          United States Court of Appeals
                     For the First Circuit

No. 14-1423

      UNITED STATES, ex rel. JULIO ESCOBAR; CARMEN CORREA,
        administratrix of the Estate of Yarushka Rivera,

                     Plaintiffs, Appellants,

                 COMMONWEALTH OF MASSACHUSETTS,

                    Plaintiff, Amicus Curiae,

                               v.

                UNIVERSAL HEALTH SERVICES, INC.,

                      Defendant, Appellee.


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

         [Hon. Douglas P. Woodlock, U.S. District Judge]


                             Before

                       Howard, Chief Judge,
                Stahl and Barron, Circuit Judges.


     Michael Tabb, with whom Thomas M. Greene, Elizabeth Cho,
Greene LLP, were on brief for appellants.
     Mark T. Stancil, with whom Donald Burke, Robbins, Russell,
Englert, Orseck, Untereiner & Sauber LLP, and Mark W. Pearlstein,
Evan D. Panich, Laura McLane, McDermott Will & Emery LLP, were on
brief for appellee.
     Maura Healey, Attorney General of Massachusetts, with whom
Robert Patten and Jeffrey Walker, Assistant Attorneys General,
were on brief for amicus curiae Commonwealth of Massachusetts.
     Charles S. Scarborough, Attorney, Appellate Staff, with whom
Benjamin C. Mizer, Principal Deputy Assistant Attorney General,
Carmen M. Ortiz, United States Attorney, and Michael S. Raab,
Attorney, Appellate Staff, were on brief for amicus curiae United
States of America.
     Jennifer M. Verkamp, Morgan Verkamp LLC, and Jacklyn N. DeMar,
on brief for amicus curiae Taxpayers Against Fraud Education Fund.
     Jeremy W. Meisinger, Thomas R. Barker, Kristyn M. DeFilipp,
and Foley Hoag, LLP, on brief for amicus curiae National
Association of Psychiatric Health Systems.
     Lawrence M. Kraus, Lawrence W. Vernaglia, Jason L. Drori, and
Foley & Lardner LLP, on brief for amicus curiae Massachusetts
Hospital Association.
     John P. Elwood, Craig D. Margolis, Jeremy C. Marwell, Tirzah
S. Lollar, Christian D. Sheehan, Vinson & Elkins LLP, Kathryn
Comerford Todd, Steven P. Lehotsky, and U.S. Chamber Litigation
Center, on brief for amicus curiae Chamber of Commerce of the
United States of America.



                        November 22, 2016
              STAHL, Circuit Judge.         Yarushka Rivera died of a seizure

in    2009    after      receiving    mental      health   treatment    at   Arbour

Counseling Services in Lawrence, Massachusetts, a facility owned

and   operated      by    Defendant-Appellee        Universal   Health    Services

("UHS").      UHS submitted reimbursement claims for these services to

MassHealth, the state's Medicaid agency.

              Following Yarushka's death, her mother and stepfather

learned      that   Arbour    had    employed     unlicensed    and    unsupervised

personnel, in violation of state regulations -- many of whom were

involved in treating their daughter during the years leading up to

her death.     Relators subsequently brought a qui tam action against

UHS under the False Claims Act (FCA), alleging that Arbour had

employed unlicensed and unsupervised personnel, in violation of

state     regulations,       and    that    UHS   had   fraudulently     submitted

reimbursement claims to the Commonwealth, despite knowing that

they were in violation of relevant state regulations dealing with

mental health and counseling facilities.                This is a theory of FCA

liability known as the "implied false certification theory."

              The     district      court   granted     defendant's     motion   to

dismiss, concluding that the regulatory violations were conditions

for participation in the state Medicaid program, but were not

conditions of payment as required for a claim to be actionable

under the FCA. We reversed, holding that the regulatory violations

in question were, in fact, conditions for payment and that the


                                            - 3 -
Relators' complaint had "properly pleaded that the condition of

payment at issue was a material one," given the ubiquity of the

licensing and supervision requirements throughout the MassHealth

regulations governing the state's Medicaid program with respect to

mental health services.     United States and Commonwealth of Mass.

ex rel. Escobar v. Universal Health Servs., Inc., 780 F.3d 504,

514 (1st Cir. 2015) ("Escobar I").

