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Key Takeaways from the SuperValu Case and Implications for the False Claims Act

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On June 1, the U.S. Supreme Court, in Schutte v. SuperValu, Inc., held that the mental state required by the False Claims Act (FCA) refers to the defendant’s actual knowledge and subjective beliefs about the truth of claims for payment submitted to federal payers. The decision overturns the growing body of case law precluding FCA liability when a defendant’s interpretation of the applicable law was objectively reasonable regardless of the defendant’s actual knowledge. Joe Wolfe, Attorney, Hall Render Killian Heath & Lyman PC, speaks with David Lazarus, Partner, Verrill Dana LLP and Ilene Albala, Partner, Goodwin Procter LLP, about why this case is important and what the health care industry can do in response to the case. From AHLA’s Fraud and Abuse Practice Group.

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Speaker 1:

This episode of ala Speaking of Health Law is brought to you by ALA members and donors like you. For more information, visit american health law.org.

Speaker 2:

Hello everyone. Welcome to another edition of the American Health Law Association's Fraud Abuse Practice Group podcast. Uh , I'm your host, Joe Wolf. Today we're going to be talking with David Lazareth and Eileen Alala on a case that's been getting a lot of attention lately enough that we are coming out with a podcast and a webinar in short order. Uh, before we get into the content and talking about the importance of this case, I wanted to give David and , and Eileen an opportunity to introduce themselves.

Speaker 3:

Thanks, Joe. Uh, so my name is Dave Lazarus. I'm a partner at Verell Dana. I'm based in Boston, but I have a nationwide practice and also have offices in Florida and New York. I , I am a former federal prosecutor, and I represent corporation and individuals in false Claims Act defense, white collar defense, and general healthcare related matters, including compliance and regulatory advice. Thanks for having me. Really glad to be here today. Looking forward to the discussion, Eileen.

Speaker 4:

Yeah, thanks so much Dave, and thank you, Joe. So thanks to you both for having me. Uh , my name is Eileen Al Bala , and I'm a partner at Goodwin Proctor in our DC office, where I focus on white collar and , uh, healthcare government enforcement and False Claims Act defense work, which is a mouthful. Uh, so I'm also a former assistant United States Attorney. Uh, I held from the Eastern District of Virginia, where I focused on healthcare and life sciences fraud investigations. Now , uh, back on the defense side where I help companies and individuals navigate the alphabet soup of regulatory bodies governing the healthcare space and, and life sciences area, and spend , uh, quite a bit of my time focused on the, the False Claims Act. Thanks so much.

Speaker 2:

Great, and thanks David and Eileen for those introductions. And this is a really important topic as I previewed before , uh, for the Fraud and Abuse Practice group to tackle. Of course, the Fraud and Abuse Practice Group here at A H L A helps all of us stay informed about fraud and abuse, compliance issues and developments and enforcement activity. Um , if you're not currently a member of our practice group, I encourage you to do so. Uh, we now have, I think, over 1500 members within the Practice group, and it shows , uh, its significance, its importance, and its role within the industry. Uh, I recently was , uh, appointed to chair of the Practice Group , um, starting with this new program year . Um , moving on to today's topic. Um, just wanted to briefly touch on the super value case before we get into Eileen and David's perspectives. Um, as most of you listening in know , uh, back on June 1st, the US Supreme Court in this, in the super value case held that the mental state required by the False Claims Act refers to the defendant's actual knowledge and subjective beliefs about the truth of claims or for payments submitted to federal payers. And as Eileen and David are going to discuss the decision overturns the growing body of case law precluding F C a liability when a defendant's interpretation of the applicable law was objectively reasonable regardless of the defendant's actual knowledge. And so I think that means that liability under the F C A now focuses on what a defendant actually believed about the validity of their claims at the time of the submission. And so , uh, David and Eileen are gonna get more into the weeds here and provide their perspectives, but , um, it's, it's obviously a very important case, a case that's been getting significant attention. For those of you working in this space, you're gonna be getting questions about this from clients , um, and we're gonna be seeing more and more content being developed on this case as well. Uh, but let's start off with, with , uh, Eileen , um, Eileen, right out the gate from your perspective, what happened in this case and why does the decision matter?

