United States of America et al v. Organon USA Inc et al

Filing 173

Judge Rya W. Zobel: ORDER entered. MEMORANDUM AND DECISION(Johnson, Jay)

UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS

CIVIL ACTION NO. 07-12153-RWZ
UNITED STATES OF AMERICA ex rel.
JAMES BANIGNAN AND RICHARD TEMPLIN et al.
v.
ORGANON USA INC., et al.

Memorandum of Decision
June 1, 2012
ZOBEL, D.J.
Relators, James Banigan and Richard Templin, brought this qui tam action on
behalf of the United States of America, twenty-seven states,1 the District of Columbia,
and the City of Chicago under the federal False Claims Act (“FCA”), 31 U.S.C. §§
3729-33, and various state and local false claims statutes, against defendants Akzo
Nobel N.V.,2 Organon Biosciences N.V., Organon USA, Inc., Organon Pharmaceuticals
USA, Inc., Organon International, Inc., Schering Plough Corp., Merck & Co., Inc.
(collectively, “Organon” or “the Organon defendants”),3 Omnicare, Inc., and

1

California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Illinois, Indiana,
Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Montana, Nevada, New Hampshire, New
Jersey, New Mexico, New York, North Carolina, Oklahoma, Rhode Island, Tennessee, Texas, Virginia,
and Wisconsin.
2

3

Akzo Nobel has been dismissed for lack of personal jurisdiction (Docket ## 167-68).

The Organon defendants were, at all relevant times, wholly-owned subsidiaries of Akzo Nobel
N.V. Akzo Nobel sold Organon to Schering Plough in November 2007. Merck and Schering Plough
merged in November 2009, with Merck continuing as the surviving public corporation. Merck and
Schering Plough are sued in their capacity as successors in interest to Organon.

PharMerica, Inc.

Organon, Omnicare, and PharMerica4 each move to dismiss pursuant to Federal
Rules of Civil Procedure 12(b)(6), 9(b), and 12(b)(1) (Docket ## 123, 125, 128). They
also raise various other challenges to the state and local claims.
I. Background
A. Procedural History
Under the FCA’s qui tam provisions a private individual, called a relator, may
bring a civil action for violation of the Act on behalf of the United States. 31 U.S.C. §
3730(b). The United States can intervene and assume primary responsibility for the
action, but the relator may proceed if the government declines to do so. Id. §§
3730(c)(1), (b)(4)(B). Either way, the relator may share in any award – 15%-25% if the
government intervenes; 25%-30% if it does not – and may be compensated for
reasonable expenses, fees, and costs. Id. §§ 3730(d)(1)-(2).
Relators filed their Original Complaint under seal in the Southern District of
Texas on September 13, 2007; the case was transferred to this court and the Original
Complaint filed in camera and under seal on November 19, 2007 (Docket # 8).
Relators filed an Amended Complaint (Docket # 23) and a Second Amended Complaint
(Docket # 33) in camera and under seal on November 10, 2008, and March 23, 2010,
respectively. The United States notified the court on April 23, 2010, of its decision not

4

Although PharMerica, Inc., is the nominal defendant, its legal successor, PharMerica LongTerm Care, LLC, files the instant motion to dismiss. Docket # 123.

2

to intervene as to certain claims (Docket # 36), and on September 7, 2010, as to all
remaining claims (Docket # 39). Fifteen plaintiff states5 and the Commonwealth of
Virginia notified the court of their decisions not to intervene on October 5, 2010 (Docket
# 41) and October 28, 2010 (Docket # 49), respectively.6 The court unsealed the case
on October 29, 2010. Relators filed the operative Third Amended Complaint (“TAC”)
(Docket # 105) under seal on April 11, 2011. Defendants’ motions to dismiss followed.
B. Statutory Background
Counts I-V of the TAC are under the FCA.7 Counts I, II, and III are against
Organon, PharMerica, and Omnicare and respectively allege violations of 31 U.S.C. §§
3729(a)(1), (a)(2), and (a)(3)8 as the statute appeared before it was amended in 2009.9
Count IV alleges a violation of 31 U.S.C. § 3729(a)(7) against Organon only. In Count
V, Relators – who are former employees of Organon and Schering Plough – allege that
both companies retaliated against them in response to their investigation and initiation
of their claims, in violation of 31 U.S.C. § 3730(h). Organon does not raise this count in
its motion; thus, the court will not address it further.

