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From Health Law Daily, October 21, 2014

Relator found not to be an original source in pharmaceutical fraud case

By Bryant Storm, JD

The decision of a district court to dismiss a relator’s False Claims Act (FCA) (31 U.S.C. sec. 3730) claims with prejudice was upheld by the United States Court of Appeals for the Third Circuit after the court determined that the relator was not an original source of the information that provided a basis for his claims. The Third Circuit determined that reviewing documents and speaking with individuals involved in the alleged fraud did not give the whistleblower independent and direct knowledge of an alleged scheme to unlawfully alter the best and average prices of pharmaceuticals (U.S. ex rel. Schumann v AstraZeneca Pharmaceuticals L.P., et al., October 20, 2014, Roth, J.).

FCA. The FCA, which makes it unlawful to submit fraudulent claims to the government, was amended to limit the scope of individuals who could bring claims. The amendments added the public disclosure bar, which was intended to prevent parasitic lawsuits where individuals would file FCA claims based upon information that had already been publicly disclosed. Following the passage of the amendments, in circumstances where a suit is based on information that has previously been disclosed, under 31 U.S.C. sec. 3730(e)(4)(A), federal courts only have jurisdiction to hear an FCA case if the “the person bringing the action is an original source of the information.” In order to be an original source, an individual must have direct and independent knowledge of the information that forms the basis of an FCA claim.

Rebates. Under the Medicaid Drug Rebate Program, a Medicaid program agrees to cover the costs of a manufacturer’s drugs for Medicaid beneficiaries in exchange for a rebate that the manufacturer pays to the Medicaid program. Under 42 U.S.C. sec. 1396r-8(c), the amount of the rebate is premised on a manufacturer’s average and best prices, which are figures that the manufacturer submits to HHS on a quarterly basis. Under the Public Health Service Act (42 U.S.C. sec. 256b(a)) manufacturers are prohibited from charging state Medicaid programs more than the average price for their drugs. Additionally, the federal anti-kickback statute (AKS), under 42 U.S.C. sec. 1320a-7b(b), prohibits manufacturers from offering payment to induce others to cause the government to pay or overpay for drugs.

Companies. Bristol-Meyers Squib Company (BMS) participated in Medicaid’s Drug Rebate Program with regard to its anticoagulant Coumadin®. AstraZeneca Pharmaceuticals LP and AstraZeneca LP participated in the program with regard to its proton pump inhibitors (PPIs) Nexium® and Prilosec®. From 1999 to 2003, Karl Schumann was Vice President of Pharmaceutical Contracting for Medco, which is a large national pharmacy benefit manager (PBM). As a PBM, Medco manages mail order pharmacies and health plans. In its representative capacity, Medco had the power to determine things like whether BMS and AstraZeneca products would be available under the plans it managed.

Complaint. At the trial level, Schumann filed a complaint alleging that, from 1997 to 2003, BMS induced Medco to make Coumadin the only anticoagulant in Medco’s mail order pharmacies. BMS allegedly induced Medco by paying the PBM sham data fees and rebates up to 63 percent off of the wholesale price of Coumadin. Additionally, Schumann alleged that AstraZeneca used improper payments and rebates to make Nexium and Prilosec the exclusive PPIs in Medco’s mail order pharmacies and to incentivize Medco to prefer those drugs in the formularies of two health plans that Medco managed. More specifically, the complaint alleged that AstraZeneca provided a series of financial penalties and incentives in the form of payments and rewards in order to encourage Medco to favor its drugs. The complaint alleged that BMS and AstraZeneca failed to include the value of the rebates and payments in the best and average price calculations they submitted to HHS. As a result of the failures to include those payments in their best and average price calculations, Schumann alleged that the pharmaceutical companies submitted fraudulent claims for Medicaid reimbursement that caused the government to overpay for BMS and AstraZeneca drugs. Following motions to dismiss from the pharmaceutical companies, the trial court determined that Schumann was not an original source for purposes of the public disclosure bar. As a result of several failed attempts to draft a complaint that provided evidence that he was an original source, the district court dismissed Schumann’s claims with prejudice.

Original source. On appeal before the Third Circuit, the court agreed with the trial court and held that Schumann did not qualify as an original source of the information that supported his FCA and AKS claims. The Third Circuit held that reviewing files and discussing documents with individuals who did participate in the fraud did not make Schumann an original source because he did not have any actual direct knowledge of AKS or FCA violations. Holding that the references Schumann made to his experience and understanding of the industry were inadequate to make him an original source under the public disclosure bar, the court held that Schumann did not have a basis to continue to pursue his AKS and FCA claims against BMS.

The court held similarly when considering whether Schumann was an original source of the information which led to the AKS and FCA claims against AstraZeneca. As was the case with the BMS claims, because Schumann’s knowledge of the FCA and AKS violations stemmed only from the review of documents and discussions with individuals who participated in the underlying events, the court held that Schumann was not an original source of the information. The court held that Schumann could not substitute experience-based belief for independent knowledge, in order to satisfy the original source exception to the public disclosure bar.

Dismissed. The Third Circuit finished its analysis by deciding that the district court had not erred in electing to dismiss Schumann’s complaint with prejudice because Schumann was on notice of the deficiencies in his complaint prior to the filing of the fifth iteration of his complaint, which was the version that gave rise to the appeal. The court held that if Schumann could have pleaded facts to correct the deficiencies, he already would have done so. Thus, the Third Circuit affirmed the dismissal of all of Schumann’s claims with prejudice on the grounds that further amendment of his claims would be futile.

The case number is 13-1489.

Attorneys: Nicholas C. Harbist (Blank Rome) for Karl S. Schumann. Michael P. Doss (Sidley Austin), Alexander Kerr (McCarter & English), and Bahar Shariati (Morgan, Lewis & Bockius) for Astrazeneca Pharmaceuticals, and Astrazeneca LP. Eliza L. Andonova (Hogan Lovells U.S.), and Thomas M. Gallagher (Pepper Hamilton) for Bristol Myers Squibb, EI DuPont de Nemours & Co., and DuPont Pharmaceuticals Co.

Companies: Astrazeneca Pharmaceuticals; Astrazeneca LP; Bristol Myers Squibb; EI DuPont de Nemours & Co.; DuPont Pharmaceuticals Co.

MainStory: TopStory FCANews FraudNews QuiTamNews DrugBiologicalNews PrescriptionDrugNews BillingNews PaymentNews DelawareNews NewJerseyNews PennsylvaniaNews

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