Victoria Druding v. Care Alternatives

PRECEDENTIAL

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
__________

No. 22-1035
__________

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
__________

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
__________

Argued on April 25, 2023

Before: KRAUSE, BIBAS, 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 Appellants
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 Fund, 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 Street

2
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 States of America and
Pharmaceutical Research and Manufacturers of
America, in Support of Appellee

__________

OPINION OF THE COURT
__________

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. United States ex rel. Escobar, 579 U.S.
176, 194 (2016). So when a government contractor submits a
claim for payment but fails to disclose a statutory, regulatory,
or contractual violation, that claim does not automatically
trigger FCA liability. Instead, the Act requires that the
contractor’s alleged violation be, among other things,
“material” to the government’s decision to pay. Id. at 192-93.

3
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 assigned dispositive weight to a
single Escobar factor, government action, while overlooking
the factors that could have weighed in favor of materiality—
and despite an open dispute over the government’s “actual
knowledge,” 579 U.S. at 195—we will vacate the District
Court’s grant of summary judgment and remand for further
proceedings consistent with 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 “Interdisciplinary Teams” (“IDTs”),
consisting of registered nurses, chaplains, social workers,
home health aides, and therapists. JA 6. These groups work
alongside independent physicians 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 (“Relators”) 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 this appeal, we will review the
requirements that hospice providers must meet to qualify for
Medicare reimbursement and the False Claims Act.

4
 A. Medicare Hospice Benefit

In 1982, Congress created the Medicare Hospice
Benefit, an amendment to the 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, § 122, 96 Stat. 324, 356-63.
Hospice care is considered palliative care, meaning it is
“patient and family-centered care 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 comfortable as possible.” 48
Fed. Reg. 56,008, 56,008 (Dec. 16, 1983). A patient who has
been certified as eligible for hospice 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 eligible 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 physician, and (2) be accompanied by
“[c]linical information and other documentation that support
the medical prognosis” of terminal 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 “certify in writing . . . that the
individual is terminally ill . . . based on the physician’s or
medical director’s clinical judgment regarding the normal
course of the individual’s illness.” 42 U.S.C.
§ 1395f(a)(7)(A)(i). This certification 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 the medical prognosis must

5
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 life expectancy of 6 months or
less”). As the Center for Medicare and Medicaid Services
(“CMS”), the agency that administers 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 runs its normal course. A signed
certification, absent a medically sound basis that supports the
clinical judgment, is not sufficient 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 the Government.” Escobar, 579 U.S. at
180. The Act makes liable “any person who . . . knowingly
presents, or causes to be presented, 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 happened 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 statement, (2) with scienter, (3)
that was material, (4) causing the government to make a
payment. Escobar, 579 U.S. at 181-82; United States ex rel

6
Petratos v. Genetech Inc., 855 F.3d 481, 487 (3d Cir. 2017)
(citations omitted). “Materiality,” the Court explained in
Escobar, turns on a variety of factors such as: (1) whether the
government has expressly designated the legal requirement at
issue as a “condition of payment”; (2) whether the alleged
violation is “minor or insubstantial” or instead goes to the
“essence of the bargain” between the contractor and the
government; and (3) whether the government made continued
payments, or does so in the “mine run of cases,” despite “actual
knowledge” of the violation. See 579 U.S. at 193 n.5, 194-95
(quotation and citations omitted). As this Court and our sister
circuits have repeatedly recognized, 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-circumstances 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 considerations 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 Hematology & Oncology, P.A., 21
F.4th 1288, 1300 (11th Cir. 2021) (citation omitted); United
States ex rel. Bibby v. Mortg. Invs. Corp., 987 F.3d 1340, 1347
(11th Cir. 2021).

7
 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 provided the government with the
information upon which they intended to rely so that the
government could make an informed decision as to whether it
would intervene and take over the case. 31 U.S.C.
2
§ 3730(b)(2). They alleged that Care Alternatives submitted
fraudulent reimbursement claims to CMS between 2006 and
2007, in violation of the FCA. Their theory is that although
each claim had a physician certification of terminal illness,
there was inadequate clinical documentation supporting that
diagnosis, in violation of 42 C.F.R. § 418.22(b)(2). According
to Relators, § 418.22(b)(2) is the “cornerstone” of the
Medicare Hospice Benefit because without sufficient clinical
documentation supporting a physician’s certification, there is
no way “to ensure that the [physician’s] certification is
accurate,” and thus, that hospice care goes to its intended
beneficiaries. Reply Br. 12, 15.

In 2015, seven years after the Complaint was filed, the
government notified the District Court that it would not
intervene but that it nevertheless wished to remain an interested
party in the proceedings. Relators opted to proceed
independently and served the operative First Amended
Complaint upon Care Alternatives.3

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

2
As discussed below, the Department of Health and
Human Services, Office of the Inspector General (“HHS-
OIG”) also issued a subpoena in November 2009 for the
medical records of 112 patients 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 and violations of the federal
Anti-Kickback statute, but not Relators’ FCA claims regarding
inappropriate hospice certifications, which are now before us.

