The Texas Supreme Court has issued a significant decision that could reshape how Medicaid fraud cases are pursued in Texas, ruling that the State cannot simply point to an alleged regulatory violation. Instead, it must also prove that the alleged omission or misrepresentation was material to its decision to pay a Medicaid claim.
In Laboratory Corporation of America Holdings v. State of Texas, the Court ruled that when the government knows about a provider’s billing practices, investigates those practices, and continues to pay claims for years without objection, such conduct is powerful evidence that the alleged violation was not material. The Court reinstated summary judgment in favor of LabCorp after finding the State had been aware of the company’s billing practices since 2014, yet continued paying millions of dollars in Medicaid claims for approximately seven years before filing suit.
The decision centers on the Texas Health Care Program Fraud Prevention Act, formerly known as the Texas Medicaid Fraud Prevention Act. According to the Court, the Act incorporates longstanding principles of common-law fraud, including the requirement that an alleged omission or false statement must be material—that is, capable of influencing the government’s payment decision. The Court rejected the State’s argument that every regulatory violation automatically creates liability under the Act.
For Texas Medicaid providers, the ruling could have implications far beyond the LabCorp case. Many provider investigations involve billing practices that have been known to Medicaid contractors or state agencies for years before enforcement actions are initiated. The Court’s opinion suggests that where the government has actual knowledge of a provider’s practices and nevertheless continues to approve and pay claims without objection, proving fraud under the Act may be considerably more difficult.
The Court was careful to emphasize that the decision does not prevent Texas from pursuing legitimate fraud cases. State agencies retain broad authority to suspend payments, conduct audits, require additional documentation, impose administrative sanctions, or bring enforcement actions when they identify improper billing. However, the opinion makes clear that prolonged government acquiescence may undermine later claims that an alleged omission or misrepresentation was material enough to justify liability under the statute.
For Medicaid providers, the decision underscores the importance of transparency and documentation when questions arise about billing practices or regulatory compliance.
Providers that fully disclose their practices during audits or investigations, maintain open communication with state agencies, and receive continued payment without objection may have a stronger defense against subsequent allegations of fraud arising from the same conduct.
At the same time, the Court made clear that Texas retains broad authority to investigate suspected violations, recover overpayments, impose administrative sanctions, and pursue fraud actions where the facts warrant. The ruling does not excuse noncompliance, but it reinforces that proving fraud requires more than merely identifying a technical regulatory violation after years of government awareness and continued payment.