Thomas Prose v. Molina Healthcare of Illinois

In the

United States Court of Appeals
For the Seventh Circuit
____________________

No. 20-2243
UNITED STATES OF AMERICA and the STATE OF ILLINOIS ex rel.
THOMAS PROSE,
Plaintiffs-Appellants,

v.

MOLINA HEALTHCARE OF ILLINOIS, INC., and MOLINA
HEALTHCARE, INC.,
Defendants-Appellees.
____________________

Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 17 C 6638 — Virginia M. Kendall, Judge.
____________________

ARGUED JANUARY 15, 2021 — AMENDED NOVEMBER 15, 2021
____________________

Before SYKES, Chief Judge, and WOOD and HAMILTON, Cir-
cuit Judges.
WOOD, Circuit Judge. Sophisticated players in the
healthcare market know that services come at a cost; provid-
ers charge fees commensurate with the services rendered; and
payors expect to receive value for their money. There are
2 No. 20-2243

many options from which to choose when designing a pay-
ment scheme, including fee-for-service, prepaid services us-
ing the health-maintenance organization model (HMO), and
capitation payments, to name just a few. Each of these models
attempts to balance expected services against expected costs.
The present case involves a capitation system, which is
similar to the traditional HMO approach in which parties
agree to a fixed per-patient fee that covers all services within
the scope of a governing plan. Molina Healthcare of Illinois
(Molina) contracted with the state’s Medicaid program
(which in turn is largely funded by the federal government,
see Illinois Medicaid, https://www.benefits.gov/benefit/1628)
to provide multiple tiers of medical-service plans with scaled
capitation rates. Among those, the Nursing Facility (NF) plan
required Molina to provide Skilled Nursing Facility (SNF)
services. Molina itself, however, did not deliver those ser-
vices; instead, it subcontracted with GenMed to cover this ob-
ligation. Molina received a general capitation payment from
the state, out of which it was to pay GenMed for the SNF com-
ponent. But little time passed before Molina breached its con-
tract with GenMed and GenMed terminated the contract. Af-
ter GenMed quit, Molina continued to collect money from the
state for the SNF services, but it was neither providing those
services itself nor making them available through any third
party. Molina never told the government about this break-
down, nor did it seek out a replacement service provider.
Thomas Prose, the founder of GenMed, brought this qui
tam action under both the federal and the state False Claims
Acts. See 31 U.S.C. § 3729 et seq.; 740 ILCS 175/1 et seq. (Because
the state law does not differ in any meaningful way from the
federal law, we refer in this opinion only to the federal law for
No. 20-2243 3

the sake of simplicity.) Prose alleged that Molina submitted
fraudulent claims for payments to the Department (which
was for the most part just a conduit for federal funds—a point
we will not repeat) for skilled nursing facility services. Alt-
hough the district court agreed with Prose that the SNF ser-
vices were material to the contract, it dismissed the case at the
pleading stage because it found that the complaint insuffi-
ciently alleged that Molina knew that this condition was ma-
terial. But on our independent reading of the complaint, we
conclude that it plausibly alleges that as a sophisticated player
in the medical-services industry, Molina was aware that these
kinds of services play a material role in the delivery of Medi-
caid benefits. We therefore reverse and remand for further
proceedings.
I
We present the facts in the light most favorable to Prose,
the party opposing dismissal for failure to state a claim. Mo-
lina, a subsidiary of Molina Healthcare, Inc. (Molina
Healthcare), is a Managed Care Organization (MCO). It has
contracted with the Illinois Department of Healthcare and
Family Services to provide healthcare services for Illinois
Medicaid beneficiaries. Molina’s contract with the state was a
“risk contract,” in which the parties agree to an expected cost
for services for a patient and Molina assumed the risk that the
cost of those services might exceed the contracted payment
amount. 42 C.F.R. § 438.2.
As part of this risk contract, Molina and the Department
agreed to capitation payments—periodic contractual fees, cal-
culated per enrollee. These fees must be “actuarily sound.” Id.
Each enrollment category had its own schedule of payments.
A given category’s capitation rate reflected the anticipated
4 No. 20-2243

costs per person on an amortized basis. There was nothing
unusual about this arrangement. In the late 1980s and 1990s,
the capitation-payment model became common in the health-
care industry. It is similar to the more traditional health
maintenance organization (HMO), in which a health insur-
ance provider covers all care over a fixed annual fee, but it
differs in some important ways. Capitation rates, in a word,
are more flexible. They allow providers to establish distinct
rate tiers, and the providers agree to delineate at the outset
exactly what services they will furnish within each tier. Mem-
bership in each tier is correlated with factors such as age,
health, and needed services. See, e.g., Nina Novak, Health Care
Risk Contracting: The Capitation Alternative, 3 HEALTH LAW. 4,
4–5 (1987). A Managed Care Organization plays an active role
in the creation of the plan, as it needs to understand the risk
it is assuming through its guarantee of services. See Andrew
Ruskin, Capitation: The Legal Implication of Using Capitation to
Affect Physician Decision-Making Processes, 13 J. CONTEMP.
HEALTH L. & POL’Y 391, 397, 409, 411 (1997).
Molina’s contract created “rate cells” that were “stratified
by age … , geographic services area (Greater Chicago and
Central Illinois), and setting-of-care.” It defined five care set-
tings: Nursing Facility, Waiver, Waiver Plus, Community, and
Community Plus. The lowest cost and most populous of these
cells was the Community group. For the Greater Chicago
Community category during the contract period for February
to December 2014, for example, the projected enrollee count
was 261,108, and the monthly capitation rate the state paid to
Molina was $53.51 for each person 65 years and older. By con-
trast, the highest-cost category—Nursing Facility—had
70,836 enrollees covered at a monthly rate of $3,180.30 per
person 65 and older. Our case concerns this latter category.
No. 20-2243 5

Molina contracted to provide Skilled Nursing Facility
(universally abbreviated as SNF) services for Nursing Facility
enrollees. Under Illinois state law, SNF providers, known as
“SNFists,” are “medical professional[s] specializing in the
care of individuals residing in nursing homes employed by or
under contract with a MCO.” 305 ILCS 5/5F-15. Molina’s con-
tract further specified that a SNFist’s “entire professional fo-
cus is the general medical care of individuals residing in a
Nursing Facility and whose activities include Enrollee care
oversight, communication with families, significant others,
PCPs, and Nursing Facility administration.” SNFists perform
valuable long-term care for sick, disabled, or elderly patients
who need long-term medical and nursing care without hospi-
talization. Molina’s contract with the Department empha-
sized that SNFist services were integral to improving the en-
rollee’s quality of life and potentially to enabling her to be dis-
charged from the nursing home. 1
In order to deliver these expensive services, in April 2014
Molina entered into an agreement with GenMed, because Mo-
lina did not have the necessary qualified personnel. This con-
tract provided that GenMed would provide SNF services for

