DOH Survey Falsifications: Materiality Under 18 U.S.C. § 1035 Need Not Be Tied to an Actual Payment Decision; CMS-Delegate Surveys Qualify as “Federal Matters” Under § 1519; Restitution May Reflect Payments Avoided by Admissions Bans

I. Introduction

United States v. Comprehensive Healthcare Management Services LLC (doing business as Brighton Rehabilitation and Wellness Center) and United States v. MT. LEBANON OPERATIONS LLC (doing business as Mount Lebanon Rehabilitation and Wellness Center) are consolidated Third Circuit appeals from convictions and restitution orders entered in the Western District of Pennsylvania. The prosecutions arose from alleged falsification of staffing documentation submitted during surveys conducted by the Pennsylvania Department of Health (“DOH”), which performs survey and certification functions on behalf of the federal Centers for Medicare and Medicaid Services (“CMS”).

The core factual dispute concerned whether the facilities (through agents) inflated direct-care staffing figures—used to compute “Patients Per Day” (“PPD”)— to appear compliant with federal and state staffing requirements. The legal issues on appeal centered on:

  • the materiality instruction under 18 U.S.C. § 1035(a)(1) (false statements in health care matters);
  • the sufficiency of the evidence as to willfulness, materiality, and the “in connection with” element under § 1035, and the federal-jurisdiction/intent elements under 18 U.S.C. § 1519 (obstruction by falsifying records); and
  • whether the restitution theory improperly awarded losses where CMS allegedly suffered no direct economic harm.

The Third Circuit (non-precedentially) affirmed all convictions and restitution awards.

II. Summary of the Opinion

The court held that the District Court’s materiality instruction for § 1035 correctly stated Third Circuit law: a statement is material if it has a natural tendency to influence, or is capable of influencing, the decisionmaker; actual reliance is unnecessary. The court further concluded that the evidence was sufficient for the jury to find: (1) willfulness (knowledge of unlawfulness) in the falsification scheme; (2) materiality because staffing falsifications could influence DOH’s compliance and sanction decisions that, in turn, could affect Medicare/Medicaid participation; and (3) the falsifications were made in connection with delivery of or payment for health care benefits, construed broadly.

As to § 1519, the court held that DOH surveys conducted on behalf of CMS qualify as matters within federal jurisdiction, and that intent to obstruct a specific federal investigation is not required. Finally, the restitution awards were upheld because the Government’s loss model—payments the facilities would not have received had DOH imposed admissions bans—had a credible evidentiary basis.

