“What is the difference between a lie and criminal fraud?” Justice Gorsuch posed that question in his concurrence in United States v. Kousisis, decided May 22, 2025. To illustrate the stakes, he offered a pointed hypothetical: a babysitter lies about her criminal record during a job interview, gets hired, performs well, and is paid in full. When the parents later discover the deception, they may be upset—but no one reasonably thinks the babysitter should face federal fraud charges. “Of course not,” Gorsuch wrote. If every misstatement rose to the level of criminal fraud, “thousands of buyers and sellers” would be federal felons.
That principle, separating bad acts from federal crimes, runs throughout the Court’s opinion in Kousisis. While the Court affirmed convictions based on fraudulently obtained government contracts, it did so while drawing sharp boundaries that should hearten healthcare defense counsel. Most importantly, the decision elevates and clarifies the role of materiality in federal fraud cases.
This case involved DBE (Disadvantaged Business Enterprise) fraud, where the defendants misrepresented the participation of a minority-owned business in order to win contracts. They argued that non-compliance with contract terms requiring the participation of a DBE did not constitute a deprivation of government “property”; that is, what the government actually bargained for. The Third Circuit disagreed, concluding that the funds obtained through deception sufficed under the wire fraud statute. The Supreme Court affirmed, but only after clearly cabining the theory used.
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The government’s case relied on a “fraudulent inducement” theory, suggesting that even if the contractual terms were eventually fulfilled, the initial deceit used to obtain the funds was sufficient for criminal liability. But Kousisis makes clear that such a theory only supports criminal liability if the misrepresentation is material and targets a traditional property interest.
Here’s the silver-lining: the Court re-centers materiality—a principle grounded in centuries of common law—as “the principled basis for distinguishing everyday misstatements from actionable fraud.” In fact, the Court embraced the same materiality framework articulated in Universal Health Services, Inc. v. United States ex rel. Escobar, 579 U. S. 176 (2016), a cornerstone of civil False Claims Act litigation. In doing so, Kousisis effectively implants Escobar’s rigorous standard into criminal fraud prosecutions: “The ‘demanding’ materiality requirement substantially narrows the universe of actionable misrepresentations.”
This is no small thing. In the healthcare context, where providers navigate dense billing codes and evolving coverage rules, the materiality doctrine functions as a vital shield. Criminal liability should not attach to insignificant or technical errors, especially where the government pays claims and receives services. As the Court noted, “materiality is judged according to an objective standard,” not hindsight, moral indignation, or agency preferences.
Equally important, the Court took care to distinguish the fraudulent-inducement theory from the now-defunct right-to-control theory struck down in Ciminelli v. United States, 598 U.S. 306 (2023). Fraudulent inducement does not criminalize deception that merely withholds information. It requires a scheme to obtain money or property, and materiality ensures only consequential misrepresentations meet that standard.
For healthcare providers and lawyers who defend them, Kousisis offers powerful language to push back against federal fraud charges rooted in regulatory disagreements, ambiguous guidance, or immaterial omissions. In fact, the Court itself warned that “the materiality inquiry turns on substance rather than labels,” and that this “may doom the Government’s prosecutions in DBE cases where materiality is contested.”
That warning doubles as a directive to defense counsel: focus on what matters. Show that the alleged misrepresentation had no bearing on the government’s decision to pay, approve, or enter into a contract. Frame the dispute as one of immaterial noncompliance, not intentional deceit for unlawful gain.
In sum, Kousisis affirms that the fraud statutes are not catchalls for every misstep in federal contracting or reimbursement. By embedding Escobar’s materiality test into the criminal context, the Supreme Court has clarified that criminal fraud must be grounded in intent, substance, and consequence. Liability cannot rest on technicalities or insignificant deviations. For individuals and entities facing healthcare fraud investigations, the decision in Kousisis offers a clearer and fairer boundary between regulatory error and criminal conduct.
United States v. Kousisis sends a clear message: not every misstep is a federal offense. For healthcare providers, the decision reinforces that honest services, even when entangled in complex billing systems or administrative regulations, should not trigger criminal prosecution unless there is real, material deception. As federal enforcement continues to expand, it’s more critical than ever to distinguish between regulatory issues and criminal exposure.
If you are facing government scrutiny or want to better understand how this ruling might apply to your case or practice, contact Chapman Law Group today. We will schedule a consultation with one of our experienced healthcare fraud defense attorneys to assess your situation and develop a strategy tailored to your needs. With over 150 acquittals and more than $450 million saved for our clients, healthcare professionals across the country trust us to handle their most serious federal criminal defense matters.
Individuals depicted or heard in the foregoing media appearance or images may no longer be current attorneys, employees, members or affiliates with Chapman & Associates, PC or The Chapman Law Group (the “Firm”), including Ronald W. Chapman, II who is no longer affiliated with the Firm. For a current listing of the attorneys and services available with the Chapman Law Group, please see https://chapmanlawgroup.com/team.
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Laith Quasem
Associate Attorney
Professional Licensing & Regulatory Affairs, Healthcare Compliance, Federal Criminal Defense
Seattle Office (Satellite)
Washington
Phone: (877) 234-5911
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