What do you know about potential False Claims Act (“FCA”) liability?
The plaintiff in an FCA case, whether the government or a whistleblower, must establish two elements to prove liability: (1) The falsity of the claim submitted to the government, and (2) the defendant’s knowledge of the claim’s falsity.
But what standard or definition is used to determine a defendant’s knowledge? Is it an objective standard, as in what you should know, or is it a subjective standard, as in what you actually thought of the claim’s truth/falsity at the time you submitted it to the government?
The question was answered last week (on June 2, 2023) by way of a unanimous U.S. Supreme Court opinion in United States ex rel. Schutte V. Supervalu: it’s a subjective standard.
Although the opinion involves pharmacy claims by supermarket chains SuperValu and Safeway, Justice Thomas, writing for the Court, used this analogy:
The False Claims Act (FCA) imposes liability on anyone who “knowingly” submits a “false” claim to the Government. . . . . In some cases, that rule is straightforward: If a law authorized payment of $100 for “each” medical test, and a doctor knows that he did five tests but submits a claim for ten, then he has knowingly submitted a false claim. But sometimes the rule is less clear. If a law authorized payment for only “customary” medical tests, some doctors might be confused when it came time for billing. And, while some doctors might honestly mistake what that term means, others might correctly understand whatever “customary” meant in this context—and submit claims that were inaccurate anyway.
The cases before us today involve a legal standard similar to that latter example: In certain circumstances, pharmacies are required to bill Medicare and Medicaid for their “usual and customary” drug prices. And, critically, these cases involve defendants [SuperValue and Safeway] who may have correctly understood the relevant standard and submitted inaccurate claims anyway. The question presented is thus whether respondents could have the scienter [i.e., the knowledge] required by the FCA if they correctly understood that standard and thought that their claims were inaccurate.
We hold that the answer is yes: What matters for an FCA case is whether the defendant knew the claim was false. Thus, if respondents correctly interpreted the relevant phrase and believed their claims were false, then they could have known their claims were false.” [Emphasis added.]
The opinion, which relates to two underlying FCA cases, one against SuperValu and the other against Safeway, also shed light on the meaning of the term “usual and customary”, at least as applicable in regard to the particular type of pharmacy claims submitted by the two retail chains.
At issue were claims filed under each of the Medicaid and Medicare programs.
As to Medicaid, CMS regulations, and most state’s Medicaid plans, limit a pharmacy’s reimbursement to the lower of two amounts, one of which is the healthcare provider’s “usual and customary charges [for the drug] to the general public.”
Medicare Part D, a prescription-drug coverage plan, is administered via contracts awarded by CMS to private plan sponsors which, in turn, enter into contracts with pharmacies and pharmacy benefit managers. Many of the contracts at issue underlying the SuperValu and Safeway cases limited any reimbursement to the pharmacy’s “usual and customary” price.
In connection with their submission of claims, SuperValu and Safeway were required to disclose their “usual and customary” price. The whistleblowers alleged that the chains reported higher prices than the ones that they usually and customarily charged to the public.
In essence, what the whistleblowers argued was that SuperValu and Safeway were reporting list price type numbers as their “usual and customary” price, when, in reality, they gave so many retail customers significant discounts that those prices could not be “usual and customary”. For example, the opinion states:
“. . . [The whistleblowers] presented evidence that Safeway charged just $10 for 94% of its cash sales for a 90-day supply of a cholesterol drug between 2008 and 2012. Yet Safeway apparently reported prices as high as $108 as “usual and customary” during that time. And [the whistleblowers] presented evidence that, at least at some times and for some drugs, SuperValu made more than 80% of its cash sales for prices less than what it disclosed as its “usual and customary” price.” [Emphasis added.]
What you know, both about the FCA and about the falsity of claims is now even more relevant.
