United States Ex Rel. Hutcheson v. Blackstone Medical, Inc.

United States Court of Appeals
For the First Circuit

No. 10-1505

UNITED STATES OF AMERICA EX REL.
SUSAN HUTCHESON AND PHILIP BROWN,

Plaintiffs, Appellants,

v.

BLACKSTONE MEDICAL, INC.,

Defendant, Appellee.

APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS

[Hon. William G. Young, U.S. District Judge]

Before

Lynch, Chief Judge,
Lipez and Howard, Circuit Judges.

Jennifer M. Verkamp, with whom Frederick M. Morgan, Jr. and
Morgan Verkamp LLC were on brief, for appellants.
Charles W. Scarborough, Appellate Staff, Civil Division,
Department of Justice, with whom Tony West, Assistant Attorney
General, Carmen Ortiz, United States Attorney, and Douglas N.
Letter, Appellate Staff, Civil Division, Department of Justice,
were on brief, for the United States, amicus curiae.
Catherine E. Stetson, with whom Peter S. Spivack, Jonathan
L. Diesenhaus, Jessica L. Ellsworth, Lillian S. Hardy, Stephanie
L. Carman, Hogan Lovells US LLP, Douglas Hallward-Driemeier,
Kirsten V. Mayer, and Ropes & Gray LLP were on brief, for
appellee.

June 1, 2011
 LYNCH, Chief Judge. In this qui tam action brought under

the False Claims Act (FCA), 31 U.S.C. § 3729 et seq., relator Susan

Hutcheson appeals from a Rule 12(b)(6) dismissal of her claims

against Blackstone Medical, Inc. (Blackstone).

Hutcheson argues that Blackstone "knowingly" "cause[d]"

hospitals and physicians to submit materially "false or fraudulent"

claims to Medicare, Medicaid, and TRICARE in violation of 31 U.S.C.

§ 3729(a)(1) & (2). She alleges that Blackstone engaged in a

nationwide kickback scheme to induce physicians to use its medical

devices in spinal surgeries and that Blackstone knew this scheme

would cause physicians and hospitals (unwittingly) to present

federal healthcare programs with payment claims that contained

material misrepresentations. We need only address Hutcheson's

claims as they relate to the Medicare program. The United States

has not intervened in this suit brought on its behalf, though it

has supported Hutcheson as an amicus, both in the district court

and on appeal.

Hutcheson and the United States argue that a claim is

"false or fraudulent" under the FCA if it does not meet a material

precondition of payment. They argue that compliance with the Anti-

Kickback Statute (AKS), 42 U.S.C. § 1320a-7b, is a precondition for

Medicare reimbursement and thus that Blackstone, in providing the

alleged kickbacks, caused the hospitals and physicians at issue in

this suit to submit false or fraudulent claims. In making this

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argument, Hutcheson and the United States invoke both the specific

terms of provider agreements and hospital cost reports as well as

elements of the broader statutory scheme. They argue, moreover,

that the hospital and physician claims at issue in this suit were

materially false or fraudulent because the alleged kickbacks would

have been capable of influencing Medicare's decision whether to pay

the claims had it been aware of them.1

Blackstone argues that a claim can only be false or

fraudulent under the FCA if it (1) misstates facts, (2) incorrectly

certifies compliance with a statute or regulation, or (3) does not

meet an express condition of payment stated in a statute or

regulation. Blackstone argues that the claims at issue here do not

meet any of these criteria. It argues that Hutcheson has neither

alleged that the claims contain factual misstatements, nor

identified an express certification or an express condition of

payment from a statute or regulation that would disallow payment in

light of the alleged kickbacks. Blackstone also argues that even

if the claims were false or fraudulent, they were not materially

false or fraudulent because the claims made by hospitals and the

services provided by physicians were not influenced by kickbacks.

1
Hutcheson and the United States also argue that
violations of the AKS inherently render claims to federal
healthcare programs materially false or fraudulent under the FCA.
We need not reach this broader argument.

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 The district court held that Hutcheson's allegations did

not state a claim under the FCA for purposes of Rule 12(b)(6).

United States ex rel. Hutcheson v. Blackstone Med., Inc., 694 F.

Supp. 2d 48 (D. Mass. 2010). It held that the hospital claims were

not false or fraudulent, and that while the doctor claims were

false or fraudulent, those claims were not materially false or

fraudulent. We reverse.

After reviewing the facts and the district court's

analysis, we reject two purported limitations on FCA liability

Blackstone advances, one of which was adopted by the district court

and the other of which appears to draw support from the district

court's opinion. First, we reject the argument that, in the

absence of an express legal representation or factual misstatement,

a claim can only be false or fraudulent if it fails to comply with

a precondition of payment expressly stated in a statute or

regulation. Second, we reject the argument that a submitting

entity's representations about its own legal compliance cannot

incorporate an implied representation concerning the behavior of

non-submitting entities. These purported limitations do not appear

in the text of the FCA and are inconsistent with our case law.

Having rejected these two purported limitations, we hold

that Hutcheson's complaint, in alleging that the hospital and

physician claims represented compliance with a material condition

of payment that was not in fact met, states a claim under the FCA

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that the hospital and physician claims for payment at issue in this

case were materially false or fraudulent. It follows that

Hutcheson has stated a claim that Blackstone knowingly caused the

submission of materially false or fraudulent claims in violation of

the FCA. In reaching this conclusion, we do not adopt the

judicially created conceptual framework employed by the district

court, nor do we adopt any categorical rules as to what counts as

a materially false or fraudulent claim under the FCA.

I.

Hutcheson was employed by Blackstone as a Regional

Manager from January 2004 until she was terminated in January 2006.

She filed this qui tam action against Blackstone on September 29,

2006.2 On November 21, 2008, more than two years later, the case

was unsealed after the United States filed a notice stating that it

would not intervene at that time because it was still investigating

the claim.

At the time Hutcheson filed her complaint, the FCA

imposed liability on any person who either "knowingly presents, or

causes to be presented to an officer or employee of the United

States Government . . . a false or fraudulent claim for payment or

approval," 31 U.S.C. § 3729(a)(1), or "knowingly makes, uses, or

2
Originally, Philip Brown was also named as a relator in
this suit. Brown worked as an independent distributor for
Blackstone in 2004. The district court dismissed Brown for failure
to satisfy the "original source" requirement of 31 U.S.C.
§ 3730(e)(4)(B), and that dismissal has not been appealed.

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causes to be made or used, a false record or statement to get a

false or fraudulent claim paid or approved by the Government," id.

§ 3729(a)(2). A person acts "knowingly" if he or she "(1) had

actual knowledge of the information; (2) acts in deliberate

ignorance of the truth or falsity of the information; or (3) acts

in reckless disregard of the truth or falsity of the information."

