Elena M. Quattrone and Olivia K. Plinio, attorneys in the Health Care & Life Sciences practice, in the firm’s New York office, co-authored an article in Law360, titled “Checking In on How SuperValu Has Altered FCA Litigation.” (Read the full version – subscription required.)
Following is an excerpt (see below to download the full version in PDF format):
On June 1, in the case of U.S. ex rel. Schutte v. SuperValu Inc. and its companion case, U.S. ex rel. Proctor v. Safeway Inc., the U.S. Supreme Court, in a decision authored by Justice Clarence Thomas, unanimously settled a long-standing dispute over a subjective versus objective standard for scienter under the False Claims Act, holding that a defendant's own subjective belief is relevant to scienter, rather than what an objectively reasonable person may have known or believed.
In its wake, the SuperValu decision spawned reaction and analysis from across both the plaintiffs and defense bars, with attorneys opining on the impact of the SuperValu decision, its clear win for relators and the limitations on, or opportunities it presents to, defendants responding to allegations of FCA violations.
Though much can be speculated about the impact of SuperValu and the significance of the Supreme Court's decision, its reach may be more limited than initially anticipated. In this article, we examine the impact of SuperValu and subsequent interpretations of the holding, now almost four months after the decision, and what can be expected going forward when facing FCA liability.
Background on SuperValu and the Legal Standard
SuperValu, which was consolidated from two lower court decisions, involved allegations that the defendants, two retail pharmacy chains, overcharged the government for prescription drugs in violation of the FCA when it reported the full retail price of prescription drugs as their usual and customary price, when it was actually providing those drugs to patients at a significant discount.
The relators alleged that the pharmacies were overcharging Medicaid and Medicare for prescription drugs in violation of the FCA by submitting amounts as their usual and customary prices that did not reflect the significantly discounted prices that their retail customers often actually paid.
Pursuant to the FCA, a defendant may be held liable for an FCA violation if the defendant "knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval."
"Knowingly" is defined as acting with (1) actual knowledge of the falsity, (2) deliberate ignorance of the truth, or (3) reckless disregard of the truth. In the context of SuperValu, the usual and customary standard set forth by the Centers for Medicare & Medicaid Services is susceptible to multiple interpretations in connection with prescription drugs, making it more of a challenge to prove the defendant had the requisite scienter if the defendant's actions were consistent with one of the objectively reasonable interpretations of the standard.
The Supreme Court agreed to hear the case after the U.S. Court of Appeals for the Seventh Circuit held in favor of the defendants in August 2021, finding that when a defendant's interpretation is considered objectively reasonable, the defendant's subjective intent is irrelevant to the scienter inquiry under the FCA.
Resoundingly rejecting the Seventh Circuit's interpretation, and resolving a long-standing circuit split, the Supreme Court emphasized that in regard to FCA cases, the defendant's subjective knowledge of the falsity of the claim is what is determinative.
Under the SuperValu standard, the Supreme Court's decision expanded the FCA scienter standard, essentially holding that the FCA may now reach defendants who knew that the claims they submitted were fraudulent, even if such defendants subsequently offered an objectively reasonable interpretation of a requirement material to the government's payment decision.
The Supreme Court further clarified that what defendants actually thought and believed at the time of claims submission, as opposed to what the defendants may have thought after submitting claims or any post-submission interpretations that might have rendered such claims accurate, is what is controlling.
The court defined the "reckless disregard" standard as "captur[ing] defendants who are conscious of a substantial and unjustifiable risk that their claims are false, but submit the claims anyway," arguably an expansion of the objective standard previously adopted by a number of circuits.