Mid-Atlantic Health Law TOPICS

A version of this article was published by The Daily Record on February 28, 2024.

In June, the U.S. Supreme Court decided two False Claims Act (FCA) cases: U.S. v. SuperValu and U.S. v. Executive Health.  

SuperValu addressed whether a FCA violation depends on the alleged wrongdoers’ subjective belief about the validity of its claim for payment, and Executive Health addressed the government’s authority to dismiss qui tam cases after initially declining to intervene.

SuperValu

SuperValu combined two underlying cases, each accusing SuperValu or Safeway pharmacies of defrauding Medicare and Medicaid by filing false claims. The allegations were that SuperValu and Safeway did not include their discount prescription prices when reporting their usual and customary prescription rates, resulting in greater reimbursement.

An FCA violation requires the finding of two essential elements: (1) the claim was false, and (2) the alleged wrongdoer had some level of knowledge that the claim was false.

The second element has caused a split in lower federal courts. Some courts have interpreted the requirement to mean the alleged wrongdoer must have known that the claim was false when the claim was submitted (“subjective belief”). Other courts have found that the alleged wrongdoer could not have acted with knowledge of the falsity of the claims if there were an objectively reasonable interpretation that would have allowed the claim to be permitted (“objective belief”).

The lower courts in the combined SuperValu cases had held that the alleged wrongdoers could not have acted “knowingly” because their claims were consistent with an objectively reasonable interpretation of “usual and customary.” The U.S. Supreme Court disagreed.

In a unanimous decision, the Court held that the second element of the FCA refers to a defendant’s knowledge and subjective belief – not to what an objectively reasonable person may have known or believed. The Court came to this conclusion based on the FCA’s text and the common law meaning of the terms “actual knowledge,” “deliberate ignorance,” and “reckless disregard.” The Court explained that the focus should be on what the alleged wrongdoer thought when submitting the claim.

The Court further clarified that, even though “usual and customary” may be ambiguous, that is not enough to preclude a finding that SuperValu and/or Safeway knew the claims were false. Accordingly, since the lower courts had not focused on SuperValu’s and Safeway’s subjective beliefs, the case was sent back to the lower courts to make that determination.

Executive Health

A qui tam action is when a private party sues a health care entity alleging that the health care entity has filed a false claim under a federal program. Such a suit is filed under seal, meaning that it is not public for a period of time, during which time the federal government decides whether or not to take over the suit against the alleged wrongdoer.  

If the government chooses not to pursue the matter itself, but does not dismiss the case, the private party may proceed against the health care entity on the government’s behalf, and potentially receive a larger bounty than would be the case if the government pursued the matter on its own.

In Executive Health, the federal government filed a motion to dismiss a qui tam action after determining that the cost of litigation outweighed any potential recovery. However, the government did not file its motion to dismiss until after the seal period was over, and after the private party was already pursuing the matter in earnest.  

Ultimately, the U. S. Supreme Court determined that the federal government had the authority to dismiss the action even after the seal period by interpreting the statutory language and structure of the sections of the FCA addressing the government’s ability to dismiss qui tam actions.

Impact

Ironically, while at first blush the SuperValu decision appears to make it more difficult for the government to pursue an FCA case, because it must focus on the alleged wrongdoers’ subjective beliefs, SuperValu may actually make it more difficult for health care entities to dismiss FCA cases. Instead of being able to argue that a reasonable objective view of a matter should bar the action, alleged wrongdoers will be subjected to lengthy discovery about the alleged wrongdoer’s subjective intent.  

On the other hand, Executive Health may allow the government to intercede more easily to put an end to a qui tam action that has dragged on for many years, as was the situation in Executive Health.

Darci M. Smith
410-576-4153 • dsmith@gfrlaw.com