The district court granted the defendants’ motion for summary judgment in a qui tam case alleging they had knowingly failed to report accurate usual and customary prescription drug pricing to government healthcare programs. The relator alleged the defendant knowingly withheld discounted pricing, but the defendant argued there was no clear guidance on whether it was required to report certain discounts. The court agreed, reaching the same conclusion as it had in the recent Proctor v. Safeway. The court found no authoritative guidance upon which the defendants could rely at the time the claims were submitted and also concluded their own interpretation of reportable U&C pricing was reasonable. Absent an authoritative interpretation, the court explained that the controlling factor was the content of the defendants’ contracts with government health insurance programs, some of which did not define U&C pricing and some of which expressly excluded discount pricing from U&C.
Relators Tracy Schutte and Michael Yarberry alleged that SuperValu Inc. and its co-defendant pharmacies submitted false claims to various government healthcare programs when they failed to report accurate usual and customary pricing for customers paid for prescriptions.
Central to the complaint is whether the defendants are required to account for discount price matching programs when they report their usual and customary prices. Via those programs, pharmacies will—upon customer request—match a lower price offered by a competing pharmacy. The relators alleged the defendants were required to report these prices and failed to do so, and thereby defrauded multiple government healthcare programs by falsely inflating reimbursements.
In a previous decision that took into account the Seventh Circuit’s decision in United States ex rel. Garbe v. Kmart, the court held that the discount case prices offered through a price match program available to all cast customers was the usual and customary price and that Medicare and other government healthcare programs were entitled to those U&C prices. The court granted the relators partial summary judgment on that issue.
Pending are the defendants motions to partial summary judgment on various claims, based on the assertion the relators cannot prove knowledge and materiality. The relators also moved for partial summary judgment on specific claims related to the defendants’ failure to report their discounted case pricing as their U&C prices.
The defendants also moved to case management procedures regarding a related motion for summary judgment filed in U.S. ex rel. Proctor v. Safeway, Inc. The defendants noted that Proctor v. Safeway also concerns membership-only and price-matching programs, and therefore the court’s holding in that case will relate back here. The defendants asked the court to decide Proctor first or to decide the motions for summary judgment together. The court noted that it decided the motion in Proctor on June 12, 2020, holding that because there was no authoritative guidance warning Safeway away from what before Garbe was an objectively reasonable position, the relator could not satisfy Safeco’s objective scienter standard and thus could not meet the FCA’s “knowing” element as a matter of law.
In their complaint, the relators alleged the defendants’ price-match program was actually a “stealthy” discount program that was available to anyone who asked one of their pharmacies to match a competitor’s price. The defendants asserted that other conditions had to be met, including the fact that the lower price had to be available at a local pharmacy and be verified by pharmacy staff.
The relators alleged that the defendants provided a price match as often as 18,000 times per week. However, the defendants asserted that the price match was offered only to cash-paying customers, which accounted for a lower percentage of overall sales. The defendants also asserted they did not submit lower matched price cash sales transactions to third-party payors, because it would violate their contracts with the payors. The relators characterized this conduct as the defendants’ refusal to “sacrifice profits” from third parties by officially lowering their prices. Instead, they engaged in a scheme to deprive the government of discount prices.
The defendants argued they sought clarification from payors regarding the proper reporting of usual and customary price, but the relators argued they did so only when the price match program “exception” was directly challenged. According to the relators, at best the defendants remained deliberately ignorant of their obligations and did not want to let third-party payers find out about the scope of their price matching.
The defendants argued that the pharmacy benefit managers who processed their prescription records did not consider the individualized price matching to have altered the usual and customary prices they submitted. The defendants alleged the PBMs and the state Medicaid programs were well aware of these types of discount programs, and that the government investigated the allegations for three years before declining to intervene. The defendants also noted the PBMs and state Medicaid programs extensively audited their prescription claims. However, the relators disputed the assertion that states and PBMs were aware of the price match program, and alleged instead that the defendants did not provide candid and complete disclosure of the scope and operation of their program.
The court’s reasoning aligned with its conclusion in Proctor v. Safeway, which began with a consideration of the Safeco decision. In Safeco, the Supreme Court examined the scienter requirement of the Fair Credit Reporting Act. In short, where a defendant’s reading of a statute is objectively reasonable, its conduct could not meet the scienter requirement. The court reasoned Congress did not intend to make a defendant liable for knowing or reckless violations, assuming the defendant followed a reasonable interpretation of a statute or regulation. The court also found it significant that the defendant did not have the benefit of guidance from the courts of appeals or the government that might have warned it away from its interpretation.
While the Seventh Circuit has not addressed whether Safeco’s standard with respect to the FCRA applies to the FCA and its scienter requirement, the Safeway defendants argued that every court of appeals to consider the issue held that it does. Given that every court of appeals to address the issue has found that the Supreme Court’s analysis of the common-law definition of recklessness as to the FCRA in Safeco applies equally to the FCA and because the Seventh Circuit has approved the principle, the court agreed that Safeco’s standard applies to the FCA and its scienter requirement.
As in Proctor, the court also held the defendants could not be held liable for FCA violations when there was more than one reasonable interpretation of “usual and customary price” and the defendants’ interpretation was consistent. The court again found there was no authoritative interpretation upon which the defendants could rely. The court held the defendants’ position reasonable and noted that their price match program was ended before the decision in Garbe, which held that U&C means the cash price to the general public, and therefore the defendants could not have relied on that court’s definition.
The court came to the same conclusion regarding the state Medicaid claims and the claim involving TRICARE and other federal government health insurance programs. The court found the state regulations at minimum ambiguous and again, that the claims had been submitted prior to the decision in Garbe. Accordingly, the court concluded that no material facts showed that the defendants could have acted knowingly under the FCA as to the applicable claims submitted to Medicaid.
As in Proctor, company executives expressed concerns about the financial implications of reporting lower U&C pricing, but the court explained that the controlling factors are the contracts between the defendants and the various government healthcare programs or other authoritative guidance, not the defendants’ subjective beliefs. In one case, the court found the contract silent on the definition of U&C prices and in another, the contract expressly excluded price matches from the definition of U&C.