1 The dissent suggests that the SNFist services provided by Molina
were contractually limited to “care coordination and management.” That
was true in some circumstances, but not all. Providers employed through
the SNFist program were also expected to “deliver care” “when appropri-
ate or necessary.” And in its general definition of SNF facility services, the
contract included all of “Skilled Nursing care, continuous Skilled Nursing
observations, restorative nursing, and other services under professional
direction with frequent medical supervision.” Construing the allegations
in the light most favorable to Prose, as we must, this shows that SNFist
services are comprehensive, not just one of a bundle of 20 or 30 different
items, as the dissent contends.
6 No. 20-2243

Molina’s Nursing Facility enrollees. The Department was not
a party to the contract, and so it continued to pay Molina the
full capitation payments for the SNF recipients. Molina then
used those funds to pay GenMed the agreed amount. This ar-
rangement, however, lasted only about nine months. In Janu-
ary 2015, Molina stopped reimbursing GenMed and sought to
renegotiate the price terms of the service agreement. GenMed
continued to provide SNF services through March 2015, but it
terminated the contract on April 2, 2015, after Molina contin-
ued to refuse to pay it.
From April 2, 2015, until at least April 5, 2017, Molina was
not delivering SNF services to anyone, either with its own
personnel or through a subcontractor. Indeed, it was not even
looking for a replacement for GenMed. It did not inform the
Department or the federal authorities of this change, and so
the Department continued to pay it the full capitation amount
for SNF services—in essence, payments for nothing. Aware of
the situation because of his association with GenMed, Thomas
Prose filed this qui tam action on September 14, 2017, alleging
that Molina violated the False Claims Act by seeking and ob-
taining compensation despite failing to provide material ser-
vices under its contract with the Department.
II
Since we are evaluating the district court’s decision to
grant a motion to dismiss under Rule 12(b)(6), we accept all
well-pleaded facts as true and draw all reasonable inferences
in favor of the non-moving party. O’Brien v. Village of Lincoln-
shire, 955 F.3d 616, 621 (7th Cir. 2020). Critically, however, this
is not a case that is governed by the usual notice-pleading
standards of Federal Rule of Civil Procedure 8. See, e.g., Ash-
croft v. Iqbal, 556 U.S. 662, 678 (2009). A party bringing a case
No. 20-2243 7

alleging fraud must satisfy the heightened pleading stand-
ards set forth in Rule 9(b), which says that “[i]n alleging fraud
or mistake, a party must state with particularity the circum-
stances constituting fraud or mistake.” FED. R. CIV. P. 9(b). At
the same time, Rule 9(b) carves out several matters that may
be alleged generally, including “[m]alice, intent, knowledge,
and other conditions of a person’s mind.” Id.
Rule 9(b)’s more demanding pleading requirements apply
to suits brought under the False Claims Act. The complaint
must describe the “who, what, when, where, and how” of the
fraud to survive a motion to dismiss. United States ex rel.
Presser v. Acacia Mental Health Clinic, LLC, 836 F.3d 770, 776
(7th Cir. 2016) (quoting United States ex rel. Lusby v. Rolls–
Royce Corp., 570 F.3d 849, 853 (7th Cir. 2009)). Nonetheless,
courts and litigants should not “take an overly rigid view of
the formulation”; the allegation must be “precis[e]” and “sub-
stantiat[ed],” but the specific details that are needed to sup-
port a plausible claim of fraud will depend on the facts of the
case. Presser, 836 F.3d at 766 (quoting Pirelli Armstrong Tire
Corp. Retiree Med. Benefits Tr. v. Walgreen Co., 631 F.3d 436, 442
(7th Cir. 2011)). As we noted earlier, the Illinois False Claims
Act applies the same standards as the federal statute. Bellevue
v. Universal Health Servs. of Hartgrove, Inc., 867 F.3d 712, 716 n.
2 (7th Cir. 2017).
A
Before assessing Prose’s complaint, it is helpful to take a
more detailed look at the False Claims Act. This statute cre-
ates a right of action under which private parties may, on be-
half of the federal government, bring lawsuits alleging fraud.
31 U.S.C. § 3730(b). The actions go by the hoary Latin term
“qui tam” (short for qui tam pro domino rege quam pro se ipso in
8 No. 20-2243

hac parte sequitur, meaning “who as well for the king as for
himself sues in this matter,” see Bryan A. Garner, ed., BLACK’S
LAW DICTIONARY at 1444 (10th ed. 2014)). The party seeking to
represent the government’s interest is called a “relator.” Suc-
cessful relators are motivated by the prospect of recovering
sizable shares of the money paid to the government after
bringing a successful claim. Glaser v. Wound Care Consultants,
Inc., 570 F.3d 907, 912 (7th Cir. 2009). The government has the
right, but is not obligated, to proceed on a claim brought by a
relator; it may elect to dismiss the action notwithstanding the
party’s objection. 31 U.S.C. § 3730(c)(2)(B). When the govern-
ment chooses not to proceed with the action but does not dis-
miss the action either, the initiating party retains the right to
proceed against the defendant. 31 U.S.C. § 3730(c)(3).
The Act makes it unlawful knowingly (1) to present or
cause to be presented a false or fraudulent claim for payment
to the United States, (2) to make or use a false record or state-
ment material to a false or fraudulent claim, or (3) to use a
false record or statement to conceal or decrease an obligation
to pay money to the United States. United States ex rel. Yanna-
copoulos v. Gen. Dynamics, 652 F.3d 818, 822 (7th Cir. 2011). A
successful claim requires proof both that the defendant made
a statement to receive money from the government and that
he made that statement knowing it was false. Id. But there is
more. Not all false statements are actionable under the Act.
The plaintiff also must prove that the violation proximately
caused the alleged injury. United States v. Luce, 873 F.3d 999,
1011–14 (7th Cir. 2017). In other words, the pecuniary losses
must be “within the foreseeable risk of harm” that the false
statement created. Id. at 1012. In addition, the defendant’s
conduct must meet a strict materiality requirement. Universal
Health Servs., Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989,
No. 20-2243 9