Id. § 3729(b). The FCA also stated that the term "knowingly"

requires "no proof of specific intent to defraud." Id. The

statute has since been amended, but we refer to the provisions in

force at the time of filing.3

Hutcheson's complaint alleges that Blackstone paid

kickbacks to doctors across the country so they would use its

3
In 2009, Congress passed the Fraud Enforcement Recovery
Act (FERA), Pub. L. No. 111-21, 123 Stat. 1617 (2009), which
amended the FCA and re-designated § 3729(a)(1) as § 3729(a)(1)(A),
§ 3729(a)(2) as § 3729(a)(1)(B), and § 3729(b) as §§ 3729(b)(1)(A)
& (B). Hutcheson's amended complaint cited to the re-designated
FCA provisions. In dismissing Hutcheson's complaint, the district
court did not address the application of FERA to the FCA.
Under the revised provisions, FCA liability attaches to any
individual who "knowingly presents, or causes to be presented, a
false or fraudulent claim for payment or approval," 31 U.S.C.
§ 3729(a)(1)(A), or "knowingly makes, uses, or causes to be made or
used, a false record or statement material to a false or fraudulent
claim," id. § 3729(a)(1)(B). The amended § 3729(b) is identical
to the prior version except for internal subdivisions.
We have recognized that § 3729(a)(1)(B), but not
§ 3729(a)(1)(A), was made retroactive to "all claims" under the FCA
pending on or after June 7, 2008. United States ex rel.
Loughren v. Unum, 613 F.3d 300, 306 n.7 (1st Cir. 2010) (quoting
FERA § 4(f), 123 Stat. at 1625). We have not addressed the meaning
of "claims" under FERA, and we need not do so here. Neither party
argues that § 3729(a)(1)(B) is relevantly different from the
earlier provision.

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products in certain spinal surgeries. These kickbacks, Hutcheson

alleges, included "monthly payments under sham consulting

agreements; paid development projects; research grants; royalties;

exorbitant and sometimes illicit entertainment expenses; high-end

travel and accommodations; speaking engagements and seminars[;] and

other illegal incentives." Hutcheson alleged that Blackstone's

management supervised the kickback scheme and "knew that Medicare,

Medicaid, and other federal program beneficiaries represent a

significant percentage of spine-surgery patients," and that as a

result of the kickbacks, doctors across the country had performed

spinal surgeries on Medicare and Medicaid patients using

Blackstone's devices.

Hutcheson argues that compliance with the AKS is a

condition of receiving payment from federally-funded healthcare

programs, including Medicare, Medicaid, and TRICARE. The AKS

prohibits the payment and receipt of kickbacks in return for either

procuring or recommending the procurement of a good, facility, or

item to be paid in whole or in part by a federal healthcare

program. 42 U.S.C. § 1320a-7b(b). Hutcheson alleges that through

its kickback scheme, Blackstone "knowingly cause[d]" healthcare

providers to present "false or fraudulent" claims for payment to

federal healthcare programs.4 The complaint focuses on the

4
Hutcheson has not distinguished between the requirements
of 31 U.S.C. § 3729(a)(1) and 31 U.S.C. § 3729(a)(2). However, she
appears to assert a violation under § 3729(a)(1). That sub-section

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submission of claims to Medicare; it only summarily references the

submission of claims to Medicaid and TRICARE, so we address these

types of claims for payment no further.5

The complaint detailed the contents of two types of

documents pertinent to the claims for Medicare reimbursement. Both

hospitals and physicians must sign a Provider Agreement in order to

establish eligibility to receive reimbursement from Medicare. This

states:

I agree to abide by the Medicare laws,
regulations and program instructions that
apply to [me]. . . . I understand that payment
of a claim by Medicare is conditioned upon the
claim and the underlying transaction complying
with such laws, regulations, and program
instructions (including, but not limited to,
the Federal anti-kickback statute and the
Stark law), and on the [provider's] compliance
with all applicable conditions of
participation in Medicare.

(Alterations in Complaint). Hospitals, but not doctors, must

submit a Hospital Cost Report along with their claims for

reimbursement. This states:

refers to the submission of false or fraudulent claims, while
§ 3729(a)(2) refers to statements that accompany false or
fraudulent claims. We need not reach questions concerning the
distinction between these provisions, which have not been asserted
by either party.
5
As the district court held, Hutcheson's complaint
"contains no allegations regarding certifications or requirements"
for federal healthcare programs other than Medicare, "such as
Medicaid and TRICARE." United States ex rel. Hutcheson v.
Blackstone Med., Inc., 694 F. Supp. 2d 48, 65 (D. Mass. 2010).

-8-
 Misrepresentation or falsification of any
information contained in this cost report may
be punishable by criminal, civil and
administrative action, fine and/or
imprisonment under federal law. Furthermore,
if services identified in this report [were]
provided or procured through the payment
directly or indirectly of a kickback or where
otherwise illegal, criminal, civil and
administrative action, fines and/or
imprisonment may result.

The signatory of the Hospital Cost Report must certify:

To the best of my knowledge and belief, it
[the Hospital Cost Report] is a true, correct
and complete statement prepared from the books
and records of the provider in accordance with
applicable instructions, except as noted. I
further certify that I am familiar with the
laws and regulations regarding the provisions
of health care services, and that the services
identified in this cost report were provided
in compliance with such laws and regulations.

The federal Centers for Medicare and Medicaid Services (CMS)

standardizes these forms. Hutcheson argues that the forms

establish that claims for Medicare reimbursement may only be paid

if they comply with the AKS. Before the district court, Hutcheson

also argued that Congress has independently made clear that

compliance with the AKS is a precondition of Medicare payment.

Blackstone moved to dismiss the case,6 raising three

arguments. First, it argued that the complaint was barred by the

6
Blackstone also moved to transfer the case on the ground
that it was similar to a then-pending case against Blackstone in
the Eastern District of Arkansas, United States ex rel. Thomas v.
Bailey, No. 4:06CV465, 2008 WL 4853630 (E.D. Ark. Nov. 6, 2008).
The district court rejected Blackstone's transfer motion.

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FCA's first-to-file and public disclosure rules. See 31 U.S.C.

§ 3730(b)(5), (e)(4)(A). Second, it argued that the complaint

failed to state a claim under the FCA for purposes of Rule

12(b)(6). Third, it argued that the complaint failed to meet the

pleading standard for fraud under Rule 9(b).

The district court held that the case was not

jurisdictionally barred by the FCA's first-to-file rule or public

disclosure rule. As to the first-to-file rule, it held that under

United States ex rel. Duxbury v. Ortho Biotech Products, L.P., 579

F.3d 13 (1st Cir. 2009), the action had sufficiently different

facts from a previously filed case, United States ex rel. Thomas v.

