’

so affect the ‘beh avior of the recipient of the alleged misrepresentation’” weighed in favor of materiality (quoting Escobar, 579 U.S. at 193)). For in stance, Loretta Spoltore, a Care Alternatives administrator, testified that her “goal was [] to be a hundred percent compliant ” because she “do[es]n’t look good in stripes.” JA 1682. Likewise, Martha Coppola, a Care Alternatives compliance officer, testified that “if you were surveyed” by CMS and the requis ite chart documentation “was not there, it doesn’t matter if [staff members] were on their way up the turnpike to bring it, it wasn’t there, and that was a problem.” Id. at 292. And Veltri testif ied that he brought in an outside consultant, Toni Swic k, to train employees on CMS documentation requirements.

This is also not a case wher e it is beyond dispute that the patients were, in fact, terminally ill. To be sure, Relators do not proceed under the th eory that the physicians’ certifications of terminal illness were medically unreasonable. Their theory is that there was inadequate documentation supporting those certifications in the patients’ records—which

could reflect either poor recordkeeping or lack of terminal illness (or both). Nor do Relators allege bad faith on the part of any of the certifying physicians. But they posit, and we17 agree, that patients’ terminal prognoses cannot be verified without adequate documentation. 9

In this case, the uncertainty is hardly academic. For instance, Dr. Jayes’ report disc usses times when “[c]linical evidence contradict[ed] [the] hos pice diagnosis,” Jayes Report 5, and when “[s]ervices continu[ed] despite patient

stabilization or clarification of erroneous admission information so that [the] patie nt no longer ha[d] a six month prognosis,” id. at 6. The testimony of certain employees also raises doubts about patients’ subs tantive eligibility , as Relators summarize. Some employees “testified that the medical records could not have suppor ted hospice eligibility because these patients did not have the signs and symptoms that would meet the criteria necessary [t o] make them eligible for hospice”; others testified that “they were directed by Care

Alternatives to alter medical r ecords, or to re-write medical records, in order to ‘paint a picture’ that the patients were actually hospice eligible.” Opening Br. 13 (collecting testimony). Even Veltri, although he averred that he “[n]ever” sought to bring in patients w ho were inappropriate for hospice, JA 2205-06, expressed the view that a hospice “lives and dies as a company . . . on its census” and thus, “[i]t is imperative that we constantly, consta ntly get new patients in,” id. at 1601.

Whether this testimony should be credited is outside our purview. MBIA Ins. Corp.. , 426 F.3d at 209. But the point is this: a reasonable jury could co nclude, based on the evidence

9 That uncertainty distin guishes this case from United States ex rel. Spay v. CVS Caremark Corp. , which involved an FCA suit against a CVS pharma cy that filled in “dummy

Prescriber IDs” on CMS reimbu rsement forms in lieu of patients’ actual physicians’ ID s. 875 F.3d 746, 750-51 (3d Cir. 2017). In Spay , there was no question that “[t]he claims

themselves were neither fals e nor fraudulent” and that CMS accepted this “workaround” as a “technical, formulaic way of preventing a computer progr am from denying legitimate

claims.” Id. at 765. So we upheld the District Court’s grant of summary judgment for CVS based on, inter alia , lack of materiality. Id.18 presented, that Care Alterna tives’ alleged violations of 42 C.F.R. § 418.22(b)(2) were not isolated instances of incomplete notes or misplaced documents—that is, “minor or

insubstantial” violations—but ra ther, that Care Alternatives’

violations went to the “essenc e of the bargain”: patients’ medical need for hospice care. 10 Escobar , 579 U.S. at 193 n.5, 194 (quotation omitted).

For all of these reasons, Escobar ’s substantiality factor could support a materiality finding. 11

C. Whether the Government’s Actions in the Wake

of Relators’ Fraud A llegations Disprove Materiality

That leaves us with Escobar ’s third factor, government action. As the Supreme Court explained:

[I]f the Government pays a particular claim in full despite its actual knowledg e that certain requirements were violated, that is very strong evidence that those requirements are not material . Or, if the Government regularly pays a particular t ype of claim in full despite actual knowledge that certain requirements were violated, and has signaled no change in position, that is strong evidence that the requirements are not material.