1996 (2016). It is not enough simply to say that the govern-
ment required compliance with a certain condition for pay-
ment. The facts must indicate that the government actually
attaches weight to that requirement and relies on compliance
with it. In sum, as the Third Circuit has put it, the relator must
establish (1) falsity, (2) causation, (3) knowledge, and (4) ma-
teriality. United States ex rel. Petratos v. Genentech Inc., 855 F.3d
481, 487 (3d Cir. 2017).
The Act is not limited to claims that are facially false. It
covers a defendant’s more general decision fraudulently to
procure payment from the government. Consequently, while
the archetypical claim is one in which a “claim for payment is
itself literally false and fraudulent,” United States ex rel. Hen-
dow v. Univ. of Phoenix, 461 F.3d 1166, 1170 (9th Cir. 2006),
courts have identified particular theories that support FCA
claims, including (1) false certification to the government that
the party has complied with a statute, regulation, or condition
of payment; (2) promissory fraud, or fraud in the inducement,
id. at 1172–73; and (3) implied false certification, see Escobar,
136 S. Ct. at 2001. The implied false certification claim in-
volves the omission of key facts rather than affirmative mis-
representations. This type of liability arises if the “defendant
makes representations in submitting a claim but omits its vi-
olations of statutory, regulatory, or contractual require-
ments[;] those omissions can be a basis for liability if they ren-
der the defendant’s representations misleading with respect
to the goods or services provided.” Id. at 1999.
B
Prose’s complaint raises allegations under all three of
these approaches: factual falsity, fraud in the inducement,
and implied false certification. At the same time, he contends
10 No. 20-2243

that these labels should be jettisoned. Taking our guidance
from Escobar, we decline to distill one unified approach for all
cases. The Court’s focus on the implied false certification the-
ory in Escobar signals that it continues to find that there are
distinct ways in which the statute may be violated. We will
follow suit.
As we now explain, we conclude that Prose has ade-
quately stated a claim under the Act. His detailed allegations
support a strong inference that Molina was making false
claims. At this stage, that is enough; as the litigation proceeds,
it is possible that one or more of these theories will lack sup-
port. But there is time enough for that assessment at trial or
upon a motion for summary judgment.
Fraud is a serious matter. Rule 9 represents a policy deci-
sion to protect potential fraud defendants from litigation
based on nothing but rumor or speculation. Instead, the rela-
tor must set forth the basis for her conclusion that fraud is
afoot. United States ex rel. Grenadyor v. Ukrainian Vill. Pharmacy,
Inc., 772 F.3d 1102, 1108 (7th Cir. 2014). But as we have been
saying, that does not require the impossible. Relators with a
legitimate basis for bringing False Claims Act cases will not
generally have propriety information of the company they are
trying to sue, and so courts do not demand voluminous docu-
mentation substantiating fraud at the pleading stage. All that
is necessary are sufficiently detailed allegations.
We begin with the allegations that would support a claim
for direct factual falsity—the canonical FCA claim. The ques-
tion is whether Prose’s allegations alert Molina in sufficient
detail for Rule 9(b) purposes of how it allegedly made a
“claim for payment [that] is itself literally false and fraudu-
lent.” Hendow, 461 F.3d at 1170. Prose contends that after April
No. 20-2243 11

2, 2015, Molina submitted to the government materially
fraudulent enrollment forms for each new enrollee in the
Nursing Facility category of patients. As of that date, its con-
tract with GenMed had ended, and it could not, and did not,
provide SNF services.
Rule 9(b) requires specificity, but it does not insist that a
plaintiff literally prove his case in the complaint. Prose pro-
vided numerous details indicating when, where, how, and to
whom allegedly false representations were made. He hardly
can be blamed for not having information that exists only in
Molina’s files. He did provide information that plausibly sup-
ports the inference that Molina included false information
about the pertinent services for new enrollees. How else could
it have asked for its capitation payments based on these addi-
tional beneficiaries? A direct assertion that Molina had new
enrollees who were in the skilled nursing facility tier, coupled
with an assertion that Molina was seeking reimbursement for
their SNF services, is not an omission. It is a statement, and in
this case a statement that Prose asserts was false. He did not
need any more to defeat the challenge to the adequacy of his
complaint.
Prose also alleged circumstantial evidence of promissory
fraud, or fraud in the inducement. Here, he needed to alert
Molina with the necessary specificity of how it allegedly mis-
represented its compliance with a condition of payment in or-
der to induce the government to enter into a contract. Hendow,
461 F.3d at 1172–73 (citing United States ex rel. Marcus v. Hess,
317 U.S. 537, 542 (1943)); cf. United States v. Sanford-Brown, Ltd.,
788 F.3d 696, 709 (7th Cir. 2015), abrogated by Escobar, 136 S. Ct.
1989 (“[F]raud entails making a false representation, such as
a statement that the speaker will do something it plans not to
12 No. 20-2243

do.”). Prose charges that Molina fraudulently induced the De-
partment to enter into contract renewals with Molina in 2016
and 2017 by affirmatively misrepresenting that it would con-
tinue to provide SNF services in its package for NF-category
enrollees while not intending to do so.
The district court concluded that the complaint in this re-
spect fell short because it did not include any details about the
contract-renewal negotiations between Molina and the De-
partment. But how would Prose have had access to those doc-
uments or conversations? The obligation to set out the “who,
what, when, where, and how” of the fraud does not require
such granular detail. Prose set forth precise allegations about
the beneficiaries, the time period, the mechanism for the
fraud, and the financial consequences. Once again, at trial or
upon a motion for summary judgment he will face a different
burden, but for now, this was enough.
Claims of fraudulent inducement also require the plaintiff
to show that the defendant never intended to perform the
promised act that induced the government to enter the con-
tract. United States ex rel. Main v. Oakland City Univ., 426 F.3d
914, 917 (7th Cir. 2005) (“[F]ailure to honor one’s promise is
(just) breach of contract, but making a promise that one in-
tends not to keep is fraud.”). Prose put Molina on notice of
this aspect of his case, too. He included details about state-
ments made by Molina’s chief operating officer (COO), Ben-
jamin Schoen, who stated in his deposition that Molina’s
“staff did not have the ability or licensure to render [SNF] ser-
vices.” Taken together with Molina’s defunct contract with
GenMed and its failure to seek out a replacement SNF pro-
vider, the complaint alleges that any promise by Molina to
No. 20-2243 13

provide SNF services during the contract-renewal process
was fraudulent on its face.
This may even have been more detail than was necessary,
taking into account the fact that Rule 9(b) permits intent to be
alleged generally. Construing the allegations liberally, the
complaint asserts that Molina made some representations
about actual SNF services that would be offered. Schoen
acknowledged that Molina did not have the personnel avail-
able to perform those services. The complaint thus concludes
that Molina did not and never intended to seek out another
SNF service provider. This sufficed to allege intent.
Finally, even if the complaint fell short of the required
specificity under Rule 9 for the first two approaches, it was
sufficient to state a claim for implied false certification. The
Supreme Court described that version of fraud as follows in
Escobar:
… [T]he implied false certification theory can be a
basis for liability. Specifically, liability can attach when
the defendant submits a claim for payment that makes
specific representations about the goods or services
provided, but knowingly fails to disclose the defend-
ant’s noncompliance with a statutory, regulatory, or
contractual requirement. In these circumstances, liabil-
ity may attach if the omission renders those represen-
tations misleading.
We further hold that False Claims Act liability for
failing to disclose violations of legal requirements does
not turn upon whether those requirements were ex-
pressly designated as conditions of payment. Defend-
ants can be liable for violating requirements even if
14 No. 20-2243

