NOEL L. HILLMAN, District Judge.
This qui tam action concerns claims by plaintiff Steve Greenfield that defendants violated the federal False Claims Act, as well as twenty-four state and city statutes regulating false claims, relating to pharmaceutical products for hemophilia. Currently before the Court is the motion of defendants to dismiss plaintiff's third amended complaint. For the reasons expressed below, defendants' motion will be granted in part and denied in part.
Pursuant to the motion to dismiss plaintiff's second amended complaint ("SAC") filed by defendants Medco Health Systems, Inc., Accredo Health Group, Inc., and Hemophilia Health Services, Inc. ("HHS"),
Plaintiff's claims against defendants are lodged pursuant to 31 U.S.C. §§ 3729 and 3720.
As described in plaintiff's complaint, hemophilia is a rare bleeding disorder, and those with the disorder have little or no "clotting factor." Treatment for hemophilia is typically either "on-demand," where a patient receives factor replacement therapy to stop a bleed, or "prophylactic," where a patient receives factor replacement therapy to prevent a bleed. Clotting factor products are expensive, with the annual cost for the treatment of one patient ranging from $50,000 to $100,000 or more. As a result, New Jersey law requires health benefit providers to contract with state-authorized hemophilia home care providers to provide hemophilia patients with their necessary treatment regimen. There are four major state-authorized hemophilia providers in New Jersey, and Accredo is one of them.
The Hemophilia Association of New Jersey, Inc. ("HANJ") was created to coordinate and provide treatment to hemophilia patients. HANJ is a tax exempt entity that, through grants, funds referral entities and makes recommendations to the state for competitive providers. HANJ formed Hemophilia Services, Inc. ("HSI"), also a tax exempt organization, which works with treatment centers, insurers, and participating home care vendors to provide case management services for the hemophilia population in New Jersey. Essentially, HSI receives charitable donations, which it grants to HANJ, and HANJ provides insurance and other financial assistance to individuals with hemophilia.
According to plaintiff's complaint, Medco, through Accredo and HHS, made charitable contributions in the amount of $500,000 or more to HSI from 2007 through 2009, with the intent to buy influence and induce referrals to the defendants. Plaintiff claims that when defendants informed HANJ that their charitable contributions would be decreasing, HANJ's response demonstrated the quid quo pro arrangement between defendants' donations and HANJ's funneling of patients to defendants' products. For example, in October 2009, the director of HANJ, Elena Bostick, sent an email to Craig Mears, president of Accredo/HHS, explaining the ramifications of the reduced funding, including the elimination of the $5,000 a month donation from Critical Care Services, a company which Accredo acquired in 2009. Bostick stated:
(SAC ¶ 79, Ex. P.) Bostick concluded that Accredo/HHS's elimination of Critical Care's pledge to HSI "seriously compromises the necessary level of funding required to continue to provide these services." (
Over the next year defendants allegedly discussed the business ramifications of their reduced contributions to HANJ/HSI on the sale of their hemophilia products. According to plaintiff's complaint, in a meeting in October 2010, Bostick again related HANJ's arrangement with defendants in which defendants would make donations to HANJ/HSI, which would in turn fund insurance for patients who used defendants' factor products. Patients with insurance plans funded by the charitable contributions of defendants would not be referred to any other competitor hemophilia product. (SAC ¶ 87.) If defendants reduced their contributions to HANJ/HSI, patients would be referred to competitors. (
In March 2011, HSI president Jerry Seltzer sent a letter to its members, stating:
(SAC ¶ 92, Ex. I-1.)
As a result of Seltzer's letter, approximately 75 Accredo/HHS clients expressed their concern over the funding cuts by sending letters to Accredo/HHS. Plaintiff claims that Accredo/HHS then began to analyze the loss of business they had already experienced, and could continue to experience in the future, due to HANJ/HSI's reaction to defendants' reduced donations. Defendants' business analysis questions included whether there was a quantifiable return on investment if they increased contributions from $175,000 to $350,000 and what was the likely business deterioration to the New Jersey market share if contributions were not increased. (SAC ¶ 96.) Based on this analysis, plaintiff contends that Accredo convinced Medco to restore funding to $350,000, with Mears explaining that when they reduced their contributions to HANJ/HSI, they saw a decline in business because HANJ/HSI wanted defendants to fund the insurance for patients using defendants' products. Of the 72 patients HSI provided insurance for, 58 were Accredo patients, and HANJ/HSI wanted Accredo to pay an equivalent amount. (
Plaintiff claims that defendants knew that their arrangement with HANJ/HSI was an illegal kickback scheme, because the arrangement evidences defendants' control over a charity, the lack of independence between defendants and the charity, defendants' financial interest in the donations, and the connection between the donations and referrals, all of which violate the Anti-Kickback statute, as interpreted by the Office of Inspector General in its Advisory Opinion 10-19. (SAC ¶¶ 101-107.) Plaintiff contends that in addition to providing gifts, in the form of dinners, lunches, refrigerators, and equipment to patients that exceed the safe harbor amount ($10 per item/$50 limit per year), in order to influence the patient's continued use of Accredo, this quid pro quo scheme between defendants and HANJ/HSI is a violation of the AKS, which has therefore caused defendants to falsely certify their compliance with the AKS, a violation of the False Claims Act.
