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Medicare fraud whistleblowers make strong showing at high court

Attention shoppers: the justices signaled a brisk legal defeat for supermarkets accused of inflating drug costs to squeeze more federal dollars.

WASHINGTON (CN) — Supreme Court Justice Elena Kagan signaled a win Tuesday for supermarket whistleblowers who say that Supervalu and Safeway fraudulently reported drug prices to bigger reimbursements from the government.

“Your case is the easy case,” the Obama appointee the lawyer for the whistleblowers, noting that both grocery chains seem to have known their price reporting was wrong when they sent it in to the government, a clear violation of the False Claims Act.

What Kagan called easy, however, might perplex others less familiar with scienter, otherwise defines as the intent to deceive or defraud.

When a federal judge entered summary judgment for Supervalu, he did not dispute that store had misreported the drug prices. Because of some ambiguity in price-reporting requirements, however, the court determined that that such misreporting could be chalked up to an objectively reasonable misunderstanding. Pharmacist whistleblowers Tracy Schutte and Michael Yarberry, who could recover three times whatever the government paid because of fraud, appealed to the Supreme Court after a divided Seventh Circuit panel ruled against them.

Tejinder Singh, an attorney with Sparacino who represents the Supervalu pharmacists and former Safeway pharmacist Thomas Proctor, was critical of the lower court's interpretation.

“It treats defendants’ subjective beliefs about the lawfulness of its conduct as irrelevant,” Singh told the justices Tuesday. “This would permit some of the worst offenders to escape liability.”

In the case of SuperValu, customers paid less than the amount advertised — and reported to Medicare and Medicaid — because the store price matched to entice more customers. The program was so successful that it brought in more than 6 million price matches over the course of a decade, Schutte and Yarberry's petition notes. Because these discounts were offered so frequently, the pharmacists say the discounted prices became the "usual and customary" one, as it's known in the law, and thus the one that the store should have reported to regulators,

“The respondents had ample evidence in terms of guidance from the government, guidance from their own attorneys, industry consensus, that if you were offering 80% of your sales for a certain drug at a particular price at present the cash sales at a particular price that also had to be the usual and customary,” Singh underscored Tuesday.

Carter Phillips of Sidley Austin defended Safeway and Supervalu at arguments, maintaining that the "usual and customary price" both chains reported was what they felt was correct.

“The interpretation adopted by my clients is absolutely correct. Those discounts didn't count,” Phillips said.

In the opposition brief, Supervalu and Safeway maintained that these “programs aimed at helping uninsured and underinsured customers afford prescription drugs.”

“SuperValu began price matching in the 1980s, and Safeway started two decades later,” the brief continues. Price matching began to fall out of practice, the supermarkets say, only after competitors began refusing to verify their prices, making it hard for pharmacists to ascertain discounts.

Justice Neil Gorsuch pressed back on Phillip’s stance.

“I think the question before us is a narrow one,” Gorsuch. “And that is: Did the Seventh Circuit err when it said that the only evidence that could be admitted against your client was objective proof? And I think the statute makes that argument pretty hard.”

Justice Sonia Sotomayor told Phillips he was making a tough case for the respondents Tuesday. 

“When it’s not pure legal, when it's not pure facts, but it's mixed. That's a harder standard to define. So why don't we take it at face value?” Sotomayor asked.

“Because I don't believe Congress meant to permit every False Claims Act case in which there's a reasonable difference of opinion about the appropriate legal standard,” the lawyer replied.

Justice Gorsuch also seemed sympathetic to the petitioners Tuesday. 

“All we’re asked about is the mental state here,” he said of the chains’ reporting.

Singh maintained Tuesday that when the companies made the decision to report the higher numbers to Medicaid and Medicare, they knew it was likely illegal.

“At the moment the company made its decision, it had no inkling of the defense that it now seeks refuge behind,” Singh said Tuesday.

Justice Ketanji Brown Jackson seemed to side firmly with Singh as well.

“I'm over here struggling as to why this is a hard case,” she said Tuesday.

If the court sides with the pharmacists in the cases, the importance of discovery in False Claims Act cases will shift considerably. Allegations of false claims will have to demonstrate as well that the entity being sued knew it was submitting potentially false claims.

Singh warned what it would mean if the court rules against the whistleblowers.

“Across the board respondents would replace existing incentives for companies to determine and then follow the law with an incentive to plunder every ambiguity for all it's worth. That flies in the face of the statutes text, the common law and common sense,” he said Tuesday.

If the high court sides with the chains, entities sued under the False Claims Act need only show that their actions were “objectively reasonable” — a rule that could put a quick end to this litigation.

Justice Clarence Thomas seemed sympathetic to the chains Tuesday, asking Singh to provide a baseline for his argument about usual and customary prices. 

“You said they took money they shouldn't take. So in order to determine that, we have to know what they should have taken and they had to know what they should have taken,” Thomas told the lawyer.

He also later gave Phillips a chance to rearticulate his stance before the hearing adjourned. 

“You're saying that no one gave you guidance on ‘usual and customary’ and that you arrived at a price that was above your discount price, and that cannot be false,” Thomas clarified. 

The lawyer affirmed.

Malcolm Stewart, deputy solicitor general with the Department of Justice, spoke in support of the whistleblowers Tuesday.

“We're not just talking about conduct," he said. "We're talking about representations in the course of submitting claims. The claimant is making representations either to the federal government or in the Medicaid and Medicare context to state and private intermediaries, and they are describing their own practices. And in our view, the one bedrock requirement is they should not say things they do not believe to be true."

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Categories / Appeals, Business, Government, Health

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