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In Laboratory Corporation of America Holdings v. State, the Texas Supreme Court took up a closely watched dispute between LabCorp and the State of Texas under the Texas Health Care Program Fraud Prevention Act (formerly the Texas Medicaid Fraud Prevention Act). The State alleged that LabCorp had violated Medicaid billing regulations for over twenty years by failing to extend Medicaid the same pricing and discounts it gave other payors, and that LabCorp’s certifications and silence about this practice amounted to actionable false statements, misrepresentations, and omissions. The trial court granted LabCorp summary judgment on the ground that any alleged misconduct was immaterial to the State’s payment decisions, the court of appeals reversed, and the Supreme Court granted review to decide, among other things, whether the Act’s omissions provision requires a showing of materiality at all.

Having held that materiality is indeed required, the Court confronted a thornier question: how does a defendant affirmatively prove a negative, namely that its conduct was not material? The Court acknowledged the “inherent difficulty in proving a negative,” especially where materiality is an abstract concept typically inferred from circumstantial conduct. It resolved this by holding that a defendant can carry its summary-judgment burden “by offering competent evidence of undisputed facts that, when viewed as a whole, are incompatible with materiality.” Drawing heavily on the U.S. Supreme Court’s False Claims Act materiality framework in Universal Health Services, Inc. v. United States ex rel. Escobar, the Court identified several categories of proof relevant to this showing: the government’s actual or imputed knowledge of the violation and its continued payment despite that knowledge, which the Court called “very strong evidence” of immateriality, and in some cases conclusive; the seniority of the officials informed of the alleged wrongdoing; whether the government has a pattern of paying similar claims from other providers despite the same noncompliance; whether the requirement was an express condition of payment versus a general regulatory obligation; and the magnitude of the alleged violation.

Applying that framework, the Court concluded LabCorp met its burden. In 2014, LabCorp voluntarily opened its books to the Texas Attorney General’s Office, producing roughly 250,000 pages of billing data and meeting in person with OAG’s then-Deputy Chief of the Civil Medicaid Fraud Division. This was followed by a detailed slide deck and a 2015 white paper laying out its two-tier pricing structure and its considered, good-faith interpretation of the “usual and customary” and “discount” regulations. For seven years thereafter, the State paid every LabCorp claim without objection, denial, or any indication that LabCorp’s regulatory interpretation was incorrect. The Court rejected the State’s arguments that LabCorp’s disclosures were insufficiently explicit or “deliberately muddy,” explaining that it is the underlying conduct disclosed, not any legal conclusion attached to it, that matters for materiality. It likewise rejected the notion that a mere condition-of-payment label automatically establishes materiality, echoing Escobar’s rejection of that “extraordinarily expansive view of liability.” Because the State could not explain its seven years of uninterrupted payment on any basis other than immateriality, the Court reinstated summary judgment for LabCorp.

For Texas commercial litigators and in-house counsel navigating government contracts or Medicaid compliance, the point of this case is clear: contemporaneous, well-documented disclosure to decisionmakers, followed by an agency’s unbroken, unobjecting course of payment, can be powerful, even conclusive, evidence defeating a fraud claim premised on materiality. Companies operating in regulated, payment-dependent industries should take note of the evidentiary record LabCorp built in real time, since it proved decisive years later.