Government contractors, health care providers and many other parties who submit claims for payment to the federal government are subject to liability under the False Claims Act (FCA). This month, the U.S. Supreme Court issued a decision that could potentially make more actions subject to prosecution under the FCA. Those submitting claims for payment to the government should be aware of these developments and have processes in place to avoid costly mistakes.
The Supreme Court issued its decision in United States ex rel. Schutte v. SuperValu, Inc. on June 1, 2023. The major takeaway from this case is a clarification of when a defendant can be deemed to have “knowingly” submitted a false claim for payment. In this newly refined definition, a defendant knowingly submits a false claim when they subjectively believe the claim is false at the time of submission. Some previous circuit court decisions had denied FCA liability so long as the claim was submitted with an “objectively reasonable interpretation” of the relevant law, regardless of whether the submitter believed it to be false or not.
While these may seem like relatively minor distinctions, the SuperValu decision has the effect of taking away a defense to FCA liability that had been successfully employed in five of the circuits. Specifically, even if the submitter of the claim had believed the claim to be false at the time of submittal, as long as there was an “objectively reasonable interpretation of the relevant law” which would have made the claim allowable, there was no FCA liability. The SuperValu decision removes this defense and pares the relevant question back to asking: what did the submitter believe at the time?
In order for a False Claims Act action to be successful, the plaintiff (either the government or a private relator) needs to establish that (1) the defendant submitted a claim for payment that was false and (2) the defendant knew the claim was false – the legal term here is: acted with “scienter.” 31 U.S.C. § 3729. A claim must also be “material,” but that was not the focus of SuperValu.
The facts of SuperValu are that the plaintiff-relator Schutte sued the SuperValu supermarket chain, alleging that the company’s pharmacies had knowingly submitted false claims for prescription reimbursements to Medicare and Medicaid. Under the applicable regulations, pharmacies can only submit claims to these government programs at prices which are “usual and customary.” According to the plaintiff, SuperValu had been selling a substantial part of its prescription drugs at a lowered price in accordance with its policy of matching competitor prices when requested by a customer. According to the plaintiff, SuperValu should have requested reimbursement at this lower rate, not the default retail rate.
In looking at this matter, the lower courts up through the Seventh Circuit had determined that the claims “would have to be objectively unreasonable ... before a defendant could be held liable for ‘knowingly’ submitting a false claim, no matter what the defendant thought.” In other words, even if SuperValu itself believed that its higher retail prices were not its “usual and customary prices,” it is possible that an objectively reasonable person could have concluded they were. Therefore, SuperValu did not present its false claims knowingly.
On appeal, the Supreme Court disagreed. It held that for purposes of the FCA, a defendant knowingly makes a false claim when it “believes” that a claim is “not accurate,” even where a reasonable person could have determined it was accurate. The Supreme Court looked at the text of the FCA and common-law fraud cases. In both instances, it was the belief of the defendant not some external determination of reasonableness that controls. At the end of the day, under the FCA, a defendant that makes a false claim for payment does so “knowingly” when they subjectively believe their claim is “not accurate.”
To avoid civil and criminal penalties, those who submit claims for payment to the government should take time to ensure that their programs comply with the FCA and other fraud and abuse statutes like the Anti-Kickback Statute. Doing so at the earliest possible point may help avoid becoming the subject of an investigation.