Bailey, No. 4:06CV465, 2008 WL 4853630 (E.D. Ark. Nov. 6, 2008),

such that it was not barred. As to the public disclosure rule, it

held that though Blackstone's alleged kickback scheme had been

publicly disclosed in a complaint in another action, Berrios v.

Blackstone Medical, Inc., No. 05-17339 (Brevard Co., Fla., filed

May 16, 2005), Hutcheson's claims were not barred because she was

an "original source" within the meaning of the FCA. See 31 U.S.C.

§ 3730(e)(4)(B).

On the merits, the district court dismissed Hutcheson's

complaint for failure to state a claim under Rule 12(b)(6).

Drawing on case law from beyond this circuit, the district court

outlined a framework it thought appropriate to analyze claims under

the FCA. It held that to state a claim under the FCA, a plaintiff

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must allege that the defendant "(1) knowingly presented or caused

to be presented, (2) a false claim, (3) to the United States

government, (4) knowing its falsity, (5) which was material, (6)

seeking payment from the federal treasury." Hutcheson, 694 F.

Supp. 2d at 61. The district court's definition of "false," a

shorthand for "false or fraudulent," and its definition of

"material" are particularly relevant on appeal.

Although the FCA itself does not contain the following

distinctions, the district court construed the statute such that a

claim is "false or fraudulent" if it is either "factually false" or

"legally false." A factually false claim, it held, is a claim "in

which the goods or services provided are either incorrectly

described, or make [a] claim for a good or service never provided."

Id. at 62. A legally false claim, it held, is a claim in which "a

party certifies compliance with a statute or regulation as a

condition to government payment, but did not actually comply with

the statute or regulation." Id.

The district court further construed the statute such

that a claim can be legally false either "under an express

certification theory" or "under an implied certification theory."

Id. Under the express certification theory, a claim is false if it

expressly certifies compliance with a statute or regulation yet

fails to meet the requirements of that statute or regulation. Id.

Under the implied certification theory, a claim is false when the

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claimant makes no express certification of "compliance with a

statute or regulation, but by submitting a claim for payment,

implies that it has complied with any preconditions to payment"

contained in statutes or regulations. Id. at 63, 66.

The district court also held that claims are "materially"

false if they have "a natural tendency to influence, or be capable

of influencing, the payment or receipt of money or property" from

the government. Id. at 64 (quoting United States ex rel. Longhi v.

Lithium Power Techs., Inc., 575 F.3d 458, 470 (5th Cir. 2009))

(internal quotation marks omitted). It held that "materiality is

a separate element of a claim under the [FCA]" such that "analysis

of whether the claim is false vel non ought not be based on the

materiality of the false statement." Id. at 63.

Applying this framework, the district court held that

Hutcheson's complaint failed to identify a claim that was

materially false or fraudulent for purposes of the FCA.7 The

district court divided its analysis between Hutcheson's allegations

concerning claims filed by hospitals and her allegations concerning

claims filed by physicians.

As to the hospital claims, the district court held that

these claims were not false or fraudulent. It did not address the

possibility that the claims were factually false. Under the

7
In light of this holding, it did not address whether
Hutcheson had pled fraud with sufficient particularity under Rule
9(b).

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express certification theory, the district court held that (1) the

Hospital Cost Report was not specific enough to create an express

certification of compliance with the AKS, and (2) although the

Provider Agreement created such a certification, "as written, this

certification is specific to the party seeking reimbursement." Id.

at 66 & n.13. Under the implied certification theory, it held that

the relevant statutes and regulations did not expressly condition

Medicare payment on compliance with the AKS, and that a

precondition to payment "cannot be hidden in an enrollment form."

Id. at 66.

As to the physician claims, the district court held these

claims were not materially false or fraudulent. The court held

that doctors who, while receiving kickbacks, submitted claims to

Medicare for surgeries utilizing Blackstone products, had submitted

expressly false certifications of compliance with the AKS. Id. It

also held that Hutcheson had sufficiently alleged that Blackstone

"knowingly caused the submission of these false claims." Id.

Nonetheless, the district court held that the claims were not

materially false or fraudulent because they sought reimbursement

for the physicians' services, not for their use of the Blackstone

devices. Id. at 66-67. The court stated that because Hutcheson

had not alleged that the kickbacks induced doctors to submit claims

for "medically unnecessary surgeries," the misrepresentations had

not influenced the government's payment decisions. Id.

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 II.

Hutcheson timely appealed and her appeal is supported by

the United States. We review de novo the grant of a motion to

dismiss under Rule 12(b)(6), accepting as true all well-pleaded

facts, analyzing those facts in the light most hospitable to the

plaintiff's theory, and drawing all reasonable inferences for the

plaintiff. Gagliardi v. Sullivan, 513 F.3d 301, 305 (1st Cir.

2008). A suit will be dismissed if the complaint does not set

forth "factual allegations, either direct or inferential,

respecting each material element necessary to sustain recovery

under some actionable legal theory." Id. (quoting Centro Medico

del Turabo, Inc. v. Feliciano de Melecio, 406 F.3d 1, 6 (1st Cir.

2005)) (internal quotation marks omitted).

This appeal concerns whether Hutcheson's complaint

identified a false or fraudulent claim that is material within the

meaning of the FCA.8 The parties agree that a claim is false or

8
Blackstone argues that the district court's dismissal may
be affirmed on the independent grounds that (1) the suit is barred
by the FCA's public disclosure provision and (2) Hutcheson has
failed to adequately plead fraud under Rule 9(b). The district
court rejected Blackstone's first argument and did not reach its
second argument. We reject both of these arguments.
As to the first argument, it is clear that this action is not
barred because Hutcheson was an "original source of the
information" under 31 U.S.C. § 3730(e)(4). Blackstone's argument
to the contrary primarily concerns whether allegations that either
(1) pertained to the time when Hutcheson was not employed by
Blackstone, or (2) were added to Hutcheson's amended complaint,
thereby failed to meet the "original source" requirements under 31
U.S.C. § 3730(e)(4)(B). Even if those particular allegations are
barred, and we do not decide the question, the other allegations

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fraudulent if it contains factual misstatements on its face.9 They

advance different theories as to when a claim is false or

fraudulent due to a legal misrepresentation. Hutcheson argues that

a claim is false or fraudulent due to legal misrepresentation if it

fails to meet a "condition of payment" and there is a "material

nexus" between the "wrongful conduct" and "the government's

decision to expend funds." Blackstone argues that a claim is false

or fraudulent due to legal misrepresentation if it (1) incorrectly

certifies compliance with a statute or regulation or (2) fails to

meet an express condition of payment stated in a statute or

regulation.