8
physician certifications were accompanied by supporting
documentation. He examined the records of forty-seven
patients and opined that the documents did not support hospice
eligibility in thirty-five percent of those patients’ hospice
certification periods. In his view, any reasonable physician
would have reached the same conclusion.

Care Alternatives’ expert, Dr. Christopher Hughes,
M.D., disagreed. For each certification 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 employees, including Relators, who
testified to whether Care Alternatives admitted or recertified
patients who did not have a documented 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 Certified Public Accountant, who
calculated, based on Dr. Jayes’ schedule of inadequately
documented patient billings, that 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 failure to show falsity. Druding v. Care
Alts., Inc., 346 F. Supp. 3d 669, 685, 688 (D.N.J. 2018). It
viewed the mere “difference of opinion” between experts
regarding the accuracy of a patient’s prognosis as insufficient
to create a triable dispute of fact as to the element of falsity.
Id. at 688 (citation omitted). It therefore concluded that: “there
[wa]s no factual evidence” that 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 payment set by the government.”
United States ex rel. Druding v. Care Alts., Inc., 952 F.3d 89,

4
Their testimony is summarized infra Section III.B.1.

9
97 (3d Cir. 2020) (citations omitted). So the District Court
should have considered evidence (such as Dr. Jayes’ report)
that was relevant to whether Care Alternatives complied with
regulatory requirements, including that the physician’s
certification be accompanied by “‘[c]linical information and
other documentation that support the medical prognosis [of
terminal illness].’” Id. (quoting 42 C.F.R. § 418.22(b)(2)).
Because there was substantial evidence 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 Court found sufficient 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 claims seeking payment” yet never
“refused any of Care Alternatives’ claims, despite the
inadequacy or missing supporting 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 documentation was not the result
of its having concluded those inadequacies were immaterial to
its decision to make those payments anyway,” or that “the
Government ever stopped reimbursing Care Alternatives after
it was made aware of the false, 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 necessity and thus did not always
comply with the Medicare/Medicaid regulations governing
payment.” JA 14.

10
 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 shows 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 marks 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 jury could have concluded that
Care Alternatives’ submission of hospice reimbursement
claims for patients with insufficiently documented need for
hospice care was a “material” violation under the FCA. In
Relators’ view, Escobar’s first and second factors—whether
the legal requirement is a “condition 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 government “expressly identif[ied] a
provision as a condition of payment.” Id. at 194.

11
 Here, it is undisputed that § 418.22(b)(2)’s
documentation requirement is a condition of payment. Per
CMS regulation, hospice providers may not bill CMS for their
services without “[c]linical information and other
documentation that support the medical prognosis
[accompanying] the certification 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 provision 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 expressly designate a provision as a
condition of payment may “signal[] 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 concept, 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 material 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 identified as a condition of payment
does not, in and of itself, support 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 Government would have the option to
decline to pay if it knew of the defendant’s noncompliance”).
However, it is “‘certainly probative evidence of materiality.’”
United States ex rel. Lemon 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 (9th Cir. 2018)). And here,
Relators have adduced evidence that bears on the importance
of § 418.22(b)(2)’s documentation requirement and the

12
substantiality of Care Alternatives’ 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 Instead Went to the “Essence
of the Bargain”

Escobar’s second factor asks whether the
“noncompliance is minor or insubstantial,” 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 argues that its purported violations
of 42 C.F.R. § 418.22(b)(2) are insignificant because “[e]very
patient” who is “part of this lawsuit[] had a certification of
hospice eligibility, signed by an appropriate physician . . . and
[n]o one is disputing that the staff at Care Alternatives
provided good, compassionate care.” Answering Br. 32-33
(quotation omitted). But the physicians’ 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 payment, which “support[ed] the
District Court’s materiality finding” along with a lack of
“evidence of past relevant Government (in)action”; and
evidence showing that compliance was “essential to the
bargain”); Bibby, 987 F.3d at 1352 (reversing summary
judgment where “both the requirement’s designation as a
condition of payment and its centrality to the government
program favor materiality” despite “countervailing evidence of
the VA’s knowledge and its reaction to noncompliance”
because “[t]o resolve the issue by weighing conflicting
evidence was error”) (citation omitted); United States ex rel.
Miller v. Weston Educ., Inc., 840 F.3d 494, 504 (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”).
13
579 U.S. at 194. And here, those alleged violations are Care
Alternatives’ certifications of patients with insufficient clinical
documentation to support a terminal 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 for application of the hospice
benefit.” 70 Fed. Reg. 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 basis 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, § 418.22(b)(2) helps ensure that
hospice care goes to those who actually 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 government 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 hospice benefits, and therefore,
that they remain eligible 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”).

