Healthcare Companies And Companies Doing Business With The US Government ' Supreme Court Appears Likely To Clarify False Claims Act (FCA) Knowledge Requirements

• Jurisdiction: United States,Federal
• Law Firm: Squire Patton Boggs LLP
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Food, Drugs, Healthcare, Life Sciences, Compliance, Corporate and Company Law, Trials & Appeals & Compensation
• Author: Mr Jerrob Duffy and Karen Harbaugh
• Published date: 05 May 2023

The Supreme Court recently heard oral argument in the appeal of two False Claims Act (FCA) cases from the Seventh Circuit that called into question the level of intent, or scienter, required to establish corporate liability under the FCA for "knowingly" overbilling the government for goods or services. The Court's eventual decision may have widespread implications in healthcare, government contracting, and other industries because it may impact how a company can defend against an FCA claim by arguing that its conduct was objectively reasonable, even if, subjectively, the company or its employees may have intended to violate the FCA or did not otherwise take adequate steps to ensure that their conduct was consistent with the statute.

Both cases, United States ex. rel. Schutte v. SuperValu, Inc., 9 F.4th 455 (7th Cir. 2021) ("SuperValu"), and United States ex. Rel. Proctor v. Safeway, Inc., 30 F.4th 649 (7th Cir. 2022) ("Safeway"), held that the Supreme Court's decision in Safeco Ins. Co. of America v. Burr, 551 U.S. 47 (2007), governs the interpretation of the FCA's scienter requirement. Specifically, citing Safeco, 551 U.S. at 70, the Seventh Circuit found in SuperValu that an FCA defendant does not act with reckless disregard as long as the defendant's interpretation of the relevant statute or regulation was objectively reasonable and no authoritative guidance warned the defendant away from that interpretation. SuperValu, 9 F.4th at 468. The appellate court found that when FCA "relators cannot establish the standard articulated in Safeco, there is no liability under the FCA." Id. In other words, the Seventh Circuit determined that a defendant's beliefs are "irrelevant" if the defendant can later show that its conduct was consistent with an "erroneous" but "objectively reasonable" interpretation of the law. This has potentially far-reaching implications, as we explain below.

Alleged Conduct "Objectively Reasonable" And Thus Not "Knowingly False"

The SuperValu case involved discount prescription pricing at approximately 800 of respondent's pharmacies and the "usual and customary price" for prescriptions they reported to state Medicaid agencies, Medicare Part D, and other payors for reimbursements. 9 F.4th at 461. SuperValu purportedly had a price match program in which it provided discount pricing to match competitors' prices when customers requested a price match. SuperValu purportedly did not provide these discount prices when reporting its "usual and customary" prices for various...