5

California, Colorado, Connecticut, Florida, Georgia, Illinois, Michigan, Minnesota, Nevada, New
Mexico, New York, North Carolina, Tennessee, Texas, and Wisconsin.
6

On February 16, 2011, Maryland notified the court of its decision not to intervene. Docket # 98.

7

Counts VI-XXXIV allege violations of state and local false claims statutes against all defendants
and Count XXXV seeks common fund relief. See infra Part III.
8

I refer to subsections of 31 U.S.C. § 3729 as “FCA subsection” followed by the relevant
number. For example, § 3279(a)(1) is referred to as “FCA subsection (a)(1).”
9

The FCA was significantly amended by the Fraud Enforcement and Recovery Act of 2009
(“FERA”). Pub. L. No. 111-21, 123 Stat. 1617 (2009). The revised statute took effect on May 20, 2009,
over a year and a half after Relators filed their Original Complaint.

3

FCA subsections (a)(1)-(3) and (7) provide civil penalties for:
(a) Any person who:
(1) knowingly presents, or causes to be presented, to an officer or
employee of the United States Government or a member of the Armed Forces
of the United States a false or fraudulent claim for payment or approval;
(2) knowingly makes, uses, or causes to be made or used, a false
record or statement to get a false or fraudulent claim paid or approved by the
Government;
(3) conspires to defraud the Government by getting a false or
fraudulent claim allowed or paid;
...
(7) knowingly makes, uses, or causes to be made or used, a false
record or statement to conceal, avoid, or decrease an obligation to pay or
transmit money or property to the Government[.]
31 U.S.C. §§ 3729(a)(1)-(3), (7). Relators’ allegations in support of Counts I-IV fall into
three categories: kickback claims against all defendants, and pricing and off-label
marketing claims against the Organon defendants. The kickback claims allege
violations of the Anti-Kickback Statute, 42 U.S.C. §§ 1320a-7b(b)(1)(B), (b)(2)(B),
which makes it a crime to knowingly and willfully solicit, receive, offer, or pay “any
remuneration” to induce business that is reimbursed under a federal health care
program.10 Compliance with the Anti-Kickback Statute is a condition of payment for any

10

In relevant part, 42 U.S.C. § 1320a-7b(b)(1)(B) penalizes “whoever knowingly and willfully
solicits or receives any remuneration (including any kickback, bribe, or rebate) directly or indirectly,
overtly or covertly, in cash or in kind . . . in return for purchasing, leasing, ordering, or arranging for or
recommending purchasing, leasing, or ordering any good facility, service, or item for which payment may
be made in whole or in part under a Federal health care program. . . .”
Section 1320a-7b(b)(2)(B) applies to “whoever knowingly and willfully offers or pays any
remuneration (including any kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or
in kind to any person to induce such person . . . to purchase, lease, order or arrange for or recommend
purchasing, leasing, or ordering any good, facility, service, or item for which payment may be made in
whole or in part under a Federal health care program. . . .”

4

claim submitted to a federal health care program, including Medicaid,11 so that liability
under the FCA can be predicated on a violation of the Anti-Kickback Statute. U.S. ex
rel. Westmoreland v. Amgen, 812 F.Supp.2d 39, 54-55 (D. Mass. 2011) (collecting
cases).
Defendants Omnicare and PharMerica are long-term care pharmacy providers
(“LTCPs”). LTCPs provide pharmacy services to nursing homes and other long-term
care facilities, whose resident population consists, in large part, of Medicaid patients.12
According to the TAC, LTCPs enter into provider agreements with each state’s
Medicaid program to which they have submitted prescription drug reimbursement
claims. These provider agreements require the LTCPs to comply with all state and
federal laws, including the Anti-Kickback Statute.
C. Kickback Claims Against Organon, Omnicare, and PharMerica
According to the TAC, from 1999-2006 Organon, a pharmaceutical company,
violated the federal Anti-Kickback Statute by engaging in a scheme to offer unlawful
remuneration to LTCPs – Omnicare and PharMerica, among others13 – in exchange for

11

Medicaid is a joint federal-state program that provides health care benefits for certain groups,
primarily the poor and disabled. A provider of health care services to a Medicaid recipient may submit
claims for reimbursement to a state’s Medicaid program, which in turn is reimbursed in part by the
federal government. The precise percentage of each state’s Medicaid obligation paid by the federal
government varies by state. See 42 U.S.C. § 1396(d)(b)(discussing formula for calculating federal
medical assistance percentage).
12

LTCPs buy the drugs these facilities disburse to patients by contracting either with a long-term
care buying group or group purchasing organization, or directly with the pharmaceutical company itself.
According to the TAC, LTCPs have significant influence over the choice of drugs used in long-term care
facilities.
13

The TAC alleges that Organon engaged in a similar kickback scheme with LCTPs
NeighborCare, NCS Healthcare, American Pharmaceutical Services, and Sunscript.