In his TAC, plaintiff has added several additional allegations to further articulate and bolster his claims that defendants provide charitable donations and gifts in order to unlawfully induce federal and state Medicare and Medicaid recipients' continued use of their hemophilia products.
This Court has jurisdiction over plaintiff's federal claims under 28 U.S.C. § 1331, and supplemental jurisdiction over plaintiff's state law claims under 28 U.S.C. § 1367.
When considering a motion to dismiss a complaint for failure to state a claim upon which relief can be granted pursuant to Federal Rule of Civil Procedure 12(b)(6), a court must accept all well-pleaded allegations in the complaint as true and view them in the light most favorable to the plaintiff.
A district court, in weighing a motion to dismiss, asks "`not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claim.'"
Following the
A court need not credit either "bald assertions" or "legal conclusions" in a complaint when deciding a motion to dismiss.
Finally, a court in reviewing a Rule 12(b)(6) motion must only consider the facts alleged in the pleadings, the documents attached thereto as exhibits, and matters of judicial notice.
Because the complaint in this case alleges violations of the federal FCA, plaintiff's allegations with respect to these claims must satisfy the heightened pleading requirements of Fed. R. Civ. P. 9(b). Even though many courts in this district and throughout the country have often applied the heightened Rule 9(b) pleading requirements to assess the viability of FCA claims, the standard for analyzing the sufficiency of a FCA complaint was not specifically addressed by the Third Circuit Court of Appeals until recently, after the parties in this case filed their briefs.
In
Thus, in order to survive a motion to dismiss and satisfy the standards of Rule 9(b), a plaintiff asserting claims under the FCA "must provide particular details of a scheme to submit false claims paired with reliable indicia that lead to a strong inference that claims were actually submitted."
In the prior Opinion assessing the sufficiency of plaintiff's FCA claims in his second amended complaint, the Court focused on whether defendants' conduct alleged by plaintiff was tied to payment from the United States government. This is because to establish a prima facie FCA violation under section 3729(a)(1), a plaintiff must prove that "(1) the defendant presented or caused to be presented to an agent of the United States a claim for payment; (2) the claim was false or fraudulent; and (3) the defendant knew the claim was false or fraudulent."
To demonstrate that defendants knowingly submitted false claims for payment by the federal government, plaintiff argued that his SAC met the Rule 9(b) standard because "the facts plead in the Complaint show that the Defendants offer and give[] substantial inducements to HANJ/HSI that support hemophilia patients, disguised as `charitable donations' when, in fact, such donations are prohibited `remuneration' under the AKA because they are intended to induce referrals of hemophilia patients who receive benefits from Federal health care programs." (Docket No. 42, Op. at 16.) To demonstrate that defendants' alleged "prohibited remuneration" was connected to patients who receive benefits from the federal government, plaintiff pointed to the following allegations in his SAC:
Plaintiff also referred to Exhibit N to his SAC, which is a chart of Medco's hemophilia patients, listing the amount of factor each uses, each patient's insurer, and the "gift" provided to them, such as snacks, lunches and dinners. A few of these patients are listed as federal Medicare recipients.
With regard to plaintiff's charitable donation claims, the Court previously found that plaintiff failed to satisfy Rule 9(b), finding, "Accepting as true that defendants' charitable contributions to HANJ/HSI were intended to induce referrals to defendants' hemophilia treatment products, and that defendants' actions demonstrated prohibited control over the charity's use of its donations, the facts pleaded in plaintiff's complaint are not sufficient, under his Rule 9(b) burden, to show that any of those contributions are tied to federal funds. To the contrary, the quid pro quo scheme between HANJ/HSI and defendants alleged by plaintiff appear to demonstrate that defendants' contributions were used by HANJ/HSI to avoid the need to avail themselves of any federal benefits program." (Docket No. 42, Op. at 17.)
