United States ex rel. Schutte v. Supervalu Inc.
Headline: Drugstore chains can be held liable for billing Medicare and Medicaid higher retail prices instead of discounted prices; the Court held the knowledge standard depends on what the companies actually believed and sent cases back for factfinding.
Holding: The Court held that the False Claims Act’s scienter requirement turns on a defendant’s actual knowledge, deliberate ignorance, or recklessness—not an objectively reasonable interpretation.
- Allows suits where companies knew or suspected reported prices were false
- Requires courts to examine defendants’ actual beliefs, not only objective reasonableness
- May increase False Claims Act exposure for pharmacies hiding discount prices
Summary
Background
Whistleblowers sued two large retail pharmacy groups, saying the chains reported higher “usual and customary” drug prices to Medicare and Medicaid while offering lower discounted prices to many cash customers. Petitioners presented evidence that the chains ran price-match and membership discount programs, that many cash sales were at the lower prices, and that executives worried about hiding those discounts from regulators. Lower courts found disputes about falsity and then granted summary judgment for the pharmacies based on the companies’ claimed lack of required knowledge.
Reasoning
The Court considered whether the False Claims Act’s knowledge requirement turns on an objectively reasonable interpretation of ambiguous billing terms or on the defendant’s own beliefs. It held that the statute’s definition of “knowingly” tracks common-law fraud concepts—actual knowledge, deliberate ignorance, or reckless disregard—and therefore focuses on what the defendant thought when submitting the claim. The Court rejected the Seventh Circuit’s reliance on a purely objective Safe Harbor and explained that ambiguous legal terms do not automatically eliminate liability when defendants knew, avoided learning, or consciously disregarded the truth.
Real world impact
The decision sends the cases back to the lower court for factual review of what the pharmacy companies knew and believed. It means courts must consider a company’s actual awareness or deliberate avoidance of the truth, not just whether another reasonable actor might have read billing language differently. This ruling is not a final finding of liability and the factual record will determine outcomes on remand.
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