On June 1, 2023, in a case closely followed by government contractors, health care providers, and other businesses that receive payments from the federal government, the U.S. Supreme Court issued a unanimous decision rejecting a defense often invoked by defendants in False Claims Act (FCA) litigation.
The FCA imposes significant penalties on anyone who "knowingly" submits a "false" claim to the federal government. 31 U.S.C. § 3729(a). The issue in U.S. ex rel. Schutte v. SuperValu Inc. involved what it means to "knowingly" submit a false claim when interpreting an ambiguous regulation – here, the meaning of "usual and customary" in the context of drug prices pharmacies are permitted to bill Medicare and Medicaid. Respondents in the case argued that an "objectively reasonably" interpretation of the phrase "usual and customary" shielded it from FCA liability. The Supreme Court rejected that argument – holding that the test was subjective rather than objective. In other words, what matters is whether a defendant knew a claim was false, i.e., if a defendant correctly interprets an ambiguous regulation and believes its claim is false, then they could have known the claim was false. In so holding, the Supreme Court vacated the lower courts' judgments and remanded the case for further proceedings.
In SuperValu, two pharmacies instituted discount drug pricing programs. As a result, consumers regularly paid discounted drug prices rather than the retail rate. Despite what consumers...
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