5

the pharmacies prescribing its antidepressants, Remeron Tablet and Remeron SolTab
(collectively “Remeron”), to patients. This scheme allegedly resulted in the LTCPs
filing hundreds of millions of dollars in fraudulent claims for Medicaid prescription drug
reimbursements.
Organon participated in this scheme primarily in two ways. First, it aimed to
prevent Remeron Tablet’s 1998 patent expiration from affecting the drug’s total sales
by converting long-term care patients’ prescriptions from Remeron Tablet to the patentprotected Remeron SolTab. Second, it tried to increase Remeron’s market share by
switching as many long-term care patient prescriptions as possible from competitor
antidepressants to Remeron. These two processes are respectively described in the
TAC as “conversion” and “therapeutic interchange.”
Relators allege that Organon provided LTCPs, including PharMerica and
Omnicare, with unlawful kickbacks to induce the LTCPs to participate in the conversion
and therapeutic interchange scheme. It offered direct kickbacks, allegedly disguised as
market-share discounts and rebates, as well as a “conversion rebate” for switching
prescriptions from Remeron Tablet to Remeron SolTab, and a “therapeutic interchange
bonus” for making Remeron a “preferred” drug and instituting a therapeutic interchange
program that encouraged prescription of Remeron over competitor antidepressants.
TAC ¶ 77. Organon also gave LTCPs other kickbacks to entice them to purchase and
recommend Remeron, including “data sharing agreements, research and educational
grants, sponsorship of annual meetings and continuing education programs, payments
for advertising initiatives, offers of nominally priced Remeron product, entertainment,
6

gifts and other inducements.” TAC ¶ 81. Relators allege that Organon, through its
“Remeron SolTab Therapeutic Interchange Toolkit,” marketed the drug to LTCPs by
touting the LTCPs’ “opportunity to profit” at Medicaid’s expense based on the “spread”
(difference between the average wholesale price of the drug, and the discounted price
paid by the LTCPs), rebates, and discounts offered. TAC ¶¶ 88-91.
PharMerica and Omnicare not only received but also allegedly solicited such
kickbacks from Organon in exchange for prescribing Remeron. For example, the TAC
alleges that Organon budgeted for, and PharMerica provided Organon with, data
sharing agreements under which Organon would pay PharMerica for data on Remeron
and its competitor drugs. PharMerica’s National Director of Clinial Programs and
Development pitched its “Vendor in Partnership” (“VIP”) program to Organon, which the
TAC alleges was “little more than a conduit to funnel money to PharMerica in exchange
for prescriptions,” TAC ¶ 109 and Ex. 46-47; after Organon agreed to participate,
PharMerica made Remeron a “preferred” product. TAC ¶ 114. PharMerica also
solicited, and Organon provided, sponsorship of PharMerica’s annual meeting in 2001.

Likewise, Omnicare is alleged to have actively solicited discounted pricing for
Organon pharmaceutical products. Omnicare placed Remeron on “unrestricted
access,” which meant it was available on Omnicare’s formulary of drugs without
restrictions such as prior physician authorization for use, and was not targeted for
therapeutic interchange to competitors’ products. TAC ¶126. Purchasing agreements
for Remeron in 2002 tied the amount of rebate Omnicare received to the conversion
7

