On the Docket
David B. Brushwood, BSPharm, JD
In a recent unanimous opinion, the Supreme Court of the United States recognized a subjective standard for interpreting the “usual and customary” requirement in the submission of pharmacy claims to federally funded programs.
Background
The federal False Claims Act (FCA) imposes liability on anyone who “knowingly” submits a false claim to the government. Some false claims are straightforward. For example, if a pharmacy dispenses 60 dosage units of a medication but submits a claim for 180 dosage units, then this is clearly a false claim. On the other hand, it may be less clear whether a pharmacy’s “usual and customary” price should be based on its standard retail price, or instead should reflect a discounted price that the pharmacy routinely extends as a price-match to meet a competitor’s lower price.
Following a whistleblower complaint, the federal government sued two pharmacy companies alleging that the discounted prices they adopted were actually their “usual and customary” prices. The government alleged that these discounted prices comprised a majority of sales for many drugs sold to patients who paid cash, yet the pharmacies allegedly submitted false claims to Medicare and Medicaid that reflected the higher nondiscounted prices as their “usual and customary” price.
The pharmacies moved for dismissal of the government’s case. The district court granted the motion, reasoning that although the claims may have been false, they had not been submitted “knowingly.” Applying an objective standard, a federal appeals court affirmed the district court’s dismissal, noting that the phrase “usual and customary” could reasonably be understood as applying to the defendants’ retail prices and not to their discounted prices.
The Supreme Court reversed the dismissal.
Rationale
The Supreme Court acknowledged that the phrase “usual and customary” is, on its face, “less than perfectly clear.”
The court reasoned that the “knowingly” requirement in the FCA refers to the defendants’ “knowledge and subjective beliefs—not to what an objectively reasonable person may have known and believed.” The government claimed that the defendant pharmacies had “received notice that the phrase ‘usual and customary’ referred to their discounted prices,” and that they “comprehended those notices and then tried to hide their discounted prices.”
The Supreme Court concluded that if the pharmacies actually knew what the phrase meant when the claims were submitted, then they may have known that their claims were false. The ambiguity of the phrase does not preclude the possibility that the defendants knowingly submitted a false claim if the defendants actually understood the meaning of the phrase despite its ambiguity.
It does not matter whether some other objectively reasonable interpretation of “usual and customary” could apply to pharmacy claims based on nondiscounted prices. What matters is whether the defendants actually knew that their claims were false.
The case has been sent back to the lower courts for further proceedings. Legal liability will be determined based on a subjective standard for interpreting the knowledge requirement related to the phrase “usual and customary.”
Takeaways
The pharmacy professional can play a significant role in promoting the economic efficiency of drug therapy while maintaining or improving the quality of therapeutic outcomes. Yet public policy concerns related to rising pharmaceutical costs cannot be effectively addressed through marketing gimmicks that may violate federal law.
Discount pharmacy pricing can convey the inaccurate message that pharmacies control drug prices and that pharmacies are responsible for escalating drug costs.
Pharmacy discount programs may shift the price of medications from drugs that are being discounted to drugs that do not qualify for the discount, creating an illusion of significant savings when the broader reality is otherwise.
Pharmacy discounts can trivialize the value of pharmaceutical products and pharmacy services.
The recent Supreme Court case serves as a reminder that pharmacy pricing strategies must be developed equitably, so that rational choices can be made by patients based on straightforward information. ■