Jason Velligan
Associate Editor
Loyola University Chicago School of Law, JD 2024
On June 1, 2023, in a unanimous opinion, the United States Supreme Court ruled in United States et al. ex rel. Schutte et al. v. Supervalu Inc. et al. and United States et al. ex rel. Proctor v. Safe-way, Inc. that the scienter element of the False Claims Act (FCA) refers to a defendant’s knowledge and subjective beliefs. Supervalu and Safeway knew they were charging government health insurance programs more for prescription drugs than what they usually and customarily charging regular customers, in violation of the FCA.
False Claims Act
The government enacted the FCA to combat defense contractor fraud during the Civil War. A person who knowingly submits a false, fictitious, or fraudulent claim to the government becomes liable to pay three times the government’s damages plus a penalty ranging from $11,803 to $23,607. The statute allows the government to pursue a civil claim against an entity that submits a false claim and authorizes private citizens to file a lawsuit on behalf of the government in an action called “qui tam.” A private citizen, or relator, may bring a lawsuit against an entity accused of making false claims to the government and seek recovery for the government. If the lawsuit is successful, the relator is entitled to receive compensation for the recovery.
Usual and customary
The regulations promulgated by the Centers for Medicare and Medicaid Services (CMS) limit Medicare and Medicaid reimbursement for drugs to the lower of two amounts. If the pharmacy’s “usual and customary” charge to the public is lower than the CMS contracted amount, then the pharmacy must bill the federal program the public amount. For example, the pharmacies at Walmart and Target charge the public $4 for a 30-day supply and $10 for a 90-day supply for many drugs. The $4 and $10 are the “usual and customary” charges to the public. If either Walmart or Target submits a $100 charge to Medicare for a 30-day supply of the same drug sold to the public for $4, they are then submitting false claims to the government.
Supervalu and Safeway attempted to circumvent the “usual and customary” charge and had been told that discounted drug prices are “usual and customary.” Supervalu and Safeway contended that there was ambiguity in the meaning of “usual and customary,” but this did not save the day, and they should have taken further steps to determine the correct meaning.
Knowingly
The FCA defines knowingly as “actual knowledge, deliberate ignorance, and recklessness.” “Actual knowledge” is when an individual is aware that a claim is false. In the case of “deliberate ignorance,” an individual is aware of a substantial risk that a claim is false and intentionally avoids confirming the truth or falsity of the claim. Multiple federal circuits provide jury instructions that a defendant has acted with willful ignorance or deliberate ignorance in criminal trials. Consider the scenario where the court gives a deliberate ignorance instruction: a person is asked and agrees to transport a bag from one location to another without inquiring into what the bag contains. “Reckless disregard” involves acknowledging a substantial and unjustifiable risk that a claim is false but choosing to submit the claim anyway. Scienter can be established by showing that Supervalu or Safeway “(1) actually knew that their reported prices were not their “usual and customary” prices when they reported those prices, (2) were aware of a substantial risk that their higher, retail prices were not their “usual and customary” prices and intentionally avoided learning whether their reports were accurate, or (3) were aware of such a substantial and unjustifiable risk but submitted the claims anyway.”
The ruling did not broaden the scope or application of the FCA. The Court provided future relators with a sharper definition of the knowledge element required to establish a viable qui tam. An opportunity exists here for compliance professionals to educate their organization on what knowledge of a false claim is and how to avoid submitting false claims. Compliance professionals in organizations that have federal contracts for goods or services should have a leading part in these decisions. If needed, they should be ready to hit the brakes on submitting claims if there are questions as to the propriety of the claims.
Associate Editor
Loyola University Chicago School of Law, JD 2024
On June 1, 2023, in a unanimous opinion, the United States Supreme Court ruled in United States et al. ex rel. Schutte et al. v. Supervalu Inc. et al. and United States et al. ex rel. Proctor v. Safe-way, Inc. that the scienter element of the False Claims Act (FCA) refers to a defendant’s knowledge and subjective beliefs. Supervalu and Safeway knew they were charging government health insurance programs more for prescription drugs than what they usually and customarily charging regular customers, in violation of the FCA.
False Claims Act
The government enacted the FCA to combat defense contractor fraud during the Civil War. A person who knowingly submits a false, fictitious, or fraudulent claim to the government becomes liable to pay three times the government’s damages plus a penalty ranging from $11,803 to $23,607. The statute allows the government to pursue a civil claim against an entity that submits a false claim and authorizes private citizens to file a lawsuit on behalf of the government in an action called “qui tam.” A private citizen, or relator, may bring a lawsuit against an entity accused of making false claims to the government and seek recovery for the government. If the lawsuit is successful, the relator is entitled to receive compensation for the recovery.
Usual and customary
The regulations promulgated by the Centers for Medicare and Medicaid Services (CMS) limit Medicare and Medicaid reimbursement for drugs to the lower of two amounts. If the pharmacy’s “usual and customary” charge to the public is lower than the CMS contracted amount, then the pharmacy must bill the federal program the public amount. For example, the pharmacies at Walmart and Target charge the public $4 for a 30-day supply and $10 for a 90-day supply for many drugs. The $4 and $10 are the “usual and customary” charges to the public. If either Walmart or Target submits a $100 charge to Medicare for a 30-day supply of the same drug sold to the public for $4, they are then submitting false claims to the government.
Supervalu and Safeway attempted to circumvent the “usual and customary” charge and had been told that discounted drug prices are “usual and customary.” Supervalu and Safeway contended that there was ambiguity in the meaning of “usual and customary,” but this did not save the day, and they should have taken further steps to determine the correct meaning.
Knowingly
The FCA defines knowingly as “actual knowledge, deliberate ignorance, and recklessness.” “Actual knowledge” is when an individual is aware that a claim is false. In the case of “deliberate ignorance,” an individual is aware of a substantial risk that a claim is false and intentionally avoids confirming the truth or falsity of the claim. Multiple federal circuits provide jury instructions that a defendant has acted with willful ignorance or deliberate ignorance in criminal trials. Consider the scenario where the court gives a deliberate ignorance instruction: a person is asked and agrees to transport a bag from one location to another without inquiring into what the bag contains. “Reckless disregard” involves acknowledging a substantial and unjustifiable risk that a claim is false but choosing to submit the claim anyway. Scienter can be established by showing that Supervalu or Safeway “(1) actually knew that their reported prices were not their “usual and customary” prices when they reported those prices, (2) were aware of a substantial risk that their higher, retail prices were not their “usual and customary” prices and intentionally avoided learning whether their reports were accurate, or (3) were aware of such a substantial and unjustifiable risk but submitted the claims anyway.”
The ruling did not broaden the scope or application of the FCA. The Court provided future relators with a sharper definition of the knowledge element required to establish a viable qui tam. An opportunity exists here for compliance professionals to educate their organization on what knowledge of a false claim is and how to avoid submitting false claims. Compliance professionals in organizations that have federal contracts for goods or services should have a leading part in these decisions. If needed, they should be ready to hit the brakes on submitting claims if there are questions as to the propriety of the claims.