United States Court of Appeals For the Seventh Circuit ____________________ No. 20‐3425 UNITED STATES OF AMERICA ex rel. THOMAS PROCTOR, Plaintiff‐Appellant,

v. SAFEWAY, INC., Defendant‐Appellee. ____________________

Appeal from the United States District Court for the Central District of Illinois. No. 3:11‐cv‐3406 — Richard Mills, Judge. ____________________

ARGUED SEPTEMBER 9, 2021 — DECIDED APRIL 5, 2022 ____________________

Before KANNE, HAMILTON, and ST. EVE, Circuit Judges. ST. EVE, Circuit Judge. Relator Thomas Proctor alleges that Safeway, Inc. knowingly submitted false claims to govern‐ ment health programs when it reported its “retail” price for certain drugs as its “usual and customary” price, even though many customers paid much less than the retail price. As a re‐ sult, the government effectively subsidized Safeway’s low prices for cash customers by reimbursing Safeway based on 2 No. 20‐3425 the higher retail price. The district court granted Safeway’s motion for summary judgment, concluding that Safeway’s pricing practices were “objectively reasonable” and no “au‐ thoritative guidance” cautioned against its interpretation of the relevant Medicare and Medicaid regulations. While this case was pending before the district court, it was an open question in this circuit whether the Supreme Court’s decision in Safeco Ins. Co. of America v. Burr, 551 U.S. 47 (2007) applied to the False Claims Act (“FCA”). In United States ex. rel. Schutte v. SuperValu Inc., 9 F.4th 455 (7th Cir. 2021), however, we answered that question and held that Safeco does apply to the FCA’s scienter requirement. In other words, a defendant does not act with reckless disregard as long as its interpretation of the relevant statute or regulation was objectively reasonable and no authoritative guidance warned the defendant away from that interpretation. We also clarified that a failure to satisfy the Safeco standard for reckless disregard precludes liability under the FCA’s actual knowledge and deliberate indifference provisions, which con‐ cern higher degrees of culpability. The central remaining question in this appeal is whether a footnote in a Centers for Medicare and Medicaid (“CMS”) manual constitutes “authoritative guidance” under Safeco. We hold that it does not. CMS can (and did) revise the manual at any time, and a single footnote in a lengthy manual does not support treble damages liability in this case. The other sources of guidance Relator has identified are unpersuasive because they do not come from the agency. Accordingly, we affirm the district court’s grant of summary judgment in favor of Safeway. No. 20‐3425 3

I. Background This case requires us to consider yet again whether a de‐ fendant properly reported its usual and customary (“U&C”) prices for prescription drugs when seeking reimbursement from government programs, including Medicare Part D and Medicaid. Before setting out the facts of this case, we briefly survey the regulatory landscape. Medicare Part D is a federal prescription‐drug benefit ad‐ ministered by the Department of Health and Human Services through the CMS. CMS awards contracts to plan “sponsors,” or private insurance companies. 42 C.F.R. § 423.505. Sponsors contract with middlemen known as Pharmacy Benefit Man‐ agers (“PBMs”) to administer an insurance plan’s prescrip‐ tion‐drug benefits. 42 U.S.C. § 1395w‐112(b)(1); 42 C.F.R. § 423.505(i). In turn, PBMs negotiate and contract with phar‐ macies to set prescription drug prices, process claims, and re‐ imburse pharmacies. PBM contracts specify how pharma