Third Circuit: § 1035 Materiality Does Not Require a Medicare/Medicaid-Payment-Specific Instruction; State Survey Submissions Can Support § 1519 and Restitution Based on Avoided Admissions Bans

I. Introduction

This appeal arises from alleged falsification of nursing-home staffing information supplied during Pennsylvania Department of Health (“DOH”) surveys conducted on behalf of the federal Centers for Medicare and Medicaid Services (“CMS”). The defendants—Comprehensive Healthcare Management Services LLC (doing business as Brighton Rehabilitation and Wellness Center) and Mt. Lebanon Operations LLC (doing business as Mount Lebanon Rehabilitation and Wellness Center)—participated in Medicare and Medicaid and were accused of overstating direct-care staffing hours (Patients Per Day or “PPD”) to appear compliant with federal and state requirements.

The Government charged both entities with (1) falsifying material facts in connection with health care benefits, in violation of 18 U.S.C. §§ 1035(a)(1) and 2, and (2) obstructing a matter within federal jurisdiction, in violation of 18 U.S.C. §§ 1519 and 2. After a jury convicted the entities and the district court denied post-trial motions (as described in United States v. Gilbert, No. CR 21-79-RJC, 2024 WL 2816554 (W.D. Pa. June 3, 2024)), the court imposed probation and ordered restitution totaling approximately $15.35 million.

The Third Circuit addressed three core issues: (1) whether the jury was properly instructed on “materiality” for § 1035, (2) whether the evidence was sufficient as to willfulness, materiality, and the “in connection with” nexus (and as to § 1519 jurisdiction/intent), and (3) whether the restitution amounts were legally and evidentially supported.

II. Summary of the Opinion

The Third Circuit affirmed across the board:

• Jury instruction (materiality): The court held the instruction correctly stated Third Circuit materiality law—i.e., a false statement is material if it has a natural tendency to influence or is capable of influencing the relevant decisionmaker—and need not specify that the statement must influence Medicare/Medicaid payment decisions.
• Sufficiency of evidence: The record supported the jury’s findings that the falsifications were willful, material to DOH’s survey decisionmaking, and made “in connection with” delivery of or payment for health care benefits. The evidence also supported § 1519 because DOH surveys were conducted on behalf of CMS (a federal agency), and the defendants intended to impede that survey process by falsifying records.
• Restitution: Restitution was warranted under the Mandatory Victims Restitution Act (MVRA). The Third Circuit upheld restitution measured by the federal payments the facilities would not have received had admissions bans been imposed following surveys in which false staffing records were submitted.

III. Analysis

A. Precedents Cited (and Their Role)

1. Materiality framework used for § 1035

• United States v. Gaudin, 515 U.S. 506 (1995): Quoted for the canonical definition of materiality—“natural tendency to influence, or capable of influencing, the decision of the decisionmaking body.”
  Influence: Anchored the definition; the panel treated this as the governing concept for evaluating both the jury instruction and the sufficiency of evidence.
• United States v. McLaughlin, 386 F.3d 547 (3d Cir. 2004): Adopted/used Gaudin’s standard and emphasized that actual reliance is unnecessary.
  Influence: Supported the instruction’s statement that the decisionmaker need not actually rely on the false statement.
• United States v. McBane, 433 F.3d 344 (3d Cir. 2005): Reinforced that materiality turns on capability to influence a “particular decision of the agency in question.”
  Influence: Helped the panel reject the defendants’ attempt to require proof of actual influence or a payment-specific effect.
• United States v. Natale, 719 F.3d 719 (7th Cir. 2013): Discussed as a contrasting approach; the Seventh Circuit read § 1035’s materiality as being “material to a health care benefit program.”
  Influence: The Third Circuit neither adopted Natale nor found it necessary; it noted that even under Natale’s more specific framing, the evidence would satisfy materiality because the falsified staffing information had the potential to affect Medicare/Medicaid participation and payments.