The Court further found that "plaintiff's math (and his corresponding assumption that federal funds are implicated) is too attenuated and derivative to state a viable claim under the heightened Rule 9(b) standard, and even under the regular Rule 8(a) standard. There are no factual allegations to support the conclusion that the remaining 352 HHS patients were under a federal prescription drug program. This data simply fails to demonstrate with the requisite degree of clarity and certainty a connection between defendants' alleged kickback scheme with HANJ/HSI and payments from the federal government." (
The Court, however, noted that "352 HHS patients were not privately insured through funding from the kickback scheme alleged leaves open the question of what kind of financial assistance these patients received, especially when considering the high medical costs associated with the treatment of hemophilia." (
With regard to plaintiff's excessive gifts claims, the Court found that plaintiff's opposition brief better articulated his claim than his complaint. (
The Court found that even though plaintiff's complaint demonstrated that defendants give certain non-nominal gifts to patients whose prescriptions are paid for by Medicare, that fact alone was not sufficient under Rule 9(b) to make the leap that the gifts were violations of the AKS, and that defendants expressly and falsely certified compliance with AKS when they received payment from federal funds for prescriptions resulting from those illegal gifts.
In addition to the direction to plaintiff with regard to his charitable donation and excessive gifts claims, the Court also advised plaintiff that if he chose to file a third amended complaint he needed to better articulate whether his allegations concerning gifts provided to Medco patients on Medicare exceeding the maximum dollar amount permitted by the AKS was an allegation of a separate illegal scheme or somehow related to the allegations concerning charitable donations. (
In their current motion, defendants argue that plaintiff's third amended complaint has not cured any of the deficiencies found by the Court. Plaintiff contests defendants' position and argues that his TAC satisfies the Rule 9(b) standard for all his claims. The Court finds that plaintiff's revised complaint, along with the Rule 9(b) standard recently adopted by the Third Circuit, permits some of his claims to proceed.
Plaintiff's TAC appears to allege a two-part illegal scheme perpetrated by defendants to induce referrals to their hemophilia products. One part of the alleged scheme is defendants' charitable contributions to HANJ/HSI: the more defendants donate to HANJ/HSI, the more referrals to defendants' products.
Plaintiff contends that this scheme violates the FCA because: (1) many of these hemophilia patients, having been referred through and induced by illegal kickbacks to use defendants' products, are recipients of federal Medicare and Medicaid assistance, (2) federal funds therefore pay defendants for these illegally procured prescriptions, (3) in order to be paid from government funds, defendants have to certify that they have complied with the antikickback laws (on Provider Agreement CMS Form 855s), and (4) defendants have presented claims to the government for reimbursement knowing that they violated the anti-kickback laws.
There are two main issues relating to the viability of these alleged FCA violations. The first is whether defendants' signing of Provider Agreement CMS Form 855s can serve as a predicate for a false certification claim under the FCA. If so, the second issue is whether plaintiff's allegations satisfy Rule 9(b) so far as they tie defendants' conduct to claims for federal funds.
Provider Agreement CMS Form 855s provides, "I agree to abide by the Medicare laws, regulations and program instructions that apply to this supplier. The Medicare laws, regulations, and program instructions are available through the Medicare contractor. I understand that payment of a claim by Medicare is conditioned upon the claim and the underlying transaction complying with such laws, regulations, and program instructions (including, but not limited to, the Federal anti-kickback statute and the Stark law), and on the supplier's compliance with all applicable conditions of participation in Medicare." (TAC ¶ 123.) Defendants argue that Form 855s cannot support an express certification claim under the FCA because it is forward-looking; i.e., it can only support claims where defendants knew when they signed the form that they would be accepting payment in violation of the anti-kickback statute. (Def. Br. at 21, citing cases.) In contrast, plaintiff cites numerous cases in his complaint that support his position. (
A legally false claim under the FCA comes in two types: express false certification and implied false certification.
With regard to the Form 885s issue, a recent case in the Southern District of Texas surveyed how courts in many of the circuits have addressed the use enrollment forms with similar language to Form 885s to support a legally false claim under the FCA. It determined that the "implied false certification theory" has been adopted in most courts, and has been applied to the use of enrollment agreements such as Form 855s in FCA cases.
The abundance of caselaw that permits the use of enrollment forms such as Form 855s to serve as the basis for a legally false certification claim under the FCA supports the same result in this case. Thus, defendants' motion to dismiss plaintiff's FCA claims based on their argument that plaintiff cannot support his FCA claims through the use of Form 885s must be denied.
