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United States v. Supervalu Inc.

United States District Court, C.D. Illinois, Springfield Division

August 5, 2019

UNITED STATES OF AMERICA, and THE STATES OF CALIFORNIA, DELAWARE, ILLINOIS, INDIANA, MASSACHUSETTS, MINNESOTA, MONTANA, NEVADA, NEW JERSEY, NORTH CAROLINA, RHODE ISLAND, VIRGINIA, ex rel. TRACY SCHUTTE and MICHAEL YARBERRY, Plaintiffs and Relators,
v.
SUPERVALU, INC., SUPERVALU HOLDINGS, INC., FF ACQUISITIONS, LLC, FOODARAMA, LLC, SHOPPERS FOOD WAREHOUSE CORP., SUPERVALU PHARMACIES, INC., ALBERTSON'S LLC, JEWEL OSCO SOUTHWEST LLC, NEW ALBERTSON'S INC., AMERICAN DRUG STORES, LLC, ACME MARKETS, INC., SHAW'S SUPERMARKET, INC., STAR MARKET COMPANY. INC., JEWEL FOOD STORES, INC., and AB ACQUISITION LLC, Defendants.

          OPINION

          RICHARD MILLS, UNITED STATES DISTRICT JUDGE

         This is a False Claims Act case, wherein the Relators allege that Defendant pharmacies submitted false or fraudulent claims to obtain federal funds from Government Healthcare Programs (GHP) to which they were not entitled. The Relators allege this occurred through the electronic submission of inflated usual and customary charges to GHPs because Defendants failed to report their cash price matches as their usual and customary price.

         Pending is the Relators' motion for partial summary judgment. The Parties dispute the effect of the Seventh Circuit's decision in United States ex rel. Garbe v. Kmart, 824 F.3d 632 (7th Cir. 2016) on this case.

         I. BACKGROUND

         (A)

         The Relators allege the price-match program for Defendants SuperValu and Albertsons began in the fall of 2006. The Defendants claim advertising of the price-match program occurred at certain times between 2006 and 2012 but Defendants have had a price match policy in place since the 1980s. A price-match program “override” occurred when pharmacy personnel replaced Defendants' then-current, reported cash “retail” price with a lower competitor price. Albertsons discontinued the price-match program in October 2013. SuperValu discontinued the price-match program in December 2016.

         The Defendants offered a price match policy and a price match guarantee. The Defendants state the Court must decide how the legal definitions of “offer” and “general public” apply to the facts of this case.

         All of the Defendants' banners (i.e. Cub Pharmacy, Osco Drug, etc.) advertised price matching in all states where those banners operated at various times between October 2006 and June 2012. The Defendants' advertisements publicized Defendants' practice of matching competitor prices on prescription drugs and generally included disclaimers. Defendants' price match advertisements were disseminated to the public through various means, such as in-store and pharmacy signage, fliers, circulars, in-store audio announcements, mailers, newspapers of general circulation, on the back of store receipts and Defendants' web pages. The price-match program advertisements described an offering about Defendants' price match policy.

         The Relators allege the price-match program was available to anyone who would request that Defendants match a competitor's price. The Defendants say certain other requirements had to be met before receiving a competitor's lower price, including the fact that the lower price had to be available at a local pharmacy and could be verified by pharmacy staff. No. fee was required of customers to participate in the price match program.

         Not all price matches were the same. On a single day for the same drug, Defendants' pharmacies could match different prices charged by Rite Aid, Walmart, CVS and any other competitor, or no competitor at all. Price match transactions were not the majority of Defendants' cash transactions and only a nominal percentage-about 2%--of all Defendants' transactions overall.

         Unlike Walmart and some other competitors, the Defendants did not have an official discount drug formulary. Defendants have produced price matching advertisements and competitor drug formularies its employees collected in March 2012 from approximately 222 of Defendants' stores that can be individually identified. However, the Defendants claim they cannot determine from Relators' exhibit whether it is an accurate portrayal of all of these produced documents. Of the 222 stores, 201 self-reported and produced competitor's discount drug formularies kept in the pharmacies at those stores, including 192 stores that kept Wal-Mart's discount drug formulary in the pharmacy; Defendants' stores “most commonly would have a Wal-Mart list or-because it's very accessible off the internet, so they would have it . . . they would print them off and have them instead of having to keep going to the internet.” The Defendants claim that, in addition to problems with accuracy, the Relators' information is immaterial and taken out of context because Defendants operate over 1, 000 pharmacies, while the Relators' exhibit only gives information for 222.

         The Defendants' price overrides grew from 8.75% of cash sales of all drugs (including drugs that were not available from the competitors at a lower cash prize) in 2007 to 39.36% of cash sales of all drugs in 2011. The Defendants allege this is immaterial because growth in number of price overrides does not go to (1) falsity, (2) knowledge or (3) materiality as to claims submitted by Defendants. Moreover, the percentages are taken out of context with respect to how many total cash transactions occurred.

         The Defendants identified specific competitor price matches for 88.31% of all price overrides. Defendants identified 56.94% of all price overrides as Walmart price matches. The Defendants claim this is immaterial because the percentage of price overrides identified as being matched to a specific competitor or Walmart in particular does not go to (1) falsity, (2) knowledge or (3) materiality as to claims submitted by Defendants. Moreover, the ratio of price matches to the total cash sales show that only about 15% of cash sales were matched to Walmart's prices.

         Price match overrides occurred as frequently as 18, 000 times per week. The Defendants say that, across the roughly 1, 000 pharmacies that Defendants operated, this number equates to merely 17 or 18 price overrides per week-or about 2.57 price overrides per day for all drugs dispensed to customers. Moreover, the overall number of cash sales in 2011 and 2012 total 6, 141, 978, which constitutes an average of 59, 057 per week across the two-year period. Although up to 18, 000 individuals may have sought and received a price match during this time, over 41, 000 customers paid the regular cash prices.

         The Defendants did not submit lower matched price cash sales transactions to third-party payors, including GHPs. The Defendants would not allow lower matched prices to be submitted to third party insurance even if a customer specifically asked Defendants to process a price match transaction through the customer's insurance. The Defendants claim doing so would have violated their contracts with these payors. The customer's preference does not control. The contract does.

         (B)

         In October 2006, soon after Walmart announced its discount generics program, the Defendants estimated that adopting a similar discount generics program would result in tens of millions of lost profits, 90% of which “would go to PBMs, Managed Care and other payors due to co-pay and U&C contract language.” The Defendants claim this was a business decision so they would not lose money.

         On December 27, 2017, SuperValu Executive Ron Richmond (Director of Managed Healthcare Contracting) sent an email to SuperValu Executives Pamela Caselius (Marketing Director), Maxine Johnson (Vice President, Managed Care Operations) and Dan Salemi, writing in part:

As for price matching on the various competitors generic programs, I believe that we have always taken a “stealthy” approach. We consider this to be something that we do as an “exception” for customer service reasons. Once we deviate to a process that is more “rule” or routine, we begin to affect the integrity of our U&C price - a slippery slope, as true U&C price is a claim submission requirement for all Medicaid and private commercial Managed Care and PBM agreements. The financial implication of this is ...

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