Posted by Post Authored By: Elaina Stevens
Earlier in June, the U.S. Supreme Court reached its decision regarding the scienter requirement in False Claims Act (“FCA”) cases. Before the Supreme Court were the consolidated cases United States ex rel. Schutte v. SuperValu Inc. and United States ex rel. Proctor v. Safeway, Inc. In these two cases, the petitioners brought claims under the False Claims Act, suing retail pharmacies, claiming respondents defrauded Medicare and Medicaid by offering different discount programs to customers, but reporting higher retail prices.[1]
Background of the False Claims Act
The FCA prohibits, in part, knowingly presenting or causing to be presented false or fraudulent claims for payment or approval, or conspiring to commit such.[2] Pursuant to the FCA, “knowingly” means that the actor had actual knowledge of the information, deliberately acted in ignorance of the truth or falsity of the information, or recklessly disregarded the truth or falsity of the information.[3] There is no proof required of the specific intent to defraud.[4] Those who are found to have been in violation of the FCA are liable for civil penalties of $13,508 to $27,018 per false claim, as of January 2023.[5]
The Cases
The cases involved the issue of the requirement of pharmacies to bill Medicare and Medicaid for their “‘usual and customary’” drug prices.[6] The petitioners claimed that the respondent pharmacies adopted discount programs on their drugs and that those prices were the “usual and customary” prices for respondents.[7] However, they claimed respondents would report the higher, non-discounted prices, instead of the lower, discounted prices.[8]
The Seventh Circuit found respondents were entitled to summary judgment, reasoning that “their actions were consistent with an objectively reasonable interpretation of the phrase ‘usual and customary.’”[9]
The question presented to the Supreme Court was whether respondents could have the necessary scienter requirement under the False Claims Act if they correctly understood the standard and thought their claims were accurate.[10] The Court explained that, in short, under the False Claims Act, the term “knowingly” refers to either actual knowledge, deliberate ignorance, or recklessness.[11] Respondents argued in support of the idea that defendants’ subjective beliefs are irrelevant to their scienter.[12]
The Holding
The Court held that the scienter element under the False Claims Act refers to the respondents’ knowledge and subjective beliefs, and not what an objectively reasonable person may have known or believed,[13] thereby rejecting the Seventh Circuit’s view.
Accordingly, petitioners must make the showing that respondents: (a) had actual knowledge that the reported prices were not their “usual and customary” charges when they reported; (b) were aware of a substantial risk that the higher prices were not the “usual and customary” charges and intentionally avoided learning whether the reports were accurate; or (c) were aware of a substantial and unjustified risk but still submitted claims anyways.[14] If petitioners can do such, then whether there are other objectively reasonable interpretations of the phrase is irrelevant.[15]
As a result, as the Supreme Court has made clear, in determining the presence of the scienter requirement in FCA claims, defendants cannot rely on an objective standard of what may have been believed when submitting false claims. Rather, the standard is based upon the defendant’s subjective beliefs.
[1] United States ex rel. Schutte v. SuperValu Inc., 2023 U.S. LEXIS 2300, at *6-7
[2] 31 U.S.C.A. § 3729(a) (West)
[3] Id. at § 3729(b)(1)(A)(i)-(iii)
[4] Id. at § 3729(b)(1)(B)
[5] David W.S. Lieberman & Kelly Shivery, “2023 False Claims Act Penalties,” (Feb 6, 2023, last visited June 19, 2023), https://www.whistleblowerllc.com/2022-false-claims-act-penalties/#:~:text=Now%2C%20for%20violations%20assessed%20after,increase%20for%20inflation%20each%20year.
[6] Schutte, 2023 U.S. LEXIS 2300, at *6
[7] Id. at *9-10
[8] Id. at *10-11
[9] Id. at *14
[10] Id. at *7
[11] Id. at *16
[12] Id. at *20
[13] Id. at *16
[14] Id. at *26-27
[15] Id. at *27
About the Author:
Elaina Stevens is an associate attorney at David A. Axelrod & Associates. She graduated from DePaul University College of Law in December 2022 where she was a part-time evening student. She has worked full-time at David A. Axelrod & Associates since post-undergrad, when she started at the firm as a receptionist, to becoming an associate attorney in May 2023. Elaina focuses on personal injury and medical malpractice cases and is a member of CBA’s YLS Women in Law and Torts Litigation committees.