CASPER, United States District Judge.
Pursuant to the qui tam provisions of the False Claims Act ("FCA"), 31 U.S.C. § 3730, plaintiff-relators Myron D. Winkelman ("Winkelman") and Stephani Martinsen
In considering a motion to dismiss for failure to state a claim upon which relief can be granted pursuant to Fed. R. Civ. P. 12(b)(6), the Court must determine if the facts alleged "plausibly narrate a claim for relief." Schatz v. Republican State Leadership Comm., 669 F.3d 50, 55 (1st Cir. 2012). "[T]he plaintiff need not demonstrate she is likely to prevail" at this stage, only that her claims are facially plausible. García-Catalán v. United States, 734 F.3d 100, 102-03 (1st Cir.2013). To state a plausible claim, a claim need not contain detailed factual allegations, but it must recite facts sufficient to at least "raise a right to relief above the speculative level on the assumption that all the allegations in the complaint are true (even if doubtful in fact)." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (internal citations omitted). This determination requires a two-step inquiry.
When deciding a motion to dismiss, the First Circuit has "emphasize[d] that the complaint must be read as a whole," and that circumstantial evidence may be sufficient to surpass the plausibility threshold. Id. At bottom, a claim must contain sufficient factual matter that, accepted as true, would allow the Court "to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. However, "[i]n determining whether a [pleading] crosses the plausibility threshold, `the reviewing court [must] draw on its judicial experience and common sense.'" Id. (quoting Ashcroft v. Iqbal, 556 U.S. 662, 679, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009)). "This context-specific inquiry does not demand `a high degree of factual specificity.'" Id. (internal citations omitted).
"When considering a motion to dismiss under subsection 12(b)(1) of the Federal Rules of Civil Procedure, the Court should apply a standard of review `similar to that accorded a dismissal for failure to state a claim' under subsection 12(b)(6)." Menge v. N. Am. Specialty Ins. Co., 905 F.Supp.2d 414, 416 (D.R.I.2012) (quoting Murphy v. United States, 45 F.3d 520, 522 (1st Cir.1995)); see Puerto Rico Tel. Co. v. Telecomm. Regulatory Bd. of Puerto Rico, 189 F.3d 1, 13 n. 10 (1st Cir.1999) (noting that "the standard of review. . . is the same for failure to state a claim and for lack of jurisdiction"). In deciding a Rule 12(b)(1) motion, however, the Court may consider materials outside the pleadings. Gonzalez v. United States, 284 F.3d 281, 288 (1st Cir.2002).
"In alleging fraud . . ., a party must state with particularity the circumstances constituting fraud or mistake." Fed. R. Civ. P. 9(b). These heightened pleading requirements apply to claims brought under the FCA. See, e.g., United States ex rel. Gagne v. City of Worcester, 565 F.3d 40, 45 (1st Cir.2009) (noting that "the heightened pleading requirements of Fed. R. Civ. P. 9(b) apply to [FCA] claims"); United States ex rel. Walsh v. Eastman Kodak Co., 98 F.Supp.2d 141, 147 (D.Mass.2000) (same). In such cases, relators must satisfy the requirements of Rule 9(b) by setting forth the "the time, place, and content of an alleged false representation." Gagne, 565 F.3d at 45 (citation omitted) (internal quotation mark omitted); Alternative Sys. Concepts, Inc. v. Synopsys, Inc., 374 F.3d 23, 29 (1st Cir.2004) (noting that Rule 9(b) requires the pleader "to specify the who, what, where, and when of the allegedly false or fraudulent representation"). "Rule 9(b) may be satisfied if the complaint as a whole is sufficiently particular to pass muster under the FCA, although some questions remain unanswered.'" United States ex rel. Ge v. Takeda Pharmaceutical Co. Ltd., No. 10-cv-11043, 2012 WL 5398564, at *4 (D.Mass. Nov. 1, 2012) (citation omitted).
Unless otherwise noted, the facts are as alleged in the second amended complaint, D. 29.
Plaintiff-relators allege that CVS billed Medicaid programs and Medicare Part D inflated prices for hundreds of generic drugs. D. 29 ¶ 3. Medicaid was established by Title XIX of the Social Security Act, 42 USC §§ 1396-1396v, as amended, and provides medical assistance for certain individuals and families with low incomes. Id. ¶ 17. Medicaid is jointly funded by the federal and state governments. Id. Although national guidelines are established by the federal government, "each state: (a) establishes its own eligibility standards; (b) determines the type, amount, duration and scope of services; (c) sets the rate of payment for services; and (d) administers its own program." Id. ¶ 18. For states to receive reimbursement, they must assure that their "aggregate payments must not exceed the lower of (1) the pharmacy's estimated acquisition cost plus a reasonable dispensing fee; or (2) the pharmacy's `usual and customary charge to the general public' for the drug." Id. ¶ 20b (emphasis in original) (citing 42 C.F.R. § 447.512(b)). As a result, the state Medicaid programs of the Plaintiff-states require that pharmacies submit their usual and customary prices and will reimburse the lesser of the various measures. Id.
