UNITED STATES OF AMERICA et al v. HOUCHENS INDUSTRIES, INC.

Filing 120

ORDER denying Defendant's 73 Motion to Dismiss Relator's Complaint. Signed by Judge Richard L. Young on 1/9/2015. (TMD) Modified on 1/9/2015 (TMD).

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF INDIANA
INDIANAPOLIS DIVISION

JANE DOE, as Relator for the
UNITED STATES OF AMERICA,
STATE OF ILLINOIS, AND
STATE OF INDIANA,

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Plaintiffs,
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vs.
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HOUCHENS INDUSTRIES, INC.,
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Defendant.
______________________________________ )

1:13-cv-00196-RLY-MJD

ENTRY ON DEFENDANT’S MOTION TO DISMISS
Relator brings qui tam claims on behalf of the United States under the False
Claims Act (“FCA”), 31 U.S.C. § 3729(a)(1)(A) & (B), and the related false claims acts
of the State of Indiana and the State of Illinois. Relator alleges that Defendant, Houchens
Industries, Inc., violated the FCA by misrepresenting its usual and customary drug prices
on standardized claim forms and over-charged Medicare Part D and the Indiana and
Illinois Medicaid programs for generic drugs sold at retail. Houchens now moves to
dismiss Relator’s Complaint as it pertains to the United States and the State of Illinois 1

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After an investigation into the facts of the case, the United States and the State of Illinois
declined to intervene. Accordingly, the Relator’s Complaint remains the operative pleading with
respect to the alleged losses suffered by the federal Medicare Part D program and the Illinois
Medicaid program.

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for failure to state a claim upon which relief can be granted. For the reasons set forth
below, the motion is DENIED.
I.

Background
In 2008, Houchens purchased Buehler’s Buy-Low and its pharmacies from

Buehler Foods, Inc., and thereafter renamed the stores “Hometown IGA.” (Complaint ¶
10). Houchens currently operates 10 Hometown IGA’s in Indiana and one in Illinois.
(Id.).
Shortly after it acquired Buehler’s Buy-Low, Houchens noted the popularity of
Wal-Mart’s discount program for generic pharmaceuticals, and decided to start its own,
naming it the “IGA Hometown Pharmacy Rewards Program.” (Id. ¶ 46). The Rewards
Program was originally called “500 for $5,” meaning a cash-paying customer who
enrolled in the Program would be charged $5.00 for the 500 generics on the Program list.
(Id. ¶ 47). According to the Complaint, as part of the enrollment process, Relator was
instructed to collect a small fee from the enrollees and give them a gift card in the same
amount to offset the fee. (Id.). Under the Rewards Program, claims went through an
online discount plan called Medical Security Card (“MSC”). (Id.). MSC then charged
Houchens $1.00 for each claim. (Id.).
Houchens later modified the Rewards Program to 400 generics for $3.99 for a 30day supply, $6.99 for a 60-day supply, and $9.99 for a 90-day supply, and eliminated the
use of MSC. (Id. ¶ 48). Hometown IGA Director, Glen Millikan, RPh, and Assistant
Director, Leslie Bidwell, instructed Relator and the other pharmacy staff that when
billing Medicare Part D and other third parties for a generic drug on the Program list, she
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was not to change the price plan to the discounted Program price unless the customer’s
co-pay exceeded $3.99. (Id. ¶ 49). According to Relator, Houchens overcharged the
plaintiff governments by seeking reimbursement for the generic drugs in an amount in
excess of the “usual and customary” (“U&C”) price it typically charges its cash paying
customers – i.e., the Rewards Program price. (Id. ¶ 49). Relator alleges that this practice
violates the Federal False Claims Act, 31 U.S.C. § 3729 et seq.; the Illinois
Whistleblower and Protection Act, 740 ILCS 175/1 et seq.; and the Indiana State False
Claim and Whistleblowers Protection Act, Ind. Code § 5-11-5.5-1 – 5-11-5.5-18.
II.

