The Supreme Court has revived two whistleblower lawsuits involving Medicare and Medicaid fraud committed by certain companies. These cases highlight the importance of the federal False Claims Act (FCA) and the legal concept of “scienter,” which refers to prior knowledge or intent of wrongdoing.
Sen. Charles Grassley has emphasized the significance of the FCA as a vital tool in combating healthcare fraud. The recent Supreme Court decision on June 1 reinstated whistleblower actions against SuperValu and Safeway, two pharmacy operators accused of overcharging the government through false Medicare and Medicaid reimbursement claims for prescription drugs.
The ruling, known as United States ex rel. Schutte v. SuperValu, clarified that the scienter requirement under the False Claims Act examines an accused party’s knowledge and subjective beliefs rather than what an objectively reasonable person may have believed.
Originally enacted in 1863, the FCA, often referred to as the Lincoln Law, was created to combat fraud by defense contractors during the Civil War. The act currently holds liable anyone who knowingly files false claims with the government for triple damages plus a $2,000 penalty for each false claim.
Under the FCA, the government can pursue perpetrators independently, but private citizens, known as relators, can also sue those who defraud the government on behalf of the government in qui tam suits. If successful, relators may receive a portion of the government’s recovered funds.
To prove scienter, either the government or the whistleblower must demonstrate that the company acted knowingly, with reckless disregard, or deliberate ignorance of the relevant law.
On June 30, the Supreme Court summarily granted the petitions of two whistleblowers in Olhausen v. Arriva Medical LLC and United States ex rel. Sheldon v. Allergan Sales LLC. Interestingly, the court skipped the oral argument phase and issued unsigned orders in these cases. No justices dissented from the decisions.
Additionally, the court vacated the judgments of the U.S. Court of Appeals for the 11th Circuit in Olhausen and the U.S. Court of Appeals for the 4th Circuit in Sheldon. This remanded the cases back to the lower courts in light of the Supreme Court’s decision in United States ex rel. Schutte v. SuperValu last month. Lawyers refer to this process as GVR, which stands for grant, vacate, and remand.
In Olhausen v. Arriva Medical LLC, whistleblower Troy Olhausen brought an FCA action against Arriva and its parent companies. Olhausen alleged that Arriva made false statements and falsely certified compliance with legal requirements to secure government contracts for supplying medical items to Medicare beneficiaries. He claimed that Arriva channeled functions through undisclosed locations or an unauthorized subcontractor, violating the law.
Arriva moved to dismiss the complaint, arguing that Olhausen could not meet the FCA’s “objective knowledge standard.” The district court dismissed the complaint without addressing the issue of scienter. The 11th Circuit panel affirmed the dismissal, and the full circuit court upheld the ruling without explanation.
In the second case, Deborah Sheldon filed an FCA action against Allergan Sales, accusing the company of intentionally violating the Medicaid Rebate Statute. This statute requires drug manufacturers to report the “best price” of their drugs, including all rebates and discounts provided to any entity. Sheldon’s claim was dismissed by the lower court, and the 4th Circuit panel affirmed this decision.
Sheldon sought a rehearing before the full circuit court, which vacated the panel opinion. However, after oral argument, the court failed to reach a consensus and ended up deadlocked, leaving the district court’s dismissal intact.
The attorneys for Olhausen and Sheldon expressed their approval of the Supreme Court’s decisions. Olhausen’s attorney, Stephen Rosenthal, stated that the court has upheld Olhausen’s right to prosecute his claim against the companies. Sheldon’s attorney, Gregory Utter, highlighted the significance of clarifying the law in her case.
The Epoch Times reached out for comment to the attorneys representing Arriva and Allergan but did not receive a response at the time of publication. These recent Supreme Court actions underscore the continued importance of the False Claims Act in combatting healthcare fraud and ensuring accountability for those who defraud the government.
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