We need not weigh the abstract merits of these competing

theories. The two theories overlap in significant part: all claims

that would be false or fraudulent under Blackstone's theory would

remain. As to these remaining allegations, Blackstone only argues
that Hutcheson insufficiently alleged that she "provided the
information to the Government before filing" as required by 31
U.S.C. § 3730(e)(4)(B). Hutcheson's complaint stated that she
disclosed the allegations to the United States Attorneys' Office
for the Middle District of Florida in the "Summer of 2006" "prior
to filing." This is more than enough.
As to the second argument, Rule 9(b) is not a proper
alternative ground for affirmance. The district court never
considered this argument. It is up to the court in the first
instance to weigh the adequacy of the complaint for purposes of
Rule 9(b) and, if appropriate, to provide "an opportunity to
correct [any] pleading deficiencies." United States ex rel. Poteet
v. Bahler Med., Inc., 619 F.3d 104, 115 (1st Cir. 2010).
9
The parties describe this state of affairs differently.
Hutcheson refers to it as "facial falsity," while Blackstone refers
to it as "factual falsity." Both parties contrast this type of
falsity with "legal falsity."

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also be false or fraudulent under Hutcheson's, but not vice versa.

The underlying legal dispute concerns two issues. First, the

parties dispute whether a claim may be false or fraudulent for

failure to meet an implied legal condition of payment that is found

in a source other than a statute or regulation. Second, the

parties dispute whether representations made by a submitting entity

with respect to its own legal compliance may encompass a legal

precondition of payment applicable to non-submitting entities.

III.

Before we turn to these two purely legal issues and the

specific pleadings in Hutcheson's complaint, we comment briefly on

the conceptual divisions the district court employed. The district

court's analysis turned on distinctions between (1) factually false

or fraudulent claims and legally false or fraudulent claims, as

well as, (2) claims rendered legally false or fraudulent by an

"express certification" and claims rendered legally false or

fraudulent by an "implied certification." The parties dispute the

value of these distinctions, but this dispute is an abstract one.

We decline to employ the district court's categories here.

In adopting these two distinctions, the district court

did draw on case law from some other circuit courts. In the

context of the FCA's lengthy history, which dates back to its

enactment during the Civil War, see United States v. Rivera, 55

F.3d 793, 709-10 (1st Cir. 1995), these judicially created formal

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categories are of relatively recent vintage. They have not been

adopted by the Supreme Court or this court.

The distinction between factually and legally false or

fraudulent claims appears to derive from a 2001 decision of the

Second Circuit. See Mikes v. Straus, 274 F.3d 687, 696 (2d Cir.

2001) (citing Robert Fabrikant & Glenn E. Solomon, Application of

the Federal False Claims Act to Regulatory Compliance Issues in the

Health Care Industry, 51 Ala. L. Rev. 105, 111-12 (1999)). The

distinction between express and implied certification appears to

have emerged in circuit case law in a series of decisions at

roughly the same time. See Shaw v. AAA Eng'g & Drafting, Inc., 213

F.3d 519, 531-33 (10th Cir. 2000); United States ex rel. Siewick v.

Jamieson Sci. & Eng'g, Inc., 214 F.3d 1372, 1376 (D.C. Cir. 2000);

Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 786 n.8

(4th Cir. 1999)).

At least three circuits have since applied these two

distinctions in concert. See United States ex rel. Kirk v.

Schindler Elevator Corp., 601 F.3d 94, 113-14 (2d Cir. 2010), rev'd

on other grounds, 131 S. Ct. 1885 (2011); United States ex rel.

Lemmon v. Envirocare of Utah, Inc., 614 F.3d 1163, 1167-69 (10th

Cir. 2010); United States ex rel. Quinn v. Omnicare Inc., 382 F.3d

432, 441 (3d Cir. 2004).10 None of these cases addressed the

10
Drawing on the opinion below, three district court
decisions in this circuit have as well. See United States ex rel.
Lisitza v. Johnson & Johnson, Nos. 07-10288-RGS & 05-11518-RGS,

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possibility of imposing FCA liability on a defendant who had caused

another entity to present a materially false or fraudulent claim

for payment to the government.

Courts have created these categories in an effort to

clarify how different behaviors can give rise to a false or

fraudulent claim. Judicially-created categories sometimes can help

carry out a statute's requirements, but they can also create

artificial barriers that obscure and distort those requirements.

The text of the FCA does not refer to "factually false" or "legally

false" claims, nor does it refer to "express certification" or

"implied certification." Indeed, it does not refer to

"certification" at all. See United States ex rel. Hendow v. Univ.

of Phoenix, 461 F.3d 1166, 1172 (9th Cir. 2006) (refusing to give

the term "certification" a "paramount and talismanic significance"

in part because it does not appear in the text of the FCA). In

light of this, and our view that these categories may do more to

obscure than clarify the issues before us, we do not employ them

here.

IV.

Two purely legal issues are raised on appeal concerning

when implied misrepresentations and third-party actions can give

2011 WL 673925, at *10, (D. Mass. 2011); United States ex rel. Rost
v. Pfizer, Inc., 736 F. Supp. 2d 367, 375-76 (D. Mass. 2010);
United States ex rel. Westmoreland v. Amgen, Inc., 707 F. Supp. 2d
123, 133 (D. Mass. 2010).

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rise to a false or fraudulent claim under the FCA. The district

court erroneously adopted a categorical rule with respect to the

first of these issues, and appeared to reason within the confines

of an erroneous categorical rule with respect to the second.

As to the first issue, the district court held that a

claim can only be false or fraudulent for impliedly misrepresenting

compliance with a legal condition of payment if that condition is

found expressly stated in "the relevant statute or regulations."

Hutcheson, 694 F. Supp. 2d at 63. As to the second, the district

court held that because the CMS forms only made representations

about the submitting entity and because Hutcheson identified no

statute or regulation conditioning Medicare payment on AKS

compliance, unlawful actions taken by a third party about which the

hospital neither knew nor had reason to know could not render the

hospital claims in this case false or fraudulent. Id. at 66.

Blackstone defends the categorical rule adopted by the

district court in the first holding and advances a categorical rule

to defend the second holding. Blackstone argues that (1) a claim

can only be false or fraudulent due to an implied legal

misrepresentation if it fails to comply with the express

requirements of a statute or regulation, and (2) a certification

that represents a submitting entity's compliance with certain legal

requirements cannot incorporate an implied representation about the

conduct of non-submitting entities. We reject both arguments.

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A. Implied Conditions of Payment

The district court gave little explanation for its

holding that a claim can only be impliedly false or fraudulent for

non-compliance with a legal condition of payment if that condition

is expressly stated in a statute or regulation. It stated that a

claim for payment can be false if submission "implies that [the

claim] has complied with any preconditions of payment." Hutcheson,

694 F. Supp. 2d at 62 (citing United States ex rel. Conner v.

Salina Reg'l Health Ctr., Inc., 543 F.3d 1211, 1218 (10th Cir.

2008); United States ex rel. Augustine v. Century Health Sys.,

Inc., 289 F.3d 409, 415 (6th Cir. 2002); Mikes 274 F.3d at 699).

