United States District Court, S.D. New York
UNITED STATES OF AMERICA, et al., ex rel. Fox Rx, Inc., Plaintiff,
OMNICARE, INC., NEIGHBORCARE, INC., PHARMERICA CORP., and MANAGED HEALTH CARE ASSOC., INC., Defendants
[Copyrighted Material Omitted]
For Fox Rx, Inc., relator: Michael I. Leonard, LEONARD LAW OFFICES, Chicago, IL.
For Omnicare, Inc., NeighborCare, Inc., defendants: Phyllis B. Sumner, Michael E. Paulhus, Carolyn Cain Burch, KING & SPALDING LLP, Atlanta, GA; Wendy Huang Waszmer, KING & SPALDING LLP, New York, NY.
For PharMerica Corp, defendant: Sean C. Sheely, Steven Raffaele, HOLLAND & KNIGHT LLP, New York, NY; Michael R. Manthei, David M. Glynn, HOLLAND & KNIGHT LLP, Boston, MA.
For Managed Health Care Associates Long Term Care Network Inc., defendant: Daniel S. Ruzumna, Adam Blumenkrantz, Aileen M. Fair, PATTERSON BELKNAP WEBB & TYLER LLP, New York, NY.
OPINION & ORDER
DENISE COTE, United States District Judge.
A qui tam relator has brought this action under the federal False Claims Act, 31 U.S.C. § 3729 et seq. (" FCA" ), and twenty-one states' and the District of Columbia's false claims statutes against entities that provide or assist others to provide pharmacy services to long-term care facilities (" LTCFs" ). The defendants have moved to dismiss the Second Amended Complaint (" SAC" ) in this action. For the reasons given below, these motions are granted.
The following allegations are drawn from the SAC and documents integral to it. In broad strokes, the SAC asserts that the defendants have engaged in two illegal practices. The plaintiff asserts that the defendants (1) failed to substitute generic drugs for brand-name drugs in states that have laws mandating such substitution, and (2) dispensed drugs after the termination date of a national drug code in states that have laws prohibiting pharmacies from dispensing drugs beyond their shelf-life expiration dates. By engaging in such practices, the plaintiff asserts that the defendants falsely indicated in " submissions" to a federal agency that the drugs they dispensed were " covered" by Medicare, and overcharged Medicare and Medicaid.
I. The Parties
The relator is Fox Rx, Inc., the corporate parent of Fox Insurance, Inc. (together, " Fox" ). From 2006 to 2010, Fox sponsored prescription drug plans pursuant to the federal government's Part D prescription drug benefit program. Fox asserts that it, along with the federal government (" Government" ) and the states, was a victim of the defendants' fraudulent practices.
Fox has sued four defendants: Omnicare, Inc. and NeighborCare, Inc. (together " Omnicare" ), PharMerica Corp. (" PharMerica" ), and MHA Long Term Care Network (" MHA" ). Omnicare and PharMerica (together, " Pharmacy Defendants" ) provide pharmacy services to LTCFs. Through contracts with LTCFs, they dispense drugs to 1.4 million residents of LTCFs.
MHA contracts with independent long-term care pharmacies to, inter alia, negotiate reimbursement rates on their behalf and manage Medicare Part D claims. MHA receives an administrative fee per paid prescription. MHA provides its member pharmacists and pharmacies with its RxPertise software, which assists pharmacies in determining insurance plan coverage and covered therapeutic alternatives quickly.
MHA enters into agreements with Pharmacy Benefits Managers (" PBMs" ) on behalf of the pharmacies in its network that
allow the PBMs to provide claims adjudication services when claims are submitted to Medicare and Medicaid for payment. One such agreement, executed by MHA and ProCare PBM, is attached as an exhibit to the SAC. In that document MHA agreed that the " Pharmacy Provider" also had certain obligations. (A " Pharmacy Provider" was defined in that agreement as the " dispenser of drug products and/or services." ) Those obligations include the Pharmacy Provider's
obligation to ensure that any pharmacist who is performing on behalf of the Pharmacy Provider shall use his or her professional judgment when filling prescript orders, and will comply with all legal, professional and ethical obligations applicable to pharmacists under the laws of the jurisdiction in which the prescription service is received.
(Emphasis added.) In addition, the " Pharmacy Provider agrees to inform [prescription drug plan] Part D enrollees at the point of sale of any differential between the price of the lowest-priced therapeutically equivalent and bio-equivalent generic drug unless the lowest price drug is being purchased in accordance with 42 CFR § 423.132(a)." 
II. Federal Programs At Issue
A. Medicare Part D
The SAC asserts that the defendants defrauded the Government's Medicare Part D program. Medicare is a federally funded health insurance program for the elderly and disabled. The federal agency Centers for Medicare & Medicaid Services (" CMS" ), which is a component of the Department of Health and Human Services (" HHS" ), administers the Government's Medicare and Medicaid programs. 42 U.S.C. § § 1395, 1396. In December 2003, Congress passed the Medicare Prescription Drug, Improvement, and Modernization Act (" MMA" ), which established a voluntary prescription drug benefit program for Medicare enrollees known as Medicare Part D. Pub. L. No. 108-173, 117 Stat. 2066, codified at 42 U.S.C. § 1395w-101 et seq.
