United States ex rel. Schutte v. Supervalu Inc.

Background

Two private whistleblowers sued two retail pharmacy companies and brought claims in the name of the United States, saying the pharmacies overcharged federal Medicare and state Medicaid programs. Medicaid and Medicare often limit reimbursements to a pharmacy’s “usual and customary” price. The pharmacies ran discount programs that gave customers lower cash prices, but allegedly reported higher retail prices when seeking reimbursement. The government-side plaintiffs say the companies knew their discounted prices were the usual prices, hid those discounts, and nevertheless submitted higher prices for payment.

Reasoning

The key question was whether liability under the False Claims Act requires that a defendant’s legal interpretation be objectively unreasonable before liability can attach. The Court looked to the Act’s text and its common-law roots. It explained that “knowingly” includes actual knowledge, deliberate ignorance, or reckless disregard—standards that focus on what the defendant actually thought or believed at the time. The Court rejected the Seventh Circuit’s reading that an objectively reasonable interpretation of an ambiguous phrase would automatically preclude knowledge. The Court also distinguished a prior case about a different law and said ambiguity alone does not bar a finding that a company knew a claim was false.

Real world impact

The ruling lets fraud suits continue when plaintiffs show a company actually knew or consciously avoided learning that its reimbursement claims were false. The Court did not decide whether the pharmacies’ reported prices were false or what “usual and customary” means. The cases are sent back for further proceedings consistent with this opinion.