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United States ex rel. Fox RX, Inc. v. Dr. Reddy's Inc.

United States District Court, S.D. New York

December 1, 2014

Dr. REDDY'S INC., OMNICARE, INC.; and NEIGHBORCARE, INC., Defendants. ex rel. FOX RX, INC., Plaintiffs,

For Relator Fox Rx, Inc. Jerry E. Martin, ROBBINS GELLER RUDMAN & DOWD LLP, Nashville, TN.

Samuel H. Rudman, David A. Rosenfeld, Robert M. Rothman, Mark S. Reich, ROBBINS GELLER RUDMAN & DOWD LLP, Melville, NY,

Jeffrey K. Brown, Michael Tompkins, LEEDS BROWN LAW, PC, Carle Place, NY.

David W. Garrison, Seth M. Hyatt, BARRETT JOHNSTON MARTIN & GARRISON, LLC, Nashville, TN.

Michael James Maloney, KHEYFITS & MALONEY, LLP, New York, NY.

For Defendants Omnicare, Inc. and NeighborCare, Inc.: Phyllis B. Sumner, Michael E. Paulhus, KING & SPALDING LLP, Atlanta, GA.

Wendy Huang Waszmer, KING & SPALDING LLP, New York, NY.

Ethan P. Davis, KING & SPALDING LLP, Washington, DC, For Defendant Dr. Reddy's Laboratories, Inc.

Keara M. Gordon, Anthony D. Gill, DLA PIPER LLP (US), New York, NY.

Frank E. Sheeder, DLA PIPER LLP (US), Dallas, TX.


DENISE COTE, District Judge.

Fox Rx, Inc. ("Fox"), a serial qui tam relator and former Medicare Part D plan sponsor, brings this action under the federal False Claims Act, 31 U.S.C. § 3729 et seq. ("FCA"), and twenty-two states', the District of Columbia's, and two cities' false claims laws against defendants Omnicare, Inc. and its subsidiary NeighborCare, Inc. (together, "Omnicare"), a long-term care ("LTC") pharmacy, and against drug manufacturer Dr. Reddy's Laboratories, Inc. ("Dr. Reddy's"). After searching through old claim submissions, Fox has filed a number of qui tam actions under the False Claims Act against pharmacies Fox once worked with, among others. This is one such action. Fox filed two others in this district, including one against Omnicare, which were recently dismissed for failure to state a claim. United States ex rel. Fox Rx, Inc. v. Omnicare, Inc., ___ F.Supp.2d ___, 2014 WL 3928780 (S.D.N.Y. Aug. 12, 2014); United States ex rel. Fox Rx, Inc. v. Walgreen Co., 2014 WL 4066223 (S.D.N.Y. Aug. 18, 2014). Omnicare and Dr. Reddy's now move to dismiss the Second Amended Complaint ("SAC") in this action. For the reasons given below, these motions are granted.


In broad strokes, the SAC alleges that the defendants have engaged in two illegal practices. Fox asserts that (1) a drug rebate Dr. Reddy's provided to Omnicare was an illegal kickback, and (2) Omnicare improperly billed the federal government ("Government") for dispensing fees in certain circumstances. By engaging in such practices, Fox asserts that the defendants caused false claims to be submitted to the Government and overcharged Medicare. The following allegations are drawn from the SAC and documents integral to it, as well as certain Government documents concerning Medicare of which the Court takes judicial notice.[1]

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 Government's Part D prescription drug benefit program.[2] Fox asserts that it, along with the Government and the states, was a victim of the defendants' fraudulent practices.

Defendant Omnicare provides pharmacy services to LTC facilities ("LTCFs"). Through contracts with LTCFs, Omnicare serves as a consulting pharmacist and dispenses drugs to approximately 1.4 million LTCF residents in 47 states and the District of Columbia. The SAC alleges that Omnicare operated under a Corporate Integrity Agreement with the Centers for Medicare & Medicaid Services ("CMS") that "specifically covered Arrangements' with vendors such as Dr. Reddy's and specifically addressed measures to protect against kickback schemes as alleged in this complaint." No further details concerning this Agreement are alleged, and the Agreement is not attached to the SAC.

Defendant Dr. Reddy's is an India-based pharmaceutical company that manufactures generic drugs including simvastatin. Simvastatin is used for the treatment of high cholesterol and the prevention of cardiovascular disease.

Before describing the allegations regarding the defendants' purportedly illegal practices, the Government programs at issue and other information critical to understanding those allegations will be described. The Government programs are Medicare Part D and Part A and Medicaid.

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. CMS, a component of the United States 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. 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. See 42 C.F.R. § 423.336 (a)-(b).

Part D sponsors may also enter into contracts with pharmacy benefit managers ("PBMs") to create a pharmacy network and to administer the sponsors' prescription drug programs. 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 ...

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