they were not expressly designated as conditions of
payment. Conversely, even when a requirement is ex-
pressly designated a condition of payment, not every
violation of such a requirement gives rise to liability.
What matters is not the label the Government attaches
to a requirement, but whether the defendant know-
ingly violated a requirement that the defendant knows
is material to the Government’s payment decision.
136 S. Ct. at 1995–96.
Even before Escobar, courts recognized express false certi-
fication—that is, an affirmative misstatement of compliance
with a statute, regulation, or other contractual obligation to
obtain payment from the government—as a basis of liability.
United States ex rel. Absher v. Momence Meadows Nursing Ctr.,
Inc., 764 F.3d 699, 710–11 (7th Cir. 2014). Implied and express
statements raise distinct issues, however.
Implied false certification is just another genre of fraud,
and so plaintiffs must as usual satisfy Rule 9(b)’s require-
ments to plead falsity, materiality, and causation with partic-
ularity. (Knowledge is also an element, but it falls within the
Rule’s carve-out.) As the Supreme Court did in Escobar, we
focus first on the “rigorous materiality requirement” that the
plaintiff must meet. 136 S. Ct. at 1996. A misrepresentation is
not material “merely because the Government designates
compliance with a particular statutory, regulatory, or contrac-
tual requirement as a condition of payment.” Id. at 2003. Such
a stipulation is “relevant, but not automatically dispositive.”
Id. But materiality requires more: typically, proof either that
(1) a reasonable person would view the condition as im-
portant to a “choice of action in the transaction” or (2) the de-
fendant knew or had reason to know that the recipient of the
No. 20-2243 15

representation attaches importance to that condition. Id. at
2002–03. Should the government decide to pay despite know-
ing of the party’s noncompliance, that would be “very strong
evidence” (though not dispositive) that the condition is not
material. Id. In short, facts matter. The complaint must include
specific allegations that show that the omission in context sig-
nificantly affected the government’s actions.
Prose’s complaint points to many factual representations
that Molina made that, he charges, amounted to implied false
certification. For instance, he alleges that Molina’s contract
with the Department carefully created different rate cells for
enrollees based on the level of care they would need; the level
of care in turn yields a reasonable estimate of cost for each
tier. Both are essential if the capitation payments are to be ac-
tuarially sound. The difference between the Community
group and the Nursing Facility group is a whopping $3,127
per head. The middle-tier group costs roughly $600 less
apiece than the Nursing Facility group. The size of the price
differential alone offers strong support for a finding of mate-
riality: it is hard to see why the government would be indif-
ferent about paying $3,180 for services that should have been
at the $54 level. The district court concluded that each enroll-
ment form, which constituted a specific request for payment
connected to the NF enrollees, was “impliedly false because it
requested payment of the SNF capitation rate” when those
services were not being rendered. 2

2 The dissent takes issue with the numbers here, asserting that Molina

provided “something close to high-tier service at high-tier rates.” But that
claim appears to spring from the redefinition of SNFist services as nothing
more than care coordination—a definition that neither the contract nor the
pleadings reflect. Just how close to “high-tier services” Molina got is best
16 No. 20-2243

Molina responds that the enrollment forms did not con-
tain misleading omissions because Molina did not fraudu-
lently manipulate the beneficiary pool to increase the number
of people in the more expensive category. But that is just one
way in which liability could be shown; it is not the only one.
The complaint, read in Prose’s favor, contains specific al-
legations showing that Molina was far from a passive recipi-
ent of a favorable capitation rate. Prose was not relying on
Molina’s receipt of capitation payments for existing enrollees.
Rather, the complaint alleges that by submitting enrollment
forms for new enrollees after Molina canceled its contract with
GenMed, Molina implicitly falsely certified that Nursing Fa-
cility enrollees had access to SNF services. But they did not.
Construed in Prose’s favor, the complaint describes Molina’s
noncompliance with a contractual requirement to provide
SNF services to Nursing Facility enrollees. This is akin to the
defendant’s actions in Escobar, in which the Court found that
the defendant “misleadingly omit[ted] [the] critical facts” that
its care providers were not qualified to render services for
which it nevertheless requested payments. 136 S. Ct. at 2001.
Molina’s strongest argument against materiality relies on
its contention that the government continued to contract with
Molina after learning that Molina could no longer provide
SNF services. Molina emphasized that the government not
only continued paying it after Prose brought this case, but it
also renewed its contract with Molina twice during that time.
It is true that the government’s continued payment of a claim

decided on summary judgment or at trial, not here. For present purposes,
Prose’s complaint adequately alleges that SNFist services explain much of
the cost difference between the Nursing Facility tier and the less expensive
tiers.
No. 20-2243 17

despite “actual knowledge” that certain requirements are not
met “is very strong evidence that those requirements are not
material.” Escobar, 136 S. Ct. at 2003. But this argument is bet-
ter saved for a later stage, once both sides have conducted dis-
covery. At this juncture, it appears that Molina is offering only
part of the story. Later exploration will be needed before an-
yone can say what the government did and did not know
about Molina’s provision of SNF services.
For pleading purposes, Molina’s barebones assertion that
the government was aware of all material facts is not enough
to sweep away the elaborate facts that Prose furnished. The
contract itself, which fixes the cost of the NF category well
above the other tiers, is powerful evidence of the materiality
of the SNF services. See Ruckh v. Salus Rehab., LLC, 963 F.3d
1089, 1105 (11th Cir. 2020) (finding materiality when the issue
“went to the heart” of the bargain). Many things could explain
the government’s continued contracting with Molina. It may
have expected to purge the underserved NF enrollees from
the books; it may have needed time to work out a way not to
prejudice Medicaid recipients who had nothing to do with
this problem. Medicaid (along with the Children’s Health In-
surance Program, or CHIP) serves more than 71 million peo-
ple nationally and accounts for $600 billion in federal spend-
ing. See Center for Medicare and Medicaid Services, Medicaid
Facts and Figures, at https://www.cms.gov/newsroom/fact-
sheets/medicaid-facts-and-figure. An organization like that
does not turn on a dime.
For all these reasons, we conclude that Prose’s complaint
adequately alleged materiality for purposes of his qui tam ac-
tion. The district court was also willing to go that far. Where
Prose foundered, it thought, was on the final element of the
18 No. 20-2243