           UHS sought review in the Supreme Court, the Court granted

certiorari, and ruled that the implied false certification theory

can be a basis for FCA liability.           However, the Supreme Court

vacated    our   judgment   and   remanded    the     case     for   further

consideration of whether Relators' complaint sufficiently alleged

that the regulatory violations in question were material to the

government's payment decision, a requirement for an actionable FCA

claim.     Universal   Health   Servs.,   Inc.   v.   United    States   and

Commonwealth of Mass. ex rel. Escobar, 136 S. Ct. 1989, 2004 (2016)

("Escobar II").

           Applying the Supreme Court's guidance on the question of

whether UHS's misrepresentations were material, we again find that

Relators' complaint sufficiently states a claim under the FCA.            We

therefore REVERSE the district court's grant of UHS' Motion to

Dismiss and REMAND for further proceedings consistent with this

opinion.




                                    - 4 -
                         I. Facts and Background1

             Having previously had occasion to discuss the underlying

facts that gave rise to this litigation, see Escobar I, 780 F.3d

at 508-510, we briefly recount the most salient facts before

proceeding     to   an    analysis   of      the   materiality   of   the

misrepresentations alleged in Relators' Second Amended Complaint.2

             A. The False Claims Act Generally

             The False Claims Act, 31 U.S. § 3729 et seq., was enacted

in 1863 to address the "massive frauds perpetrated by large

contractors during the Civil War," United States v. Bornstein, 423

U.S. 303, 309 (1976), which hampered the United States' war effort.

The Act imposes civil penalties on "any person who ... knowingly

presents, or causes to be presented, a false or fraudulent claim



     1 This case arises from Defendant-Appellee UHS's Motion to
Dismiss Relators' Second Amended Complaint. Following our ruling
in Escobar I, but prior to the Supreme Court's grant of certiorari,
the District Court allowed the filing of a Third and Fourth Amended
Complaint. These rulings were proper, as the mere act of filing
a petition for certiorari does not deprive the district court of
jurisdiction over the case. See United States v. Sears, 411 F.3d
1240, 1241-42 (11th Cir. 2005); see also 28 U.S.C. § 2101(f)
(noting that the trial court or the Supreme Court may issue a stay
pending disposition of a petition for certiorari). However, since
our original ruling in this case and the Supreme Court opinion in
Escobar II were both based on the factual allegations in the Second
Amended Complaint, this Court and the parties all agree that it is
that complaint that is the operative pleading at this stage.
     2 Because this appeal follows the granting of a motion to
dismiss, we recite the relevant facts as they appear in Relators'
Second Amended Complaint. See Hochendoner v. Genzyme Corp., 823
F.3d 724, 728 (1st Cir. 2016).


                                     - 5 -
for payment or approval" to the government.           31 U.S.C. § 3729(a).

The    Act    contains   qui     tam   provisions     authorizing    private

individuals to sue on behalf of the United States to recover monies

that       were   obtained     from    the     government    by   fraudulent

misrepresentations.      31 U.S.C. § 3730.       To be actionable, a false

claim must be material to the government's decision to pay the

claim.     See, e.g., Escobar II, 136 S. Ct. at 2001; see also United

States ex rel. Loughren v. Unum Grp., 613 F.3d 300, 307 (1st Cir.

2010). The Act itself defines "material" to mean "having a natural

tendency to influence, or be capable of influencing, the payment

or receipt of money or property."            § 3729(b)(4).

