06/08/2023

Supreme Court Rules on Knowledge Required to Prove False Claims

Guest Article: Elizabeth E. Hogue, Esq.

In order for providers to be liable under the federal False Claims Act, enforcers must prove that providers knowingly submitted false claims. Now the U.S. Supreme Court has issued an opinion in United States ex rel. Schutte v. SuperValu, Inc. [No. 21-1326 (U.S. June , 2023)] that defines what “knowingly” means. The Court ruled that providers act knowingly depending on their “culpable state of mind” when they submitted alleged false claims; not what providers may have thought after submitting them. The requirement to prove knowledge or “scienter,” said the Court, refers to providers’ knowledge and subjective beliefs; not to what objectively reasonable persons may have known or believed. 

This ruling is important for providers because it may make it more difficult for enforcers to prove liability under the False Claims Act (FCA) and easier for providers to defend themselves against claims of violations. Two essential elements of a violation of the FCA are:

• The falsity of claims
• Defendants’ knowledge of the falsity of claims they submitted

Whistleblowers in this case claimed that SuperValu and Safeway defrauded the Medicare and Medicaid Programs. Both Programs provide coverage of prescription drugs to beneficiaries. Both Programs also often cap reimbursement for drugs at pharmacies’ “usual and customary” charges. According to the whistleblowers, both SuperValu and Safeway offered various discount pharmacy programs to customers, but they reported their higher retail prices instead of discounted prices to both Programs.

Whistleblowers presented evidence to show that the companies claimed their discounted prices were their usual and customary charges, and that they tried to prevent regulators and enforcers from finding out about discounted prices. The whistleblowers claimed that evidence showed that the pharmacies thought their claims were inaccurate, but submitted them anyway.

The Court said:

“Both the text and the common law also point to what the defendant thought when submitting the false claim – not what the defendant may have thought after submitting it…As such, the focus is not, as respondents would have it, on post hoc interpretations that might have rendered their claims accurate. It is instead on what the defendant knew when presenting the claims…Culpability is generally measured against the knowledge of the actor at the time of the challenged conduct.”

The Court also said:

“Under the FCA, petitioners may establish scienter by showing that respondents

(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…

If petitioners can make that showing, then it does not matter whether some other, objectively reasonable interpretation of ‘usual and customary’ would point to respondents’ higher prices. For scienter, it is enough if respondents believed that their claims were not accurate.”

This ruling certainly underscores, yet again, the value of Medicare/Medicaid Fraud and Abuse Plans that are up to date and fully implemented. Through processes established in such Plans, providers can thoroughly evaluate their potential liabilities under the FCA before submission of claims.

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©2023 Elizabeth E. Hogue, Esq. All rights reserved.

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