claim: knowledge. The court found that the complaint failed
adequately to allege that Molina knew that the government
viewed SNF services as material. In Escobar, the Supreme
Court identified a two-layered knowledge requirement: the
defendant must (1) knowingly violate a requirement while (2)
knowing that the government viewed the requirement as ma-
terial to payment. 136 S. Ct. at 1996. Even though Molina nec-
essarily knew that it had violated the contractual requirement
to provide SNF services, the district court thought that Prose’s
allegations that Molina knew that these services were mate-
rial were conclusory and need not be accepted as true. The
allegations, it said, at most supported a conclusion that Mo-
lina’s actuarial consultants coordinated the payment scheme
with the government. Missing, it thought, was a contention
that Molina was involved in calculating the capitation rates.
This was error. First, the court failed to give proper weight
to the complaint’s description of Molina as a highly sophisti-
cated member of the medical-services industry. Molina was
quite familiar with capitation rates, and it knew that they are
designed to allow the provider to be reimbursed for services
rendered. And recall that this was a risk contract: Molina had
a strong incentive to ensure that the capitation rate was high
enough to cover its costs plus a reasonable profit, because it
would be left holding the bag if the rate were too low. Ruskin,
supra, at 397, 409; Novak, supra, at 5.
In addition, knowledge may be alleged generally, even in
a case under Rule 9(b), and so the district court was wrong to
insist that Prose identify concrete evidence of actual
knowledge. A party seeking to establish liability under the
FCA may satisfy the Act’s knowledge requirement through
proof of actual knowledge, deliberate ignorance of truth or
No. 20-2243 19

falsity, or reckless disregard for truth or falsity. 31 U.S.C.
3729(b)(1)(A)(i)–(iii). Construing the allegations in Prose’s fa-
vor, there is ample detail to support a finding that Molina ei-
ther had actual knowledge that the government would view
skilled nursing services as a critical part of the Nursing Facil-
ity rate cell (i.e., as material), or that it was deliberately igno-
rant on this point. Once again, these high-cost services, essen-
tial to the nursing-home population, were the very reason
why the government paid a capitation rate more than fifty
times as much to support them.
Molina subcontracted for SNF services because it could
not provide those services. Its contract with GenMed recog-
nized that these SNF services “fill the primary care gap” for
Nursing Facility patients. The deal fell apart when Molina at-
tempted to renegotiate its contract with GenMed to reduce the
cost of those services and thus to increase its own profit mar-
gin. Molina therefore knew these services’ cost and their im-
portance, and it knew that it was unable to provide these ser-
vices without a partner such as GenMed. Prose’s complaint
plausibly alleges this knowledge, insofar as it notes that be-
fore the actuarial consultant’s resolution of the cost break-
down, Molina and the government discussed these services at
the proposal stage. Requiring more concrete proof of
knowledge would run afoul of Rule 9(b).
In light of this, we need not rely on Prose’s other argu-
ments. He alleges a scheme to cover up Molina’s noncompli-
ance by having its own personnel perform non-skilled work
for the nursing, such as face-to-face comprehensive assess-
ments and annual comprehensive exams. That practice does
not shed much light on the problem: Molina always admitted
that its personnel were not qualified to provide SNF services,
20 No. 20-2243

and it appears that these exams were merely non-SNF func-
tions that Molina had delegated to GenMed.
Last, we say a word about causation. This too is an element
of an FCA claim: the plaintiff must establish that the defend-
ant’s fraud “was a material element and a substantial factor
in bringing about the injury.” Luce, 873 F.3d at 1012 (internal
quotation omitted). Causation here is evident. By submitting
enrollment forms requesting payment for services Molina
could not provide to Illinois Medicaid, Molina caused the
government to pay significant sums that it would not have
paid with full knowledge. That is enough to satisfy the plead-
ing burden on causation.
Prose’s complaint sufficiently alleges that Molina knew
that SNF services played a major role in the significantly
higher capitation rate for the NF category. It thus suffices for
purposes of his False Claims Act theories. We of course ex-
press no opinion on the ultimate fate of this litigation; we hold
only that Prose may proceed.
III
The final loose end we must address is Molina
Healthcare’s request that it be dismissed from the case. Mo-
lina Healthcare (as we briefly noted at the outset) is Molina’s
parent company. It contends that corporate affiliation is not
enough to support its liability. Given the decision on the mer-
its, the district court did not reach the question of parent-com-
pany liability. Neither do we; it is far too underdeveloped at
this point. But it is an issue that, if properly raised again, the
district court should address on remand.
No. 20-2243 21

The judgment of the district court is REVERSED and the case
REMANDED for further proceedings consistent with this opin-
ion.
22 No. 20-2243

SYKES, Chief Judge, dissenting. “The False Claims Act 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. United States ex rel.
Escobar, 136 S. Ct. 1989, 2003 (2016) (quoting Allison Engine
Co. v. United States ex rel. Sanders, 553 U.S. 662, 672 (2008)).
Our own precedent aligns with this understanding of the
FCA’s reach. See United States v. Sanford-Brown, Ltd.
(“Sanford-Brown II”), 840 F.3d 445, 447 (7th Cir. 2016). The
majority moves our circuit law in a different direction,
establishing a new rule that a mere request for payment
from the government, coupled with material noncompliance
with a contractual condition, is a cognizable FCA violation
subject to the full panoply of remedies authorized by the
Act, including qui tam suits and treble damages. Because
that rule conflicts with Escobar and circuit precedent, I
respectfully dissent.
* * *
The government and Molina Healthcare of Illinois have a
risk contract. Each month the government pays Molina a
fixed sum to provide health coverage for a Medicaid benefi-
ciary, and no matter how expensive that beneficiary’s medi-
cal costs are, Molina is responsible. Molina profits when the
fixed sum—the “capitation rate”—exceeds actual expenses;
it swallows a loss when expenses are in excess.
The contract creates five risk pools called “rate cells” that
correspond to health status, and it fixes capitation payments
by rate cell—higher capitation rates are paid for rate cells
that are likely to require more intensive care. The most
expensive of these rate cells is for an enrollee living in a
nursing facility. To enroll a beneficiary, Molina submits a
No. 20-2243 23