The False Claims Act
Under the federal FCA, “‘private individuals . . . referred to as ‘relators,’ may file

civil actions known as qui tam actions on behalf of the United States to recover money
that the government paid as a result of conduct forbidden under [the False Claims] Act.’”
United States ex rel. Garbe v. Kmart Corp., 968 F. Supp. 2d 978, 982-83 (S.D. Ill. 2013)
(quoting United States ex rel. Yannacopoulos v. Gen. Dynamics, 652 F.3d 818, 822 (7th
Cir. 2011)). The FCA imposes liability upon anyone who “knowingly presents, or causes
to be presented, a false or fraudulent claim for payment or approval,” or who “knowingly
makes, uses, or causes to be made or used, a false record or statement material to a false
or fraudulent claim.” 31 U.S.C. § 3729(a)(1)(A) & (B). Because the elements of the
Illinois Whistleblower and Protection Act, 740 ILCS 175/3, are virtually identical to the
FCA, the court will analyze them together.
III.

Standard of Review

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Federal Rule of Civil Procedure 12(b)(6) allows dismissal of a claim for “failure to
state a claim upon which relief may be granted.” Fed. R. Civ. P. 12(b)(6). In ruling on a
motion to dismiss, the court construes the allegations of the complaint in the light most
favorable to the plaintiff, and all well-pleaded, non-conclusory, factual allegations in the
complaint are accepted as true. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). Taken in
this light, the complaint’s “allegations must plausibly suggest that the plaintiff has a right
to relief, raising that possibility above a ‘speculative level.’” EEOC v. Concentra Health
Servs., 496 F.3d 773, 776 (7th Cir. 2007) (quoting Bell Atlantic v. Twombly, 550 U.S.
544, 555 (2007)). “A claim has a facial plausibility when the plaintiff pleads factual
content that allows the court to draw the reasonable inference that the defendant is liable
for the misconduct alleged.” Iqbal, 556 U.S. at 678.
Federal Rule of Civil Procedure 9(b) requires an elevated pleading standard for
fraud claims, such as the claims asserted in this action. Under the heightened pleading
standard, a relator must state with particularity the circumstances constituting fraud – i.e.,
the “who, what, when, where, and how.” Wigod v. Wells Fargo Bank, N.A., 673 F.3d
547, 569 (7th Cir. 2012). That said, “Rule 9(b) does not require a relator to plead
evidence and is to be read in conjunction with [Rule 8], which requires a short and plain
statement of the claim.” United States ex rel. Garbe, 968 F.Supp.2d at 982.
IV.

Discussion
Houchens moves to dismiss the Relator’s Complaint as it pertains to the United

States and the State of Illinois for two reasons. First, the Rewards Program price for
generic drugs is not the U&C price the Houchens’ Hometown IGAs charge to members
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of the public; therefore, Houchens did not file false claims to the plaintiff governments.
Second, the Relator’s Complaint fails to allege knowledge with specificity.
A.

Usual and Customary Price

The Complaint alleges that pharmacies that enter into Medicaid provider
agreements, like the Hometown IGAs at issue here, may not bill Medicaid more than the
U&C price for a particular drug. The Illinois Department of Healthcare and Family
Services (“HFS”) publishes a Pharmacy Provider Handbook which requires pharmacy
providers to bill Medicaid services at the U&C price. (Complaint ¶ 17). HFS defines the
U&C price as “the amount a provider would charge cash customers for a prescription,
exclusive of sales tax.” (Id. and Ex. 1, March 24, 2011 letter from the Illinois
Department of Healthcare and Family Services, citing and quoting the Illinois Pharmacy
Provider Handbook, available at http://hfs.illinois.gov/assets/p200.pdf. See also Ill.
Admin. Code Tit. 89 § 140.12 (providers must “make charges for the provision of
services and supplies to recipients in amounts not to exceed the provider’s usual and
customary charges and in the same quality and mode of delivery as are provided to the
general public”)). Similarly, pharmacies who contract with Medicare Part D plan
sponsors are required to price prescriptions at the contracted rate or the U&C rate,
whichever is lower. (Id. ¶ 45; see also id. ¶ 47 (citing 42 U.S.C. 1320a-7(b)(6)
(prohibiting requests for payment “substantially in excess of such individual’s or entity’s
usual charges . . . .”)). Medicare generally defines the U&C price in terms of what the
“usual cash customer” would pay. (Id.). In its motion, Houchens does not contest these
definitions.
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According to Houchens, the special pricing it offers the members of its Rewards
Program is not the U&C price because that price is offered only to those who enroll in the
program; it is not offered to the general public. This argument was raised and rejected in
United States ex rel. Garbe v. Kmart Corp., -- F.Supp.3d -- , 2014 WL 5819374 (S.D. Ill.
Nov. 7, 2014). There, the court found on summary judgment that the “members of
Kmart’s generic discount programs are part of the ‘general public’ (as opposed to a
private group or club) because of the open eligibility of the programs, i.e. anyone is
eligible to join the program.” Id. at *11 (emphasis in original). In addition, the court
found that “Kmart’s argument that its enrollment process took customers outside of the
general public to be skeptical due to the basic demographic information that was required
to enroll (which included name, date of birth, address), as well as the rudimentary (and
sometimes verbal) enrollment process that actually took place.” (Id.).
Similarly here, Relator alleges that, although there was a small fee to enroll, she
and other members of the pharmacy staff were instructed to give the enrollee a gift card
in the same amount. (Id. ¶ 47). She also alleges that she was never provided any
instructions as to how to enter the enrollment fee into the computer, and that eventually,
the fee was done away with completely. (Id. ¶¶ 47, 51). One could reasonably infer from
these allegations that, like the enrollment process in Garbe, the enrollment process in the
present case was rudimentary and open to anyone who filled prescriptions at the
Hometown IGA pharmacies. The court therefore finds that for purposes of this motion to
dismiss, Relator’s allegation that the Rewards Program price is its U&C price for
Medicare Part D and Illinois Medicaid for reporting purposes, is plausible.
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B.

