US Supreme Court to weigh key standard in whistleblower fraud cases

[April 18, 2023]  By John Kruzel
 
WASHINGTON (Reuters) - The U.S. Supreme Court was set on Tuesday to consider a bid by whistleblowers to revive lawsuits accusing pharmacy operators of pocketing millions of taxpayer dollars by knowingly overbilling government health insurance programs for prescription drugs. 

The U.S. Supreme Court building is seen in Washington, U.S., April 6, 2023. REUTERS/Elizabeth Frantz/File Photo

The justices were set to hear arguments in an appeal by three whistleblowers of lower court rulings in favor of Safeway Inc, owned by Albertsons Companies Inc, and SuperValu Inc, part of United Natural Foods Inc.

The litigation was filed under a law called the False Claims Act that lets individuals sue on behalf of the U.S. government when they have evidence of fraud against federal programs. The whistleblowers, seeking monetary damages, accused the companies of offering prescription drugs at discounted prices to most customers paying out of pocket, while improperly charging higher rates to the government.

Government healthcare programs reimburse pharmacies for dispensing covered drugs to beneficiaries.

At issue is whether companies can avoid liability for fraud by showing that an "objectively reasonable" reading of the law supported their conduct - regardless of whether they truly believed that interpretation at the time of their alleged wrongdoing.

The whistleblowers said federal law requires pharmacies to bill the Medicare and Medicaid programs the same prices it charged the general public under a rate known as a pharmacy's "usual and customary" price. They also said both companies knew they were defrauding the government and worked to conceal their pricing practices.

The companies fended off the whistleblower lawsuits by claiming that Medicare and Medicaid billing requirements were unclear and that their practices were supported by a reasonable reading of the law.

The Chicago-based 7th U.S. Circuit Court of Appeals sided with the companies. The court said the pharmacy operators could not be held responsible for fraud given the "objectively reasonable" interpretation of the law in their favor - even if they did not actually believe that interpretation and intended to deceive the government.

President Joe Biden's administration backed the whistleblowers in their appeal to the Supreme Court. Lawyers for the administration urged the justices to reverse the 7th Circuit, saying the ruling undermined the False Claims Act.

(Reporting by John Kruzel; Editing by Will Dunham)

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