SuperValu and Safeway: The Cash Price the Government Didn’t Get

The SuperValu and Safeway Supreme Court False Claims Act case established that what the pharmacy chains knew when they submitted their claims matters, even if someone could later offer a reasonable explanation for their prices. Whistleblowers alleged that the chains sold prescriptions at discounted cash prices while reporting higher prices to Medicare and Medicaid. If you worked with the price at the counter and the price sent to an insurer, you know where those numbers can part company.

In its unanimous June 1, 2023 decision, the Supreme Court threw out the lower-court judgments favoring the chains and sent both cases back. It decided how courts should assess what a company knew. These pharmaceutical fraud cases began as separate whistleblower suits over the same business question: which price did the pharmacy call its usual and customary price?

Why the Usual and Customary Price Mattered

A pharmacy’s usual and customary price can limit what a government program pays for a prescription. Reporting a higher price can therefore keep a lower public price from reducing the program’s bill.

The Court explained that Medicaid reimbursement often uses the lowest of several amounts, including the pharmacy’s usual and customary charge to the public. Medicare Part D works through private plan sponsors, which contract with pharmacies, sometimes through pharmacy benefit managers. Many of the contracts in these cases likewise capped reimbursement at the pharmacy’s usual and customary price.

That puts the pharmacy’s price report inside the payment chain between the pharmacy, its intermediary and the plan. The 2004 paper Examining the Value of Pharmacy Benefit Management Companies, published by the American Society of Health-System Pharmacists, describes processors checking a prescription’s contract price and copayment on the payer’s behalf. A price field sent out by the pharmacy becomes information another business uses to authorize payment.

In the whistleblowers’ account summarized by the Court, Walmart began offering 30-day supplies of many drugs for $4 in 2006. SuperValu and Safeway responded with programs that matched competitors’ prices when customers asked. SuperValu carried the matched price forward to those customers’ refills. Safeway also offered a membership discount program. The Court described SuperValu’s programs as continuing until 2016 and Safeway’s until 2015.

The SuperValu complaint alleged a deliberate commercial choice: compete for cash customers and store traffic with discount prices, while denying that those prices counted for government reimbursement. The same low price that brought a customer through the door allegedly disappeared when the pharmacy reported what it normally charged. According to the whistleblowers’ evidence summarized by the Court, a majority of SuperValu’s 2012 cash sales for 44 of its 50 top-selling prescription drugs were at discounted prices.

SuperValu’s Cash Override and Insurance Claim

SuperValu’s alleged price split ran through its shared ARx pharmacy software. The whistleblowers’ amended complaint describes staff manually entering a competitor’s lower price for a cash transaction while the system retained a higher programmed usual and customary price for insurance claims.

According to the complaint, for an uninsured customer, staff could override the programmed price and fill the prescription at the matched price. ARx prompted staff to use that discount again on refills. For an insured customer, the system ordinarily applied the customer’s saved insurance information and sent the claim through that coverage.

The copayment could expose the difference. According to the complaint, when the insurance copayment exceeded the cash discount, staff could process the prescription as cash. If they had already sent the insurance claim, the system could reverse it and reprocess the transaction outside the customer’s insurance.

In other instances, according to the complaint, SuperValu collected a copayment above the discount price and still submitted the higher usual and customary price to the government plan. The patient allegedly paid more than the cash customer, and the plan paid an additional amount on top. Both sides of the prescription bill could carry the cost of the same reporting choice.

The Question a Pharmacy Employee Asked

The complaint describes an employee asking a pharmacy operations representative why the lower cash price could not simply be submitted to the insurer. The alleged answer went directly to the design of the program:

The complaint separately alleged that a regional managed-care manager said SuperValu did not submit its discounted customer prices to insurers and that ARx prevented staff from overriding the usual and customary price sent to those insurers.

Staff allegedly could change what the cash customer paid, but could not make the same change to the reported insurance price. That is a specific decision inside the business, and the employee’s question connected it to the company’s understanding of its reporting obligation.

Safeway’s Discount Was Often the Price Customers Paid

Safeway’s separate whistleblower case also alleged that the pharmacy chain overstated its usual and customary prescription prices. The district court’s account of that complaint describes alleged overcharges to federal and state government health care programs. The whistleblower’s account summarized by the Supreme Court described both price matching and a membership discount.