The question remains, however, whether plaintiff has adequately pleaded his FCA claims, particularly with regard to tying defendants' conduct to reimbursement from federal funds. The Court finds that under the standard announced in
Defendants argue that plaintiff has not provided specific proof regarding: the presentment of claims to the federal government, which defendant presented what claim,
Even though the Court has found that plaintiff may proceed with his two FCA counts, two other aspects of his complaint cannot go forward. First, plaintiff's conspiracy count is inadequately pleaded, and second, plaintiff's state law claims are wholly unsupported.
Plaintiff claims that the three defendants conspired to commit the FCA violations. Defendants argue that plaintiff's conspiracy claim fails because a parent company cannot be held to conspire with its subsidiaries.
In order to state a conspiracy claim under the FCA, a plaintiff must allege "(1) a conspiracy to get a false or fraudulent claim allowed or paid; and (2) an act in furtherance of the conspiracy."
In this case, even though plaintiff claims that Medco is the master of the alleged scheme, perpetrated by Accredo and HHS, what is lacking to support a conspiracy claim are allegations describing an agreement between the three entities to submit false claims. As pleaded by plaintiff, each entity allegedly engaged in conduct that related to the other and resulted in FCA violations. This interaction, however, as described by plaintiff in his complaint, appears to be because of their relationship as a parent company and wholly owned subsidiaries, rather than an explicit agreement to commit fraud on the government.
The intra-corporate conspiracy doctrine, raised by defendants, contemplates the ramifications of this type of parent/subsidiary relationship. The doctrine provides that a wholly owned subsidiary is deemed incapable of conspiring with its parent company, and it has long been applied to conspiracy claims generally.
The Third Circuit has applied the doctrine in several contexts,
The intra-corporate conspiracy doctrine makes sense in the context of the FCA conspiracy claim alleged in this case, and it would seem appropriate to apply it here to bar plaintiff's FCA conspiracy claim. As pleaded by plaintiff, it appears that any "agreement" between Medco, Accredo, and HHS to perpetrate the charitable donations/excessive gifts scheme comes from a complete unity of interest under one corporate consciousness.
Even without the specific application of the intra-corporate conspiracy doctrine, however, plaintiff's conspiracy allegations still fail for similar reasons resulting from his pleading deficiencies. Accepting as true that Medco, Accredo, and HHS provided prohibited kickbacks to HANJ/HSI for referrals and gave excessive gifts to patients, and they falsely certified compliance with the FCA in order to be paid by the federal government for the prescriptions based on those referrals and gifts, plaintiff's allegations demonstrate a parent company interacting with its subsidiaries in the course of conducting its business, albeit a business in violation of the FCA. Plaintiff's allegations are lacking in a depiction of an explicit agreement between the entities to conspire to violate the FCA, which is the essential element of a FCA conspiracy claim. Should discovery reveal evidence to support the existence of such an agreement, plaintiff may seek leave to amend his complaint to revive his conspiracy claim, but as it is pleaded in his third amended complaint, it cannot stand.
In his third amended complaint, plaintiff claims that defendants' conduct has also violated the false claims statutes of twenty-four states.
In addition to the fact that plaintiff has not opposed defendants' motion to dismiss his state law claims, the Court finds that they are entirely unsupported. Other than a dozen states mentioned in Exhibit Q, the complaint is devoid of any allegation of defendants' conduct relating to the remainder of the twenty-four states. For the states listed in plaintiff's exhibit, other than New Jersey, the notation that a certain patient receives a particular state's Medicaid cannot, without more, create viable claims that defendants violated those states' false claims acts. For plaintiff's claim that defendants violated New Jersey's false claims act, plaintiff has described alleged conduct that occurred in New Jersey, but the gravamen of plaintiff's allegations concern defendants' illegal claims for federal funds, not New Jersey state funds.
Through additional allegations and the Third Circuit's recently announced standard for analyzing False Claims Act violation claims pursuant to Rule 9(b), plaintiff's third amended complaint states viable claims for violations of the False Claims Act contained in Counts One and Two of his complaint, and these claims may proceed. Plaintiff's False Claims Act conspiracy claim and all his state law claims are not sufficiently pleaded and must be dismissed. Accordingly, defendants' motion to dismiss plaintiff's claims will be granted in part and denied in part. As noted above, plaintiff shall file a fourth amended complaint consistent with this Opinion to serve as a blueprint for the case going forward.
An appropriate Order will be entered.