It then agreed with the Mikes decision that liability under the

"implied theory" should be restricted "to compliance with expressly

stated preconditions of payment found in the relevant statute or

regulations." Id. (citing Mikes, 274 F.3d at 700). To be clear,

the district court held both that implied conditions of payment can

only be found in statutes and regulations, and that these sources

must expressly state the obligation. We reject both requirements.

Blackstone defends this holding in two ways. First, it

argues that this court should follow case law from beyond this

circuit that it asserts applied this rule. In particular,

Blackstone relies on the Second Circuit's decision in Mikes, 274

F.3d 687, the Ninth Circuit's decision in Ebeid ex rel. United

States v. Lungwitz, 616 F.3d 993 (9th Cir. 2010), and the Tenth

-20-
Circuit's decision in Conner, 543 F.3d 1211. Second, Blackstone

argues that a rule contrary to the one adopted by the district

court would yield broader FCA liability than Congress intended. It

argues that such a rule would "encompass all violations of law or

regulations" by parties that interact with entities that submit

claims for government payment.

Both of these arguments fail. This court is not bound by

the case law Blackstone cites, and the text of the FCA does not

exhibit an intent to limit liability in this fashion.

Neither party argues that this court or the Supreme Court

has expressly spoken to whether a precondition of payment must be

explicitly stated in a statute or regulation to give rise to a

false or fraudulent claim. Although Hutcheson has invoked the

Supreme Court's decision in United States ex rel. Marcus v. Hess,

317 U.S. 537 (1943), and this court's decision in Murray & Sorenson

v. United States, 207 F.2d 119 (1st Cir. 1953), she has not argued

that these cases speak directly to the issue here. These decisions

did not distinguish between factual and legal misrepresentations

and so had no reason to address the precise source of the

government's expectation that the claims at issue in those cases

would be unaffected by collusion, see Hess, 317 U.S. at 544-45, and

inside tips, see Murray & Sorenson, 207 F.2d at 123-24.

It is true that the Second Circuit held in Mikes that

"implied false certification is appropriately applied only when the

-21-
underlying statute or regulation upon which the plaintiff relies

expressly states the provider must comply in order to be paid."

Mikes, 274 F.3d at 700 (first emphasis added). It is also true

that the Ninth Circuit used similar, but not identical, language in

Ebeid, holding that "[i]mplied false certification occurs when an

entity has previously undertaken to expressly comply with a law,

rule, or regulation." Ebeid, 616 F.3d at 998; see also United

States ex rel. Hopper v. Anton, 91 F.3d 1261, 1267 (9th Cir. 1996)

(stating, in more general terms, that "[m]ere regulatory violations

do not give rise to a viable FCA violation").

Other courts, however, have found that a claim may be

false or fraudulent due to an implied representation of compliance

with a precondition of payment that is not expressly stated in a

statute or regulation. The Tenth Circuit's decision in Conner,

upon which Blackstone mistakenly relies, held that for purposes of

"an implied false certification theory, . . . the analysis focuses

on the underlying contracts, statutes, or regulations themselves to

ascertain whether they make compliance a prerequisite to the

government's payment." Conner, 543 F.3d at 1218 (emphasis added).

The Tenth Circuit has found claims false or fraudulent because a

defendant failed to comply with the terms of underlying contractual

provisions. See Shaw, 213 F.3d at 531-32; see also Lemmon, 614

F.3d at 1170 (finding that a defendant's failure to comply with

certain regulations whose requirements were incorporated into a

-22-
government contract rendered a claim false or fraudulent). The

D.C. Circuit also recently held that non-compliance with contract

terms may give rise to false or fraudulent claims, even if the

contract does not specify that compliance with the contract term is

a condition of payment. United States v. Sci. Applications Int'l

Corp. (SAIC) 626 F.3d 1257, 1269 (D.C. Cir. 2010).

In SAIC, the court rejected the defendant's argument that

legal preconditions of payment must be expressly designated as such

to give rise to false or fraudulent claims. Id. at 1268. It held

that "nothing in the statute's language specifically requires such

a rule" and that adopting one could "foreclose FCA liability in

situations that Congress intended to fall within the Act's scope."

Id. In response to the defendant's argument that its holding would

overextend liability under the FCA, the court stated that this

concern does not call for "adopting a circumscribed view of what it

means for a claim to be false or fraudulent," but rather calls for

"strict enforcement of the Act's materiality and scienter

requirements." Id. at 1270. We agree. Like the rule advanced by

the defendant in SAIC, the rule advanced by Blackstone that only

express statements in statutes and regulations can establish

preconditions of payment is not set forth in the text of the FCA.

We are not persuaded, moreover, by the concerns that

prompted the Second Circuit to adopt such a rule in Mikes, nor are

we persuaded that the Second Circuit would extend that rule to

-23-
situations like the one before us.11 The plaintiffs in Mikes

alleged that Medicare claims submitted by the defendant health care

providers were false or fraudulent because the underlying medical

treatment had failed to meet a standard of care. Mikes, 274 F.3d

at 696. The court reasoned that to find these claims false or

fraudulent would allow the government and relators to supplant

private plaintiffs in medical malpractice suits. Id. at 700. The

risk of federalization of what have been private party tort actions

is not a foregone conclusion of declining to adopt a rule that

preconditions of payment must be expressly stated in a statute or

regulation; nor is that risk sufficient to justify such a rule.

This is so because other means exist to cabin the breadth

of the phrase "false or fraudulent" as used in the FCA. The text

of the FCA and our case law make clear that liability cannot arise

under the FCA unless a defendant acted knowingly and the claim's

defect is material.12 The knowledge requirement is expressly stated

11
The Second Circuit has since applied the standard in
Mikes outside the Medicare context. See United States ex rel. Kirk
v. Schindler Elevator Corp., 601 F.3d 94, 115 (2d Cir. 2010), rev'd
on other grounds, 131 S. Ct. 1885 (2011). In that decision,
however, the court held that the submitted claim failed to comply
with a precondition of payment expressly stated in a statute. We
are unaware of any decision by the Second Circuit finding that a
claim was not false or fraudulent where the claim failed to meet a
material contract term. Cf. United States v. Sci. Applications
Int'l Corp. (SAIC) 626 F.3d 1257, 1270 (D.C. Cir. 2010).
12
The parties contest the proper place of this materiality
requirement in the analysis under the FCA. Hutcheson argues that
a claim can only be legally false or fraudulent if the legal defect
is material. Blackstone argues, in keeping with the district

-24-
in the statute and defined at 31 U.S.C. § 3729(b), and this court

has "long held that the FCA is subject to a judicially-imposed

requirement that the allegedly false claim or statement be

material."13 United States ex rel. Loughren v. Unum Grp., 613 F.3d

300, 306-07 (1st Cir. 2010).

