The U.S. Supreme Court Hands Down Decision That May Cool Pharmacy or Provider Discount, Coupon, or Financial Assistance Patient Programs

Pharmacies and Healthcare Providers May Be Impacted

A June 1st U.S. Supreme Court (SCOTUS) decision on two whistleblower cases may have far reaching consequences for pharmacies or healthcare providers that charge a discount price to patients through a discount, coupon, or financial assistance program.

In a unanimous 9-0 decision, SCOTUS reversed the Seventh Circuit Court of Appeals on whether a pharmacy’s subjective knowledge of its “usual and customary” charges for prescription drugs resulted in their “knowingly” submitting false claims to the Medicaid and Medicare programs.  The government may investigate claims submitted to Medicaid or Medicare based on full retail price versus the actual discount price charged to the patients. These investigations may result in civil liability under the federal False Claims Act.

The False Claims Act

Under the federal False Claims Act (FCA), a whistleblower may file suit on behalf of the United States against anyone who commits healthcare fraud upon the Medicare or Medicaid programs. The FCA imposes civil liability on any individual or organization (e.g., physician, hospital, medical practice, pharmacy) who knowingly submits a false claim to a federally funded healthcare program. If found liable, a federal court will enter a judgment against the individual or organization for three times the amount received from the government and may impose civil penalties up to $27,018 for each false claim. The FCA defines “knowingly” as actual knowledge of the false claim, deliberate ignorance of the truth or false claim, or reckless disregard of the truth or false claim. Some FCA cases turn on the definition of “knowingly” and whether the accused person or organization committed fraud.

Prescription Drug Benefits

State Medicaid programs and the Medicare program offer out-patient prescription drug coverage to qualified individuals. The Centers for Medicare and Medicaid Services (CMS) has issued rules that limit the amount Medicaid or Medicare can reimburse pharmacies for certain drugs. Generally, Medicaid will reimburse a pharmacy at the lowest amount charged to the public which is often the pharmacy’s “usual and customary charge.” Medicare Part D provides prescription-drug coverage for beneficiaries through contracts with private plan sponsors. The sponsors contract with pharmacies that limit reimbursement to the pharmacy’s “usual and customary” price. Under CMS, Medicaid, and Medicare program rules, pharmacies are often required to disclose and charge the government their “usual and customary” price for the drug sold to the public.

United States ex rel. Schutte v. SuperValu, Inc. & United States ex rel. Proctor v. Safeway, Inc.

In 2006, Walmart’s rolled out its $4 for a 30-day drug supply program. In response, SuperValu and Safeway matched and extended a similar offer to their customers as well. According to the whistleblowers, both pharmacy chains continued to sell their drugs at a discount while submitting claims to Medicaid and Medicare for the full retail price over several years. They allege that the pharmacies’ discounted price was their “usual and customary” price and the pharmacies intentionally failed to disclose or charge the government the discounted price. The pharmacies’ response is that they did not “knowingly” submit false claims because objectively the phrase “usual and customary” could mean their drugs’ full retail price regardless of their actual discounted sales price. The Seventh Circuit Court of Appeals agreed with the pharmacies and dismissed the cases against them.

The Supreme Court unanimously disagreed with the Seventh Circuit and vacated the judgments against the whistleblowers and reinstated their cases. The SCOTUS ruled that the FCA does not require an objective or theoretical interpretation of what constitutes the “usual and customary” drug price. To establish “knowingly,” the FCA only requires the whistleblower to show that the pharmacies knew or believed that their “usual and customary” drug price was the actual discounted price, not the amount they submitted to the government. Without ruling on the merits of either case, the SCOTUS sent both cases back to the Seventh Circuit for further proceedings.

In light of the SCOTUS decision, pharmacies and healthcare providers might consider reviewing their billing practices, policies and procedures, and compliance program. The Court held that the FCA will look to a pharmacy or healthcare provider’s knowledge and subjective belief of its claims’ truthfulness and not to what an objectively reasonable person may have known or believed. A careful analysis of any current or proposed coupon, discount, or financial assistance patient programs should be completed.

Clark Hill’s Healthcare team is ready to assist pharmacies and healthcare providers in complying with CMS, Medicaid, and Medicare program requirements, and as necessary, preparing for and defending against government audits, investigations, and prosecutions.

For further information, please contact the author, Jose Vela Jr. at jvela@clarkhill.com.

The views and opinions expressed in the article represent the view of the author and not necessarily the official view of Clark Hill PLC. Nothing in this article constitutes professional legal advice nor is it intended to be a substitute for professional legal advice.