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Supreme Court’s False Claims Case Alleges Overbilling of Medicare and Medicaid

Violations of the False Claims Act require a requisite state of “knowledge” a claim’s falsity. To violate the statute, one must have “actual knowledge,” “deliberate ignorance” or “reckless disregard of the truth or falsity” of the claim. Any of those broad levels of knowledge is sufficient to support a False Claims Act violation.

But knowledge in retrospect looks different than knowledge prosectively. Is the “usual and customary” price of a drug the price that cash customers pay in cash, or is it the price negotiated by insurance companies or set by Medicare?

This week, the United States Supreme Court will consider the issue in U.S. ex rel. Proctor v. Safeway, Inc.

Nina Totenberg for NPR explains:

The case essentially began in 2006, when Walmart upended the retail pharmacy world by offering large numbers of frequently used drugs at very cheap prices — $4 for a 30-day supply — with automatic refills. That left the rest of the retail pharmacy industry desperately trying to figure out how to compete.

The pharmacies came up with various offers that matched Walmart’s prices for cash customers, but they billed Medicaid and Medicare using far higher prices, not what are alleged to be their usual and customary prices.

Walmart did report its discounted cash prices as usual and customary, but other chains did not. Even as the discounted prices became the majority of their cash sales, other retail pharmacies continued to bill the government at the previous and far higher prices.

For example, between 2008 and 2012, Safeway charged just $10 for almost all of its cash sales for a 90-day supply of a top-selling drug to reduce cholesterol. But it did not report $10 as its usual and customary price. Instead, Safeway told Medicare and Medicaid that its usual and customary price ranged from $81 to $109.