Medicare is a federally-funded health care insurance program that provides insurance coverage for people over the age of 65 and people with disabilities. Id. ¶ 53. Medicare was established in 1965 and is administered by the Centers for Medicare and Medicaid Services ("CMS"), a division of the U.S. Department of Health and Human Services ("HHS"). Id. Medicare Part D pays for prescription drug benefits. Id. ¶ 57 (citing 42 U.S.C. § 1395w-101 et seq.). Unlike other Medicare coverage, Part D coverage is not provided within the traditional Medicare program and beneficiaries must enroll in one of the Part D Plans offered by private companies. Id. ¶ 65. Medicare beneficiaries who elect Part D coverage are responsible for certain costs, including a monthly premium, an annual deductible and/or co-pays. Id. ¶ 88. The federal government uses economic incentives and disincentives to encourage reduced costs with the goal of paying 74.5% of the actual costs of basic prescription drug coverage. Id. ¶ 57. The Medicare Part D program also provides beneficiaries with assistance in paying for out-patient prescription drug benefits. Id. ¶ 151. This program was added to Medicare by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, ("MMA"), Pub.L. 108-173 (Dec. 8, 2003), 42 U.S.C. § 1395w-101 et seq. (2004 supplement), 42 C.F.R. § 423.506. Id.
To receive Part D funds from CMS, Part D Sponsors, including authorized agents, employees, and contractors (including pharmacies) are required to comply with all applicable federal laws and regulations, as well as CMS instructions. Id. ¶ 97 (citing 42 U.S.C. § 1860D-12(b)(1); 42 C.F.R. § 505(i)(4)(iv)). Specifically, Part D Sponsors must provide their Part D enrollees with access to negotiated prices for covered Part D drugs. Id. ¶ 154 (citing 42 U.S.C. § 423.104(a)). The government also requires the Part D Sponsor to "[g]uarantee that network and mail order pharmacies provide the lower of the negotiated price or the usual and customary price when a covered discount card drug for a negotiated price is available at the point of sale." Id. ¶ 156 (quoting 68 Fed. Reg. 69840, 69862 (Dec. 15, 2003)) (emphasis in original). Medicare Part D defines "usual and customary" as "the price that an out-of-network pharmacy or physician's office charges a customer who does not have any form of prescription drug coverage for a covered Part D drug." Id. ¶ 157 (quoting 70 Fed.Reg. 4194, 4219 (Jan. 28,
CVS is purportedly one of the largest providers of prescription and related healthcare services in the United States, handling more than one billion prescriptions since 2007. Id. ¶ 122. In 2010, for example, CVS's pharmacy benefits manager company ("PBM") handled approximately 585 million prescriptions and its retail pharmacy branch filled approximately 636 million retail prescriptions, which accounts for approximately 18% of the U.S. pharmacy market. Id. ¶¶ 79, 123. One of CVS's largest customers is the Federal Employees Health Benefits Plan ("FEHBP"). Id. ¶ 126.
Defendant Caremark Rx through its subsidiaries Caremark and Silverscript, formed Silverscript Insurance Company in 2005 to participate as a Medicare Part D Plan (PDP) sponsor. Id. ¶ 129. Subsequently, Silverscript Insurance Company obtained licenses from all 50 states, plus Washington D.C. and Puerto Rico, and was approved by CMS as a prescription drug plan sponsor under Medicare Part D. Id. ¶¶ 129-30.
On November 9, 2008, CVS began a fee-based generic discount program—the Health Savings Pass ("HSP"). Id. ¶¶ 25, 27; D. 29-1 at 1, 3. Through the HSP CVS offered 90-day supplies of generic medications for a flat fee, typically $9.99. Id. ¶ 30. Plaintiff-relators allege that CVS knowingly designed the HSP to avoid reporting its HSP discount prices as its "usual and customary" prices when submitting claims to Medicaid and Medicare Part D. Id. ¶¶ 26-34.
On February 3, 2010, a coalition of labor unions, known as "Change to Win," published a study comparing drug prices charged to CVS customers through the HSP program with prices charged to the federal government. D. 61-1.
