In United States ex rel. v. SuperValu, Inc., 9 F. 4th 455 (7th Cir. 2021), the court of appeal held that the scienter standard announced by the U.S. Supreme Court in Safeco Insurance Company of America v. Burr, 551 U.S. 47 (2007), applies with equal force to the FCA's scienter provision. The relators filed this qui tam action, alleging that the defendant knowingly filed false reports of its pharmacies' usual and customary drug prices when it sought reimbursements under Medicare and Medicaid. The Medicaid regulations define "usual and customary price" as the price that pharmacy charges to the general public. 42 C.F.R. § 447.512(b). SuperValu interpreted its retail cash prices as its usual and customary drug prices rather than the lower, price-matched amounts that it charged customers under its discount drug program. SuperValu asserted that most of its customers would not be charged the lower, price-matched cost and, therefore, the discounted price was not the drug price charged to the general public. Although the district court held that SuperValu's discounted prices did fall within the definition of usual and customary price, and that the company should have reported those prices, the court applied the Safeco scienter standard and concluded that SuperValu did not have any liability under the FCA.
The FCA imposes civil liability on any person who "knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval." 31 U.S.C. § 3729(a)(1)(A). The FCA defines knowingly to "mean that a person, with respect to information (i) has actual knowledge of the information, (ii) acts in deliberate ignorance of the truth or falsity of the information, or (iii) acts in reckless disregard of the truth or falsity of the information." 31 U.S.C. § 3729(b)(1)(A). In Safeco, the Supreme Court utilized a two-step inquiry for determining reckless disregard. Specifically, it was stated that a person who acts under an incorrect interpretation of the relevant statute or regulation does not act with reckless disregard if 1) the interpretation is objectively reasonable and 2) no authoritative guidance cautioned the person against it. Safeco, 551 U.S. at 70. The failure to meet this standard would preclude a finding of knowing violations.
Therefore, using the Safeco scienter standard, the court held that SuperValu's interpretation of usual and customary price was objectively reasonable because it was not inconsistent with the text of the usual and customary definition. In addition, the court ruled that there was no authoritative guidance that warned SuperValu away from its interpretation of the definition of usual and customary price. Consequently, the court held that the relators had not shown that SuperValu acted knowingly in violation of the FCA.
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