SuperValu's false drug price claims not made knowingly - 7th Circ

A dog waits for its owner outside the SuperValu grocery store in the small town of Ackerman, Mississippi, U.S. March 11, 2021. REUTERS/Jonathan Ernst
  • Court declines to revive whistleblower case over prices reported to Medicare
  • Dissent says ruling creates "safe harbor" for "fraudsters"

(Reuters) - A divided federal appeals court has refused to revive a whistleblower lawsuit accusing supermarket chain SuperValu Inc of overbilling Medicare by reporting prescription drug prices that did not reflect discounts it offered to customers, finding that while the company submitted false claims, it did not do so knowingly.

A 2-1 panel of the 7th U.S. Circuit Court of Appeals on Thursday said that under the Safeco Insurance Company of America v. Burr, the company could not be said to have acted knowingly because its interpretation of the law was reasonable, though wrong.

Plaintiffs' attorney Dale Aschemann of Aschemann Keller did not immediately respond to a request for comment. Nor did SuperValu's attorney John O'Quinn of Kirkland & Ellis or its parent company United Natural Foods Inc.

According to the lawsuit, filed in the Central District of Illinois by a SuperValu pharmacist and a pharmacist for rival retailer Kmart in 2011 under the False Claims Act, SuperValu reported its list prices for prescription drugs to Medicare as the "usual and customary" prices, which the federal insurance program uses to determine reimbursements.

In fact, the plaintiffs said, SuperValu charged most uninsured customers much lower prices, thanks to a discount program launched in 2006 in which the company would match a competitor's lower price for anyone who asked.

Under the program, which continued until 2016, SuperValu reported usual and customary prices as much as eight to 15 times higher than the prices it charged most cash customers, according to the plaintiffs.

The government did not intervene in the case, and U.S. District Judge Richard Mills granted summary judgment to SuperValu.

He found that following the 7th Circuit's 2016 ruling in a factually similar case, U.S. ex rel. Garbe v. Kmart Corp, SuperValu's reported prices were false. However, he ruled that under the Supreme Court's 2007 ruling in Safeco, SuperValu could not be found to have acted knowingly if its interpretation of the law was reasonable at the time and there was no guidance contradicting it.

Circuit Judge Amy St. Eve, writing for the majority on Thursday, agreed.

"Indeed, we do not see how it would be possible for defendants to actually know that they submitted a false claim if relators cannot establish the Safeco scienter standard," she wrote. "A defendant might suspect, believe, or intend to file a false claim, but it cannot know that its claim is false if the requirements for that claim are unknown."

St. Eve was joined by Circuit Judge Ilana Rovner.

Circuit Judge David Hamilton dissented, saying that the majority ruling meant defendants could never be liable under the FCA as long as they could "claim there is some legal ambiguity that kept them from 'knowing' for certain that their claims were false."

"It thus creates a safe harbor for deliberate or reckless fraudsters whose lawyers can concoct a post hoc legal rationale that can pass a laugh test," he wrote.

The case is United States ex rel. Schutte et al v. SuperValu Inc et al, 7th US. Circuit Court of Appeals, No. 20-2241.

For plaintiffs: Dale Aschemann of Aschemann Keller

For SuperValu: John O'Quinn of Kirkland & Ellis

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Brendan Pierson reports on product liability litigation and on all areas of health care law. He can be reached at