On the heels of these investigations and reports, the Attorney General of Connecticut launched an investigation into the differences between CVS's prices under the HSP program and Connecticut's Medicaid program. D. 61-10, Press Release, Connecticut Attorney General's Office, Attorney General Investigating CVS Caremark Threat To Terminate Consumer Discount Drug Program (June 22, 2010). The Connecticut investigation was also widely reported by local and national media outlets. See, e.g., D. 61-14 at 2, Cara Baruzzi, "State Opposes CVS Ending Drug Plan," New Haven Register (June 24, 2010).
Plaintiff-relators instituted this action on August 4, 2011, D. 1, and filed an amended complaint on March 19, 2013, D. 20. The United States notified the Court pursuant to the FCA, 31 U.S.C. § 3730(b)(4)(B), of its decision not to intervene in the action on October 11, 2013. D. 24. All commonwealths, the District of Columbia and all named states, except for Texas, also declined to intervene at that time. Id. On June 5, 2014, Plaintiff-relators filed a second amended complaint that did not include a number of previously named states, including the state of Texas. D. 29. The Court unsealed the second amended complaint on August 11, 2014. D. 30. CVS has now moved to dismiss. D. 59. The Court heard the parties on the pending motion and took the matter under advisement. D. 69.
The FCA prohibits the knowing submission of false or fraudulent claims to the United States, 31 U.S.C. § 3729(a), and "allows private persons, called relators, to bring qui tam actions on behalf of the United States against persons or entities who knowingly submit false claims to the federal government." United States ex rel. Ondis v. City of Woonsocket, 587 F.3d 49, 53 (1st Cir.2009) (citing 31 U.S.C. § 3730(b)(1)). "A person acts `knowingly'
Here, CVS first argues that Plaintiff-relators' second amended complaint should be dismissed pursuant to the public disclosure bar of the FCA. D. 60 at 11-18; see 31 U.S.C. § 3730(e)(4)(A). "The public disclosure bar is designed to foreclose qui tam actions in which a relator, instead of plowing new ground, attempts to free-ride by merely repastinating previously disclosed badges of fraud." Nasuti ex rel. United States v. Savage Farms, Inc., No. 12-cv-30121-GAO, 2014 WL 1327015, at *14 (D.Mass. Mar. 27, 2014) (citation and internal quotation mark omitted); see United States ex rel. Rost v. Pfizer, Inc., 507 F.3d 720, 727 (1st Cir.2007) (noting that "[t]he qui tam mechanism has historically been susceptible to abuse, however, by `parasitic' relators who bring FCA damages claims based on information within the public domain or that the relator did not otherwise discover") (overruled on other grounds). The provision provides that:
31 U.S.C. § 3730(e)(4)(A). The statute defines "original source" as "an individual who . . . prior to a public disclosure . . . has voluntarily disclosed to the Government the information on which allegations or transactions in a claim are based, or (2) who has knowledge that is independent of and materially adds to the publicly disclosed allegations or transactions. . . ." Id. § 3730(e)(4)(B).
As a threshold matter, the parties dispute whether the public disclosure bar is jurisdictional in nature. D. 67 at 10; D. 68 at 9-10. As the parties acknowledge, the public disclosure bar was amended by the Patient Protection and Affordable Care Act, Pub.L. No. 111-148, § 10104(j)(2), 124 Stat. 119 (Mar. 23, 2010) (the "PPACA"). D. 60 at 12 n.15; D. 67 at
While the First Circuit has not specifically addressed whether the public disclosure bar remains jurisdictional, it has continued to refer to the amended "public disclosure provision of the FCA" as a "jurisdictional bar." Estate of Cunningham, 713 F.3d at 669 n. 5 (noting that "[i]n 2010, Congress amended the public disclosure provision of the FCA and explicitly narrowed the jurisdictional bar to disclosures in federal rather than federal and state cases or hearings"). District courts in this circuit have split, however, on whether the amended public disclosure provision is jurisdictional. Compare United States ex rel. D'Agostino v. EV3, Inc., No. 10-cv-11822-RGS, 2014 WL 4926369, at *5 (D.Mass. Sept. 30, 2014) (treating amended public disclosure bar as jurisdictional) (appeal filed), and Nasuti, 2014 WL 1327015, at *6 n. 6 (noting "that the `public disclosure bar' . . . also represents a potential jurisdictional infirmity" and that "federal courts should decide subject matter jurisdiction questions as a threshold issue"), with United States ex rel. Hagerty v. Cyberonics, Inc., No. 13-cv-10214-FDS, 95 F.Supp.3d 240, 255-56, 2015 WL 1442497, at *11 (D.Mass. Mar. 31, 2015) (concluding that the public disclosure bar is no longer jurisdictional and examining the public disclosure issue under Rule 12(b)(6)).