III. Analysis

A. Precedents Cited

  • United States v. Gilbert, No. CR 21-79-RJC, 2024 WL 2816554: Cited as the District Court decision denying acquittal/new trial. The Third Circuit’s discussion adopts the trial court’s framing of the survey process, staffing documentation, and the evidentiary record supporting the verdicts.
  • United States v. Brennan, 326 F.3d 176; United States v. Hughes, 117 F.4th 104; Fed. R. Crim. P. 52(b); United States v. Valentin, 118 F.4th 579; United States v. Urban, 404 F.3d 754: These authorities supply the standards of review for jury-instruction challenges (abuse of discretion vs. de novo for legal accuracy; plain-error for unpreserved objections). They frame why the panel could affirm if the instruction correctly stated the law under any applicable standard.
  • United States v. McLaughlin, 386 F.3d 547; United States v. Gaudin, 515 U.S. 506; United States v. McBane, 433 F.3d 344: These are the opinion’s central materiality cases. They establish the Third Circuit’s formulation: materiality turns on capability to influence a decisionmaker; actual reliance is unnecessary; and the statement must be capable of influencing a “particular decision of the agency in question.”
  • United States v. Natale, 719 F.3d 719 (Seventh Circuit): Used as a comparator. Natale read § 1035’s materiality to require materiality to a health care benefit program (e.g., Medicare), and found instructional error harmless given the proof and argument. The Third Circuit did not adopt Natale’s narrower framing, emphasizing that neither the text nor Third Circuit precedent requires such a specific instruction—while also noting that the evidence here would satisfy Natale anyway.
  • Bryan v. United States, 524 U.S. 184: Supplies the definition of “willfully” as acting with knowledge that one’s conduct is unlawful. The court used Bryan to test whether the record supported a willfulness inference.
  • United States v. Hendrickson, 949 F.3d 95: Governs sufficiency review (viewing evidence in the light most favorable to the prosecution and asking whether any rational juror could find guilt beyond a reasonable doubt).
  • Conboy v. U.S. Small Bus. Admin., 992 F.3d 153: A cautionary citation about “copy-and-paste” appellate advocacy; while not outcome-determinative, it underscores that underdeveloped appellate argumentation will not overcome a supported judgment.
  • Mont v. United States, 587 U.S. 514: Cited for the proposition that “in connection with” is construed broadly. The panel borrowed this interpretive approach to read § 1035’s “in connection with” requirement expansively.
  • United States v. Moyer, 674 F.3d 192: The controlling Third Circuit case for § 1519. It provides two key rules applied here: (1) no need to intend obstruction of a specific federal investigation; and (2) materiality is not an element of § 1519. The court used Moyer to treat the DOH survey work (done on CMS’s behalf) as a matter within federal jurisdiction.
  • United States v. Cammarata, 145 F.4th 345; United States v. Fallon, 61 F.4th 95; United States v. Vitillo, 490 F.3d 314: These cases define restitution review (legality de novo; amount for abuse of discretion; factual loss findings for clear error) and articulate the “credible evidentiary basis”/“rational relationship” test. The court relied on them to uphold restitution grounded in the admissions-ban counterfactual.

B. Legal Reasoning

1. Materiality instruction under 18 U.S.C. § 1035(a)(1)

The defendants argued the jury should have been instructed that the falsifications must be capable of influencing a decision specifically affecting Medicare or Medicaid payments. The Third Circuit rejected this as inconsistent with its materiality doctrine as articulated in United States v. McLaughlin and United States v. McBane. The approved instruction tracked the classic standard: a statement is material if it has a natural tendency to influence, or is capable of influencing, the decisionmaker, and need only be “of a type” normally predicted to influence that body.

The panel acknowledged United States v. Natale (Seventh Circuit) as potentially suggesting a narrower target (material to a health care benefit program), but declined to graft that limitation onto Third Circuit law, and alternatively stated the error would be harmless given the evidence that the falsifications had the potential to affect Medicare/Medicaid participation.

2. Sufficiency of the evidence under § 1035

a. Willfulness

Applying Bryan v. United States, the court held the record supported an inference that employees acted with knowledge of unlawfulness: testimony described requests to put names on staffing sheets for days not worked, instructions to stay clocked in while not working, and contemporaneous reactions that the conduct “didn’t seem right.” For Brighton, the CEO’s response (“I didn’t hear you say that”) was treated as circumstantial evidence of consciousness of wrongdoing. The court also accepted corporate attribution, emphasizing evidence that employees acted to protect the facilities from consequences (e.g., fines and admission stoppages).

b. Materiality

The court found ample evidence that falsified staffing sheets submitted to DOH were capable of influencing DOH’s compliance and enforcement decisions. Critically, the opinion ties materiality to an institutional decisionmaking chain: DOH surveys assess compliance with federal staffing requirements; continued noncompliance can jeopardize participation in Medicare/Medicaid; and state sanctions (including admission bans or license consequences) can affect the facilities’ ability to receive federal program funds. Therefore, falsified PPD-related records were material because they could skew DOH’s regulatory determinations in ways that affect federal funding eligibility.

c. “In connection with” delivery of or payment for benefits

Using Mont v. United States to justify a broad reading of “in connection with,” the court reasoned that staffing compliance is integral to the delivery of covered nursing services and continued receipt of Medicare/Medicaid payments. Because the falsifications were designed to avoid sanctions (e.g., admissions bans) that could reduce or cut off reimbursed services, the nexus to payment/delivery was sufficient.