2. Standards of review and appellate posture

• United States v. Brennan, 326 F.3d 176 (3d Cir. 2003); United States v. Hughes, 117 F.4th 104 (3d Cir. 2024); Fed. R. Crim. P. 52(b):
  Influence: Framed how the court assessed preserved versus unpreserved jury-instruction objections (abuse of discretion/plain error).
• United States v. Valentin, 118 F.4th 579 (3d Cir. 2024) (quoting United States v. Urban, 404 F.3d 754 (3d Cir. 2005)):
  Influence: Supplied the de novo review standard for the legal correctness of the jury instruction’s statement of the law.
• United States v. Hendrickson, 949 F.3d 95 (3d Cir. 2020):
  Influence: Set the de novo sufficiency review standard and “light most favorable to the prosecution” lens.
• Conboy v. U.S. Small Bus. Admin., 992 F.3d 153 (3d Cir. 2021):
  Influence: Used to criticize the defendants’ “copy-and-paste” appellate advocacy; while not substantive, it signals the panel’s willingness to treat underdeveloped appellate arguments as effectively conceding the district court’s reasoning.

3. Willfulness and mental state

• Bryan v. United States, 524 U.S. 184 (1998):
  Influence: Provided the definition of “willfully” as acting with knowledge that the conduct was unlawful—critical to upholding § 1035 convictions based on internal awareness (“didn’t seem right,” “I didn’t hear you say that,” resignation letter describing “illegally used hours”).

4. “In connection with” construction

• Mont v. United States, 587 U.S. 514 (2019):
  Influence: Cited for a broad reading of “in connection with.” The panel leveraged that breadth to connect staffing falsification during surveys to continued eligibility for Medicare/Medicaid payments.

5. § 1519 scope and federal jurisdiction

• United States v. Moyer, 674 F.3d 192 (3d Cir. 2012):
  Influence: Did the heavy lifting on § 1519: (i) no materiality element; (ii) no need to intend obstruction of a specific federal investigation; and (iii) the government must show intent to impede “any matter,” which is ultimately within federal jurisdiction. This allowed the court to treat DOH surveys (conducted “on behalf of [CMS]”) as matters within CMS jurisdiction.

6. Restitution standards under MVRA

• United States v. Cammarata, 145 F.4th 345 (3d Cir. 2025):
  Influence: Established review standards and confirmed MVRA applicability to fraud/deceit offenses.
• United States v. Fallon, 61 F.4th 95 (3d Cir. 2023); United States v. Vitillo, 490 F.3d 314 (3d Cir. 2007), as amended (Aug. 10, 2007):
  Influence: Supplied the deference framework: to overturn, the defendants had to show the award was “completely devoid of a credible evidentiary basis or bears no rational relationship to the supporting data.” The panel concluded the admissions-ban counterfactual provided a credible basis.

B. Legal Reasoning

1. § 1035(a)(1) — Materiality instruction need not be payment-specific

The defendants sought a narrower instruction: that the falsification must be capable of influencing a decision affecting Medicare or Medicaid payments. The panel rejected that as inconsistent with Third Circuit materiality law, which focuses on whether the statement is of a type capable of influencing the “decisionmaking body to which it was addressed.”

Two moves are notable:

• Decisionmaker identification: The court treated DOH as the “decisionmaking body” because the falsified staffing sheets were submitted to DOH during surveys. DOH’s survey role had both state and federal consequences (including CMS reporting and Medicare/Medicaid participation ramifications).
• No requirement to specify the precise “decision”: The court held it was sufficient that the instruction tracked the natural tendency/capable-of-influencing language and added that the statement need only be “of a type that one would normally predict would influence” the decisionmaking body.

The court also engaged (in a footnote and later discussion) with United States v. Natale, acknowledging another circuit’s more program-specific view of § 1035 materiality, but emphasizing that (a) the Third Circuit’s own precedents do not impose that requirement, and (b) even if they did, the evidence here showed potential Medicare/Medicaid impact.

2. § 1035(a)(1) — Sufficiency: willfulness, materiality, and “in connection with”

Willfulness

Applying Bryan v. United States, the panel found ample evidence that employees understood the wrongdoing: directives to add names or keep nurses clocked-in to inflate PPD; contemporaneous reactions that the practice “didn’t seem right”; and management responses suggesting consciousness of wrongdoing (e.g., “I didn’t hear you say that”). The court also rejected the idea that employee intent could not be imputed to the entity, noting evidence that at least some employees acted to protect the facilities from staffing-related consequences.

Materiality

The panel emphasized the practical function of the staffing records: DOH uses staffing information to assess compliance with federal regulations (including 42 C.F.R. § 483.35) and to determine whether sanctions are appropriate. Because facilities can lose Medicare/Medicaid participation if they fail to cure deficiencies, staffing falsifications submitted during surveys were “capable of influencing” DOH’s compliance and sanction determinations—hence material under McLaughlin/Gaudin.

