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Escobar Matters for Discovery, Too: District Court Emphasizes Right to Broad Materiality Discovery

While most post-Escobar decisions have involved the merits, Escobar also has significant implications for the scope of materiality discovery under the FCA. Last week, in United States ex rel. California v. Paramedics Plus LLC, the U.S. District Court for the Eastern District of Texas became one of the first courts to directly tackle that issue in a written opinion, holding that Escobar affords FCA defendants the ability to broadly discover how the government has actually handled the disputed issue, both in that case and in other analogous situations.

In this intervened qui tam, defendant Emergency Medical Services Authority (“EMSA”), an ambulance provider, contracted with co-defendant Paramedics Plus to provide ambulance services. As part of their arrangement, Paramedics Plus agreed to pay EMSA any profits it earned over twelve percent (“the profit cap”), though this agreement allegedly was not reduced to writing. The government alleged that the profit cap arrangement violated the Anti-Kickback Statute (“AKS”), and the defendants violated the FCA by falsely certifying compliance with the AKS in order to receive Medicare and Medicaid reimbursements.

Paramedics Plus sought discovery regarding the government’s payment decisions in other situations involving profit caps. Specifically, Paramedics Plus sought (1) information regarding the Medicare or Medicaid claims submitted by or on behalf of EMSA that the government paid after learning of profit cap agreements between other, non-party providers, and, conversely, (2) any instances in which the government denied a Medicare or Medicaid claim because the medical provider had entered into a profit cap agreement with another service provider. The government objected to these requests on several grounds, including that the information sought was not relevant to materiality. Paramedics Plus moved to compel.

The court granted Paramedics Plus’s motion in large part and ordered the government to produce the requested discovery. Relying on Escobar, the court rejected the government’s relevance objection, reasoning that the government must prove that the AKS certifications were material, and “allowing discovery relating to the Government’s continued payment after discovery of a profit cap” was reasonably likely to reveal whether other entities certified compliance with the AKS — and how the government acted in those situations. The court also rejected the government’s argument that discovery should be limited to the time period during which the alleged profit cap scheme took place. The court explained that, contrary to the government’s view, the First Circuit’s decision in Escobar II “does not stand for the proposition that post-suit payments are never relevant.” At least for discovery purposes, “the issue of materiality goes beyond [the defendant’s] alleged misconduct,” and thus FCA defendants are entitled to broad discovery regarding how the government handled the disputed issue in cases involving other entities, including after the suit at issue was filed.

As we at LLB have experienced first-hand, the government’s position in Paramedics Plus is not unusual. The government continues to resist materiality discovery requests, despite Escobar’s clear directive that the government’s actual or likely conduct in paying claims — both in the case at hand and in “the mine run of cases” involving allegations of similar conduct — is “strong evidence” as to materiality. Paramedics Plus is an encouraging sign for FCA defendants that courts will hold the government to the broad materiality discovery obligations that Escobar demands. We will watch closely to see whether other courts follow suit and report back with any developments.

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.