BY Rossanna J. Madrigal, Senior Attorney, Brown & Fortunato
The U.S. Supreme Court (Court) heard and opined on a pair of False Claims Act (FCA) cases in June 2023 that could have lasting impacts on how providers defend against FCA cases.
The FCA imposes liability on a person that knowingly presents a false or fraudulent claim for payment or approval. To violate the FCA, one must submit a false claim and, importantly, know that the claim is false. In the decision titled United States et al. ex rel. Schutte et. al. v. SuperValu Inc., et al. (SuperValu), the Court heard two separate cases that focused on the knowledge element.
In SuperValu, two large chain pharmacies (Pharmacies) began offering price match discounts to compete with Walmart’s medication discount program. The Department of Justice (DOJ) argued that although the Pharmacies offered discounts to their patients, they continued to submit claims to Medicare and Medicaid for the non-discounted price of the medications, knowingly and in violation of the FCA. Medicare and Medicaid reimburse pharmacies for the “usual and customary” price of their medications. The Court acknowledged that the definition of “usual and customary” could be open to interpretation. However, the Court had to determine whether a person’s subjective belief or a reasonable person’s objective belief meets the knowledge requirement of the FCA.
The Court stated that a pharmacy benefit manager as well as some state Medicaid agencies had sent notices to the Pharmacies that “usual and customary” included discounts offered to customers. Thus, if a pharmacy dispensed a drug on a discount, that discounted amount became the pharmacy’s “usual and customary” amount. Further, the DOJ presented evidence that leadership within the Pharmacies were aware of these notices and expressed concerns about their discounts. The Court held that the FCA element refers to a person’s knowledge and subjective belief when the claim was submitted.
In the second decision, United States ex rel. Polansky v. Executive Health Resources, Inc., et al. (Polansky), the Court examined the qui tam process itself. A qui tam lawsuit is one in which an individual, known as a Relator, brings a lawsuit in the name of the government. The Relator presents the claim under seal and provides a copy to the DOJ for review. The DOJ then decides whether it wishes to intervene. If the DOJ intervenes, then it takes the reins and becomes the plaintiff. If the DOJ declines to intervene, then the Relator may proceed with the case on their own, although the DOJ retains certain rights. Importantly, although the seal period lasts only 60 days, the DOJ may elect to intervene after the seal period ends, with good cause.
In Polansky, a Relator named Jesse Polansky filed a qui tam action against Executive Health Resources claiming that it assisted hospitals in overbilling Medicare for services. The DOJ chose not to intervene, but Polansky continued the case, which spent years in the discovery phase. During these years, the DOJ continued to monitor the case and eventually filed a motion to dismiss the action, arguing that the burdens of the lawsuit outweighed its potential value. Polansky objected to the motion, but it was granted by the lower court. The Court was tasked with addressing two questions: does the DOJ have the authority to dismiss an action if it declined to intervene during the seal period, and what is the proper standard for such a motion?
The Court conducted an in-depth review of the language of the FCA provisions and the DOJ’s rights outlined therein, and ultimately determined that Government does have the power to dismiss an action, so long as it has intervened at some point in the process. It does not have to intervene during the seal period to preserve that right. The Court also held that the lower courts should apply the Federal Rules of Civil Procedure when deciding whether to dismiss an action. Further, the lower courts should consider the interests of both the Relator and the DOJ. In Polansky, the DOJ argued that the case would not fulfill the purpose of qui tam actions: namely, to vindicate the government’s interests. The Court agreed and stated that, absent an extraordinary circumstance, this showing is all that the DOJ needs to succeed in a motion to dismiss.
These decisions impact future FCA cases in different ways. SuperValu places limitations on what a defendant can argue with respect to their knowledge of the falsity of a specific claim. Polansky, on the other hand, offers providers some solace regarding lengthy cases. The DOJ can intervene and dismiss cases in which it finds the potential benefits of a qui tam case do not outweigh the burdens. This provides the defense with an additional argument in favor of dismissal.