579 U.S. at 195.

10 We emphasize that this is not a medical malpractice case, as Appellants candidl y acknowledged during oral

argument. See Oral Arg. Tr. 82:22-86 :22. But insofar as compliance with § 418.22(b)(2 )’s documentation requirement

cannot be divorced from issu es surrounding substantive eligibility, a jury might consid er that reality in assessing materiality.

11 For purposes of appellate review, we acknowledge

that some of Escobar ’s factors “could support a materiality finding” not because the eviden ce definitively points towards materiality—it does not—but because on this record, a reasonable jury could conclude th at Care Alternatives’ alleged

violations were material.19 The District Court concluded ba sed solely on this factor that Care Alternatives’ alleged vi olations were, as a matter of law, immaterial. Specifically, it reasoned: (1) the government continually reimbursed Care A lternatives despite knowledge of the inadequacies in its doc umentation, and (2) Relators produced “no evidence” explaini ng away “the Government’s apparent disregard” of those in adequacies, which the District Court surmised was their burden on a motion for summary judgment. JA 16-17.

We perceive two errors with this approach, addressed

below seriatim.

1. The Government’s Alleged Knowledge

The District Court seemed to impute “actual knowledge” of Care Alternativ es’ inadequate documentation to the government based on the fact that “[t]he Government

could see what was or was not submitted to it by Care Alternatives along with its claims seeking payment.” JA 17. But CMS regulations do not require hospice providers to submit physician certificati ons and supporting clinical

documentation with their claims for payment; instead, those documents are kept on file in the patients’ medical records. 42 C.F.R. § 418.22(b)(2), (d). So CMS would not have obtained “actual knowledge” of Care Alternatives’ insufficient documentation simply by reviewi ng its reimbursement claims.

Care Alternatives appear s to concede this point. But it

directs our attention to the fact that after Relators filed their Complaint (in April 2008, with service on the United States in September 2008, HHS-OIG and the DOJ conducted a joint investigation, including a No vember 2009 subpoena for 112 patient medical records and a variety of company policies, internal documents, and employee emails. Still, it is not clear that the government thereby acqu ired “actual knowledge” of Care Alternatives’ alleged violati ons, or at least, of the full gravity of those alleged violations.

Presumably, the government would have uncovered significant deficiencies in Ca re Alternatives’ documentation20 controls, 12 though by that point, the disputed claims (from 2006 and 2007) were already paid. 13 And if we credit—as we must at this stage—Relators’ testim ony that Care Alternatives’ providers charted to “paint a pi cture” of hospice eligibility, see Opening Br. 13 (summarizing testimony), then the government

would not have known that Care Alternatives was certifying patients who were potentially in appropriate for hospice care.

To be sure, the government’s inaction over the past fifteen years is evidence of immateriality. 14 As Care Alternatives forcefully argues, the government has not availed itself of any of its myriad en forcement tools, including its ability to recoup pr ior payments, 42 C.F.R. § 405.371(a)(3). 15

But whether that inaction is dispositive evidence of

12 However, the United States continues to deny that

there is any evidence of “actual knowledge” of § 418.22 violations. DOJ Amicus Br. 14, 17, 19.

13 Escobar indicates that timing is relevant. See 579 U.S. at 195 (indicating that whether “the Government pays a particular claim in full despite its actual knowledge that certain requirements were violated” is evidence of materiality (emphasis added)).

14 The government’s decision not to intervene, on the other hand, is “at best, of minimal relevance.” Farfield , 5 F.4th at 346. As we recognized in Farfield , “[if] relators’ ability to [meet] the element of materi ality were stymied by the government’s choice not to in tervene, this would undermine the purposes of the [False Clai ms] Act,” which is explicitly designed to permit private persons to litigate suits in lieu of the

government. Id. (quotation omitted); see also Prather

, 892 F.3d at 836; Janssen , 949 F.3d at 542 n.12.

