The Supreme Court seemed open on April 18 to revive whistleblower lawsuits against pharmacy operators SuperValu and Safeway for allegedly submitting false Medicare and Medicaid reimbursement claims for prescription drugs they sold.
The case is considered to be important because it could have an impact on the government’s ability to crack down on health care fraud.
The companies say they shouldn’t be held liable because they did not knowingly commit fraud and in their view acted reasonably in the absence of clear-cut price-reporting rules.
Lawyers say that fraud is one of the most difficult crimes to prove in court.
The U.S. Court of Appeals for the 7th Circuit determined that SuperValu and Safeway together had indeed overbilled the government, but found their billing processes were consistent with an “objectively reasonable” interpretation of the law, regardless of their intentions.
But the whistleblowers, who stand to benefit financially if their lawsuits succeed, and the Biden administration, argue the 7th Circuit ran afoul of the purpose of the federal False Claims Act (FCA).
In the case at hand, the Supreme Court agreed to look at “whether and when a defendant’s contemporaneous subjective understanding or beliefs about the lawfulness of its conduct are relevant to whether it ‘knowingly’ violated the False Claims Act.”
Much of the oral argument on April 18 focused on the application of the legal concept of “scienter” in the FCA, a legal term meaning the intent or knowledge a person has of the wrongness of an act prior to committing it.
Senator Urges Court to Take Up Case
Sen. Charles Grassley (R-Iowa) filed a friend-of-the-court brief in May 2022 urging the Supreme Court to take up the case, and arguing that the 7th Circuit’s “radical departure from the statute continues a lamentable tradition of some courts interpreting the FCA in an unduly restrictive fashion.”The circuit court “crafted from whole cloth a novel and unprecedented requirement for proving scienter, which puts on the government a nearly impossible burden to anticipate and warn off future fraudsters from every colorable misinterpretation of the law,” the brief stated.
The FCA is the “most important anti-fraud statute” and if the ruling is not corrected “it will not be long before the centerpiece of the government’s anti-fraud arsenal becomes unusable.”
Grassley said he sponsored the False Claims Amendments Act of 1986, which “modernized” the FCA and “made it a more effective weapon against government fraud.”
The case is actually two cases: U.S. ex rel. Schutte v. SuperValu (court file 21-1326) and U.S. ex rel. Proctor v. Safeway (court file 22-111).
The court consolidated the two cases and heard them together.
The ‘Lincoln Law’
The FCA, sometimes called the Lincoln Law, was enacted in 1863 to deal with defense contractor fraud during the Civil War.The act currently provides that anyone who knowingly files false claims with the government is liable for treble damages plus a $2,000 penalty for each false claim.
The FCA allows the government to pursue perpetrators on its own, and for private citizens to sue those who defraud the government on behalf of the government in what are known as qui tam suits.
Private citizens who prevail may be awarded part of what the government recovers.
The whistleblowers’ lawsuits allege the two supermarket chains billed the two government programs at artificially high rates while charging most paying customers significantly lower prices under discount schedules.
They say the two companies together bilked taxpayers out of $200 million. Federal law mandates that pharmacies bill the programs at the typical prices they actually make customers pay.
Whistleblowers Tracy Schutte and Michael Yarberry, have claimed that SuperValu knew “its reporting was problematic” and failed to report discounted prices, “charging the government … higher prices.”
Whistleblower Thomas Proctor claimed that “despite ample warning” the company “did not report its discounted prices” to the government and “[t]his allowed Safeway to offer discounts to price-sensitive consumers without sacrificing lucrative reimbursements from the government.”
The whistleblowers’ attorney, Tejinder Singh, told the justices that the lower court was wrong to let the pharmacy operators off the hook.
The companies’ approach to the scienter requirement “would permit some of the worst offenders to escape liability,” he said. “It treats the defendant’s subjective beliefs about the lawfulness of its conduct as irrelevant.”
Justice Elena Kagan seemed to tip her hand, telling Singh, “Your case is the easy case, isn’t it?”
Justice Brett Kavanaugh interjected: “He wants to win the hard case here too, but you don’t need to.”
Singh said the companies, “had ample evidence in terms of guidance from the government, guidance from their own attorneys, industry consensus,” of “the usual and customary [price].”
SuperValu and Safeway “would replace existing incentives for companies to determine and then follow the law with an incentive to plunder every ambiguity for all it’s worth.
“That flies in the face of the statute’s text, the common law, and common sense,” the lawyer said.
Justice Clarence Thomas pushed back, telling Singh: “There was no guidance as to what ‘usual and customary’ meant … no guidance whatsoever.”
The usual and customary price in Nebraska could be different from the price in Iowa, Thomas said.
“Would you still say that you could find that these statements were false or representations were false?” the justice said.
Justice Ketanji Brown Jackson told U.S. Deputy Solicitor General Malcolm Stewart she was “struggling” to understand “why this is a hard case.”
“I don’t understand it at all. I was with Justice Kagan. I thought the 7th Circuit said, essentially, that the subjective beliefs of the supermarkets were irrelevant,” Jackson said.
Stewart said companies filing claims with the government have an obligation to be forthright.
“In our view, the one bedrock requirement is they should not say things they do not believe to be true,” he said.
Carter Phillips, the attorney for Safeway and SuperValu, said that his clients did their best, reporting prices they believed to be accurate.
“There is nothing from the federal government that tells you what the right answer is. And there are lots of different states that take lots of different positions,” he said.
“There’s lots in the record in this case that says that the interpretation adopted by my clients was absolutely correct,” Phillips said. “Those discounts didn’t count,” he added.
The Supreme Court is expected to issue a decision on the case by June or July.
