Appreciating knowledge under the False Claims Act post-SuperValu

By now, healthcare industry participants, through their counsel and their compliance officers, are likely aware of the False Claims Act (“FCA”) case and the Supreme Court’s unanimous decision in United States ex rel. Schutte v. SuperValu,Inc., 598 U.S. 739 (2023) (hereinafter “SuperValu”). The Supreme Court held that, “[t]he FCA’s scienter element refers to a defendant’s knowledge and subjective beliefs – not what an objectively reasonable person may have known or believed.”

For those who may be unfamiliar with the FCA, the statute, which is rooted in the common law, establishes a three-part definition of “knowingly”. 31 U.S.C. §3729(b)(1)(A) defines “knowingly” as actual knowledge deliberate disregard for the truth or falsity of the information, or reckless disregard for the truth or falsity of the information. There are essentially two prongs that lead to a FCA violation – “(1) the falsity of the claim and (2) the defendant’s knowledge of the claim’s falsity.” SuperValu at 1398; see also 31 U.S.C. § 3729(a)(1)(A). The key is what the person believed at the time the claim was being submitted – not in retrospect what an objectively reasonable person may have discerned.

What does this mean in terms of compliance and how has a court considered the scienter issue post-SuperValu? First, if a law or regulation is unambiguous, then, as both parties that appeared before the Supreme Court during oral argument acknowledged, then this is a different case and the same arguments would not apply. In United States ex rel. Edalti, et al. v. Sabharwal, et al., 2023 WL 5334621, at *12, (D. Kan. 2023), the Court indicated that,

The issue in Schutte [SuperValu] was somewhat the inverse of the facts in this case – an ambiguous regulation but a subjective belief by the defendants that the claims were false in Schutte versus a relatively unambiguous regulation in this case and a defendant who contends he subjectively believed the claims were false, even if some other person could have objectively found them to be accurate. But in detailing the scienter requirements of the FCA, the Supreme Court specifically left open the question of whether recklessness could be judged from a purely objective standard in certain cases. (internal citations omitted).

This open ended question may or may not come into play with unambiguous statutes, which may be analogized to a posted speed limit. For example, if the Speed Limit sign posted says 35 mph and a driver is driving at a rate of 55 mph, while passing other cars who are driving within the range of 35-40 mph, then if he is pulled over there is little wiggle room. Not looking or seeing the posting speed limit equates to deliberate disregard. If he saw the sign and ignored it, then he had actual knowledge of the speed limit and chose to ignore it. In terms of recklessness, which goes to the heart of SuperValu, even if he was unaware of the law indicating that the speed limit was 35 mph, he took an unjustifiable risk driving at 55 mph because everyone else around him was going between 35-40 mph.

How can companies incorporate the scienter elements into their compliance programs? First, certain fraud, waste and abuse laws and other laws such as HIPAA have training, policy and procedure, and assessment requirements. Second, major laws that are material to a particular area of medicine should also be incorporated. If the statute is ambiguous then care should be taken to seek outside audits or counsel. Having said that, hiring a lawyer who simply tells a company what it “wants to hear” versus “what the law and potential ramifications are for violating it” can also have disastrous consequences and land the company in hotter water down the line. In sum, one take-away is clear – ignorance is not bliss.

Rachel V. Rose, JD, MBA, advises clients on compliance, transactions, government administrative actions, and litigation involving healthcare, cybersecurity, corporate and securities law, as well as False Claims Act and Dodd-Frank whistleblower cases.