form to the government categorizing the enrollee by rate
cell, and in response the government pays Molina the corre-
sponding amount.
Molina’s contract with the government specifies the
“covered services” that it must provide to enrollees depend-
ing on their rate cells. As relevant here, an enrollee who
resides in a skilled nursing facility is entitled to “SNFist”
services, generally described as “intensive clinical manage-
ment of Enrollees in Nursing Facilities.” Plaintiff–relator
Thomas Prose alleges that for approximately two years,
Molina submitted enrollment forms to the government but
knowingly did not deliver SNFist services to its nursing-
facility enrollees.
To place this allegation in proper context, some back-
ground on the nature of these services is needed. The term
“SNFist” is defined in the contract as a medical professional
“whose entire professional focus is the general medical care
of individuals residing in a Nursing Facility and whose
activities include Enrollee care oversight, communication
with families, significant others, [primary-care providers],
and Nursing Facility administration.” Or as the contract puts
it more succinctly, a SNFist is a medical professional who
“provide[s] Care Management and care coordination activi-
ties” for enrollees residing in nursing facilities. Importantly,
“care management” is not the direct provision of medical
care, personal care, or social services to nursing-home
residents; rather, as the contract defines the term, “care
management” comprises “[s]ervices that assist Enrollees in
24 No. 20-2243

gaining access to needed services, including medical, social,
education, and other services.” 1 (Emphasis added.)
The contract gives Molina the option to provide SNFist
services “either through direct employment or a sub-
contractual relationship,” and its “SNFist Program” may use
either a “facility-based Provider (Physician or nurse practi-
tioner)” or “telephonic or field-based Registered Nurses or
licensed clinical social workers,” depending on the circum-
stances.
Because SNFist services are provided only to enrollees in
nursing facilities, it’s reasonable to assume that the inclusion
of these services plays at least some role in the difference
between the capitation rate for the nursing-facility rate cell
and the rate cell below it. How large a role is unclear; a key
question is whether Prose has alleged sufficient facts to
show that the delivery of SNFist services was material to the
government’s decision to pay Molina for nursing-facility
enrollees during the relevant time period. I will return to the
materiality point later. For now, it’s enough to note that
SNFist services are one component of nursing-home care
among many, and as explained, are contractually defined as
care coordination and management. Moreover, a nursing-
home enrollee is inherently a riskier beneficiary for Molina

1 The majority uses the term “SNF services,” which loosely suggests that
what’s at stake here is a broader spectrum of nursing-facility services.
Not so. Prose’s complaint alleges that from April 2, 2015, to April 5, 2017,
Molina failed to deliver “SNFist services,” a contractually defined term
that is limited to care coordination performed by a SNFist—not a
broader set of services provided by skilled nursing facilities.
No. 20-2243 25

to cover than a lower-tier enrollee, which also partly ex-
plains the difference in capitation rates.
In the majority’s view, because Prose has alleged that
Molina billed the government for the full nursing-facility
capitation rate while failing to provide SNFist services, he
has adequately pleaded an FCA claim for making materially
false statements to the government. That reasoning might
have surface appeal, but once we understand that SNFist
services are just one component of nursing-home care
among many, the error in the majority’s reasoning becomes
clear. Prose’s complaint states a claim for breach of contract,
but it relies on too many factually unsupported inferences to
state a claim for an FCA violation.
* * *
My colleagues begin the analysis by identifying the three
recognized theories of FCA liability: fraud in the inducement
(or promissory fraud), express factual falsity, and implied
false certification. Majority op. at 9. They also explain that
Rule 9(b) of the Federal Rules of Civil Procedure requires an
FCA plaintiff to plead fraud allegations with particularity
rather than simply satisfy the usual plausibility standard. Id.
at 10. I have no disagreement with these basic doctrinal
points. The majority concludes, however, that even under
Rule 9(b)’s demanding standards, Prose has stated an FCA
claim under all three theories. In my view the complaint
does not satisfy the heightened pleading standard under any
of these theories.
A. Fraud in the Inducement
Prose alleges that Molina fraudulently induced the gov-
ernment to renew its contract in 2016 and 2017 by represent-
26 No. 20-2243

ing that it would provide SNFist services for nursing-facility
enrollees while never intending to do so. I agree with the
district judge that Prose’s allegations are too generalized and
conclusory to state a claim under this theory.
To satisfy Rule 9(b), “[t]he complaint must state the iden-
tity of the person making the misrepresentation, the time,
place, and content of the misrepresentation, and the method
by which the misrepresentation was communicated.” United
States ex rel. Grenadyor v. Ukrainian Vill. Pharmacy, Inc.,
772 F.3d 1102, 1106 (7th Cir. 2014) (quotation marks omit-
ted). Prose’s complaint falls far short of checking these
boxes. It includes no details of the contract renewals in 2016
and 2017 and does not point to any specific misleading
statement made by an identified Molina representative, let
alone specify the “time, place, and content” of the statement.
The allegations of promissory fraud are not only vague and
highly generalized, but they are made “[o]n information and
belief,” which is insufficient under Rule 9(b). United States ex
rel. Bogina v. Medline Indus., Inc., 809 F.3d 365, 370 (7th Cir.
2016) (“‘[O]n information and belief’ can mean as little as
‘rumor has it that … .’”). In essence, Prose simply invites us
to assume that because the contract was renewed at a time
when Molina was not providing SNFist services, Molina
necessarily made false statements to the government.
Surprisingly, the majority accepts this invitation to devi-
ate from Rule 9(b) and forgives Prose for not describing the
“who, what, when, where, and how” of the fraud, as re-
quired by the rule. United States ex rel. Presser v. Acacia
Mental Health Clinic, LLC, 836 F.3d 770, 776 (7th Cir. 2016)
(quotation marks omitted). My colleagues say that Prose
cannot be expected to provide these factual particulars at the
No. 20-2243 27

pleading stage because he lacks access to information about
the contract-renewal discussions until discovery opens that
door. Majority op. at 10–11. But we are not at liberty to
loosen pleading standards under circumstances where a
specific false statement is hard to identify. Rule 9(b) raises
the pleading burden “because of the stigmatic injury that
potentially results from allegations of fraud.” Presser,
836 F.3d at 776. Pleading a fraud claim is challenging, but
that’s the point: the rule “deters the filing of suits solely for
discovery purposes” and “guards against the institution of a
fraud-based action in order to discover whether unknown
wrongs actually have occurred.” 5A ARTHUR R. MILLER ET
AL., FEDERAL PRACTICE & PROCEDURE § 1296 (4th ed. 2021). By
permitting Prose to proceed on generic allegations of prom-
issory fraud pleaded “on information and belief,” this case
will become the very “fishing expedition” that Rule 9(b) is
meant to avoid. Vicom, Inc. v. Harbridge Merch. Servs., Inc.,
20 F.3d 771, 777 (7th Cir. 1994).
B. Express Factual Falsity
As my colleagues explain, the archetypal FCA violation
is an express factual falsehood—a “claim for payment [that]
is itself literally false or fraudulent.” United States ex rel.
Hendow v. Univ. of Phoenix, 461 F.3d 1166, 1170 (9th Cir.
2006). The majority reasons that Molina’s enrollment forms
were factually false on their face because they amounted to
“[a] direct assertion that Molina had new enrollees who
were in the skilled nursing facility tier, coupled with an
assertion that [it] was seeking reimbursement for their SNF
services.” Majority op. at 11. This reasoning extends the
factual-falsity theory too far.
28 No. 20-2243