Speaker 4:

Yeah, so that was a really helpful background. Thank you. Thank you, Joe. Um, and before we get into, I think the sort of , um, you know, kind of thornier and , and more interesting kind of questions about sort of like the practical implications of what, what does this mean and, and how should we all sort of react and respond , um, to the Supreme Court decision? Just a little bit more , um, uh, background and and context , uh, on this, on this case. So , um, according to the, the relators in this sort of sister , uh, set of cases , um, Medicare and Medicaid regulations require that pharmacies disclose , uh, their , uh, what's called usual and customary charge when seeking reimbursement and super value . And Safeway reported their retail prices, not the discounted prices that their , uh, that they often charged , um, their customers the Seventh Circuit , um, affirmed summary judgment , uh, of the lower court for defendants super value and Safeway. And in coming to that , um, decision, the Seventh Circuit held that because an objectively reasonable person could have con concluded that the phrase usual and customary referred to a pharmacy's retail prices, that defendants could not have knowingly submitted false claims within the meaning of the False Claims Act. Um, so the Supreme Court , um, granted cert here , um, and as, as Joe said, we, we, we know the conclusion, but , um, what they , uh, what they came out and said, actually , um, uh, in order to figure that out, we actually have to look a little bit , um, deeper at , at what was the actual , um, question that was presented here. I think that's like sort of a , a helpful way to, to go about this. So I'm reading it from the case directly. So the, the question presented here was whether respondents could have the ENT or required by the F C A or the False Claims Act, if they correctly understood that standard and thought that their claims were inaccurate. And, and the court comes out and a unanimous opinion by Justice Thomas. Um, and , um, they came out and said, yes, what matters for an F C A case is whether the defendant knew that the claim was false. And as Joe, as Joe said, it was knowledge also has to do with kind of what was known, not, not post-hoc as the court says, but at the time of , um, of claim submission. Um, and in coming up with this unanimous decision , um, uh, written by Justice Thomas, the court then, you know, rejects the Seventh Circuits two part inquiry , um, and, and , um, holds instead that the defendant who submits a claim believing that it is false cannot later escape liability under the False Claims Act by arguing that some hypothetical reasonable person could have thought the defendant's interpretation was correct, and that their claim was lawful. And the court observes that the False Claims Act ent enter element , um, uh, which there of course , um, you know, we , the, the language in the False Claims Act is actually knowingly, but we know that knowingly , uh, is defined as actual knowledge, deliberate ignorance , uh, and recklessness. So , um, the court observes that the F C A Sientra element tracks the traditional common law sientra requirement for fraud claims , um, and both , uh, the statute, the False Claims Act itself and common law according to the Supreme Court focus on what the defendant thought at the time that they submitted their claim . So that's, that is, you know, kind of in a nutshell , um, the Supreme Court's , um, decision. Uh, I do think that it's, it's important for us, and maybe we'll do this in a, in a couple minutes to, to talk about not just what the Supreme Court held, but, but, and the issues that they actually did not raise. But , um, I'll pause there.

Speaker 3:

So, Eileen, that was a really , uh, a great and and helpful overview. I wish I was able to articulate it as , uh, nicely as you just did. So thank you very much, <laugh> . Um , I would say, you know, I was also, when looking at the opinion there, there are a couple of, of pieces of it. While it is very straightforward, I think, think that the court left open what recklessness is really going to mean going forward, I think that's always an area where there's much debate and discussion, and I think that I , I know they didn't address it directly in the decision. And so I would imagine that's going to continue to be an area of debate and discussion. Uh, and, and in addition, I, I thought that the language of the court having to do with it's not going to be a post hoc review is potentially helpful and, and may have larger implications, at least useful language to lift and, and use elsewhere , um, in, in some other types of defense that I'll talk about a little bit later.

Speaker 2:

Yeah . Thanks David . And thank you. I Eileen. Um, I just have another question here , uh, for David. When you, when you think about the practical takeaways here, what are they, you know, what steps should compliance officers and , and , and different healthcare companies and healthcare providers take in response to this Supreme Court decision? How do they operationalize and , and take action from this?

