SuperValu and Safeway: Knowledge at the Time of the Claim

The SuperValu and Safeway False Claims Act decision held that what a company knew when it submitted a claim matters, even if someone can later offer a reasonable explanation for the billing. The whistleblowers alleged that the pharmacies offered customers discounted drug prices while reporting higher prices for Medicare and Medicaid reimbursement. For someone who saw the discounts, the price reports or the warnings inside the business, the important question is what the company understood before those claims went out.

What the Two Pharmacy Cases Asked

The Supreme Court’s unanimous June 1, 2023 decision answered a specific question: could a company knowingly submit false claims if it understood the payment rule and believed its claims were inaccurate, even though another reading of that rule might sound reasonable?

The answer was yes. The company’s own understanding counted.

SuperValu and Safeway operated hundreds of retail pharmacies nationwide. The cases began as qui tam cases, with whistleblowers suing on the government’s behalf, alleging that each business overcharged the government for prescription drugs. The Court considered the cases together, but they remained separate claims against separate companies.

The lower courts had ruled for the pharmacies because someone could reasonably read the billing rule their way, whatever the companies actually believed. We find the premise remarkable: a company could believe its bill was false and still defend it with an interpretation it never relied on. The Supreme Court rejected that shortcut.

Usual and Customary Prices at the Pharmacy Counter

Usual and customary prices mattered because they helped limit what the pharmacies could receive for a prescription. In the reimbursement arrangements described by the Court, reporting a higher price could change the amount the government or its contractors paid.

For Medicaid, federal rules limited reimbursement for certain drugs to the lower of specified amounts, including the pharmacy’s usual and customary charge to the public. State Medicaid agencies likewise commonly used that charge as one of the limits on payment.

Medicare Part D worked through private plan sponsors. Those sponsors contracted with pharmacies, sometimes through pharmacy benefit managers, and many of the contracts at issue capped reimbursement at the pharmacy’s usual and customary price. A price report to a private payment intermediary could therefore affect what the government paid for health care.

The discount programs grew out of competition for customers. According to the whistleblowers’ account in the opinion, Walmart began offering 30-day supplies of many drugs for $4 in 2006. SuperValu and Safeway responded with price matching at the customer’s request. SuperValu then automatically applied the matched price to that customer’s later refills. Safeway also offered a membership program for discounted generic drugs, requiring a form with basic customer information.

A price automatically carried forward to refills tells a different commercial story from a rare favor at the register. The whistleblowers presented evidence that discounted prices accounted for a majority of cash sales for many drugs during at least some years of the programs.

The Safeway example in the Court’s account of that evidence puts the alleged gap plainly: between 2008 and 2012, the pharmacy charged $10 for 94% of its cash sales of a 90-day supply of a cholesterol drug, while reporting usual and customary prices as high as $108. The allegation was that the price customers routinely paid disappeared when the business described its prices for reimbursement.

That is why the pharmacy’s sales records belonged beside its claim records. The reimbursement field purported to describe something happening in the business: what the pharmacy charged the public.

The Warnings Behind the Price Reports

The whistleblowers alleged that both companies received explanations of the pricing requirement and understood what their discounts meant for reimbursement. Their evidence went beyond comparing prices.

As the Supreme Court described it, both companies received a pharmacy benefit manager’s notice in 2006 stating that usual and customary prices included discounted prices. Safeway also received that message from state Medicaid agencies. The whistleblowers pointed to concerns among executives about agencies and pharmacy benefit managers learning of the discounts.

The opinion describes SuperValu emails calling its discount program a “stealthy approach” and expressing concern about the integrity of its usual and customary price claims. For Safeway, the opinion recounts documents directing employees to match Walmart’s prices while cautioning them not to:

The alleged instruction puts the contradiction inside the business. Employees were to make the offer while the official policy denied it. We would want to understand who gave that direction and how the same business reported its prices to the people paying for prescriptions.

What the Supreme Court Held About Knowledge

The False Claims Act’s knowledge requirement concerns what the company actually knew or believed when it submitted the claim. The Court explained three ways that requirement can be met:

• Actual knowledge. The company knew the reported price was not its usual and customary price.
• Deliberate ignorance. The company recognized a substantial risk that its price report was false and intentionally avoided finding out whether it was accurate.
• Reckless disregard. The company recognized a substantial and unjustifiable risk that its report was false and submitted the claim anyway.

The Congressional Research Service’s 2009 report, Qui Tam: The False Claims Act and Related Federal Statutes, explains that the 1986 amendments expressly defined the required knowledge and removed the need to prove a specific intent to defraud.

The pharmacies blamed the wording: they argued that ambiguity in the phrase usual and customary prevented them from knowing their claims were wrong. The Court rejected that argument. A phrase can be unclear in isolation while a business has received and understood information explaining how it applies. The notices and internal communications were relevant for exactly that reason.

Timing is the point. A later explanation cannot substitute for what the company understood when it sent the bill. The pricing policy, the warning and the submitted claim have to be read together.

What the Decision Changed in Each Case

The Supreme Court set aside the lower-court judgments and sent both cases back for further proceedings under the correct knowledge standard. The companies’ own understanding could no longer be put aside.

In SuperValu’s case, the district court had found that the discounted prices were its usual and customary prices and that reporting the higher prices produced false claims. The court nevertheless ruled for SuperValu on knowledge. Safeway obtained its own favorable ruling on the same knowledge rationale. The Supreme Court rejected that rationale for both cases.

The proof behind a False Claims Act case connects what the company reported, what it knew and why the report mattered to payment.

What Pharmacy Insiders Can Show

The customer offer and the reimbursement report tell the two sides of this pharmacy pricing allegation. In these cases, refill practices, cash-sale prices, payer notices and internal instructions gave the whistleblowers a way to connect the two.

A pharmacy employee may know how price matching actually worked. Someone handling reimbursement may know which price reached the plan sponsor or pharmacy benefit manager. An employee involved in pricing or compliance may know who read a payer’s notice and what the company decided afterward. That context helps a government investigation connect a price discrepancy to the people and decisions behind the claim.

In a separate case involving Science Applications International Corp., an appeals court refused to add up what different employees each innocently knew and call it corporate fraud. For us, that makes the path of a warning important: who received it, who understood it, and who was responsible for the report that followed.

If you know why the public price and the reported price diverged, that knowledge can anchor a whistleblower case. A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers.

You Know What the Pharmacy Reported

If you saw a pharmacy discount kept out of reimbursement reports, or a warning acknowledged and then ignored, tell our whistleblower experts what happened inside the business. We develop the case with you and bring in healthcare fraud whistleblower lawyers who understand pharmacy pricing and government reimbursement. We stay beside you as your knowledge of the business becomes the foundation of the case.