              B. Regulatory Framework3

              This case arose in the context of reimbursement claims

submitted to MassHealth, the Massachusetts Medicaid program.            The

applicable Massachusetts Code of Regulations at issue in this case,

and operative at the time of the events in question, required

dependent satellite programs to employ at least two full-time

equivalent professional staff members from separate nonphysician




       3
       The regulations at issue were in effect from 2008 to 2014,
but have since been amended, with minor revisions. References to
the state regulations and billing codes included herein are
therefore to the then-operative provisions, a copy of which are
attached to MassHealth Transmittal Letter MHC-39 and accessible at
http://www.mass.gov/eohhs/docs/masshealth/transletters-2009/mhc-
39.pdf.


                                        - 6 -
core disciplines.4    130 Mass. Code Regs. § 429.422(D).        The

satellite program's staff must meet the qualifications for core

disciplines as outlined in 130 Mass. Code Regs. § 429.424.      For

example, § 429.424 requires that staff psychiatrists must be either

board certified or applying for such certification, or be licensed

physicians in their second year of an accredited psychiatric

residency.   Id. § 429.424(A)(1)-(2).     Staff psychologists must

have completed a recognized doctoral program or be enrolled in

such a program.   Id. § 429.424(B).   Social workers must be either

licensed or applying for such a license, and all social workers

(other than the chief social worker in a particular facility) must

be under the "direct and continuous supervision of an independent

clinical social worker."   Id. § 429.424(C).   While mental health



     4 We note that the record does not firmly establish whether
Arbour, the facility where Yarushka received treatment, was a
"dependent" or "autonomous" satellite facility for purposes of the
MassHealth regulations. Compare 130 Mass. Code Regs. § 429.422(D)
(laying out staff composition requirements for dependent
facilities) with id. § 429.422(F) (imposing more stringent
staffing requirements for autonomous facilities, including more
full-time personnel and greater emphasis on licensing, rather than
supervision). In their Second Amended Complaint, as the district
court noted, Relators "do not allege that the Arbour location in
Lawrence is an autonomous satellite program," U.S. ex rel. Escobar
v. Universal Health Servs., Inc., No. CIV.A. 11-11170-DPW, 2014 WL
1271757, at *8 (D. Mass. Mar. 26, 2014). Relators, for their part,
argued before the district court and in their briefing to this
Court during our first encounter with the case that without the
benefit of discovery, they were unable to verify whether Arbour
fit the definition of a "dependent" or "autonomous" facility. We
therefore   assume,   without   deciding,  that   the   applicable
regulations are those governing dependent satellite facilities.


                                 - 7 -
counselors are not required to be licensed, they "must be under

the   direct      and    continuous   supervision       of    a    fully     qualified

professional staff member."           Id. § 429.424(E)(1).

             If    the    satellite   program's       staff       do   not   meet    the

qualifications for core disciplines as described in 130 Mass. Code

Regs. § 429.424, the staff must receive supervision from qualified

core staff professionals of the same discipline at the parent

center.   Id. § 429.422.        There are also supervision requirements

for less experienced personnel at satellite programs, with the

regulations       providing   that    "[e]ach       staff    member     must   receive

supervision       appropriate   to    the    person's       skills     and   level   of

professional development[.] Supervision must occur within the

context of a formalized relationship providing for frequent and

regularly scheduled personal contact with the supervisor."                      Id. §

429.422(D)        (incorporating       supervision          requirements        of    §

429.438(E)).

             When submitting claims to MassHealth, UHS used numerical

codes corresponding to the particular types of services rendered,

in this case individual therapy, family therapy, and group therapy.

The definition of each of these types of services, for billing

purposes, in Section 601 of MassHealth's then-operative Mental




                                            - 8 -
Health Center Manual requires that they be performed "by [a]

professional staff member as defined in 130 CMR 429.424."5

                 C. Facts Pertinent to Relators' Claim against UHS

                 Relators allege that unbeknownst to Yarushka Rivera's

family in the years leading up to her death, UHS's Arbour facility

was in flagrant non-compliance with these regulations.           According

to the allegations in Relators' Second Amended Complaint, of the

five specific individuals who treated Yarushka – Maria Pereyra,

Diana Casado, Anna Fuchu, Maribel Ortiz and Anna Cabacoff – only

one of them (Cabacoff) had the proper license or was under the

proper supervision to deliver treatment to Yarushka.               Neither

Pereyra nor Casado, the counselors assigned to Yarusha, had a

professional license and at no time during their treatment of

Yarushka were they supervised by anyone that did.         Fuchu, despite

being held out to Yarushka's parents as an experienced "doctor"