15 The Supreme Court in Escobar focused on the government’s continued paymen t decisions rather than posthoc prosecutions or othe r enforcement actions. See 579 U.S. at 195. But in light of Escobar ’s holistic inquiry, we do not read this to suggest that the government’s post-hoc

enforcement behavior is irreleva nt to the materiality inquiry. Cf. United States v. Strock , 982 F.3d 51, 63 (2d Cir. 2020) (questioning whether “post hoc enforcement actions are relevant to FCA materiality analysis at all”).21 immateriality is another matter. And Escobar focuses on whether the government had “ actual knowledge ” of a violation when it made a payment, which is still only “very strong”— not dispositive—evidence of i mmateriality. 579 U.S. at 195 (emphasis added). In this case, we simply do not know what the government knew and when. Cf. Spay , 875 F.3d at 746 (“[Relator] does not contest that CMS employees knew that dummy identifiers were being used[.]”); Petratos , 855 F.3d at 490 (affirming summary judgment where Relator conceded “the Government would have paid the [disputed] claims with full knowledge of the alleged noncompliance” (emphasis added)). Like our sister circuits, we will not equate the government’s awareness of alle gations of fraud with “actual knowledge” that fraud occurred. 16 And we recognize that “the Government may not want to prematurely end a relationship

with a contractor over unproven allegations.” United States ex rel. USN4U, LLC v. Wolf Creek Fed. Servs., Inc ., 34 F.4th 507, 517 (6th Cir. 2022). So a reasonable jury could conclude that the government’s inaction is not conclusive.

2. Relators’ Burden

Nor was it, as the District Court held, “incumbent upon the Relators to present so me evidence suggesting the government’s apparent disregard of the inadequacies in Care

16 See, e.g.

, Prather , 892 F.3d at 834 (“Without actual knowledge of the alleged non- compliance, the government’s response to the claims submitted by the defendants—or claims of the same type also in viol ation of 42 C.F.R. § 424.22(a)(2)— has no bearing on the ma teriality analysis.”); United States ex rel. USN4U, LLC v. Wolf Creek Fed. Servs., Inc ., 34 F.4th 507, 517 (6th Cir. 2022) (“[T]he fact s alleged in this case do not

indicate that NASA had ‘actual knowledge’ that Wolf Creek did in fact submit falsely inflat ed quotes. Instead, the alleged facts show only that USN4U informed NASA of its allegations, not that NASA necessarily believed the allegations to be true.”); AECOM , 19 F.4th at 115 (“ [I]t makes sense not to place much weight on the govern ment's response in the wake of [] litigation because, prior to discovery and a formal court ruling, the relator’s allegations are just that – allegations, and the government may not necessa rily have knowledge of all the material facts.”).22 Alternatives’ billing documenta tion was not the result of its having concluded those inadequa cies were immaterial.” JA 17. As a general matter, relators are not required to conduct discovery on government officials to demonstrate materiality—an imposition that would find no support in

Escobar ’s holistic approach. And on a motion for summary judgment, it is the moving party who bears the burden of demonstrating the absence of a ge nuine issue of material fact—

a burden that Care Alternatives has not met. Celotex Corp. v.

Catrett , 477 U.S. 317, 323 (1986) (citing Fed. R. Civ. P. 56(c)).

* * * Thus, notwithstanding the government’s prolonged

inaction in the wake of Rela tors’ fraud allegations, it was erroneous to treat this factor as determinative of immateriality. A jury must be permitted to weigh the government’s inaction alongside Escobar ’s other factors. 17

IV. Conclusion

For the foregoing reasons, we will reverse the District Court’s grant of summary judgm ent and remand for further proceedings consistent with this opinion.

17 Although materiality is a ju ry question in this case, summary judgment may be proper in others. See Escobar , 579 U.S. at 195 n.6 (rejecting asserti on “that materiality is too fact

intensive for courts to dismiss False Claims Act cases on a

motion to dismiss or at summary judgment”).