“In connection with” delivery or payment

Relying on a broad reading of the phrase (citing Mont v. United States), the panel concluded the nexus was satisfied because staffing compliance is tied to the ability to deliver covered services and receive payment. The falsifications were aimed at avoiding admissions bans or other penalties that could disrupt continued Medicare/Medicaid reimbursement.

3. § 1519 — DOH surveys as a federal “matter,” and intent to impede

The defendants’ obstruction convictions turned on whether the surveys and staffing submissions constituted a “matter within the jurisdiction” of a federal agency and whether the defendants acted with obstructive intent.

• Jurisdiction: The panel held that DOH’s surveys were conducted “on behalf of [CMS],” making them a matter within CMS jurisdiction, thus satisfying § 1519 as construed in United States v. Moyer.
• Intent to impede: Inflating PPD and staffing hours was found to be directed at influencing the survey process itself—i.e., impeding DOH’s ability to accurately evaluate staffing compliance. Under Moyer, the Government need not prove intent to obstruct a specific federal investigation or that defendants foresaw federal consequences.

4. Restitution — credible evidentiary basis in “avoided admissions bans” counterfactual

The panel upheld restitution under the MVRA, rejecting the claim that CMS suffered no economic harm. The court accepted the Government’s theory that repeated staffing shortages could have led to 30-day admissions bans, and that the restitution reflected federal payments the facilities would not have received if bans had been imposed. Under United States v. Fallon and United States v. Vitillo, that was a sufficiently credible, rationally related basis to sustain the award.

C. Impact

1. Charging and proof strategy in staffing falsification cases

The opinion reinforces that staffing-survey falsifications can simultaneously support:

• § 1035 liability (false material facts in a matter involving a health care benefit program), even where the immediate audience is a state survey agency, and
• § 1519 liability where the state agency acts “on behalf of” a federal program administrator, framing the survey as a federally jurisdictional “matter.”

2. Materiality instructions: continued reliance on general Third Circuit formulation

The panel’s refusal to require a Medicare/Medicaid-payment-specific materiality instruction signals that, in the Third Circuit, the standard Gaudin/McLaughlin formulation remains sufficient for § 1035, at least where the evidence shows plausible downstream program impact. While non-precedential, the reasoning is likely to be cited for the proposition that specifying the precise payment decision is not necessary if the statement is capable of influencing the survey decisionmaker.

3. Restitution theories tied to regulatory sanctions

The restitution holding is practically significant: it endorses a sanctions-based counterfactual model (payments allegedly avoided because admissions bans were not imposed). That approach, if adopted in other cases, can produce substantial restitution exposure for facilities even where the Government does not prove that CMS actually audited the false documents or that specific claims were false—so long as the record supports that regulatory enforcement could have cut off payment streams.

IV. Complex Concepts Simplified

• Materiality: A false statement is “material” if it could matter to the decisionmaker—i.e., it is the kind of fact that could influence what the agency decides. The agency does not have to actually rely on it.
• Willfulness: “Willfully” generally means the actor knew the conduct was unlawful, not merely mistaken or careless.
• “In connection with”: A broad linking concept. The false statement need not be on a specific reimbursement claim; it can be connected to payment eligibility, continued participation, or conditions of payment.
• § 1519 “matter within federal jurisdiction”: A state-run process can qualify if it is undertaken on behalf of a federal agency or within a federal program’s administrative sphere.
• MVRA restitution: For certain fraud/deceit crimes, courts must order restitution for the victim’s losses. Appellate courts uphold restitution if there is a credible evidentiary basis and a rational relationship between the award and the supporting data.

V. Conclusion

The Third Circuit affirmed convictions and substantial restitution for two nursing-home entities that falsified staffing records submitted during DOH surveys conducted on behalf of CMS. The decision applies established Third Circuit materiality doctrine to § 1035 without requiring a Medicare/Medicaid-payment-specific jury instruction, treats state survey activity as a federally jurisdictional “matter” for § 1519, and upholds MVRA restitution based on a supported enforcement-counterfactual (payments the facilities would not have received under admissions bans). Even as a non-precedential opinion, it provides a detailed roadmap for how staffing-survey falsifications can satisfy federal fraud/obstruction elements and drive high restitution exposure.