On June 1, 2023, in United States ex rel. Schutte v. SuperValu, Inc., the U.S. Supreme Court unanimously held that the scienter requirement of a claim brought under the False Claims Act (FCA) is evaluated based on the defendant’s own knowledge and subjective beliefs—not what an objectively reasonable person may have known or believed. This ruling underscores the need for health care providers to carefully evaluate ambiguous terms in government payor billing guidelines before submitting claims for payment, because an objectively reasonable interpretation of those billing guidelines will not provide a defense if the defendant knew or believed there was a risk its interpretation could be fraudulent.
In Schutte, whistleblowers brought FCA suits against retail pharmacies alleging that the pharmacies overbilled Medicare and Medicaid for certain prescription drugs. The case considered the Federal Centers for Medicare and Medicaid Services (CMS) regulations which, as relevant to the case, limited reimbursement to the “usual and customary” price for the dispensed drug.
The whistleblowers alleged that the pharmacies offered a discount program to match a competitor’s lower prices. The discount program proved popular, and the vast majority of the pharmacies’ cash sales were for drugs sold at the discounted rate. But, the pharmacies continued to report to Medicare and Medicaid that their “usual and customary” prices were the higher, non-discounted prices.
The whistleblowers contended...
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