B. Non-Submitting Party Conduct

The district court appeared to employ the concept of

certification such that a claim can be false or fraudulent only if

the submitting entity knew or should have known of the underlying

falsehood or fraudulence. Under the express certification theory,

the district court held that the certifications in the Provider

Agreement and Hospital Cost Report created "no obligation on the

part of the signatory to determine whether the entire transaction

complied" with the AKS. Hutcheson, 694 F. Supp. 2d at 66. After

holding that the relevant statutes and regulations did not

court's opinion, that these are two separate inquiries, such that
a claim can be false or fraudulent without being materially so. We
decline to resolve this semantic dispute, which has no bearing on
the outcome of this case. It is uncontested that only false or
fraudulent claims that are materially false or fraudulent can give
rise to liability under the FCA.
13
In Loughren, we noted that the Supreme Court had recently
found a materiality requirement applicable to 31 U.S.C.
§ 3729(a)(2) & (a)(3). Loughren, 613 F.3d at 307 (citing Allison
Engine Co., Inc. v. United States ex rel. Sanders, 128 S. Ct. 2123,
2126, 2130 (2008)). We held that this holding did not disturb "our
previous reading of a materiality requirement into the statute more
generally," id., and held as well that the FERA amendment to the
FCA that incorporated an explicit materiality requirement into the
former § 3729(a)(2) did not alter this conclusion, id. at 307 n.8.

-25-
establish AKS compliance as a precondition of Medicare payment, the

district court concluded its analysis with the statement that

"[t]he Amended Complaint contains no allegations that the hospitals

themselves received kickbacks, or that they knew or should have

known about the kickbacks received by the doctors." Id. at 66.

In its description of the concept of certification, the

district court did not explicitly outline such a knowledge

requirement for submitting entities. It stated, however, that a

claim is legally false "where a party certifies compliance

[expressly or impliedly] with a statute or regulation as a

condition to government payment," but that party "did not actually

comply with the statute or regulation." Id. at 62 (emphasis added)

(citing Conner, 543 F.3d at 1217; Quinn, 382 F.3d at 440-41;

Siewick, 214 F.3d at 1375-76; Harrison, 176 F.3d at 785-87; United

States ex rel. Thompson v. Columbia/HCA Healthcare Corp., 125 F.3d

899, 902 (5th Cir. 1997); Hopper, 91 F.3d at 1265-66).

Building on this aspect of the district court's analysis,

Blackstone argues that when a submitting entity expressly

represents its own legal compliance, its representations cannot

encompass a pre-condition of payment applicable to non-submitting

entities. It again advances two arguments. First, it argues that

"no court has held that a hospital's truthful certification" can be

rendered false "by the acts of an unrelated third party somewhere

in the supply chain." Second, it argues that if unlawful third-

-26-
party actions could render a claim false or fraudulent on account

of a submitting entity's truthful certification, FCA liability

would extend to any prohibited behavior "by participants in a

marketplace that involves, at some point in a series of

transactions, a government program," and thus beyond the scope

intended by Congress.

The categorical limitation Blackstone advances does not

appear in the text of the statute and is inconsistent with both the

statutory text and binding case law. The FCA imposes liability on

any person who "knowingly presents, or causes to be presented" to

the government "a false or fraudulent claim for payment or

approval," 31 U.S.C. § 3729(a)(1) (emphasis added), or "knowingly

makes, uses, or causes to be made or used, a false record or

statement to get a false or fraudulent claim paid or approved by

the Government," id. 3729(a)(2) (emphasis added). When the

defendant in an FCA action is a non-submitting entity, the question

is whether that entity knowingly caused the submission of either a

false or fraudulent claim or false records or statements to get

such a claim paid. The statute makes no distinction between how

non-submitting and submitting entities may render the underlying

claim or statements false or fraudulent.

To the extent that Blackstone seeks to locate its

proposed limitation in the concept of certification, we repeat that

the text of the FCA does not employ this concept. Blackstone cites

-27-
a Ninth Circuit decision for the proposition that "[v]iolations of

laws, rules, or regulations alone do not create a cause of action

under the FCA. It is the false certification of compliance which

creates liability . . . ." Hopper, 91 F.3d at 1266. Blackstone

omits, however, that decision's qualification that this statement

holds "when certification is a prerequisite to obtaining a

government benefit." Id. At any rate, as the Ninth Circuit made

clear in a later case, "because the word 'certification' does not

appear in 31 U.S.C. § 3729(a)(1) or (a)(2), there is no sense in

parsing it with the close attention typically attending an exercise

in statutory interpretation. So long as the statement in question

is knowingly false when made, it matters not whether it is a

certification, assertion, statement, or secret handshake; False

Claims liability can attach." Hendow, 461 F.3d at 1172.

The Supreme Court has long held that a non-submitting

entity may be liable under the FCA for knowingly causing a

submitting entity to submit a false or fraudulent claim, and it has

not conditioned this liability on whether the submitting entity

knew or should have known about a non-submitting entity's unlawful

conduct. In Hess, 317 U.S. 537, the Court held that the language

of the FCA "indicate[s] a purpose to reach any person who knowingly

assisted in causing the government to pay claims which were

grounded in fraud." Id. at 544-45. The Court has since reaffirmed

this aspect of Hess. More than thirty years later, in United

-28-
States v. Bornstein, 423 U.S. 303 (1976), it held a subcontractor

liable under the FCA for causing a contractor to submit claims

seeking payment for materials that, apparently unbeknownst to the

contractor, were labeled incorrectly. Id. at 309-313.

This court has followed suit. In Murray & Sorenson, 207

F.2d 119, we held that the defendant had caused the submission of

false or fraudulent claims because the government contract bids it

relayed to a submitting entity had been secretly inflated in

response to tips about the government’s willingness to pay. Id. at

123-24. We have made clear that unlawful acts by non-submitting

entities may give rise to a false or fraudulent claim even if the

claim is submitted by an innocent party. See Rivera, 55 F.3d at

710-12 (stating that a "false claim may be presented through an

innocent third party" (citing Bornstein, 423 U.S. at 309)); see

also Scolnick v. United States, 331 F.2d 598 (1st Cir. 1964)

(holding a party liable under the FCA when it submitted a

mistakenly issued government check to a bank and the bank submitted

the check to the government).

These cases do not hold that a submitting entity's

representations concerning its own conduct somehow immunize a non-

submitting entity from liability under the "causes" clauses of the

FCA. Nor does Blackstone cite any other decision from the Supreme

court or this court that says that.

-29-
 Blackstone attempts to distinguish the cases Hutcheson

cites concerning third-party liability under the FCA as inapposite

because they dealt with "factually false" rather than "legally

false" claims. The decisions do not speak in terms of these newly

created categories, which are not in the text of the FCA. Nor

would Blackstone's effort to retroactively categorize these cases

work even if we accepted its terms, which we do not.