and representing herself as a psychologist with a Ph.D, in fact

only       had    received   her   psychological   instruction   from   an



       5
       The now-operative provisions no longer include an explicit
requirement for each billing code that the therapy be provided "by
[a] professional staff member as defined in 130 CMR 429.424," but
instead provide that "MassHealth pays for the services represented
by the codes listed in Subchapter 6 in effect at the time of
service, subject to all conditions and limitations in MassHealth
regulations at 130 CMR 429.000 and 450.000." A copy of the now-
operative regulations are attached to MassHealth Transmittal
Letter      MHC-48,      and      can     be      accessed      at
http://www.mass.gov/eohhs/docs/masshealth/servicecodes/sub6-
mhc.pdf.


                                       - 9 -
unaccredited   internet     college     and    had   her   application   for

licensure rejected by the Board of Licensure of the Commonwealth

several years before the treatment giving rise to this lawsuit.

           Ortiz was referred to Relators as a psychiatrist, when

in fact she was a nurse, without a license to practice psychiatry.

Ortiz prescribed Trileptal to Yarushka, a medication to which

Yarushka had an adverse reaction.        This medication was prescribed

despite the fact that Ortiz could prescribe medications only if

properly supervised by a board certified psychiatrist (she was

not).   Yarushka ultimately suffered a seizure, her second while

receiving treatment at Arbour, and died.             Throughout this course

of treatment, UHS regularly sought and received reimbursement for

these mental health services from MassHealth.

           Finally, UHS's staff members at Arbour, like any health

care practitioner who bills under Medicaid, received National

Provider   Identification     ("NPI")     numbers     which   identify   the

practitioner's level of expertise and whether the practitioner is,

in fact, licensed.    One of UHS's unlicensed counselors, Maria

Pereyra, had a fraudulently-obtained NPI, having misrepresented

her background and education.     Relators uncovered information that

an additional 22 UHS employees had obtained false NPI numbers that

misrepresented their status as licensed social workers or licensed

mental health counselors.




                                      - 10 -
           Following Yarushka's death, Relators learned that most

of the individuals who had provided care for their daughter were

not properly licensed or supervised.        With this knowledge, they

then filed complaints with several state agencies, including the

Disabled   Persons   Protection   Committee       ("DPPC"),   Division   of

Professional   Licensure   ("DPL"),   and   the    Department   of   Public

Health ("DPH").   These complaints eventually culminated in the DPH

conducting on-the-ground inspections at Arbour during the spring

of 2012, during which time they learned that Arbour was using

unlicensed and unsupervised personnel.        DPH issued a report in

July of 2012 detailing its findings.

           D. Procedural Background

           On July 1, 2011, while the DPH investigation against

Arbour was still pending, Relators brought suit against UHS in the

United States District Court for the District of Massachusetts,

arguing that by submitting claims for reimbursement to MassHealth,

UHS had impliedly certified that its services were in conformity

with the applicable licensing and supervision requirements, and

that its failure to disclose or correct the violations made these

reimbursement claims fraudulent under the FCA.          Relators' Second

Amended Complaint was filed in February of 2013.              The district

court dismissed the complaint pursuant to Federal Rule of Civil

Procedure 12(b)(6), holding that Relators had failed to state a

claim because the regulations in question were preconditions for


                                   - 11 -
participation     in     the    state's     Medicaid    program,    rather    than

preconditions to reimbursement -- and that only the latter could

be used to establish the falsity of a claim under the FCA.