The whistleblower said membership required only basic customer information that Safeway often already held. According to the whistleblower’s evidence summarized by the Court, 88% of Safeway’s 2014 cash sales for its top 20 generic drugs were at discounted rates.

One comparison makes the alleged reporting problem plain. According to evidence the whistleblower presented, Safeway charged $10 for 94% of its cash sales of a 90-day supply of a cholesterol drug between 2008 and 2012. It reported usual and customary prices as high as $108 during that period. The alleged result was a higher bill for taxpayer-funded programs than the cash price would support.

The Court also described internal documents the whistleblower presented directing Safeway employees to match Walmart’s prices while cautioning against putting the instructions in writing to stores because the official policy said the company did not match. Other communications acknowledged that matching a price could make it the usual and customary price for that day. Those were part of the whistleblower’s evidence about what the company understood while the program operated. Match the price at the counter, but keep the instructions off the page.

The Supreme Court Put Knowledge at the Time of Billing First

The Supreme Court’s ruling on knowledge concerns what a defendant knew or believed when it submitted a claim. A reasonable interpretation developed afterward cannot erase a company’s belief at the time that its claims were false.

The lower courts had allowed both chains to win because someone could offer a reasonable reading of usual and customary prices that fit their reporting. Under that approach, the companies’ own beliefs could be set aside even if they thought the discounted prices were the ones they should report.

The Supreme Court rejected that approach. It explained the False Claims Act’s three forms of knowledge in terms of the company’s actual state of mind.

Ambiguous wording did not end the inquiry. The whistleblowers presented evidence that both chains received a pharmacy benefit manager’s notice explaining that discounted prices counted as usual and customary prices. Safeway also received that message from state Medicaid agencies, according to the Court’s account. The alleged notices and internal discussions mattered because they could show what the companies understood before they reported their prices. The Court recounted SuperValu executive emails describing the discount program as a “stealthy approach.”

An interpretation the company neither believed nor had reason to believe when it billed could not replace evidence of what it actually knew.

The Court also treated the reported prices as factual information. The pharmacy was telling a plan what its prices were. That made the cash sales, discount instructions and submitted price fields central to the dispute.

What Evidence Is Needed to Prove Fraud?

In these pharmacy pricing cases, the evidence connects the price customers paid, the price reported on claims and what the company understood about the difference. The SuperValu complaint makes those connections through transaction records, software behavior, training and employees’ questions to management.

The complaint included comparisons of cash sales and government-insured prescriptions, supported by redacted ARx screenshots. Those comparisons separated the cash price, beneficiary copayment, reported price and reimbursement. Each amount answers a different question about the same prescription business.

The internal conversations add something the price comparison cannot supply alone. A pharmacist’s question about submitting the discount to an insurer, the operations representative’s explanation and the managed-care manager’s description of the software show how the whistleblowers connected the billing practice to knowledge inside the company.

That is the practical importance of the Supreme Court’s decision for healthcare insiders, including pharmaceutical whistleblowers who understand the transactions. An employee who sees the cash override may hold one part of the story. Someone who sees the outbound claim or the response to a payer’s notice may hold another. We work with insiders to connect those views to the payment and the decisions behind it.

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers.

Kmart’s Case Shows the Same Price Split

Kmart faced a similar allegation that its discounted generic prices did not reach the usual and customary field on insurance claims. Its whistleblower complaint alleged that the company charged cash members lower prices while reporting much higher prices to public and private insurers. It also alleged that Kmart instructed pharmacists to match competitors’ generic prices.

The Justice Department announced a $32.3 million federal settlement on December 22, 2017 over allegations that Kmart failed to report its discounted generic club prices. The recurring allegation was a discount customers could obtain at the pharmacy and a higher price presented to the payer as the pharmacy’s usual charge.

You Saw Which Price Went to the Insurer

If you know why a pharmacy’s cash price differed from the price sent to a government plan, talk with our whistleblower experts about the decisions behind those claims. We build the case with you and bring in pharmacy pricing whistleblower lawyers who understand reimbursement contracts and claims systems. We stay beside you as your knowledge of the counter, the software or the management discussions becomes the evidence behind the case.