rates from Remeron Tablet to Remeron SolTab. In addition to market-share rebates,
discounts, conversion rebates, and therapeutic interchange bonuses, Organon and
Omnicare traded proposals to study the effects of Remeron in the long-term care
population, and Organon ultimately funded an outpatient study on the efficacy of and
tolerance for Remeron SolTab in patients in Omnicare’s nursing homes. Organon also
offered nominally-priced Remeron SolTab to Omnicare, with the understanding that the
offer was contingent upon Omnicare’s later purchase of a similar quantity of the drug at
contracted pricing.
Relators allege that, as a result of the aforementioned kickback scheme,
PharMerica and Omnicare facilities purchased Remeron and then submitted
reimbursement claims to state Medicaid programs. See TAC ¶ 118 (representative
sample of PharMerica Medicaid reimbursement claims for Remeron filed in North
Dakota between 2002-2004); id. ¶ 119 (representative sample of PharMerica Medicaid
reimbursement claims for Remeron filed in Arizona); id. ¶ 142 and Ex. 66
(representative sample of Omnicare Medicaid reimbursement claims for Remeron filed
in Arizona).
D. Pricing Claims Against Organon
In order for a drug manufacturer to have its products compensated under
Medicaid, the manufacturer must have entered into a rebate agreement with the
Secretary of the Department of Health and Human Services. 42 U.S.C. § 1396r-8(a)(1).
Under the rebate agreement, the manufacturer must report quarterly to the Centers for
Medicare and Medicaid Services (“CMS”) both the average manufacturer price (“AMP”)
8

and the “best price” for each of its covered drugs, and pay a quarterly rebate to
Medicaid equal to the greater of the difference between the AMP and “best price,” or a
stated “minimum rebate percentage.” Id. § 1396r-8(c)(1)(A). The rebate payment is
made to ensure that Medicaid is receiving the best price for any covered outpatient
drug.14 Id. § 1396r-8(b).
Count IV of the TAC alleges that Organon violated FCA subsection (a)(7) by
improperly reducing its rebate liability to state Medicaid programs in the following ways.
First, it concealed its true best price for Remeron Tablet and Remeron SolTab by failing
to disclose to CMS the kickbacks it provided to LTCPs (e.g., data sharing agreements,
research grants, educational grants, and sponsorships), mischaracterizing transactions
for the sale of Remeron as “nominal,” and/or entering into discount arrangements on
other drugs in exchange for the purchase of Remeron. Second, it lowered its reported
AMP for Remeron by including in its AMP calculation the discounts and rebates it gave
to LTCPs. And, third, it sold Remeron at a discounted price to entities not qualified to
receive the discounts,15 which resulted in Organon improperly excluding these
transactions from its best price calculations.
E. Off-Label Marketing Claims Against Organon

14

A covered outpatient drug is defined in 42 U.S.C. § 1396r-8(k)(2) to include a prescription drug
which is approved for “safety and effectiveness” under the Federal Food, Drug, and Cosmetic Act, 21
U.S.C. §§ 355, 357, 355(j). The definition does not include a drug “used for a medical indication which is
not a medically accepted indication.” 42 U.S.C. § 1396r-8(k)(3).
15

42 U.S.C. § 256b establishes “covered entities” which are entitled to received statutorily
defined discounts on outpatient drugs. Pharmaceutical manufacturers are required to participate in this
so-called “340B program” as a condition of having drug charges reimbursed by Medicaid. County of
Santa Clara v. Astra USA, Inc., No. C 05-03740, 2006 U.S. Dist. LEXIS 57176 (N.D. Cal. July 28, 2006).

9

Relators further allege that Organon promoted “off-label” uses for Remeron Tablet
and Remeron SolTab in order to maximize the success of the therapeutic interchange
program. Relators allege that, to be eligible for reimbursement under a state Medicaid
program, a drug must be included on a state’s drug formulary. They further allege that
under federal law, a state Medicaid program “may exclude or restrict coverage” in certain
instances, inter alia, if “the prescribed use is not for a medically accepted indication.”
TAC ¶ 207 (citing 42 U.S.C. § 1396r-8(d)(1)). A “medically accepted indication” is any
use which either is approved by the FDA or supported by a citation in any of the drug
compendia identified by the Medicaid statute. 42 U.S.C. §§ 1396r-8(k)(6), 1396r8(g)(1)(B)(i)(identifying compendia).
The FDA approved Remeron for the treatment of depression in adults. Relators
allege, however, that Organon marketed Remeron as an anti-anxiety substitute and
played up the drug’s side effects of somnolence (drowsiness) and increased appetite or
weight gain, realizing that these side effects could be viewed as “positive” for the elderly
population who experienced anxiety, sleep disturbances and had trouble maintaining
weight. Organon marketed these side effects as though they were approved indications
of the drug, and also promoted off-label use of Remeron in children and adolescents for
the treatment of depression, attention deficit disorder (“ADD”) and attention deficient
hyperactivity disorder (“ADHD”). Furthermore, Relators allege that Organon marketed
Remeron as effective for treating patients with anxiety, despite “a 1999 warning from the
FDA that this claim was false and misleading.” TAC ¶ 215. Organon also is alleged to
have paid kickbacks to primary care physicians who prescribed a large amount of
10

