The Supreme Court Rejects Challenge to False Claims Act Intent Standard

The Supreme Court , in a unanimous decision, rejected a challenge by corporate pharmacy defendants, to the intent requirement in a Medicaid and Medicare over-billing False Claims Act case.  Justice Clarence Thomas, who has established himself as the lead justice concerning False Claims Act cases, wrote the unanimous opinion.

The defendants, SuperValu and Safeway, claimed that thier alleged overbilling did not meet the intent requirements under the False Claims Act because they adopted a reasonable reading of an ambiguous standard for billing for drugs, despite the evidence that suggested their interpretation may not be legal.

The Supreme Court clarified that the prohibited intent standard is met when a defendant has “actual knowledge and[/or] subjective beliefs that they are violating a statute.  The Supreme Court specifically rejected the defendant’s argument that the intent requirement should be based on an objective reasonableness standard regarding what a person may have known or believed.

In rejecting the defendants’ arguments, the Supreme Court reversed two decisions from the Seventh Circuit that whistleblowers claimed would undermine the FCA’s coverage and protections in the face of clever defense claims to rationalize a defendant’s post hoc defenses based on an objective standard.

Justice Thomas specifically explained that the intent analysis “is not, as the defendants would have it, on post hoc interpretations that might have rendered their claims accurate,” but rather “on what the defendant knew when presenting the claim.”

The whistleblowers claimed that Supervalu and Safeway defrauded the Medicaid and Medicare programs, which offer prescription drug coverage to their beneficiaries, and cap such reimbursement for drugs at the pharmacy’s “usual and customary” charge to the public.  The whistleblowers claimed, however, that Supervalu and Safeway offered various pharmacy discounts programs, but reported their higher retail prices, rather than their discounted prices for reimbursement purposes.  In addition, the whistleblowers presented evidence that the companies believed their discounted prices were their “usual and customary” prices and tried to prevent regulators and contractors from discovering their discounted prices.  At bottom, the whistleblowers presented evidence that the defendants thought their claims were inaccurate but submitted them anyway.

In explaining the False Claims Act’s intent requirement, the Supreme Court explained that the FCA sets out a three-part definition of the term “knowingly” that largely tracks the traditional common law scienter requirement for claims of fraud: actual knowledge, deliberate ignorance or recklessness will suffice. Each term focuses on what the defendant thought and believed.  “actual knowledge” refers to what the defendant is aware of. “Deliberate ignorance” encompasses defendants who are aware of a substantial risk that their statements are false, but intentionally avoid taking steps to confirm the statements’ truth or falsity.  And “reckless disregard” covers defendants who are conscious of a substantial and unjustifiable risk that claims are false but submit the claims anyway.

The decision stands as a significant blow to defense attorneys who had convinced several Circuit Courts of their argument.  The Supreme Court’s unanimous decision, however, resolves the circuit split and was a significant victory for plaintiffs and whistleblowers who bring False Claims Act cases.

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