U.S. Supreme Court Rules FCA’s Scienter Element Refers To Respondents’ Knowledge And Subjective Belief

Court Rules On Knowledge And Subjective Belief Case: In its Opinion filed on June 1, 2023, the United States Supreme Court ruled that the False Claims Act’s scienter element refers to a defendant’s knowledge and subjective beliefs—not to what an objectively reasonable person may have known or believed.

Underlying Facts

The Petitioners sued retail pharmacies under the False Claims Act (FCA), 31 U. S. C. §3729 et seq. The FCA permits private parties to bring lawsuits in the name of the United States against those who they believe have defrauded the Federal Government, §3730(b), and imposes liability on anyone who “knowingly” submits a “false” claim to the Government, §3729(a). The Petitioners claimed that the respondents—SuperValu and Safeway—defrauded two federal benefits programs, Medicaid and Medicare. Both Medicaid and Medicare offer prescription-drug coverage to their beneficiaries, and both often cap any reimbursement for drugs at the pharmacy’s “usual and customary” charge to the public. The Petitioners alleged that SuperValu and Safeway for years offered various pharmacy discount programs to
their customers—yet reported their higher retail prices, rather than their discounted prices. The Petitioners also presented evidence that the companies believed their discounted prices were their usual and customary prices and tried to prevent regulators and contractors from finding out about their discounted prices. In sum, the Petitioners claimed that the evidence shows that the respondents thought their claims were inaccurate yet submitted them anyway.

Two essential elements of an FCA violation are (1) the falsity of the claim and (2) the defendant’s knowledge of the claim’s falsity. The District Court ruled against SuperValu on the falsity element—finding that its discounted prices were its usual and customary prices and that, by not reporting them, SuperValu submitted false claims. However, the court granted SuperValu summary judgment based on the scienter element, holding SuperValu could not have acted “knowingly.” In a separate case, the court granted Safeway summary judgment on that same basis.

In its June 1, 2023 Opinion, the United States Supreme Court stated that the scienter element focuses on what a
defendant thought when submitting a claim—not what a defendant may have thought after submitting it. The facial ambiguity of the phrase “usual and customary” does not by itself preclude a finding of scienter under the FCA. Even if the phrase is ambiguous, the respondents could have learned its correct meaning. Indeed, the petitioners argue that the companies received notice that the phrase referred to their discounted prices, comprehended those notices, and then tried to hide their discounted prices.

“What matters for an FCA case is whether the defendant knew the claim was false. Thus, if respondents correctly interpreted the relevant phrase and believed their claims were false, then they could have known their claims were false … Based on the FCA’s statutory text and its common-law roots, the answer to the question presented is straightforward: The FCA’s scienter element refers to respondents’ knowledge and subjective beliefs—not to what an objectively reasonable person may have known or believed. And, even though the phrase “usual and customary” may be ambiguous on its face, such facial ambiguity alone is not sufficient to preclude a finding that respondents knew their claims were false.”

Source United States ex rel. Schutte v. SuperValu Inc., No. 21–1326.

If you have information regarding false health care claims having been submitted to Medicare, Medicaid, TRICARE, other federal health care programs, or to other federal agencies/programs, and the information is not publicly known and no actions have been taken by the government with regard to recovering the false claims, you should promptly consult with a False Claims Act attorney (also known as qui tam attorneys) in your U.S. state who may investigate the basis of your False Claims Act allegations and who may also assist you in bringing a qui tam lawsuit on behalf of the United States, if appropriate, for which you may be entitled to receive a portion of the recovery received by the U.S. government.

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