The Court agrees with the courts that have concluded the public disclosure bar is no longer jurisdictional in nature, including other circuits that have considered the question directly. See United States ex rel. May v. Purdue Pharma L.P., 737 F.3d 908, 916 (4th Cir.2013) (holding that the PPACA amendments "make it clear that the public-disclosure bar is no longer a jurisdiction-removing provision"); United States ex rel. Osheroff v. Humana, Inc., 776 F.3d 805, 810-11 (11th Cir.2015) (holding "that the amended § 3730(e)(4) creates grounds for dismissal for failure to state a claim rather than for lack of jurisdiction" as "Congress removed the prior language that rendered the public disclosure bar jurisdictional in nature" and noting that "[t]he amended section also provides that the government can oppose dismissal, allowing the case to proceed even if the public disclosure provision would otherwise apply"). The amendment removed the clear jurisdictional language from the provision "and replaced it with a generic, not-obviously-jurisdictional phrase (`shall dismiss'), while at the same time retaining jurisdiction-removing language in §§ 3730(e)(1) and (e)(2)." May, 737 F.3d at 916.
Absent a clear statement, the Court should not classify a statutory limitation as jurisdictional. Sebelius v. Auburn Reg'l Med. Ctr., ___ U.S. ___, 133 S.Ct. 817, 824, 184 L.Ed.2d 627 (2013); see Hagerty, 95 F.Supp.3d at 255, 2015 WL 1442497, at *11 (noting that "to determine whether to classify a statutory limitation as jurisdictional . . . [courts] inquire
Accordingly, the Court will evaluate the public disclosure bar question under the familiar Rule 12(b)(6) motion to dismiss standard.
To determine whether the public disclosure bar applies, the Court "employ[s] a multi-part inquiry." Poteet, 619 F.3d at 109 (quoting Ondis, 587 F.3d at 53). For the bar to apply, the Court must determine: "(1) whether there has been public disclosure of the allegations or transactions in the relator's complaint; (2) if so, whether the public disclosure occurred in the manner specified in the statute; (3) if so, whether the relator's suit is [substantially the same as] those publicly disclosed allegations or transactions; and (4) if the answers to these questions are in the affirmative, whether the relator falls within the `original source' exception as defined in § 3730(e)(4)(B)."
A public disclosure of fraud is deemed to have "occur[red] when the essential elements exposing the particular transaction as fraudulent find their way into the public domain." Ondis, 587 F.3d at 54. To sufficiently disclose fraud, "a disclosure must either contain [1] a direct allegation of fraud or [2] allow for a proper inference of fraud by revealing a misrepresented state of facts in conjunction with a true state of facts." Estate of Cunningham, 713 F.3d at 670 (citation omitted).
In the instant case, there was extensive publicity alleging that CVS deprived the government the benefit of its HSP prices.
Plaintiff-relators do not dispute the existence of these prior disclosures. Rather, they argue that, although the media reported widely that CVS had unlawfully failed to charge the government the same price offered to its HSP customers, the media and congressional reports do not amount to a public disclosure because the reports do not explicitly mention violations of all of the specific health care programs that are the subject of this action. D. 67 at 12-14; see D. 29 ¶ 3 (alleging that CVS "charged the plaintiff governments substantially more for . . . generic prescription drugs in the Medicaid and Medicare Part D programs" than its usual and customary prices and, therefore, CVS "wrongfully overcharg[ed] the plaintiff governments in violation of the false claims acts"). Specifically, Plaintiff-relators argue that because the news articles and reports do not explicitly discuss Medicare Part D and each state's Medicaid laws there has not been a public disclosure of the alleged fraud. Id.
