SCOTUS Pro-employer Pendulum Swings When It's the Fed's Ox Getting Gored

Sherman & Howard L.L.C.

Sherman & Howard L.L.C.

The False Claims Act ("FCA") imposes liability on anyone who "knowingly" makes a false claim to the Federal Government. This includes making false claims for reimbursement from the government under federal programs. As part of its remedial scheme, the FCA creates something of a bounty for individuals who blow the whistle on FCA violations. These claims are referred to as qui tam claims. These claims are typically brought by employees or ex-employees. Here, two whistleblowers claim that two large pharmacy chains made false claims to the government when the chains sought reimbursement from the government under Medicare and Medicaid programs for filling prescriptions at the "usual and customary" drug prices, as required by those programs, when in fact the reimbursement requests were based on prices far above the "usual and customary" drug prices. The whistleblowers claim that the chains filled Medicare and Medicaid prescriptions under huge discount programs but sought reimbursement from the government at their standard prescription prices, which the whistleblowers claim were not the "usual and customary" drug prices in light of the discount programs then in place.

The pharmacies argued in the courts below that they could not be held liable for "knowingly" submitting false claims because the phrase "usual and customary" is vague and could objectively be construed by a reasonable person to mean the pharmacies' standard prescription prices. Because the FCA only punishes those who "knowingly" make a false claim to the government, the pharmacies did not violate the FCA, they claimed. The district court and the Seventh Circuit agreed.

In a rare unanimous decision, penned by the Court's FCA maven Clarence Thomas, the U.S. Supreme Court ruled against the pharmacies and in favor of the whistleblowers. U.S. ex. rel. Schutte et al. v. Supervalu Inc. et al. The Court adopted a broader interpretation of what it means to "knowingly" submit a false claim. The intent (or "scienter") required to prove the "knowingly" element of an FCA claim is not determined by a "reasonable person" standard. It is not a defense to an FCA claim to assert that a reasonable person would have interpreted the law in the same manner as the defendant and would have made the same false claims to the government. Instead, it's all about what the defendant was thinking when it submitted the claim. Here, the record suggested that the pharmacies knew or had reason to believe that the term "usual and customary" prices meant their pricing under their massive discount programs rather than their vastly higher standard prescription prices. Even though a reasonable person might objectively conclude that "usual and customary" meant standard pricing, the pharmacies here allegedly believed their claims for reimbursement were false but submitted them anyway. Because they were allegedly aware that their claims were false and made the claims anyway, they potentially violated the FCA regardless of whether another interpretation of the phrase "usual and customary" would have been objectively reasonable.

Doing business with the government is usually a challenge, and qui tam actions are complicated, tricky business, to say the least. The end result of this case is to allow more whistleblowers to bring more qui tam actions even when the accused's interpretation of the law was objectively reasonable. This should force companies doing business with the government to take much greater care when submitting claims based on statutes or regulations that are subject to one or more reasonable interpretations that would affect the amount claimed.

Based on the FCA’s statutory text and its common-law roots, the answer to the question presented is straightforward: The FCA’s scienter element refers to respondents’ knowledge and subjective beliefs—not to what an objectively reasonable person may have known or believed. And, even though the phrase “usual and customary” may be ambiguous on its face, such facial ambiguity alone is not sufficient to preclude a finding that respondents knew their claims were false.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Sherman & Howard L.L.C. | Attorney Advertising

Written by:

Sherman & Howard L.L.C.

Sherman & Howard L.L.C. on:

Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide
- hide