Organon’s drugs, in order to influence those physicians to promote off-label uses of
Remeron. These kickbacks took the form of allegedly excessive speaker fees; special
organized speaker programs; payments for participation in promotional teleconferences,
preceptorships, tutorials, and advisory boards; consulting fees; and lavish relationshipbuilding events such as dinners and receptions.
Relators allege that LTCPs submitted claims for reimbursement to state Medicaid
programs for Remeron prescriptions that were tainted by off-label promotion, in violation
of the FCA, 31 U.S.C. § 3729(a). In support, they proffer Medicaid reimbursement claims
for Remeron where the drug was prescribed for off-label uses including insomnia,
anxiety, loss of appetite and weight gain, TAC ¶¶ 242-44 and Ex. 92, and was prescribed
for use by children, id. ¶¶ 249 and Ex. 94.
II. Analysis of Federal Claims
I first address the jurisdictional issues before turning to defendants’ other grounds
for dismissal. U.S. ex rel. Rost v. Pfizer, Inc., 507 F.3d 720, 727 (1st Cir. 2007) (“The
threshold question in a False Claims Act case is whether the statute bars jurisdiction.”).
A. First-to-File and Public Disclosure Bars
The FCA’s qui tam provisions “attempt[ ] to reconcile two conflicting goals,
specifically, preventing opportunistic suits, on the one hand, while encouraging citizens
to act as whistleblowers, on the other.” United States ex rel. LaCorte v. SmithKline
Beecham Clinical Labs., Inc., 149 F.3d 227, 234 (3d Cir. 1998) [“SmithKline”]. To strike
the appropriate balance between these two goals, the FCA limits a district court’s subject
matter jurisdiction in qui tam actions through several jurisdictional bars, two of which
11

defendants invoke here.
1. First-to-File Bar
The “first-to-file” bar provides that once a relator has filed a qui tam suit under the
FCA, “no person other than the Government may intervene or bring a related action
based on the facts underlying the pending action.” 31 U.S.C. § 3730(b)(5).16 “‘[A] goal
behind the first-to-file rule’ is to provide incentives to the relators ‘to promptly alert[ ] the
government to the essential facts of a fraudulent scheme.’” United States ex rel. Duxbury
v. Ortho Biotech Products, L.P., 579 F.3d 13, 32 (1st Cir. 2009) [“Duxbury”] (quoting
United States ex rel. Lujan v. Hughes Aircraft Co., 243 F.3d 1181, 1188 (9th Cir. 2001)).
The first-to-file bar precludes “a later allegation [if it] states all of the essential facts of a
previously filed claim” or “the same elements of a fraud described in an earlier suit.”
Duxbury, 579 F.3d at 32 (quoting SmithKline, 149 F.3d at 232-33) (emphasis added by
First Circuit). “Under this ‘essential facts’ standard, § 3730(b)(5) can still bar a later
claim ‘even if that claim incorporates somewhat different details.’” Duxbury, 579 F.3d at
33 (quoting SmithKline, 149 F.3d at 232-33).17

16

This provision was unaffected by amendments to the FCA enacted by FERA in 2009 and the
2010 Patient Protection and Affordable Care Act (“PPACA”), Pub. L. 111-148, 124 Stat. 119.
17

Despite Relators’ urging, I decline to additionally require that an allegedly first-filed qui tam
action comply with Fed. R. Civ. P. 9(b) in order to bar a later qui tam suit. See Relators’ Consol. Resp.
to Defs.’ Mots. to Dismiss at 30 (Docket # 141) (citing U.S. ex rel. Poteet v. Medtronic, Inc., 552 F.3d
503, 516 (6th Cir. 2009)(dicta)). Imposing this additional requirement would frustrate the purpose of the
first-to-file bar by raising the threshold for it to apply. See U.S. ex rel. Batiste v. SLM Corp.,740
F.Supp.2d 98, 104 (D.D.C. 2010) (declining to require allegedly first-filed suit to comply with Rule 9(b),
noting that “the point of Rule 9(b)’s heightened pleading standard is that it provides more than what is
normally required to give adequate notice of the essential elements of a claim. . . . [I]t is entirely
plausible that a complaint may provide sufficient information to cause the government to launch its own
investigation of a fraudulent scheme without providing enough information under Rule 9(b) to protect the
defendant’s interests.”). The First Circuit has not taken a position on this issue.

