Court Confirms That Materiality Is a Required Element Under the “Avoids” Prong of Reverse False Claims Theories

Last week, a Special Master, tasked with making a report and recommendation on summary judgment in the Government’s FCA case against United HealthGroup, Inc. (“United”) in the Central District of California, confirmed that the “avoids” prong of the FCA’s reverse false claims provision has a materiality requirement.  U.S. ex rel. Poehling v. UnitedHealth Group, Inc., No. CV 16-08697-FMO-PVCx (C.D. Cal. Mar. 3, 2025).  That prong imposes liability on a person who knowingly and improperly avoids an obligation to pay the Government.  31 U.S.C. § 3729(a)(1)(G).  Although the “avoids” prong does not explicitly refer to materiality, the Special Master held that it incorporates the elements of common law fraud—including materiality.  The holding is consistent with broader guidance in recent years from the Supreme Court that the FCA should be interpreted consistent with common law principles—which can result in courts imposing constraints on novel theories of liability.

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Another District Court Finds FCA Civil Penalties Unconstitutionally Excessive

Last year, we reported on a rare district court decision from Minnesota finding application of the FCA’s civil penalties unconstitutionally excessive.  Last week, a judge in the Northern District of Texas determined that even the minimum amount in FCA penalties, as applied, would have violated the Eighth Amendment’s Excessive Fines Clause.  Based on the number of false claims for which the jury found the defendant liable, the minimum penalty mandated by the statute was nearly $300 million—around one hundred times the actual damages.  The court instead imposed a reduced penalty of roughly $8 million, about three times the actual single damages, equating to a per-claim civil penalty of approximately $378.18.

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Supreme Court Unanimously Holds that Reimbursement Requests to a Private Corporation Are FCA “Claims” Because the Treasury Provided a Portion of the Money Requested

The U.S. Supreme Court recently issued its opinion in Wisconsin Bell, Inc. v. United States ex rel. Heath, holding that reimbursement requests submitted to the private corporation administering the E-Rate program are FCA “claims,” because the Treasury provided a portion of the pool of funds used to pay the requests.  We previously reported on the oral argument before the Court here.

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Federal Judge Pauses Enforcement of DEI Executive Orders, But False Claims Act Risk Remains

On Friday, February 21, a federal district judge in Maryland issued a nationwide preliminary injunction prohibiting the U.S. Department of Justice (DOJ) and defendant federal agencies from enforcing portions of two presidential executive orders (EOs) targeting diversity, equity, and inclusion (DEI) programs at companies that do business with the federal government, including provisions tethering allegedly unlawful DEI programs to potential False Claims Act (FCA) liability. Despite the unusually sweeping breadth of this injunction, the Trump administration retains significant latitude to undertake actions targeting federal contractor DEI programs it believes are unlawful, and companies should carefully consider their response to the injunction.

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First Circuit Joins Sixth and Eighth Circuits in Requiring But-For Causation for FCA Claims Premised on AKS Violations

Earlier this week, the First Circuit Court of Appeals in Regeneron held that to show falsity in an FCA action premised on an Anti-Kickback Statute (“AKS”) violation, the violation must have been the but-for cause of the submitted claim. See United States v. Regeneron Pharma., Inc., No. 23-2086, 2025 WL 520466 (1st Cir. Feb. 18, 2025). In so holding, the First Circuit joined a circuit split on the meaning of the 2010 AKS amendment providing that claims “resulting from” AKS violations are false for purposes of the FCA (as previously discussed here). Like the First Circuit, the Sixth and Eighth Circuits require but-for causation (as previously discussed here and here). The Third Circuit, meanwhile, requires merely a “link” between an alleged kickback and a subsequent claim.

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Joining Circuit Split, First Circuit Adopts But-For Causal Standard for Establishing FCA Falsity Premised on AKS Violations

In a significant opinion, the First Circuit held yesterday that to establish falsity in an FCA action premised on an Anti-Kickback Statute (AKS) violation, “the government must show that an illicit kickback was the but-for cause of a submitted claim.” That determination hinged on the text of the 2010 AKS amendment, which provides that claims “resulting from” AKS violations are false. With this holding, the First Circuit joins the circuit split on what the “resulting from” language requires. The First, Sixth, and Eighth Circuits have adopted the strict but-for standard, while the Third Circuit opted for a much looser approach. We have previously reported on the split here, here, and here. We will follow up with further analysis of the First Circuit’s opinion.

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Federal Agencies Can Now Directly Pursue FCA Cases Up to $1M

Embedded in the FY 2025 National Defense Authorization Act, signed into law on December 23, 2024, is a provision that could significantly impact agency enforcement activity: the Administrative False Claims Act (“AFCA”).  Enforcement of the federal FCA is currently limited to DOJ and whistleblowers, and agencies lack the right to pursue federal FCA claims directly on their own behalf.  But effective after agencies amend their regulations—the AFCA directs them to do by June 23, 2025, although the change in administration may cause delays—each federal agency’s Inspector General can pursue administrative FCA actions for claims aggregating up to single damages of $1,000,000, which are also subject to doubling under the statute (rather than treble damages as under the federal FCA).  In addition, agencies can levy civil monetary penalties, subject to yearly inflationary increases. The amount of each per-claim penalty varies by agency but, for example,  HHS may impose a penalty of up to $12,800 per claim, in addition to double damages. The AFCA may increase agency appetites to convert administrative self-disclosures, such as those made to HHS-OIG relating to potential violations of the Anti-Kickback Statute, into AFCA actions.

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Massachusetts Law Imposes FCA Liability on Healthcare Investors For Failures to Disclose

Massachusetts recently signed into law House Bill 5159, which includes a strict new rule for investors in Massachusetts health care companies, requiring them to timely disclose FCA violations of their investment entities or face FCA liability themselves.  This law imposes FCA liability for a broader range of conduct by investors as compared to the federal False Claims Act, and affected investors should consider whether any operational changes should be made to address the new law.

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