The Federal False Claims Act is in the News, Part I

We’ve mentioned the Federal False Claims Act, 31 U.S.C. §§ 3729 – 3733 (“FCA”) several times over the past few weeks. Last month, the United States Supreme Court issued opinions in two cases construing the FCA. Unusual for this Court, which typically splits upon predictable political lines, one of these opinions was unanimous, while the other was an 8 – 1 decision. One opinion is generally unfavorable to FCA defendants, while the other is generally favorable. In this blog, we’ll discuss the unfavorable one and deal with the favorable one at a later date

In United States ex rel. Schutt v. SuperValu, 143 S. Ct. 1391 (2023), the Court considered the element of “scienter” which a plaintiff in an FCA case must prove. “Scienter” means knowledge of wrongdoing of falsity on the part of the defendant. The issue turned upon the definition of the “usual and customary price” at which a pharmacy sold a drug. In an effort to compete with Walmart pharmacies, SuperValu and Safeway gave deep discounts to prices of certain drugs but reported a “usual and customary price” to Medicare which was higher than the prices for which they were actually selling the drugs.

The trial court ruled that although the claims submitted to Medicare were not the “usual and customary prices” and were therefore in fact false, defendants had subjectively believed, based upon their own interpretation of “usual and customary,” the prices submitted were not false, and thus the element of scienter was lacking. The decision was affirmed by the United States Court of Appeals for the Seventh Circuit. Under this conception, a plaintiff was required to prove both that the defendant subjectively knew or believed the claim was false, and also that a defendant’s interpretation of a statute or regulation was not objectively reasonable under the circumstances.

The Supreme Court, in a unanimous opinion authored by Justice Clarence Thomas, reversed. Now, a plaintiff must not prove that in submitting a false claim a defendant did not have, in theory, a reasonable interpretation of the applicable legal requirement. “The FCA’s scienter element refers to [a defendant’s] knowledge and subjective beliefs – not to what an objectively reasonable person may have known or believed.”

If you would like a consultation on the FCA, or any legal matter, do not hesitate to contact Scaringi Law at 717-657-7770.