12

2. Public Disclosure Bar
The so-called “public disclosure” bar deprives a court of subject matter jurisdiction
over a qui tam action
based upon the public disclosure of allegations or transactions in a
criminal, civil, or administrative hearing, in a congressional, administrative
or Government Accountability Office report, hearing, audit, or investigation,
or from the news media, 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).18 If there has been “a public disclosure of the allegations or
transactions in the relator’s complaint . . . in the manner specified in the statute,” the
court must then determine “whether the relator’s suit is ‘based upon’ those publicly
disclosed allegations or transactions.” Duxbury, 579 F.3d at 21 (citing Rost, 507 F.3d at
728). An action is “based upon” a public disclosure “when the relator’s allegations are
substantially similar to allegations or transactions already in the public domain. . . . ” U.S.
ex rel. Ondis v. City of Woonsocket, 587 F.3d 49, 58 (1st Cir. 2009).
If the answer to the aforementioned inquiry is in the affirmative, then the court
must determine whether the relator is an “original source.” Duxbury, 579 F.3d at 21. A
relator qualifies as an “original source” if he (1) is an individual with “direct and
independent knowledge of the information on which the allegations are based;” and (2)
has “voluntarily provided the information to the Government before filing” the qui tam
action. 31 U.S.C. § 3730(e)(4)(B).

18

PPACA significantly amended the language in 31 U.S.C. § 3730(e). Since PPACA does not
mention retroactivity, Graham County Soil and Water Conservation Dist. v. U.S. ex rel. Wilson, 130
S.Ct. 1396, 1400 n.1 (2010), I apply the version of section 3730(e) in effect at the time this case was
filed. Id. (applying prior version of statute to interpret scope of public disclosure bar in case filed in 2001).

13

The FCA does not permit “jurisdiction in gross.” U.S. ex rel. Duxbury v. Ortho
Biotech Products, L.P., 551 F.Supp.2d 100, 105 (D. Mass. 2008) (quoting Rockwell Int’l
Corp. v. United States, 549 U.S. 457, 476 (2007)). Rather, the court must examine each
claim to determine whether either jurisdictional bar applies. Id.
B. Jurisdictional Analysis of Kickback Claims Against PharMerica and
Organon and Pricing Claims Against Organon
1. Kickback Claims Against PharMerica and Organon
PharMerica and Organon argue that United States ex rel. St. John La Corte v.
Amerisource Bergen Corp. and PharMerica, Inc., No. 02-3168 (E.D. La.) [“Amerisource”],
is a first-filed case that bars Relators’ kickback claims against them. The Amerisource
Original Complaint was filed on October 18, 2002. See Docket # 152 Ex. A. First and
Second Amended Complaints were filed on December 12, 2003 (Docket # 152 Ex. B)
and April 11, 2005 (Docket # 152 Ex. C), respectively.19 To determine whether the firstto-file bar applies, I must compare the Relators’ complaint with the Amerisource
complaints.
The Amerisource relator, LaCorte, alleged that PharMerica contracted with several
pharmaceutical manufacturers to receive “financial inducements in the form of discounts,
remuneration, rebates, or kickbacks on some of [the manufacturer’s] specific
pharmaceutical products and supplies in exchange for PharMerica providing the

19

All of the Amerisource complaints were unsealed well before Relators filed their Original
Complaint. See March 1, 2004 Order unsealing Amerisource Original and First Amended Complaints
(Docket # 123 Ex. C); June 7, 2005 Order unsealing Amerisource Second Amended Complaint (Docket #
123 Ex. E).

