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The emerging battle over 'objective reasonableness' in False Claims Act cases

Michael A. Morse (mam@pietragallo.com) is Partner and Alexander M. Owens (amo@pietragallo.com) is an Associate in the Philadelphia office of Pietragallo Gordon Alfano Bosick & Raspanti LLP.

The Medicare and Medicaid programs are exceedingly complex, and navigating the myriad statutes, regulations, rules, and guidance presents significant challenges for all healthcare providers and compliance professionals—even the United States Supreme Court has recognized that the Medicare program is a “complex and highly technical regulatory program.”[1] This job is sometimes made even more difficult because program regulations can be ambiguous, and government officials are often unable or unwilling to provide further clarification. Add to the mix that failure to comply with Medicare and Medicaid regulations can result in False Claims Act (FCA) liability, and many healthcare providers can’t help but express frustration. A new battle emerging in the courts may afford healthcare providers some relief when confronted with ambiguous Medicare and Medicaid regulations.

In United States ex rel. Schutte v. SuperValu Inc., decided on August 12, 2021, the Seventh Circuit Court of Appeals held that a defendant does not knowingly submit a false claim “if (a) it has an objectively reasonable reading of the statute or regulation and (b) there was no authoritative guidance warning against its erroneous view.”[2] In it, the Seventh Circuit joined the Third, Eighth, Ninth, and D.C. Circuits in endorsing an objective reasonableness standard under the FCA. However, the Seventh Circuit, over a vigorous dissent, went further than the other courts, which have recognized an objective reasonableness standard, setting up a battle that could significantly affect future FCA cases.

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