The False Claims Act (FCA) is seeing quite a bit of action at the Supreme Court this term, with multiple cases under consideration. In this third installment in PilieroMazza’s blog series on “The FCA at the Supreme Court,” we examine active cases, comment on recently issued decisions, and discuss ways government contractors can protect themselves against an FCA claim or in FCA litigation. Parts 1 and 2 of the series are available here and here.

In the second installment of this series, we wrote about United States ex rel. Schutte v. SuperValu Inc. and United States ex rel. Proctor v. Safeway, Inc., a consolidated case which many FCA practitioners believed at the time of argument would be one of the most influential and impactful FCA decisions in history. After much anticipation, on June 1, 2023, the Supreme Court held in a unanimous opinion that FCA liability turns on what defendants actually believe about the truth or falsity of their representations.


Schutte and Proctor involve similar facts. State Medicaid plans offer prescription drug coverage to qualifying individuals. The Federal Centers for Medicare and Medicaid Services (CMS) regulates this practice and limits the amount of reimbursement available to pharmacies for certain drugs. Specifically, pharmacies may receive reimbursement of the lower of two amounts, one of which is referred to as the “usual and customary charge,” i.e., the price at which the pharmacy typically sells a drug to the public. In many cases, pharmacies are required to charge and disclose their “usual and customary charge” when seeking reimbursement from the government. 

Against that backdrop, two whistleblowers (also known as relators) brought qui tam actions against two large retail pharmacies claiming that the pharmacies reported higher prices to the government for Medicare and Medicaid reimbursement than they actually charged their customers. This, the relators argued, caused the government to reimburse the pharmacies a greater amount than the amount to which they would have been entitled had they reported accurately their “usual and customary charge.”  The relators also alleged that the pharmacies knew, or at least had good reason to believe, that they were reporting inflated prices as their “usual and customary charges.”

In response, the pharmacies relied on what has come to be known as the Safeco standard. They claimed that the regulations dictating what is a “usual and customary charge” are ambiguous, and they conformed their conduct to an objectively reasonable interpretation of those ambiguous regulations. The pharmacies suggested that, under this Safeco standard, it is irrelevant what they may have believed about their conduct; so long as they complied with an objectively reasonable reading of the regulations, they could not be liable under the FCA.

The Decision

Although FCA scholars—and federal courts across the country—have struggled over the last few years over how to apply Safeco to the FCA, the Supreme Court made it simple. It does not apply. In reaching this decision, the Supreme Court focused heavily on the text of the FCA itself. Under the express terms of the statute, a person violates the FCA:

  1. where they have actual knowledge of the falsity of their claim, 
  2. where they act in deliberate ignorance to the truth or falsity of their claim, or 
  3. where they act in reckless disregard for the truth or falsity of their claim. 

The Court noted:  “[o]n their face and at common law, the FCA’s standards focus primarily on what respondents thought and believed.”  Thus, the Court concluded, “[t]he FCA’s scienter element refers to respondents’ knowledge and subjective beliefs—not to what an objectively reasonable person may have known or believed.”  Indeed, sometimes—even at the Supreme Court—the simplest explanation is the correct one.

With regard to the specific facts of Schutte and Proctor, the Court reversed and remanded the cases. The Court summarized the applicable intent standard as follows: “petitioners may establish scienter by showing that respondents”: 

  1. actually knew that their reported prices were not their ‘usual and customary’ prices when they reported those prices, 
  2. were aware of a substantial risk that their higher, retail prices were not their ‘usual and customary’ prices and intentionally avoided learning whether their reports were accurate, or 
  3. were aware of such a substantial and unjustifiable risk but submitted the claims anyway.  

Those theories of liability track the three intent standards found within the text of the FCA, and a defendant can be liable under any of the three. Ultimately, if a plaintiff “can make that showing, then it does not matter whether some other, objectively reasonable interpretation of ‘usual and customary’ would point to respondents’ higher prices.”


Schutte and Proctor are sure to change the landscape of the FCA in very meaningful ways for whistleblowers and defendants alike. 

Over the last few years, a number of federal district and appellate courts adopted the Safeco standard in FCA cases. This opened the door for defendants to move for dismissal or summary judgment early in the case based on arguments that they conformed their conduct to reasonable objective interpretations of ambiguous statutes or regulations. The Court’s decision rejecting Safeco is likely to make it more difficult—although certainly not impossible—for defendants to obtain dismissal or summary judgment in FCA cases. Subjective intent is an issue that often cannot be decided as a matter of law, as testimony or evidence may not show conclusively what a defendant believed at a given time. In such cases, a jury or judge will need to decide at trial whether a defendant subjectively believed their conduct was compliant with applicable laws and regulations.

The Schutte and Proctor decisions also could make FCA cases more complicated and expensive during the discovery phase of litigation. Now that it is clear a defendant’s subjective beliefs play a critical role in FCA liability, expect whistleblowers to dig deeper into that issue by making broad document requests and by deposing multiple witnesses on the subject.

How to Protect Your Company

In light of the new face of FCA law in this country, government contractors and other companies doing business with the government should take note of these recommendations to help protect against an FCA claim.

  • Identify and Understand the Regulatory Provisions Applicable to Your Business. In one way or another, most companies that do business with the government are subject to agency regulations for some part of their business. Whether it is Medicare or Medicaid reimbursement—like in Schutte and Proctor, for healthcare companies, or the small business and set-aside regulations for small business government contractors—some form of regulatory scheme will impact your business. It is critical to identify the regulations that apply to your business and understand how they work. Companies should do their own internal research to determine how the industry responds to these regulations and ensure they are meeting their compliance obligations.
  • Consult With Counsel and Regulatory Agencies. As Schutte and Proctor demonstrate, conforming your business’ conduct to complex statutory or regulatory requirements is more difficult than it may seem. One person’s interpretation of a regulation may be very different than another’s. Companies benefit from engaging experienced counsel to assist in evaluating and interpreting applicable laws and regulations. And simply because you have a relationship with a lawyer does not guarantee that they are the right lawyer to help you navigate the regulations. Counsel should have experience in the specific industry and with the specific regulations applicable to your business. Those attorneys have the relevant experience to advise you about your legal compliance requirements. Another outlet for information about regulatory compliance is the regulatory agency itself. Often, agencies publish instructional materials about compliance with important regulations. The agencies are an important source of information, as the agency drafted the applicable regulation and is in the best position to explain what it meant when it did so.
  • Document Your Decision-Making. It is imperative that you document your thoughts and actions throughout the investigation, evaluation, and decision-making process. Your notes and reports should identify the sources of information you used in determining how to act; the reasons for the decisions; and the people, agencies, or resources you consulted in determining your course of conduct. By documenting the decision-making process in detail, you will be well-equipped to demonstrate in any future FCA case that your decision-making was based on subjective analysis and belief.
  • Preserve Your Paper Trail. Once you decide how to act in compliance with an applicable law or regulation, maintain that documentation for a minimum of 10 years. FCA matters have a lengthy statute of limitations and often go through many years of investigation before they result in litigation. You want to ensure your paper trail is readily accessible if the Department of Justice or a regulatory agency inquires about the basis for your decision-making  because it is the best evidence of your subjective intent and your best opportunity for avoiding FCA liability.

If you have questions about how the Schutte and Proctor decisions impact your business or other FCA-related matters, please contact Matt Feinberg or Annie Hudgins, the authors of this blog, or another member of PilieroMazza’s False Claims Act or Audits & Investigations teams.