A direct falsehood is an affirmative misrepresentation,
not an omission. For example, in Presser the plaintiff alleged
that a medical clinic submitted claims to the government for
payment using billing codes corresponding to specific
psychiatric services but in fact had performed only nonpsy-
chiatric evaluations. 836 F.3d at 778–79. Thus, the clinic
made an affirmative factual misrepresentation: it billed the
government specifically for service X when it actually pro-
vided service Y. Id. at 779 (“Acacia … allegedly billed
Medicaid for a completely different treatment. The claim
therefore does not involve a misrepresentation by omission;
it involves an express false statement.”).
Here, by contrast, Prose alleges a falsehood by omission:
Molina requested capitation payments at the nursing-facility
rate without disclosing that it did not deliver one of the
many services required by the contract. This allegation does
not describe an affirmative misrepresentation. At most, it
alleges a fraudulent omission, which situates this case within
the theory of implied false certification. We should analyze
Prose’s complaint under that framework, not expand the
theory of facial factual falsity to include misleading omis-
sions.
That was the approach taken by the Supreme Court in
Escobar. There, the plaintiffs alleged that a medical-services
contractor submitted claims for payment to the government
for counseling services it had provided and listed billing
codes and identification numbers corresponding to the
specific services its counselors had provided, along with
their job titles, respectively. The problem was that the coun-
selors “lacked licenses to provide mental health services,
yet—despite regulatory requirements to the contrary—they
No. 20-2243 29

counseled patients and prescribed drugs without supervi-
sion.” 136 S. Ct. at 1997.
The complaint thus alleged a falsehood by omission. The
Court held that allegations of fraudulent omissions might
suffice to state an FCA claim based on a theory of implied
false certification. Id. at 1999. In so holding, the Court de-
scribed the paradigm case of implied false certification as
follows: “When, 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 repre-
sentations misleading with respect to the goods or services
provided.” Id.
Prose’s allegations are best conceptualized as a possible
claim under a theory of implied falsehood. Following
Escobar’s lead, we should not stretch the facial-falsehood
concept but instead analyze the allegations under the rubric
of implied false certification.
C. Implied False Certification
Turning now to the theory that is the closest fit with
Prose’s allegations, I note for starters that my colleagues skip
the threshold requirements announced in Escobar and in-
stead move straight to the second-tier question of materiali-
ty. That approach cannot be squared with Escobar’s
requirements for this type of FCA claim.
Escobar held that a claim for payment might be an action-
able violation of the FCA under a theory of an implied false
certification if two conditions are present: “first, the claim
does not merely request payment[] but also makes specific
representations about the goods or services provided; and
30 No. 20-2243

second, the defendant’s failure to disclose noncompliance
with material statutory, regulatory, or contractual require-
ments makes those representations misleading half-truths.”
136 S. Ct. at 2001.
Prose’s allegations do not satisfy the first of these thresh-
old conditions. Molina’s enrollment forms did not make any
specific representation about the goods or services provided.
They simply enrolled Medicaid beneficiaries by rate cell,
which designated the appropriate capitation rate for a given
enrollee. This rate-cell information was nothing more than a
request for a specific amount of payment for a very broad
swath of services. In Escobar, by contrast, the medical con-
tractor “submit[ed] claims for payment using payment codes
that corresponded to specific counseling services.” 136 S. Ct. at
2000 (emphasis added). In other words, the claims for pay-
ment at issue in Escobar were specific claims that misled the
government into believing something false. Here, Molina’s
enrollment forms made broad payment requests covering a
host of services, only one of which was not delivered. That
does not satisfy Escobar’s first condition for a cognizable
claim of implied false certification.
Indeed, our own precedent confirms that a general re-
quest for payment coupled with some degree of contractual
or regulatory noncompliance is not enough to support a
claim of implied false certification. In United States v. Sanford-
Brown, Ltd. (“Sanford-Brown I”), 788 F.3d 696 (7th Cir. 2015),
vacated United States ex rel. Nelson v. Sanford-Brown, Ltd.,
136 S. Ct. 2506 (2016), reinstated in part by Sanford-Brown II,
840 F.3d at 447, we considered an FCA action brought
against a for-profit college. The school signed a Program
Participation Agreement with the Department of Education
No. 20-2243 31

in which the college agreed to comply with all regulations
under Title IV in exchange for federal subsidies. Id. at 707–
08. The college did not comply with all regulations, yet it
submitted requests for funds anyway. Id. at 708. On remand
from the Supreme Court, we held that the plaintiff had not
satisfied Escobar’s first condition because he “offered no
evidence that defendant Sanford-Brown College … made
any representations at all in connection with its claims for
payment, much less false or misleading representations.”
Sanford-Brown II, 840 F.3d at 447. In other words, a generic
payment request—without specific representations about
the goods or services provided—does not satisfy Escobar’s
first condition and thus cannot suffice as an implied false
certification.
Escobar’s second condition requires the plaintiff to ade-
quately allege (and later prove) that the defendant’s failure
to disclose its noncompliance with a statutory or regulatory
requirement made the specific representation a misleading
half-truth. A half-truth is a “representation[] that state[s] the
truth only so far as it goes, while omitting critical qualifying
information.” Escobar, 136 S. Ct. at 2000. Imagine that the
Green Bay Packers have a bye week and someone makes the
statement, “the Packers didn’t win today.” That’s a classic
half-truth. The statement is true as far as it goes, but it
directly implies a specific falsehood to an unaware fan: that
the Packers lost that day.
Escobar identified some helpful examples of half-truths.
“A classic example of an actionable half-truth in contract law
is the seller who reveals that there may be two new roads
near a property he is selling[] but fails to disclose that a third
potential road might bisect the property.” Id. “Likewise, an
32 No. 20-2243