            We reversed in relevant part and remanded, finding that

a violation is material to payment if "the defendant, in submitting

a claim for reimbursement, knowingly misrepresented compliance

with a material precondition of payment."               Escobar I, 780 F.3d at

512.   We found that "[c]ompliance with the regulations at issue

pertaining to staff supervision and core staffing at satellite

centers is a condition of payment by MassHealth," and noted that

at the core of Relators' complaint was the allegation "[t]hat

supervision at Arbour was either grossly inadequate or entirely

lacking"    and   that        Relators'    daughter    "died    after    receiving

treatment    that       was    out   of    compliance    with     over    a   dozen

regulations."       Id. at 517.         We therefore found that the Second

Amended Complaint had adequately stated a claim under the FCA.

            The   Supreme       Court     granted   certiorari     to    resolve   a

disagreement among U.S. Courts of Appeals over the validity and

scope of the implied certification theory.               The Court upheld the

validity    of    the    implied     certification      theory,    holding    that

"[w]hen, as here, a defendant makes representations in submitting

a claim but omits its violations of statutory, regulatory, or

contractual requirements, those omissions can be a basis for

liability    if     they       render     the   defendant's       representations


                                           - 12 -
misleading    with    respect   to    the   goods    or    services    provided."

Escobar II, 136 S. Ct. at 1999. In order for False Claims Liability

to attach, these misleading omissions must be material to the

government's decision to pay the claim.              Whether the regulatory,

statutory     or     contractual      requirement         in   question    is    a

precondiction      for   payment   was    not    necessarily    dispositive     of

whether the requirement is material to the decision to pay, the

Court concluded.         Id. at 2001. Rather, "[w]hat matters is ...

whether the defendant knowingly violated a requirement that the

defendant knows is material to the Government's payment decision."

Id.   at   1996.      The   Supreme      Court    "remand[ed]    the    case    for

reconsideration of whether [Relators] have sufficiently pleaded a

False Claims Act violation."          Id. at 2004.

             E. The Materiality Test

             The language that the Supreme Court used in Escobar II

makes clear that courts are to conduct a holistic approach to

determining materiality in connection with a payment decision,

with no one factor being necessarily dispositive.                  As the Court

observed, "materiality cannot rest 'on a single fact or occurrence

as always determinative.'" Escobar II, 136 S. Ct. at 2001 (quoting

Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27, 39 (2011)).

Because the materiality requirement in the Act descends from

"common-law antecedents," id.            at 2002 (quoting Kungys v. United

States, 485 U.S. 759, 769 (1988)), under both the FCA and under


                                         - 13 -
the common law, materiality "look[s] to the effect on the likely

or   actual    behavior    of     the     recipient    of   the        alleged

misrepresentation." Id. at 2002-03 (citing Williston on Contracts

§ 69:12 (4th ed. 2003) and the Restatement (Second) of Torts, §

538). Materiality is more likely to be found where the information

at issue goes "to the very essence of the bargain," Escobar II,

136 S. Ct. at 2003, n. 5 (quoting Junius Constr. Co. v. Cohen, 257

N.Y. 393, 400 (1931) (Cardozo, C.J.))

          "The materiality standard is demanding," as the False

Claims Act is not "'an all-purpose antifraud statute' or a vehicle

for punishing garden-variety breaches of contract or regulatory

violations."      Id.     at    2003    (internal     citation     omitted).

Materiality "cannot be found where noncompliance is minor or

insubstantial."    Id.     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."             Id.

          The Court then laid out several specific factors that

might contribute to determining materiality:

     [p]roof of materiality can include, but is not
     necessarily limited to, evidence that the defendant
     knows that the Government consistently refuses to pay
     claims in the mine run of cases based on noncompliance
     with   the   particular   statutory,   regulatory,   or
     contractual requirement. Conversely, if 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


                                       - 14 -
       knowledge that certain requirements were violated, and
       has signaled no change in position, that is strong
       evidence that the requirements are not material.


