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United States ex rel. Banigan v. PharMerica, Inc.

United States District Court, D. Massachusetts

April 30, 2018

UNITED STATES OF AMERICA ex rel. JAMES BANIGAN AND RICHARD TEMPLIN et al.
v.
PHARMERICA, INC.

          MEMORANDUM OF DECISION

          RYA W. ZOBEL SENIOR UNITED STATES DISTRICT JUDGE

         In 2007, relators James Banigan and Richard Templin brought this qui tam action on behalf of the United States of America, twenty-seven states, and two cities under the federal False Claims Act (“FCA”), 31 U.S.C. §§ 3729-33, and various state and local analogs, against pharmaceutical company Organon USA Inc. and related companies, and long-term care pharmacy providers Omnicare, Inc. and PharMerica, Inc. All defendants save PharMerica have since settled. In 2012, I dismissed all federal and local claims against PharMerica, as well as eighteen state claims. United States ex rel. Banigan v. Organon USA Inc., 883 F.Supp.2d 277, 299 (D. Mass. 2012) (“Banigan I”). The parties later voluntarily dismissed all but three of the remaining state claims - Louisiana, Michigan, and Texas - which are the target of defendant's instant motion to dismiss. Docket # 517. Relators seek to revive the claims dismissed in 2012. Docket # 519 (Amended Motion for Reconsideration).

         I. Background

         The FCA provides civil penalties against any person who makes false or fraudulent claims to the United States Government, or who knowingly causes such a claim to be paid. 31 U.S.C. §§ 3729(a)(1)-(3), (7). The claims in this case are predicated on the Anti-Kickback Statute, 42 U.S.C. § 1320a-7b(b), compliance with which is a condition of payment for any claim submitted to a federal health care program, including Medicaid. See United States ex rel. Westmoreland v. Amgen, 812 F.Supp.2d 39, 54-55 (D. Mass. 2011) (collecting cases holding that violations of the Anti-Kickback Statute triggers FCA liability).

         Long-term care pharmacy providers (“LTCPs”) like defendant PharMerica serve as pharmacies to nursing homes and similar facilities whose residents are largely Medicaid patients. For each state Medicaid program to which they submit prescription drug reimbursement claims, LTCPs must enter provider agreements requiring compliance with all state and federal laws, including the Anti-Kickback Statute. Relators are former Organon employees who allege that from 1999 through 2005 the company violated the Anti-Kickback Statute by offering financial incentives to LTCPs including PharMerica to prescribe its antidepressant Remeron. Pursuant to this scheme, relators allege that PharMerica filed hundreds of millions of dollars in fraudulent claims for Medicaid drug reimbursements in violation of the FCA.

         It is the law of the case that this kickback scheme was first revealed in a 2002 complaint filed in the Eastern District of Louisiana. See Banigan I, 883 F.Supp.2d at 288 (citing United States ex rel. St. John La Corte v. Amerisource Bergen Corp. and PharMerica, Inc., No. 02-3168 (E.D.La.) (“Amerisource”)). Because the FCA rewards only relators who alert the government to fraud of which it previously had no knowledge, I held the bulk of claims in Banigan I to be jurisdictionally barred by the earlier Amerisource action. Specifically, the FCA's “public disclosure bar” provides that “[n]o court shall have jurisdiction over an action ... based upon the public disclosure of allegations or transactions in a ... civil ... hearing ..., unless the action is brought by the Attorney General or the person bringing the action is an original source of the information.” 31 U.S.C. § 3730(e)(4)(A) (2006).[1] Banigan I applied the public disclosure bar without analysis of the exception for original sources, 883 F.Supp.2d at 289, and relators moved for reconsideration.[2]

         II. Legal Standard

         “The threshold question in a False Claims Act case is whether the statute bars jurisdiction.” United States ex rel. Duxbury v. Ortho Biotech Prod., L.P., 579 F.3d 13, 20-21 (1st Cir. 2009) (quoting United States ex rel. Rost v. Pfizer, Inc., 507 F.3d 720, 727 (1st Cir. 2007)). Because jurisdiction “in gross” is unavailable under the FCA, “[a] relator's eligibility to assert each claim alleged in the complaint must be examined separately.” United States ex rel. Nowak v. Medtronic, Inc., 806 F.Supp.2d 310, 326 (D. Mass. 2011) (citing Rockwell Int'l Corp. v. United States, 549 U.S. 457, 476 (2007)). “The proponent of federal jurisdiction bears the burden of proving its existence by a preponderance of the evidence.” United States ex rel. Ondis v. City of Woonsocket, 587 F.3d 49, 54 (1st Cir. 2009). At this stage, I nonetheless accept as true all well-pleaded facts and resolve all reasonable inferences in relators' favor. See United States ex rel. Winkelman v. CVS Caremark Corp., 827 F.3d 201, 206 (1st Cir. 2016).

         III. Discussion

         Relators press their original source status as basis both for reviving the federal claims and nine of the state claims dismissed in Banigan I, and for denying PharMerica's motion to dismiss the three state claims that remain. PharMerica, conversely, insists that because relators are not original sources, the public disclosure bar compels dismissal of all remaining claims. I begin with the statute -- which the parties agree governs their state claims[3] -- before turning to a factual analysis of what each relator knew when, according to the Third Amended Complaint (“TAC”).

         A. The “Original Source” Exception

         The original source exception to the public disclosure bar represents the FCA's central purpose in “[s]eeking the golden mean between adequate incentives for whistle-blowing insiders with genuinely valuable information and discouragement of opportunistic plaintiffs who have no significant information to contribute of their own.” United States ex rel. Ven-A-Care of the Fla. Keys, Inc. v. Baxter Healthcare Corp., 772 F.3d 932, 944 (1st Cir. 2014) (quoting Graham Cnty. Soil & Water Conservation Dist. v. United States ex rel. Wilson, 559 U.S. 280, 294 (2010)). As defined by statute at the time relators' complaint was filed, an original source is “an individual who has direct and independent knowledge of the information on which the allegations are based and has voluntarily provided the information to the Government before filing an action under this section which is based on the information.” 31 U.S.C. § 3730(e)(4)(B) (2006) (emphasis added).

         “A relator's knowledge is ‘direct' if []he acquired it through [his] own efforts without an intervening agency, and it is ‘independent' if [his] knowledge is not dependent on the public disclosure.” United States ex rel. O'Keeffe v. Sverdup Corp., 131 F.Supp.2d 87, 93 (D. Mass. 2001). Ultimately, “direct and independent knowledge must be something more than secondhand information or collateral research and investigations.” In re Pharm. Indus. Average Wholesale Price Litig., No. 01-cv-12257, 2010 WL 1375298, at *2-3 (D. Mass. Mar. 25, 2010) (“AWP”) (citations omitted). “The Court thus takes as its touchstone the purpose behind the statute, to encourage suits by those who are ‘close observers or otherwise involved in the fraudulent activity.'” Id. at *5, (quoting discussion of legislative history in United States ex rel. Barth v. Ridgedale Elec., Inc., 44 F.3d 699, 703 (8th Cir. 1995)).

         B. Relators' Roles and ...


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