applicant for an adjunct position at a local college makes an
actionable misrepresentation when his resume lists prior
jobs and then retirement[] but fails to disclose that his ‘re-
tirement’ was a prison stint for perpetrating a $12 million
bank fraud.” Id. Or consider the half-truth at issue in Escobar
itself: the medical contractor’s submission of claims with
payment codes and identification numbers corresponding to
specific job titles and counseling services while not disclos-
ing that the counselors providing the services were unli-
censed. What we can distill from these examples is that a
misleading half-truth arises when a defendant makes a
specific statement (the Packers didn’t win today) that inevi-
tably leads the recipient to assume by implication a particu-
lar falsehood (that the Packers lost).
Prose’s allegations operate at a much higher level of gen-
erality than the allegations in Escobar. In that case there was
a tight link between the specific representations (payment
codes for counseling services and ID numbers for job titles)
and the falsehood inevitably implied by omission (the
counselors corresponding to the identified job titles were in
fact licensed for those positions). Here, there is at most only
a loose association between Molina’s nonspecific representa-
tion (enrolling a Medicaid beneficiary in the nursing-facility
rate cell) and the alleged false implication (that SNFist
services—one among many nursing-facility services—were
actually provided). Where, as here, the defendant’s claim for
payment wouldn’t necessarily lead the recipient to assume
the specific falsehood alleged in the complaint, there is no
half-true statement and thus no falsehood by implication.
Indeed, Molina’s enrollment forms made no specific rep-
resentations about the services provided beyond enrolling a
No. 20-2243 33

beneficiary in a given rate cell, which after all, is just a
request for a certain payment amount. Considering the
multitude of services provided to nursing-home enrollees,
the enrollment forms wouldn’t inevitably lead the govern-
ment to assume any specific falsehood by implication. The
enrollment forms, though perhaps misleading in a general
sense, did not contain a specific half-true statement as
required by Escobar.
* * *
The majority concentrates its implied-falsehood analysis
on the question of materiality, an additional requirement for
a viable FCA claim and one that Escobar also addressed at
some length. A representation is material if “a reasonable
man would attach importance to [it] in determining his
choice of action in the transaction” or if “the defendant knew
or had reason to know that the recipient of the representa-
tion attaches importance to the specific matter.” Id. at 2002–
03 (quotation marks omitted).
My colleagues rely almost entirely on the difference in
capitation rates among rate cells: $3,127 per month for a
nursing-facility enrollee; about $2,500 per month for a
middle-tier enrollee; and $54 for a low-tier enrollee. They
conclude that “[t]he size of the price differential alone offers
strong support for a finding of materiality.” Majority op. at
15; see also id. at 17 (“The contract itself, which fixes the cost
of the NF category well above the other tiers, is powerful
evidence of the materiality of the SNF services.”). But by
omitting SNFist services, Molina didn’t provide middle-tier
service at high-tier rates. Instead, it provided something
close to high-tier service at high-tier rates. By itself, the
difference in capitation rates sheds little light on the materi-
34 No. 20-2243

ality question because nothing in the complaint connects
that difference to SNFist services.
In some cases a large pay differential between two billing
rates might alone be enough to support an inference of
materiality. Not so here. The problem turns again on the
nature of SNFist services. To repeat, SNFist services are care-
coordination services—one of many services provided to
nursing-home enrollees that in the aggregate contribute to
the higher capitation rate. The complaint offers nothing to
explain the effect of these particular services on the govern-
ment’s willingness to pay the nursing-facility capitation rate
for these enrollees. Without some factual contextualization,
we cannot draw an inference that Molina’s nondisclosure
was material to the government’s decision to pay its claims
during the relevant time period.
Think of it this way: If rate cell 1 corresponds to 10 ser-
vices provided at a rate of $2,000 and rate cell 2 corresponds
to those same 10 services plus SNFist services at a rate of
$3,000, then billing at the level 2 rate while not providing
SNFist services would support an inference of materiality at
the pleading stage. If SNFist services are not delivered, then
the contractor is providing only level 1 services, and a
reasonable person would not pay much higher level 2 rates
for receiving only level 1 services.
But now consider a scenario in which rate cell 2 corre-
sponds to 30 services—the 10 in rate cell 1 plus 20 others,
one of which is SNFist services. In that scenario it doesn’t
make sense to rely on the $1,000 price differential in consid-
ering whether the omission of SNFist services is material
because the differential may be largely explained by the 19
other services separating rate cell 1 and rate cell 2. That’s the
No. 20-2243 35

situation here—the difference in capitation rates between the
nursing-home rate and the middle-tier rate is only partially
explained by SNFist services, and nothing in the complaint
illuminates the extent to which those services account for the
differential. Without at least some contextualizing factual
allegations, the capitation-rate differentials are not a useful
metric for assessing materiality.
Of course, materiality might be established in other ways,
but Prose’s remaining arguments are unpersuasive; even the
majority doesn’t make use of them. For example, he points to
the fact that the government specifically discussed SNFist
services during 2013 contract negotiations and asks us to
infer that they were material to the government’s decision to
pay Molina in 2015, 2016, and 2017. But the mere discussion
of a contract term earlier in negotiations doesn’t mean that
its fulfillment is material to a later decision to pay, especially
when the negotiations occurred years before. Prose also asks
us to infer materiality because SNFist services were sup-
posed to be available 24/7 and were coupled with reporting
obligations. But the contract requires every covered service to
be provided 24/7 and is replete with reporting obligations,
which undermines any suggestion that SNFist services had
special status.
Finally, Prose argues that SNFist services are necessarily
material because payment rates are derived from actuarially
precise calculations that included them. This reasoning
suggests that every service under a contract with actuarial
pricing is material. That’s an unsound approach to the
materiality question in this context. Although the contract
may have calibrated the capitation rates to the services the
government expected to be delivered, it doesn’t follow that
36 No. 20-2243

the government would withhold payment if a single one of
those services wasn’t provided.
Escobar characterized the materiality standard as “de-
manding,” 136 S. Ct. at 2003, and Prose has failed to meet it.
Perhaps he could have done so with factual allegations
showing that SNFist services account to a significant degree
for the difference in capitation rates. Or perhaps he could
have alleged that Molina was aware that the government
“consistently refuses to pay claims in the mine run of cases”
if SNFist services are omitted. Id. But we know the opposite
is true, as my colleagues acknowledge. Majority op. at 16–17
(explaining that “the government not only continued paying
[Molina] after Prose brought this case, but it also renewed its
contract with Molina twice during that time”). Escobar
explained that “if the [g]overnment regularly pays a particu-
lar type 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.” Id. at 2003–04. As it is, we’re left with only
generic statements about the importance of SNFist services
and a rate differential without any contextualizing factual
allegations connecting the differential to the omitted ser-
vices. That doesn’t clear the bar.
Even if my analysis of materiality is wrong, the majori-
ty’s conclusion that Prose has stated a claim for implied false
certification essentially establishes a new rule that any claim
for payment while in material noncompliance with a con-
tract or governing law is an actionable violation of the FCA.
As already explained, that conclusion conflicts with Escobar
and circuit caselaw.
* * *
No. 20-2243 37

For these reasons, I would affirm the judgment dismiss-
ing the complaint for failure to state a claim. Prose’s allega-
tions fall short of satisfying Rule 9(b)’s heightened pleading
standard for an actionable FCA claim under any of the three
recognized theories of liability.