14

manufacturer with an agreed upon market share and volume for those specific products
and supplies.” Amerisource Orig. Compl. ¶ 58; Amerisource Sec. Am. Compl. ¶ 118
(same, and noting the drugs were included on PharMerica’s “Select Formulary”).
PharMerica allegedly achieved these market share targets through a process of
“therapeutic interchange,” whereby it substituted a “preferred drug” for the drug
specifically prescribed. Amerisource Orig. Compl. ¶ 25.
LaCorte does not name Organon as one of the pharmaceutical companies
providing kickbacks, but he does the equivalent by listing “Remeron” as one of
PharMerica’s “preferred drugs.” Id. ¶ 31. See United States ex rel. Lisitza v. Johnson &
Johnson, 765 F.Supp. 2d 112, 122 n.15 (D. Mass. 2011) (“The court agrees that, for
purposes of prior disclosure, specifying a formulaic drug as part of a kickback scheme is
synonymous with naming the company that produces it.”). While the reference to
Remeron was removed from the body of later complaints, in both the First and Second
Amended Complaints, relator LaCorte alleged that PharMerica created a “Select
Formulary” listing as “preferred drugs” those for which it was receiving kickbacks, and he
attached to these complaints a “PharMerica Senior Select Drug Formulary” dated March
1, 2003, which included Remeron SolTab on the list of “Formulary Preferred Products.”
Amerisource First Am. Compl. ¶ 63 and Ex. E; Amerisource Sec. Am. Compl. ¶ 123 and
Ex. 7. See also Amerisource First Am. Compl. Ex. X and Sec. Am.Compl. Ex. 28
(September 2002 letter from PharMerica National Director of Clinical Program
Development to health care professionals explaining that Remeron SolTab is included
within PharMerica’s Select Formulary). Through this scheme, PharMerica allegedly
15

submitted falsely inflated claims for drug reimbursements to Medicaid, in violation of the
False Claims Act. Amerisource Original Compl. ¶ 33.
Relators’ kickback allegations against Organon and PharMerica state the same
essential elements of fraud described in the Amerisource complaints: receipt and/or
solicitation of kickbacks in exchange for switching patients to “preferred” drugs and filing
false or fraudulent Medicaid reimbursement claims for those drugs. These elements are
sufficient to put the government on the trail of the alleged fraud against PharMerica and
Organon. That Relators’ kickback claims involve additional details and types of
kickbacks does not change the outcome. See Duxbury, 579 F.3d at 33; SmithKline, 149
F.3d at 234 (explaining that “once the government knows the essential facts of a
fraudulent scheme, it has enough information to discover related frauds”).
Likewise, under a public disclosure bar analysis, Relators’ kickback allegations
against PharMerica and Organon are substantially similar to the kickback allegations
disclosed in the Amerisource complaints. It is of no matter that Organon itself was not
named as a defendant in the Amerisource case; the Amerisource complaints publicly
disclose the essential elements of a fraudulent kickback scheme involving Remeron, and
thus Organon. United States ex rel. Poteet v. Bahler Medical, Inc., 619 F.3d 104, 111
(1st Cir. 2010) (civil complaint filed in court qualifies as public disclosure); U.S. ex rel.
Feingold v. AdminaStar Federal, Inc., 324 F.3d 492, 495 (7th Cir. 2003) (“A ‘public
disclosure’ exists under § 3730(e)(4)(A) when the critical elements exposing the
transaction as fraudulent are placed in the public domain.”).
2. Pricing Claims Against Organon
16

The Amerisource First and Second Amended Complaints also allege that with
regard to “preferred drugs,” PharMerica “directly caused, or . . . aided, abetted, or
conspired with pharmaceutical manufacturers to cause, false quarterly cost reports, ‘best
price’ reports, and rebate reports” to be filed with the Department of Health and Human
Services and CMS, in order to “conceal, avoid, or decrease the amount of rebate
obligation payable each quarter to State Medicaid agencies and credited to the United
States government. . . .” First Am. Compl. ¶ 158; Second Am. Compl. ¶ 222. The
Amerisource complaints allege that “these acts, omissions, and concealments have in
fact caused the government a financial loss by receiving millions of dollars less than the
rebates that were due to be paid to the government each quarter.” Id. These claims and
supporting allegations20 disclose a fraudulent pricing scheme, the essential elements of
which are alleged against Organon in this case.
The outcome is the same under a public disclosure analysis. Thus, under the
FCA’s first-to-file and public disclosure provisions, Amerisource bars all federal claims
against PharMerica, as well as federal kickback and pricing claims against Organon.