As noted above, however, the public disclosure bar applies to qui tam actions that are based on allegations "substantially the same" as the publicly disclosed allegations. 31 U.S.C. § 3730(e)(4)(A); see United States ex rel. O'Keeffe v. Sverdrup Corp., 131 F.Supp.2d 87, 96 (D.Mass.2001) (noting that "[w]hile [the public disclosure] is not identical to Relator's allegation, it is substantially similar to it and gave the government the heads up. . . ."). Contrary to Plaintiff-relators' argument, then, a prior, public disclosure need not contain every fact or possible legal consequence to trigger the public disclosure bar. See Poteet, 619 F.3d at 115 (applying the public disclosure bar even where the complaint identified a specific element of fraud and provided greater detail, noting that "[a]lthough to the allegation, the allegation ultimately targets the same fraudulent scheme"); see Dingle v. Bioport Corp., 388 F.3d 209, 215 (6th Cir.2004) (analogizing relators' suit to one where "multiple general allegations of fraud by public sources with respect to [a] car" have been disclosed but relators seek to bring "a more specific claim of fraud . . . with respect to the engine of the car" and noting that "[a]llowing such a suit would allow potential qui tam plaintiff's [sic] to avoid the public disclosure bar by pleading their complaints with more and more detailed factual allegations slightly different from more general allegations already
"Given that the purpose of the qui tam action is to prosecute fraud of which the government is unaware," Dingle, 388 F.3d at 215, "[w]hen the material elements of a fraud are already in the public domain, the government has no need for a relator to bring the matter to its attention." Ondis, 587 F.3d at 58. To fulfill the intention of Congress then, "the FCA should reward only those who come forward with original, direct, and independent knowledge of a fraud." Id. Here, Plaintiff-relators "merely repeat[] what the public already knows," A-1 Ambulance Serv., Inc., 202 F.3d at 1245, to argue a different legal theory.
Accordingly, the Court concludes that the allegations in the Plaintiff-relators' complaint are substantially similar to allegations that were publicly disclosed.
The FCA provides an exception to the public disclosure bar for relators who qualify as original sources of information. Relevant here, the statute defines an "original source" as "an individual. . . who has knowledge that is [1] independent of and [2] materially adds to the publicly disclosed allegations or transactions. . . ." 31 U.S.C. § 3730(e)(4)(B). To be "independent," knowledge must not "depend on the public disclosure or . . . merely constitute[] a use of an individual's unique expertise or training to conclude that the material elements already in the public domain constitute a false claim." Estate of Cunningham, 713 F.3d at 673 (citation omitted) (internal quotation marks omitted). "A relator `materially adds' to the prior public disclosure if he materially contributes anything of import to the public knowledge about the alleged fraud." Hagerty, 95 F.Supp.3d at 260, 2015 WL 1442497, at *15 (citation omitted) (internal quotation marks omitted); see United States ex rel. Hoggett v. Univ. of Phoenix, No. 10-cv-02478-MCE-KJ, 2014 WL 3689764, at *9 (E.D.Cal. July 24, 2014) (noting that "even `independent' knowledge of allegedly fraudulent activity does not `materially add' to publicly disclosed allegations unless it is `qualitatively different' from information already discovered and not `merely the product and outgrowth of publicly disclosed information'"), reconsideration denied, No. 2:10-CV-02478-MCE,
Here, Plaintiff-relators argue that they are "independent" and that they "materially add" to the publicly disclosed information because they provide detail on how the scheme was carried out, adding important evidence of scienter. D. 67 at 16, 18-19. Specifically, Plaintiff-relators argue that relator Martinsen "saw first-hand how CVS implemented it HSP program" and that during an audit, relator Winkelman "observed that CVS' [usual and customary] prices were higher than the HSP prices." D. 67 at 17-18. As discussed above in detail, however, Plaintiff-relators' allegations largely mirror the prior, publicly disclosed information. See, e.g., D. 61-3 at 2, "Change to Win Study Shows Drug Manager CVS Caremark Charges More for Generic Drugs to Federal Employees and U.S. Government than Walk-in Customers," Bloomberg (February 3, 2010) (reporting "that pharmacy benefits manager CVS Caremark charges its largest customer—the U.S. government—and millions of federal employees more for hundreds of generic drugs than participants in its retail generics discount program"); D. 61-12 at 2, "Connecticut, CVS in Dispute Over Discount Program," Associated Press (June 23, 2010) (reporting on CVS's "threat" to end the discount program in the state and noting that state law "requires pharmacies to charge Medicaid the lowest drug price offered to consumers and links those prices to savings and discount programs such as the CVS Health Savings Pass program").
Plaintiff-relators rely upon United States ex rel. Duxbury v. Ortho Biotech Products, L.P., 579 F.3d 13, 25 (1st Cir. 2009) for the proposition "that situations can arise where the information upon which the public disclosure is based may be unavailable (such as a reporter protecting a source) or be of little value (if based on rumors), while a relator may have different information of the publicly disclosed fraud (such as eyewitness testimony, documents, etc.) of great significance." D. 67 at 16 (quoting Duxbury, 579 F.3d at 25).
For the reasons explained above, the Court concludes that the public disclosure provision of the FCA bars this action.
CVS has raised a number of other arguments for dismissal of this action for failure to state a claim. See, e.g., D. 60 at 18-25. Because the Court has determined that the public disclosure bar requires dismissal of this action, however, the Court need not reach CVS's remaining arguments.
For the foregoing reasons, the Court ALLOWS Defendants' motion to dismiss, D. 59.