While Bornstein, Rivera, and Scolnick arguably involve

misrepresentations of a strictly factual nature,14 Hess and Murray

& Sorenson involve misrepresentations related to a legal status.

As we held in Murray & Sorenson, "in Hess there was an implied

false representation that the bids were competitive, and in this

case there was an implied false representation that the bids were

at a figure which the corporate defendant would have submitted in

competition instead of at a somewhat higher figure" due to the tip.

Murray & Sorenson, 207 F.2d at 124. These claims did not misstate

a fact; they implied that the defendants had not engaged in certain

illicit behaviors that would disqualify them from payment. Neither

decision identified a statute, regulation, or certification as the

14
This proposition is more contestable with respect to
Scolnick than Bornstein and Rivera. The claim for payment at issue
in Scolnick did not misrepresent a fact about the mistakenly issued
government check. Rather, the claim implicitly represented that
the check was valid and thus met the legal conditions of payment.

-30-
basis of the legal precondition of payment the respective

defendants had failed to meet.15

None of the cases relied on by Blackstone and the

district court, moreover, address when the actions of a non-

submitting entity can give rise to a false or fraudulent claim.

Each of these cases concerned whether claims submitted by the

defendant, rather than claims a defendant caused a third party to

submit, were false or fraudulent under the FCA. See, e.g., Conner,

543 F.3d 899 (claim submitted by defendant hospital); Quinn, 382

F.3d 432 (claim submitted by defendant pharmacies); Siewick, 214

F.3d 1372 (claim submitted by defendant corporation); Thompson, 125

F.3d 899 (claim submitted by defendant health care provider);

Hopper, 91 F.3d 1261 (claim submitted by defendant school

district). We cannot adopt Blackstone's categorical rule, which is

at odds with the holdings of controlling decisions of both this

court and the Supreme Court.

Blackstone cannot evade this conclusion by arguing that

in the absence of the rule it proposes FCA liability will stretch

15
At oral argument, Blackstone introduced an additional
argument that the claims in Hess and Murray & Sorenson were false
because the submitting entity had "passed along" a false
certification by the defendants, who had not submitted claims
themselves. However, neither decision gave this rationale for
finding the claims at issue false or fraudulent. Nor is it clear
that this description fits the facts in either case; neither
decision speaks in detail of the materials the defendants gave to
the submitting entities.

-31-
too broadly to non-submitting entities.16 First, we cannot rewrite

statutes. Second, the policy concerns are overblown. Only persons

who knowingly submit or cause the submission of a false or

fraudulent claim can be held liable for violating the FCA. The

term "causes" is hardly boundless; it has been richly developed as

a constraint in various areas of the law. See, e.g., W. Page

Keeton et al., Prosser and Keeton on Torts § 41-44 (5th ed. 1984)

(discussing causation in tort law). And contrary to Blackstone's

argument, as the Supreme Court has held, in enacting the FCA

"Congress wrote expansively, meaning 'to reach all types of fraud,

without qualification, that might result in financial loss to the

Government.'" Cook Cnty., Illinois v. United States ex rel.

16
At oral argument, Blackstone raised a related argument
that if claims that contain legal misrepresentations unbeknownst to
the submitting entity could be false or fraudulent, submitting
hospitals would be required to return these payments as
"overpayments" under a provision of the new Patient Protection and
Affordable Care Act (PPACA), Pub. L. No. 111-148, 124 Stat. 119
(2010). See 42 U.S.C. § 1320a-7k(d).
Blackstone and the United States dispute the extent to which
enforcement of this requirement would be subject to the
government's discretion. The United States contends that it may
choose to pursue the architects of a kickback scheme rather than
penalize innocent submitting hospitals. Blackstone argues that
regardless of such a decision by the government, private relators
can sue innocent submitting hospitals under the PPACA. See id.
§ 1320-7k(d)(3) (citing 31 U.S.C. § 3729(b)(3)).
This dispute is tangential to the question at hand, and we do
not discuss it further. As Blackstone acknowledges, the Supreme
Court has held that claims may be false or fraudulent even when the
submitting entity was unaware of the underlying falsehood or
fraudulence. This argument amounts to the assertion that these
holdings only apply to so-called factually false claims and not to
so-called legally false claims. As we have noted, the text of the
FCA and the relevant case law makes no such distinction.

-32-
Chandler, 538 U.S. 119, 129 (2003) (quoting United States v.

Neifert-White Co., 390 U.S. 228, 232 (1968)).

V.

Having rejected Blackstone's efforts to narrow the text

of the statute and thereby justify dismissal of the case, we turn

to the question of whether Hutcheson's complaint identified a

materially false or fraudulent claim. Hutcheson and Blackstone

disagree as to whether the language and legislative history of the

AKS, as well as a recent amendment to the statute in the Patient

Protection and Affordable Care Act (PPACA), Pub. L. No. 111-148,

124 Stat. 119 (2010), establish that AKS compliance is, without

more, a precondition of Medicare payment.17 We need not address

this dispute, as we hold that the Provider Agreement and Hospital

Cost Report forms identified in Hutcheson's complaint are

sufficient to support her claim.

As we explain below, the claims presented to the

government in this case, as alleged, represented that there had

been compliance with a material precondition of payment that had

not been met. We do not categorize this representation as one of

law or fact, nor do we categorize it as either express or implied.

We also do not address whether this representation constituted a

17
The amendment in question states that a "claim that
includes items or services resulting from a violation of" the AKS
"constitutes a false or fraudulent claim for purposes of" the FCA.
42 U.S.C. § 1320a-7b(g).

-33-
"certification" within the meaning of case law from beyond this

circuit. These formal categories, as we have discussed, are

nowhere mentioned in the statute. We first address whether the

claims at issue here misrepresented compliance with a precondition

of payment so as to be false or fraudulent and then address whether

those misrepresentations were material.

A. Misrepresentation

Hutcheson argues that the Provider Agreement and Hospital

Cost Report forms make clear that compliance with the AKS is a

precondition of Medicare payment. In addition to raising the

categorical arguments rejected above, Blackstone argues that the

Provider Agreement and Hospital Cost Report forms did not identify

this precondition with sufficient specificity to render the claims

at issue in this case false or fraudulent. As to the hospital

claims, Blackstone argues that these forms did not create an

express or implied representation that anyone other than the

submitting hospital had complied with the AKS. As to the physician

claims, Blackstone argues that while the Provider Agreement

represented physician compliance with the AKS, this representation

only extended to claims that would not have been made in the

absence of kickbacks.