3. Sufficiency under 18 U.S.C. § 1519

The court applied United States v. Moyer to resolve two recurring § 1519 disputes:

  • Federal jurisdiction / “matter”: DOH surveys were treated as federal matters because they were performed “on behalf of [CMS]” to assess compliance with federal requirements. That functional delegation sufficed to bring the survey process within the jurisdiction of a United States agency.
  • Intent: The Government need not prove intent to obstruct a specific federal investigation; it is enough that defendants intended to impede “any matter” later shown to be within federal jurisdiction. The evidence of purposeful falsification to pass surveys and avoid sanctions supported the requisite obstructive intent.

The court additionally emphasized (again citing Moyer) that materiality is not an element of § 1519, making arguments about materiality legally beside the point for that count.

4. Restitution

Invoking the Mandatory Victims Restitution Act framework (as referenced through United States v. Cammarata) and applying United States v. Fallon and United States v. Vitillo, the court upheld restitution based on the Government’s counterfactual model: if truthful staffing records had been submitted, DOH could have imposed thirty-day admissions bans following surveys, and the loss amounts were calculated as the federal payments the facilities would not have received during such bans. The appellate court found this methodology had a “credible evidentiary basis” and a rational relationship to the record, defeating the claim that CMS suffered no cognizable loss.

C. Impact

  • Materiality under § 1035 in the Third Circuit remains “decisionmaker-capability” focused: Litigants should expect that, absent binding precedent to the contrary, a general capability-to-influence instruction will be upheld even if it does not expressly specify Medicare/Medicaid payment decisions—particularly when the evidence links the falsehoods to survey outcomes and participation consequences.
  • State agencies acting as CMS surveyors can anchor federal obstruction charges: Treating DOH’s delegated survey role as a “matter within the jurisdiction” of CMS strengthens § 1519’s applicability to falsified documentation submitted to state survey agencies.
  • Restitution exposure may extend to “avoided enforcement” counterfactuals: By approving restitution modeled on payments that would have been foregone under likely sanctions (admissions bans), the opinion supports broader loss theories in health care fraud/false statement cases, even where the government’s injury is framed as paying for services delivered in a noncompliant setting or paying amounts that would not have been payable under truthful regulatory oversight.
  • Practical compliance signal for long-term care facilities: Documentation integrity in staffing/PPD reporting is not merely a state licensing issue; it can trigger federal false-statement and obstruction liability tied to Medicare/Medicaid participation.

Because the disposition is labeled “NOT PRECEDENTIAL,” it does not bind future Third Circuit panels under I.O.P. 5.7, but it may be cited persuasively and reflects how the court is likely to analyze similar facts under existing precedent (McLaughlin/McBane/Moyer).

IV. Complex Concepts Simplified

  • Materiality: A lie is “material” if it could matter to the decisionmaker—i.e., it is the kind of information that could influence an agency’s decision. The agency need not actually rely on it.
  • Willfulness: “Willfully” generally means the person knew the conduct was unlawful, not merely that the conduct was intentional. Here, statements like “didn’t seem right” and evasive responses supported that inference.
  • “In connection with”: This phrase is typically broad. If the falsification is tied to obtaining, keeping, or being paid for services under a benefit program, the connection can be satisfied.
  • § 1519 federal “jurisdiction”: A matter can be within a federal agency’s jurisdiction even if a state agency is doing the on-the-ground work, so long as the work is on the federal agency’s behalf and relates to federal program administration.
  • Restitution “credible evidentiary basis”: Restitution is upheld if the loss estimate is grounded in record evidence and logically tracks how the victim lost money, even if it uses reasonable counterfactual assumptions (like likely admissions bans).

V. Conclusion

The Third Circuit affirmed convictions and restitution stemming from falsified nursing staffing documentation submitted during DOH surveys performed for CMS. The opinion reinforces three practical legal points under existing Third Circuit doctrine: (1) § 1035 materiality turns on capability to influence the relevant decisionmaker and does not require actual reliance; (2) falsifying records to pass CMS-delegated state surveys can constitute obstruction of a federal matter under § 1519 without targeting a specific federal investigation; and (3) restitution may be sustained where the Government shows a record-supported model that ties the fraud to payments that would likely have been interrupted by enforcement measures such as admissions bans.