The U.S. Supreme Court is set to determine the threshold that lower courts should use when deciding whether physicians who contract with the government or get money from the government for Medicare and other health programs have violated the False Claims Act.
Can objectively reasonable interpretations of ambiguous statutes, regulations and contract provisions be interpreted as “knowingly” violating the False Claims Act, triggering treble damages and penalties? Or, was the 7th U.S. Circuit Court of Appeals correct in its ruling that said if a defendant acts with an “objectively reasonable” interpretation of a legal requirement when there was no “authoritative guidance” from a circuit court or federal agency at the time, they cannot knowingly violate the False Claims Act?
The Litigation Center of the American Medical Association and State Medical Societies and the Illinois State Medical Society are urging the U.S. Supreme Court to uphold the 7th Circuit opinion. They joined the U.S. Chamber of Commerce, Business Roundtable, National Association of Manufacturers and the Pharmaceutical Research and Manufacturers of America in filing an amicus brief supporting that position. The case won’t just affect those in health care, but anyone in any field who contracts with or receives grants from the government or participates in a federal program.
The brief says overturning the 7th Circuit’s decision would broaden the False Claim Act’s scope beyond its intended limits. That law is designed to prevent fraud, the brief emphasizes.
“Petitioners’ position would convert the Act into a mechanism for opportunistic relators to profit from unsettled questions regarding the statutory, regulatory, and contractual minutiae that government contractors and program participants regularly face under sometimes byzantine federal programs,” the brief says.
A reasonable standard
The case before the high court consolidates two cases from the 7th Circuit, United States et al., ex rel. Tracy Schutte & Michael Yarberry v. SuperValu Inc. et al. and United States ex rel. Thomas Proctor v. Safeway Inc.
In 2021, the 7th Circuit found in the case involving SuperValu that the retail pharmacy didn’t act with “reckless regard” by interpreting Medicare Part D and Medicaid rules to mean that it could charge the programs its retail cash prices rather than prices they charged customers who were part of discount programs. The court in 2022 applied that reasoning to the case involving Safeway. The 7th Circuit based its decisions on a 2007 U.S. Supreme Court case, Safeco Insurance Co. of America v. Burr, that used that reasoning.
If the high court overturns the 7th Circuit’s opinions, it would “encourage federal agencies to remain silent in the face of legal ambiguity, creating a series of landmines for well-intentioned businesses that strive to comply with a myriad of regulations and requirements every day,” the brief says.
Parsing “impenetrable texts”
The False Claims Act was enacted during the Civil War to address flagrant fraud. For example, when the government received sand when it had paid for sugar. Today, the brief tells the court, it’s typical for businesses to have to adhere to complex contracts that incorporate “thousands of pages of other federal laws and regulations” that are also complex.
“That brings us to the Medicare and Medicaid programs at issue here … which seven federal courts of appeals have deemed to be ‘among the most completely impenetrable texts within human experience,’” the brief says. Businesses would be open to tremendous risk if they are exposed to “False Claims Act liability whenever a provision’s meaning is subject to dispute” and those making allegations know that raising questions whether they have merit or not can lead to settlements.
“That risk is particularly pronounced in programs like the one here, where the supposed ‘false claim’ involves not a single contract or transaction with a government agency, but untold thousands of repeated transactions, all implicating the same basic interpretive question,” the brief says in asking the court to uphold the 7th Circuit Court’s rulings.
“If the decision below is reversed, a statute enacted to address blatant acts of fraud … would instead be used to pursue treble damages based on unsettled and disputed questions involving salutatory, regulatory, or contractual minutiae,” the AMA and its co-amici argue.
Find out more about the cases in which the AMA Litigation Center is providing assistance and learn about the Litigation Center’s case-selection criteria.