Id. at 2003-04.        In a case decided after (and citing) Escobar II,

this Court concluded that in assessing materiality in connection

with a different section of the False Claims Act, the fundamental

inquiry   is    "whether      a    piece      of     information   is    sufficiently

important to influence the behavior of the recipient."                            United

States ex rel. Winkelman et al. v. CVS Caremark Corp., 827 F.3d

201, 211 (1st Cir. 2016).                These standards of materiality guide

this Court's analysis in Relators' case on remand.

                                       II. Analysis

            Applying       the          holistic      approach     to     determining

materiality     laid    out       by    the   Supreme     Court,   we    have     little

difficulty in concluding that Relators have sufficiently alleged

that   UHS's    misrepresentations            were    material.     We    reach     this

conclusion for three reasons.                 First, Relators have alleged in

their Second Amended Complaint that regulatory compliance was a

condition      of   payment        --    itself       a   "relevant"     though     "not

dispositive" factor in determining materiality.                    Escobar II, 136

S. Ct. at 2001.          Second, the centrality of the licensing and

supervision requirements in the MassHealth regulatory program,

which go to the "very essence of the bargain," id. at 2003, n. 5,

of MassHealth’s contractual relationships with various healthcare



                                              - 15 -
providers under the Medicaid program, is strong evidence that a

failure to comply with the regulations would be “sufficiently

important to influence the behavior” of the government in deciding

whether to pay the claims.       Winkelman, 827 F.3d at 211.   And third,

while the Supreme Court observed that "if 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,"        Escobar II, 136 S. Ct. at 2003-

04, the Court did not state that such knowledge is dispositive.

In any case, the factual allegations contained in Relators' Second

Amended Complaint are limited to reimbursement claims filed by UHS

during the course of their daughter's treatment and prior to the

filing of the litigation in July of 2011, and there is no evidence

in the record that MassHealth paid those claims to UHS despite

knowing of the violations.

             A. The Regulatory Requirements

             Looking "to the effect on the likely or actual behavior

of the recipient of the alleged misrepresentation," id. at 2002,

we   first   note   that   the   government    conditioned   MassHealth's

payments on compliance with the licensing and professionalism

regulations.     See 130 Mass Code Reg. § 429.441(A).          While not

automatically "dispositive," such a designation is "relevant to

... the materiality inquiry."        Escobar II, 136 S. Ct. at 2001.




                                      - 16 -
             Additionally, in this case, regulatory compliance is not

merely a condition of payment; rather, MassHealth's decision to

have a series of regulations in place to ensure that clinical

mental health counselors, psychiatrists and psychologists are of

sufficient      professional       caliber    to     treat   patients     strongly

counsels   in    favor   of    a    finding    that    compliance     with   these

regulations is central to the state's Medicaid program and thus

material to the government's payment decision.                   In describing

Relators' Second Amended Complaint, the Supreme Court noted that

the Relators "have alleged that Universal Health misrepresented

its compliance with mental health facility requirements that are

so central to the provision of mental health counseling that the

Medicaid program would not have paid these claims had it known of

these violations."       Escobar II, 136 S. Ct. at 2004.              The Supreme

Court concluded that "[a]nyone informed that a social worker at a

Massachusetts mental health clinic provided a teenage patient with

individual      counseling     services      would    probably——but     wrongly——

conclude that the clinic had complied with core Massachusetts

Medicaid requirements," Escobar II, 136 S. Ct. at 2000, and we

suggested a similar conclusion in our first encounter with this

case.   See Escobar I, 780 F. 3d at 514 ("The express and absolute

language of the regulation in question, in conjunction with the

repeated   references     to    supervision        throughout   the     regulatory




                                          - 17 -
scheme,     'constitute       dispositive        evidence     of     materiality.'")

(internal citations omitted).

            We    reaffirm     our    previous      conclusion       on    this    score.

MassHealth has made it clear in its regulations that it expects

that   individuals       in   the    business      of   providing     mental       health

services     in    the    Commonwealth           have   adequate          training    and

professional credentials.            Compliance, or lack thereof, with these

regulations seem to us the textbook example of representations

that would "likely ... induce a reasonable person to manifest his

assent," Escobar II, 136 S. Ct. at 2003 (citing Restatement

(Second) of Contracts, § 162(2)), in determining whether to pay

for the healthcare services.               Indeed, we struggle to think of a

misrepresentation-by-omission that would give rise to a breach

more material to the government's decision to pay.