Speaker 3:

Sure. So I think the good news is that there is not a lot of significant change, I would say that companies or executives need to immediately undertake. It's not a watershed moment. And, and there's no need for , uh, panic. It , it is an excellent time to take a look at compliance practices and compliance policies and to make sure that there are practices in place documenting , uh, how decisions are made, why decisions are made. And this really is a call to think about how you're going to memorialize what you decide to do, what business decisions perhaps you're making as, as your day to day in a way that it would be subject to scrutiny later. And one of the things that we've talked about in preparing for this podcast is you , it's worth giving some consideration to doing that, at least in its conclusion, in a way that's not going to be covered by the attorney client privilege. If ultimately the government comes knocking, be it a state AGS office or D O j , uh, you know, in five or six years, and they're asking questions about decision making in the past, there may be an ability to argue an advice of counsel defense. You may be able to call up your outside counsel and ask them for the memo from their file that was explaining why they think it was okay for you to do what you did. But that may or, or will involve some, some thorny attorney-client privilege and, and potentially work product waiver issues. And it would be , uh, much easier if there was some form of nonprivileged report memo policy that would come out to summarize a decision , uh, in a way that could be presented later for anybody looking at it. I think that's also an important internal reminder to be as transparent as you can with your teams about the decisions that you're making, the issues that you're facing. Employees need to feel like they understand that the company is serious about compliance, is serious about doing the right thing. It's a business, obviously, everybody is , uh, out to make solid business decisions and to be successful. But along the way, if employees are concerned about the nature of the decision making that can lead to disgruntled employees, it can lead to employees leaving , uh, can lead to toxic , uh, environment, but it also, of course, can lead to whistleblowers and future relators. And so it's, it is a helpful time to remember to validate your employees interest in how you're making decisions and what those decisions are , uh, so you can , uh, try to foster that type of environment. I , I think it's also a couple other takeaways. I think it's also a really important time to remember that it is not just about what you're doing formally, it's not about your formal policies and your practices, it's also about the informal communications that go on. And by that I mean email, text, WhatsApp chats. I'm not, I'm not up on all the technology, but if there's a method of communicating and writing between two people, that's what I'm speaking about. And so, in the super value decision, the court credited , uh, the allegations that there were internal communications , uh, that the court believed were proving the state of mind of the company at the time the decisions were being made. So it's always helpful to remind employees that sarcasm doesn't work in written communication. There's no tone in written communication, and none of that ages, well, particularly when you're hearing from a relator or the d o j five years after the fact, and they want you to explain what some email means that somebody sent perhaps in a joking fashion.

Speaker 4:

Yeah, I, I just wanna chime in there. I I couldn't agree more. And , um, Dave, as you were rattling off , uh, various forms of communication and, and said, you know , um, you're not up to speed on all of them, I'll , I'll just throw in there Slack <laugh> , um, as someone who's, who's spent , uh, spent my morning , um, reviewing some , um, potentially concerning Slack communications, I would say , uh, don't forget about that one. People are very, very casual , uh, in those kinds , uh, kinds of, of chat boxes. Yeah, no, I , I , I couldn't agree more expect scrutiny on contemporaneous documentation in an ideal world , uh, that contemporaneous documentation would be , uh, fully vetted and , um, well thought out. And , um, and I do agree, I think having , uh, you know, and we, as you said, Dave, we talked about this , uh, you know, before in preparing for this podcast and just, you know , discussing sort of best practices generally. It is , um, this, while this may not be a game changer , uh, substantively coming out from the Supreme Court, it is a, a great time to think again , uh, about our, our current compliance programs, what's working, what's not working, also to, to scrutinize , um, your document retention policies and programs that includes things like Slack , are you, for example. And, you know, obviously assuming you're not under any sort of litigation or other , uh, hold or other obligation, but , um, you know, is your company currently hanging on to every single , uh, slack communication ever written since the beginning of time? Chances are you , you, you likely are. Cause I think the default setting might be forever. Um, but you know, the , there , this might be a good time to, you know, to , to think about sort of what is being saved, what is being recorded, how is it being recorded , um, and also agree with Dave fully that you know, most of these cases, right, come from disgruntled employees. Some of these folks who are filing key tam suits are sitting there right now , uh, you know, in the office next door. They're , some of them are current employees , um, some of them are former. So , um, this is a good time to just refresh, take a minute, review your compliance policies and programs. If you have a key decision that you're going to make, let's say you're deciding and grappling right now with, you know, should we implement this program? Do we think this program violates the a k s? Um, you know, consider, of course, you know , reaching out to outside counsel and getting , um, you know , um, an opinion, a , um, a legal memo that will be kept , uh, under privilege. Um, but also consider how you can work with your , um, in-house compliance folks to see if there's a way to document, at the very least, the, the basic facts , uh, in a nonprivileged way. So that, as Dave said , if you ever need to, you know, hand over , um, you know, exhibit A in your defense , um, you can do so without opening up the, a full can of worms, which is , uh, you know, related to , uh, a potential, a potential waiver of a privilege.