The Provider Agreement, drafted by CMS, requires that

hospitals and physicians acknowledge that they "understand that

payment of a claim by Medicare is conditioned upon the claim and

-34-
the underlying transaction complying with [Medicare's] laws,

regulations and programs instruction." (Emphasis added.) The

Agreement specifically identifies "the Federal anti-kickback

statute" as one of only two enumerated examples of the relevant

"laws, regulations, and program instructions." This language makes

clear that the federal Medicare program will not pay claims if the

underlying transaction that gave rise to the claim violated the

AKS. The Agreement makes no exception for instances in which that

"underlying transaction" violated the AKS because of the actions of

a third party like Blackstone.

The Hospital Cost Report, also drafted by CMS, further

underscores that hospitals submitting claims represent compliance

with the AKS. The form states that "if services identified in this

report [were] provided or procured through the payment directly or

indirectly of a kickback . . . fines and/or imprisonment may

result." It also requires that the hospital's representative sign

a statement certifying that he or she is "familiar with the laws

and regulations regarding the provisions of health care services,

and that the services identified in this cost report were provided

in compliance with such laws and regulations."18 This makes it

abundantly clear that AKS compliance is a precondition of Medicare

18
Blackstone focuses on the first sentence of this
certification, which is qualified by the phrase, "[t]o the best of
my knowledge." The second statement, however, is accompanied by no
such qualification.

-35-
payment and makes no exceptions for violations caused by third

parties like Blackstone.

These two documents are more than specific enough to make

clear that the claims submitted by hospitals represented that any

underlying transactions had not involved third party kickbacks

prohibited by the AKS. Blackstone advances a formalistic reading

of the documents to avoid the conclusion that these forms recognize

this precondition of Medicare payment. It also seeks to divert

attention from this clear language by focusing on whether the

hospitals knew of the underlying kickbacks, a fact that has no

bearing on Blackstone's potential liability under the FCA. The

reading Blackstone proposes would not only strain the language of

the documents; it would systematically excuse from FCA liability

non-submitting entities who cause the submission of claims that

fail to meet that stated precondition.

The Provider Agreement is also sufficiently clear to

establish that the claims submitted by physicians represented that

the underlying transactions did not involve kickbacks to physicians

prohibited by the AKS. The physicians agreed that payment from

Medicare is conditioned on compliance with the AKS, yet allegedly

accepted kickbacks in violation of the AKS. Blackstone argues that

the physician claims nonetheless were not false or fraudulent

because the claims were for services that would have been provided

in the absence of the alleged AKS violations. This argument does

-36-
not address the complaint's allegation that under the express terms

of the Agreement, the "underlying transaction" violated the AKS and

therefore that the resulting claims were ineligible for payment.19

Instead, it addresses whether these claims were materially false or

fraudulent, which we address separately.

These allegations of misrepresentation, we hold, are

sufficient to state a claim that the hospital and physician claims

for payment at issue here were false or fraudulent. This holding

is consistent with those of other courts that have found claims

false or fraudulent for non-compliance with a contract term.

See SAIC, 626 F.3d at 1269; Shaw, 213 F.3d at 531-32; see also

Lemmon, 614 F.3d at 1170. To be clear, we are not creating a rule

that non-compliance with a contractual condition is any more

necessary to establish that a claim is false or fraudulent than

non-compliance with an express statute or regulation, or an express

misrepresentation on a form submitted with payment. We now turn to

the question of whether the claims in this case failed to comply

with a material condition of payment for purposes of the FCA.

B. Materiality

19
Blackstone argues that "a hospital's purchase of a device
used in an inpatient surgical procedure is not a transaction that
underlies or is a part of the physician's request for payment for
physician services." This argument, however, does not address
whether a physician's receipt of kickbacks is a transaction
underlying that physician's provision of services associated with
the products involved in the kickback scheme.

-37-
 Blackstone makes two arguments that the hospital and

physician misrepresentations were not material. As to the hospital

claims, Blackstone argues that a payment mechanism rendered any AKS

non-compliance irrelevant to the payment of claims. Hospitals, it

argues, classify patients within "diagnosis-related groups" (DRGs)

and receive a set payment for treating patients in a group

regardless of the particular services provided.20 As to the

physician claims, Blackstone reiterates the argument it advanced

that these claims did not misrepresent AKS compliance. It argues

that the physicians submitted claims for their services conducting

medically necessary surgeries, not for the devices allegedly used

because of Blackstone's kickbacks.

In Loughren, this court held that a false statement is

material if it has "a natural tendency to influence, or [is]

capable of influencing, the decision of the decisionmaking body to

which it was addressed." Loughren, 613 F.3d at 307 (alteration in

original) (quoting Neder v. United States, 527 U.S. 1, 16 (1999))

(internal quotation marks omitted). Although Loughren was decided

after the district court's decision, this standard is not

20
Blackstone has not expressly cast this argument as one
concerned with materiality. Rather, it has argued that a claim
related to a "diagnosis-related group" cannot be false or
fraudulent because the claim does not address the particular
services used in the treatment of a patient. To the extent this
argument concerns whether a sufficiently specific misrepresentation
occurred, we reject it for the same reasons we rejected
Blackstone's other arguments concerning the specificity of hospital
misrepresentations.

-38-
relevantly different from the one the district court employed. See

Hutcheson, 694 F. Supp. 2d at 64. Express contractual language may

"constitute dispositive evidence of materiality," but materiality

may be established in other ways, "such as through testimony

demonstrating that both parties to the contract understood that

payment was conditional on compliance with the requirement at

issue." SAIC, 626 F.3d at 1269.

We cannot say that, as a matter of law, the alleged

misrepresentations in the hospital and physician claims were not

capable of influencing Medicare's decision to pay the claims. See

Ocasio-Hernández v. Fortuño-Burset, No. 09-2207, 2011 WL 1228768,

at *14 (1st Cir. Apr. 1, 2011) (citing Bell Atl. Corp. v. Twombly,

550 U.S. 554, 556 (2007)). The intricacies of the DRG system do

not alter the clear language of the Provider Agreement and the

Hospital Cost Report forms. Nor does the fact that the physician

claims sought payment for services rather than devices somehow

render the fact that the physicians accepted kickbacks irrelevant

under the language of the Provider Agreement.

If kickbacks affected the transaction underlying a claim,

as Hutcheson alleges, the claim failed to meet a condition of

payment. Blackstone's argument that Medicare would excuse these

violations because of a bureaucratic mechanism or because of an

implicit medical necessity requirement impermissibly cabins what

the government may consider material. Neither the Provider

-39-
Agreement nor the Hospital Cost Report forms speak of such

exceptions recognized by Medicare. We find Hutcheson's allegations

sufficient to show, for purposes of this motion to dismiss, that

the kickbacks were capable of influencing Medicare's decision as to

whether to pay the hospital and physician claims.

VI.

For the foregoing reasons, we reverse the district

court's dismissal of Hutcheson's complaint under Rule 12(b)(6) for

failing to identify a materially false or fraudulent claim within

the meaning of the FCA, and we remand for further proceedings

consistent with this opinion.

So ordered.

-40-