            While we recognize that the FCA is not "a vehicle for

punishing    garden-variety          breaches      of   contract      or     regulatory

violations,"      Escobar     II,    136    S.    Ct.   at   2003,    UHS's       alleged

misrepresentations were not garden-variety breaches.                        At the core

of the MassHealth regulatory program in this area of medicine is

the expectation that mental health services are to be performed by

licensed professionals, not charlatans.                 To use the Civil War-era

example cited at oral argument in Escobar II, UHS's violations in

the instant case are as central to the bargain as the United States




                                            - 18 -
ordering and paying for a shipment of guns, only to later discover

that the guns were incapable of firing.          Id. at 2001.

             B. The Government's Actions

             The defendant’s primary argument on remand is that the

government continued to pay the claims at issue despite knowledge

that UHS was not in compliance with the applicable regulations in

the manner alleged.         Citing the Supreme Court’s ruling in the

present dispute, they argue that, while not dispositive, such

payment practices constitute “strong evidence” of non-materiality.

Id. at 2004.    We find defendant’s argument to be unconvincing for

two reasons.

             First, reviewing the factual allegations in the Second

Amended Complaint and accepting them as true, as we must for

purposes of evaluating a 12(b)(6) motion, we see no evidence that

MassHealth continued to pay claims despite actual knowledge of the

violations.     Relators'    Second    Amended    Complaint     only   cites

reimbursements paid up to "the filing of this litigation" on July

1, 2011.     It would appear that DPH did not conclusively discover

the extent of the violations until March of 2012, well after the

commencement of the litigation.            Even assuming, on the most

generous reading of the Second Amended Complaint for UHS, that

various state regulators had some notice of complaints against

Arbour in late 2009 and 2010, mere awareness of allegations

concerning    noncompliance     with   regulations    is   different   from


                                       - 19 -
knowledge of actual noncompliance.           Additionally, there is no

evidence in the complaint that MassHealth, the entity paying

Medicaid claims, had actual knowledge of any of these allegations

(much less their veracity) as it paid UHS's claims.           Because we

find no evidence that MassHealth had actual knowledge of the

violations at the time it paid the claims at issue, we need not

decide whether actual knowledge of the violations would in fact be

sufficiently strong evidence that the violations were not material

to the government's payment decision so as to support a motion to

dismiss in this case.

             Second, the specific claims identified by Relators only

pertain to Yarushka's treatment, which ended with her death in

October 2009.      Their allegations plausibly make out a claim that

those payments, for the unlicensed and unsupervised treatment

their daughter received, were fraudulent.            We see no reason to

require Relators at the Motion to Dismiss phase to learn, and then

to allege, the government's payment practices for claims unrelated

to services rendered to the deceased family member in order to

establish    the   government's   views   on   the   materiality   of   the

violation.     Indeed, given applicable federal and state privacy

regulations in the healthcare industry, it is highly questionable

whether Relators could have even accessed such information.




                                    - 20 -
                              III. Conclusion

           While it may be the case that MassHealth continued to

pay claims to UHS despite becoming aware that they were not in

compliance with the pertinent regulations at the Arbour facility,

and this information may come to light during discovery, at this

time Relators have stated a claim under the FCA sufficient to

survive a Motion to Dismiss. Applying the Supreme Court's holistic

approach   to   determining    materiality,     we   conclude   that   UHS's

alleged misrepresentations were material when looking "to the

effect on the likely or actual behavior of the recipient of the

alleged misrepresentation." Escobar II, 136 S. Ct. at 2002.

           We therefore REVERSE the district court's grant of UHS's

Motion to Dismiss the Second Amended Complaint and REMAND to the

district court for further proceedings.




                                     - 21 -