Speaker 3:

Eileen, just to, to piggyback on one thing you said , uh, that, that sort of , uh, I think resonated in the decision, the Supreme Court also credited the allegations that the company had been told at least by A P B M, if not , uh, others, what the actual, usual and customary price ought to have been. And the Supreme Court at least credited the allegations that the company either ignored those or, or didn't address those direct statements, giving them knowledge. And so it's important to remember to talk to your teams about how to deal with communications from outside, even if they seem perhaps trivial or if they seem confusing. Uh, and it's important to make sure that if the company gets notice of something, that the right people take a look at it and that it gets addressed one way or another, because that could be used as evidence of the company's knowledge later. And then if you couple that evidence of knowledge with emails, texts, actions, you're building your way towards ent, enter , and it can cause potential problems later if you don't deal with those things. So it , it's just important to remind people , uh, not not just to do their jobs of course, but to pay attention. And, and if there's something that doesn't look right or just seems, seems a little questionable, they need to elevate it to the right place and it needs to be dealt with.

Speaker 2:

Thanks , uh, David, and , and thanks Eileen for those, those practical takeaways on the case. Um , just one question for Eileen. Uh, it seems that the D O J and the plaintiff's attorneys here seem to consider this case as a clear win , uh, from your perspective, is there any silver lining for healthcare providers in the defense bar?

Speaker 4:

Yeah, so look, it's, it's not, it's not surprising , um, that the, the government and the Relators Bar is , is claiming this as a, as a victory. Um, and is of course, using this as an , as an opportunity to, you know, alert courts across the country as to the decision. Um, but you know, as Dave said, as I , as I've said before, you know, I , I don't think all, I mean, this is a significant decision. I don't, I don't mean to, to downplay it, but it's not necessarily a paradigm shift either, and it's holding is narrow. So, you know, we've talked a little bit about , um, you know, what the case , uh, covers and, and sort of some takeaways and best practices, but I do wanna talk just briefly about, you know, what this holding does not cover. So it's important to remember that this decision does not seem to address a situation where a defendant honestly believes and submitted claims based on an objectively reasonable interpretation of the law. So a situation where you might have falsity but not ENT enter , it also does not address a situation where a defendant submitted claims that it believed were false, but were actually permissible. So a situation where you could have ENT but no falsity. Um, and I'll also say that , uh, there's no limit to , uh, the creativity of <laugh> of defense counsel . So I think, you know, we've already, even in the, the few weeks , um, that have, have gone by , uh, you know, since, since the holding came out on June one , um, it looks like we've already seen some defendants take, take advantage of, of some of the language from this opinion. And , um, uh, and , um, for example, I think we can expect defense counsel to push on the language , um, that the court raises concerning reckless disregard. So , um, as between , uh, you know, the three mental states that, that comprise knowledge, you have actual knowledge which the court likens , uh, to , um, awareness, which of course is the hardest for the government or plaintiff's bar to prove. Um, and then you have deliberate ignorance and on the kind of the lowest end , uh, reckless disregard. And so I think that's where a lot of the sort of the, the , um, the pushing is going to come. And so , um, you know, I think we can expect to see , uh, defense counsel push on this idea of, of reckless disregard. The court uses language where they talk about , uh, con being conscious of a substantial and unjustifiable risk. Um , and so I do wonder whether you're going to see some, some cases out there , um, uh, talking about a possible three-part test , um, that makes up reckless disregard. But I, I think , uh, only time will tell.

Speaker 3:

Yeah, I think, I think that's, that's spot on. Eileen. I , you know, I think just picking up on the un the substantial and unjustifiable risk language, it's gonna be interesting to see because of course , uh, you know, the government is going to have its own view of, of what an unjustifiable risk is. And , uh, I , uh, of course the defense lawyers are gonna have a totally different view of that. And so it'll be interesting to watch it play out. You know, I think ultimately that one of the downsides of this decision is it's going to become more expensive for everybody to defend and litigate false claims Act cases, because I think that the decision makes , uh, the facts, the specific facts having to do with er so critical to the allegations that , uh, summary judgment, motions to dismiss. I , I think cases are gonna have to proceed beyond those stages in a lot of circumstances. And so I think that's going to be something that , uh, everybody is, is going to have to be mindful of, you know, but, but it's interesting, and, and I guess it's the defense lawyer to me, but when this decision came out and I first read through it, I was of course disappointed , uh, to see the objectively reasonable standard die . But I , I did see it as somewhat favorable to the defense bar because it , it's very clearly reaffirming that the government has to prove knowledge, has to prove ENT enter . And , and, and that's a challenging thing to do. And I think when you combine that with, you know, what is this, this recklessness standard, I , I think the government still has their work cut out for them. It's not a clear victory for them. I also y think there is , uh, going to be some potential to look at the language of this case and, and it's logic when considering things like the overlap between overpayments and the False Claims Act, or even in the criminal context, I also, you know, represent people who are facing criminal investigations and criminal prosecution. And it's not unheard of for the government to be scrutinizing in, in a sort of backwards facing manner decisions that people were making. I think this is very common in the D m E stage , uh, you know, looking at what D m E providers perhaps , uh, knew later about devices that had been shipped from their companies months previously. And so sort of the distinction between , uh, you know, what's just an overpayment, what's, what's a false claim? Uh , I think there is language here that's gonna be helpful in a lot of different ways. So I , I was not totally disappointed by the decision, and I definitely don't see it as the huge win that , uh, I've seen boasted about in the media.

Speaker 4:

Agreed.

Speaker 2:

Thanks. Uh, thanks David, and thanks , uh, Eileen. Um, just we have a few minutes here for some final thoughts from the two of you. Um , maybe Eileen, is there , is there anything we didn't touch on that, that you'd like to, to tackle with respect to the super value case before we wrap up the podcast?

Speaker 4:

Yeah, thanks so much, Joe. No, I, I think we, I think we've pretty much covered everything. I mean, I , I think the focus , um, here is , uh, is on, you know, taking, taking a moment and , um, just ensuring that , uh, your compliance program is up to date , that your document retention policies are where they want them to be , um, that you have adequate , uh, pathways to give to , uh, in individuals , uh, employees who might, might have concerns that they are able and willing , um, to share , um, their voices. Um, you know, I , I think, I think this is just sort of a , a , a good time , um, to just , um, you know, do, do a gut check on, on all those programs and, and make sure that , um, you know, should you ever be faced with , um, you know, a knock on the door , um, and, and have , um, someone, whether it's the government or, or plaintiff's bar , et cetera , um, you know, inquire as to contemporaneous decision making , um, that , um, that you're comfortable with, with whatever, whatever that looks like.

Speaker 2:

Great. And David, any thoughts from you?

Speaker 3:

Yeah, I think just finally, you know, don't be afraid to pick a fight. If, if you exercise your, your judgment and you make a decision and it's well-reasoned and you're comfortable with it, and you believe that you're not doing anything wrong, you know, don't be afraid to push back and, and to stand up for that position. And in some ways, standing up for your position reinforces your actual belief that you're doing the right thing. And so don't be afraid to, to ask questions and to push back if, if people are asking questions of you.

Speaker 4:

I can, I just, and I'll just throw in just one more thing. Um, don't also be afraid to reach out and seek an advisory opinion. Um, you know, the , the process is there for a reason. I think there, there sometimes tends to be anxiety over that process, but , um, you can, you know, reach out , uh, to outside counsel if there's confusion as to how the process works or kind of what the potential outcomes are. But , um, you know, I think if we've learned anything from this decision, it , it , it's, you know, bury your head in the sand is not really an option here. So better to know what you're dealing with , uh, at the time , um, than sort of be scrambling on the backend, you know, trying to make sense of something years later.

Speaker 2:

Thanks , uh, David, and thanks Eileen. And thanks to all of you for listening into our Fraud and Abuse Pod podcast. Um, uh, we are having another webinar piece of content on the super value case on August 1st. The title of that webinar through the American Health Law Association is False claims updates impact of super value and more. Um, if, if any of you listening in are interested in becoming more active in the fraud and abuse practice group , uh, please reach out. We would , uh, love to see , uh, more members and to get you involved in, in this , uh, content we're intending to produce. So thanks so much. Um, and thanks to Eileen and David , uh, thanks to h l a for putting on today's content.

Speaker 1:

Thank you for listening. If you enjoyed this episode, be sure to subscribe to a H L A speaking of health law wherever you get your podcasts. To learn more about AHLA and the educational resources available to the health law community, visit American health law.org.