To provide Part D benefits to enrollees, Medicare enters into contracts with private companies known as Part D sponsors. The sponsors administer prescription drug plans (" PDPs" ). Fox was one such sponsor.
The sponsors may contract with pharmacies and pharmacy networks to provide the prescription drugs to Part D beneficiaries who have enrolled in their plans. When a Medicare Part D beneficiary has a prescription filled, the pharmacy presents a claim to the sponsor. The sponsor then notifies CMS of the transaction, including the cost the sponsor incurred in making a payment to the pharmacy.
CMS provides advance monthly payments to sponsors based on a subsidy per enrollee in the sponsor's program and on estimates of the subsidies CMS will be required to pay to the sponsors. At the end of a payment year, CMS reconciles the advance payments it made to the sponsor and the actual costs the sponsor has incurred. To the extent that the sponsor paid out more than it received in advance payments from CMS, CMS may provide the sponsor with additional payments,
which are calculated according to a complex regulatory formula. 42 C.F.R. § 423.336 (a)-(b).
Part D sponsors may also enter into contracts with PBMs to create a pharmacy network and to administer their prescription drug programs. PBMs may develop and implement a prescription drug formulary, that is, a list of prescription drugs the purchase of which will be reimbursed by the sponsor's plan. PBMs may also provide automated processing services to " adjudicate" claims submitted by pharmacies. CMS regulations require that the contracts between sponsors and either PBMs or pharmacies contain language obligating the pharmacy to comply with federal law and CMS instructions.
When pharmacies dispense drugs to a Medicare Part D enrollee, they submit a claim electronically to the enrollee's sponsor, often through a PBM. The claim contains information about the cost of the drug, the dispensing fee, any taxes paid, any payments made by the enrollee, and any rebates received from the drug's manufacturer or distributor. According to the SAC, if the drug was a brand-name " multisource drug," the pharmacy also provides the basis for its decision not to substitute a generic.
CMS has identified thirty-seven data fields related to a Prescription Drug Event (" PDE" ) that it requires Part D sponsors to submit when making claims to CMS for payment. In instructions published on April 27, 2006, CMS describes in detail the requirements for submitting PDE data (" Instructions" ). The Instructions explain that " [a]s a condition of payment, all Part D plans must submit data and information necessary for CMS to carry out payment provisions" of the MMA. (Instructions 5.) Not all of the data that sponsors submit to receive payments, however, relate directly to the payments. As the Instructions explain,
Much of the data, especially dollar fields, will be used primarily for payment. However, some of the other data elements such as pharmacy and prescriber identifiers will be used for validation of the claims as well as for other legislated functions such as quality monitoring, program integrity, and oversight.
(Id. at 5-6.) One of these fields, the " Drug Coverage Status Code," indicates whether the dispensed drug is covered by Medicare Part D and a given PDP. (Id. at 14, 20.) A " C" in this fields indicates coverage. (Id.)
The Instructions describe the origins of the PDE fields of data. CMS
employ[s] the National Council for Prescription Drug Programs (NCPDP) industry standard whenever possible. Most data elements represent existing NCPDP fields where [CMS] employ[s] the same definition and field values that are currently in use per the NCPDP version 5.1 drug claim standard. CMS has also drafted several new fields for data that are not currently collected on industry drug claims but that are necessary for [CMS] to pay plans in accordance with the new law. All fields are consistent with NCPDP formatting. It is not [CMS's] intent to change NCPDP standards; the NCPDP format is developed independently from CMS.
(Id. at 11.) The Instructions recognize that " the pharmacy industry is highly automated" and that most plans " receive data electronically in NCPDP format." (Id. at 18.)
It is the plan sponsor, however, that is responsible for submission of the PDE data. As explained in the Instructions,
For each dispensing event, the plan must submit a prescription drug event or PDE record. Most organizations or sponsoring entities will use a pharmacy benefit manager (PBM) or other third party administrator to process incoming claims from pharmacies. Claims typically undergo several rounds of transactions between these parties before the plan finally adjudicates a claim for payment. The PDE is a summary record that documents the final adjudication of a dispensing event.
(Id. at 9.)
The SAC also claims that the defendants defrauded the Government's Medicaid program. Medicaid is a cooperative program between the Government and the states that provides health care benefits principally to the indigent and to disabled individuals. To qualify for federal Medicaid funds, a state must comply with minimum federal standards.
The Medicaid statute requires participating states to pay for prescription drugs. Pharmaceutical manufacturers that want their drugs to be eligible for payment by Medicaid are required to enter into a Rebate Agreement with CMS under which they agree to give state Medicaid programs discounts through a quarterly rebate payment that is calculated based on the utilization of the drug by the state's Medicaid program beneficiaries. This usage is tracked using the drug's unique 11-digit number called the National Drug Code (" NDC" ), which is discussed below.
The SAC does not identify any claims submitted to Medicaid relating to defendants' alleged conduct. Instead, the SAC identifies claims submitted to CMS through Medicare Part D for those " also ...