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FCA Qui Notes
April 17, 2023

Dear SCOTUS, Part Three: Healthcare Amici Support Objective Reasonableness Standard in Schutte and Proctor

Qui Notes: Unlocking the False Claims Act

We have been closely watching developments in U.S. ex rel. Schutte v. SuperValu, Inc. and U.S. ex rel. Proctor v. Safeway, Inc. And today, for our final post in a series on several of the 14 amicus briefs filed in the case, we highlight two briefs from amici in the healthcare and life sciences space. They argue that a subjective scienter standard would have negative effects, such as increasing costs on healthcare providers and diverting resources that would otherwise be used to provide care, and reducing investment and innovation in healthcare, as well as communication about new medical treatments. (We previously covered briefs that were filed in support of petitioners here and briefs from other industry leaders in support of respondents here.)

American Hospital Association and America’s Health Insurance Plans Brief

The American Hospital Association (AHA) represents hospitals, healthcare systems, and other healthcare organizations. America’s Health Insurance Plans (AHIP) is the national trade association representing health insurance providers. They filed a joint brief because their members face the same “uniquely challenging regulatory landscape and share concerns regarding the proper contraction of the FCA.” They warn that “[e]rroneous construction and expansion of the FCA threatens the legitimate business activities” of their members and “creates tremendous and unnecessary costs and burdens for entities participating in health benefit programs sponsored by the federal government.” These costs in turn divert resources from their members’ primary mission: “caring for patients, reducing cost of care, and ensuring a healthy citizenry.”

AHA/AHIP amici make many of the same arguments seen in briefs filed by respondents and amici supporting respondents. Relevant to their industry, they point out that “Medicare and Medicaid are vital public health programs, but they can operate only with the participation of private parties like amici’s members.” And the private parties that participate in these programs must navigate “some of the most complex statutory, regulatory, and sub-regulatory requirements” making them particularly vulnerable to “substantial FCA suits, which inevitably result in expensive litigation, reputational harm, and the possibility of punitive treble damages and statutory penalties.”

In urging support for respondents, amici argue that the FCA has “effectively become a healthcare enforcement statute” given that the vast majority of FCA recoveries come from HHS matters, and that FCA risk “falls heavily on hospitals and health insurance providers, to the ultimate detriment of patients, enrollees, and taxpayers.” For example, disallowing a Safeco defense (an important pleadings and summary judgment stage defense) “would expose regulated entities to significant settlement pressure, even for non-meritorious claims.” A settlement under these circumstances would then “deplete funds that would otherwise have been devoted to providing Americans with high-quality and affordable healthcare.”

Advanced Medical Technology Association Brief

The Advanced Medical Technology Association, Biotechnology Innovation Organization, and Medical Information Working Group (whose members include several large pharmaceutical companies) filed a brief that explores concerns specific to healthcare and life sciences organizations regulated by the Food and Drug Administration.

In particular, they note that “[b]iopharmaceutical and medical device manufacturers operate in a complex and highly regulated industry, governed by an intricate web of laws and regulations administered and enforced by myriad state and federal agencies.” These regulatory regimes are not only complex, they are “rife with undefined terms and ambiguities” and there is no simple way to “ask the government to clarify” ambiguous regulatory standards or policy judgments. Indeed, amici contend that when they have sought clarity, their “requests have fallen on deaf ears.” They warn that if FCA liability (along with treble damages and penalties) can result when a defendant acts consistent with an objectively reasonable interpretation of an ambiguous regulation, “a considerable amount of investment and innovation in healthcare, and even communication about new medical treatments,” will be deterred.

They argue that the government should have to clarify regulatory requirements before pursuing any FCA action or permitting a relator to pursue one in its name. Because if the government is allowed to bring FCA actions when regulatory requirements are ambiguous, that will stifle innovation which will “[a]s a practical matter, … impact on amici’s members’ ability to bring innovative life-saving medical devices and medicines to market.”

Finally, amici raise First Amendment concerns, arguing that “[a] scienter standard that fails to protect actions consistent with objectively reasonable interpretations of ambiguous legal obligations would also chill important, constitutionally protected speech.” In particular, the FCA has given rise to expensive suits about “off-label communications,” “notwithstanding the many ambiguities … afflicting FDA’s pronouncements about manufacturers’ product communications.” They argue that a subjective standard could push manufacturers to “adopt the most conservative construction of those regulations” which would “stifle innovation” and chill “lawfully-protected speech that ‘can save lives.’”

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Thanks for joining us for our review of the amicus briefs. And don’t forget to join us tomorrow as we recap the argument and share our key takeaways!

© Arnold & Porter Kaye Scholer LLP 2023 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.