Knowledge

Houchens next argues that there exists no law or regulation which would provide
Houchens with knowledge that Medicare or Illinois Medicaid intended the Rewards
Program to be Houchens’ usual and customary charge. Thus, Houchens could not have
been placed on notice that its conduct was unlawful.
For a person to act “knowingly” under the FCA, the person must have actual
knowledge of the information, or act with deliberate ignorance or reckless disregard of
the truth or falsity of the information. U.S. ex rel. A+ Homecare v. Medshares Mgmt.,
400 F.3d 428, 451 (6th Cir. 2006) (citing 31 U.S.C. § 3729(b)). Here, Relator alleges that
Houchens pharmacy personnel were instructed by Milliken and Bidwell not to apply the
$3.99 price to prescriptions for government beneficiaries unless the co-pay exceeded the
$3.99 Program price. By doing so, Houchens ensured that its Medicare Part D and
Medicaid beneficiary customers would always pay the Rewards Program price or less,
but the government, as third-party payor of the majority of the cost, would never receive
the benefit of the U&C price offered to the vast majority of its customers. The court
finds these allegations are sufficient to support a reasonable inference that Houchens
acted with reckless disregard for the truth when it used a higher list price as its purported
U&C price when billing the United States and the State of Illinois.
In conclusion, the court finds Relator sufficiently alleges a false claim. Relator
alleges that Houchens consistently overbilled the plaintiff governments by reporting a
price for its generic drugs that was higher than its U&C price. (See id. ¶ 49). Despite
reporting this “fraudulent billing” to other Pharmacists in Charge, Relator was informed,
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“Well, that is what we are supposed to do.” (Id. ¶ 50). The Relator’s Complaint also
includes the content of the alleged false representations. (See id. ¶¶ 57-64 and Exs. 4-11
(showing examples of Houchens’ computer billing records)). For example, Relator
provides an example of a Hometown IGA billing Medicare Part D $7.76 for a generic
medication (Meloxicam 7.5 mg) on the Rewards Program list rather than billing it the
U&C price of $3.99. (Id. ¶ 57 and Ex. 4). The date of the prescription shows 6/9/2011.
(Id.). Contrary to Houchens’ assertions, the court finds that Relator’s claim sufficiently
details the “who, what, when, where, and how” of the “false claim.”
V.

Conclusion
The court finds the Relator’s Complaint states plausible claims for relief under the

FCA and the Illinois Whistleblower and Protection Act. Accordingly, Defendant’s
Motion to Dismiss Relator’s Complaint (Filing No. 73) is DENIED.

SO ORDERED this 9th day of January 2015.
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RICHARD L. YOUNG, CHIEF JUDGE
United States District Court
Southern District of Indiana

Distributed Electronically to Registered Counsel of Record.

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