14
 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 most favorable to [Relators],”
Reedy, 615 F.3d at 209 (quotation omitted), shows that (1) Care
Alternatives’ documentation deficiencies were pervasive; (2)
Care Alternatives was aware of the gravity of its
noncompliance; and (3) Care Alternatives’ patients were
potentially ineligible, as a medical 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 found, “there is [] significant
evidence in the record . . . that Care Alternatives had
longstanding problems with maintaining 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 support 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 constant, constant fight to make
sure the documentation was good,’ i.e. that it was ‘accurate,’
‘clinical, ‘made sense,’ and ‘made its way to the charts,’” id. at
*4. Indeed, as a 2007 internal audit revealed, Care
Alternatives’ “maintenance of the 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).

15
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 third quarter, and 43.6% in the
fourth quarter. Id. at 13. In view of this evidence, a reasonable
jury could find that Care Alternatives’ 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) (contractor’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 Davis-Beacon violations would ‘likely’
so affect the ‘behavior of the recipient of the alleged
misrepresentation’” weighed in favor of materiality (quoting
Escobar, 579 U.S. at 193)). For instance, 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 requisite 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 testified that he brought in
an outside consultant, Toni Swick, to train employees on CMS
documentation requirements.

This is also not a case where it is beyond dispute that
the patients were, in fact, terminally ill. To be sure, Relators
do not proceed under the theory 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 we

16
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 discusses times when “[c]linical
evidence contradict[ed] [the] hospice diagnosis,” Jayes Report
5, and when “[s]ervices continu[ed] despite patient
stabilization or clarification of erroneous admission
information so that [the] patient no longer ha[d] a six month
prognosis,” id. at 6. The testimony of certain employees also
raises doubts about patients’ substantive eligibility, as Relators
summarize. Some employees “testified that the medical
records could not have supported hospice eligibility because
these patients did not have the signs and symptoms that would
meet the criteria necessary [to] make them eligible for
hospice”; others testified that “they were directed by Care
Alternatives to alter medical records, 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 who 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, constantly 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 conclude, based on the evidence

9
That uncertainty distinguishes this case from United
States ex rel. Spay v. CVS Caremark Corp., which involved an
FCA suit against a CVS pharmacy that filled in “dummy
Prescriber IDs” on CMS reimbursement forms in lieu of
patients’ actual physicians’ IDs. 875 F.3d 746, 750-51 (3d Cir.
2017). In Spay, there was no question that “[t]he claims
themselves were neither false nor fraudulent” and that CMS
accepted this “workaround” as a “technical, formulaic way of
preventing a computer program 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.

17
presented, that Care Alternatives’ 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 rather, that Care Alternatives’
violations went to the “essence 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 Allegations 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 knowledge that certain requirements
were violated, that is very strong evidence that those
requirements are not material. Or, if the Government
regularly pays a particular type of claim in full despite
actual 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 candidly 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 issues surrounding substantive
eligibility, a jury might consider 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 evidence definitively points towards
materiality—it does not—but because on this record, a
reasonable jury could conclude that Care Alternatives’ alleged
violations were material.

18
 The District Court concluded based solely on this factor
that Care Alternatives’ alleged violations were, as a matter of
law, immaterial. Specifically, it reasoned: (1) the government
continually reimbursed Care Alternatives despite knowledge
of the inadequacies in its documentation, and (2) Relators
produced “no evidence” explaining away “the Government’s
apparent disregard” of those inadequacies, 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 Alternatives’ 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 certifications 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 reviewing its reimbursement claims.

Care Alternatives appears 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 November 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 acquired “actual knowledge” of
Care Alternatives’ alleged violations, or at least, of the full
gravity of those alleged violations.

Presumably, the government would have uncovered
significant deficiencies in Care Alternatives’ documentation

19
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’ testimony that Care Alternatives’
providers charted to “paint a picture” 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 inappropriate 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 enforcement tools, including its
ability to recoup prior 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 materiality were stymied by the
government’s choice not to intervene, this would undermine
the purposes of the [False Claims] 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 payment decisions rather than post-
hoc prosecutions or other 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 irrelevant 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”).

20
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 immateriality. 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 allegations 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 some 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 violation of 42 C.F.R. § 424.22(a)(2)—
has no bearing on the materiality analysis.”); United States ex
rel. USN4U, LLC v. Wolf Creek Fed. Servs., Inc., 34 F.4th 507,
517 (6th Cir. 2022) (“[T]he facts alleged in this case do not
indicate that NASA had ‘actual knowledge’ that Wolf Creek
did in fact submit falsely inflated 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 government'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 necessarily have knowledge of all
the material facts.”).

21
Alternatives’ billing documentation was not the result of its
having concluded those inadequacies 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 genuine 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 Relators’ 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 judgment and remand for further
proceedings consistent with this opinion.

17
Although materiality is a jury question in this case,
summary judgment may be proper in others. See Escobar, 579
U.S. at 195 n.6 (rejecting assertion “that materiality is too fact
intensive for courts to dismiss False Claims Act cases on a
motion to dismiss or at summary judgment”).

22