20

Amerisource First Am. Compl. ¶¶ 27-32 and Sec. Am. Compl. ¶¶ 78-83 (describing
manufacturers’ price reporting and rebate obligations under Medicaid); First Am. Compl. ¶ 67 and Sec.
Am. Compl. ¶ 127 (alleging that manufacturers charge PharMerica “substantially less for the substituted
drugs than the ‘best prices’ for these drugs these pharmaceutical companies are reporting and certifying
to the DHHS each quarter” and that the federal government “is not, in fact receiving the actual ‘best
price’ for these drugs required by law and the manufacturer’s Rebate Agreement with the Secretary of
the DHHS.”); First Am. Compl. ¶ 68 and Sec. Am. Compl. ¶ 128 (alleging that PharMerica submits
“unauthorized or excessive bills” to Medicare and Medicaid and receive “unauthorized or inflated
reimbursement . . . based on inaccurate utilization, cost and pricing data submitted by the Defendants
and the pharmaceutical manufacturers to the DHHS, CMS, and other government agencies.”); First Am.
Compl. ¶ 71 and Sec. Am. Compl. ¶ 131 (“Because neither the true ‘best price’ nor the data from which it
can be determined ever is accurately reported to the DHHS and CMS, the United States government is
caused a financial loss, and both the pharmaceutical manufacturers and Defendants reap a financial
windfall at the government’s expense by receiving inflated reimbursements or unauthorized
reimbursements.”).

17

C. Jurisdictional Analysis of Off-Label Marketing Claims Against Organon
Organon argues that Relators’ off-label marketing claims should be barred
because they are based on public disclosures made in FDA warning letters about
Remeron, which were sent to Organon in January and April of 1999 and made available
on the FDA’s web site. See TAC ¶¶ 220-226 and Ex. 84. The letters warn that Organon’s
promotional materials that “represent Remeron [Tablet] as particularly effective in
treating anxiety” were “false and misleading.” Ex. 84 (Apr. 1999 letter, discussing Jan.
1999 letter). The warning letters largely focus on Organon’s promotional claims that
Remeron was safer or more effective at treating anxiety than selective serotonin
reuptake inhibitors (SSRIs), another type of antidepressant medication.
While an FDA warning letter can make a disclosure under 31 U.S.C. §
3730(e)(4)(A), United States ex rel. Gross v. AIDS Research Alliance-Chicago, 415 F.3d
601, 606 (6th Cir. 2005), the essential elements of the fraudulent off-label promotion
scheme alleged in the TAC are not disclosed in the letters at issue here. “To be a
disclosure ‘of fraud’ the disclosure must contain either (1) a direct allegation of fraud, or
(2) both a misrepresented state of facts and a true state of facts, so that the listener or
reader may infer fraud.” Bahler Medical, 619 F.3d at 110 (internal citations omitted). The
FDA warning letters do neither. Warnings that it is false, misleading, and
unsubstantiated for Organon to market Remeron as appropriate for the treatment of
anxiety or as superior to other types of anti-anxiety drugs (e.g., SSRIs) are not
substantially similar to the scheme alleged here; namely, that Organon marketed
Remeron as the ideal anti-depressant for geriatric patients by touting the side-effects as
18

approved indications, and that it marketed the drug for treatment of children with ADD
and ADHD. Nor do they juxtapose a misrepresented and true state of facts, such that a
reader of the warning letters could infer the fraudulent scheme alleged in the TAC.
Organon also argues that Relators’ claims are based on publicly disclosed “claims
data” which Relators obtained from state Medicaid agencies. On the record before me, it
is neither clear exactly which “claims data” was obtained, nor that such data was a
written response to a request for records under the Freedom of Information Act (“FOIA”),
such that it may constitute an administrative report under the FCA. See Schindler
Elevator Corp. v. United States ex rel. Kirk, 131 S.Ct. 1885, 1890 (2011) (holding that a
federal agency’s written response to a request for records under the FOIA constitutes a
“report” within the meaning of the FCA’s public disclosure bar); Ondis, 587 F.3d at 55
(holding that “a response to a FOIA request is an act of public disclosure because the
response disseminates (and thus, discloses) information to the members of the public
(and, thus, outside the government’s bailiwick).”).

.

D. Jurisdictional Analysis of Relators’ Claims Against Omnicare
Omnicare contends that several “first-filed” cases bar Relators’ kickback claims
against it. Additionally, it argues that the kickback claims in the TAC were based on
public disclosures made in these cases, in settlement agreements between Omnicare
and the federal government, and in documents given to Relators by the Texas Attorney
General’s Office. For ease of discussion, I adopt Omnicare’s nomenclature, and refer to

19

the allegedly “first-filed” cases as LaCorte,21 the Illinois Actions,22 and the Massachusetts
Actions.23
1. First-to-File Bar
While the details of each complaint may differ, all of these purportedly first-filed
cases at their core allege that Omnicare participated in a “kickback-for-switching”
scheme, by accepting and/or soliciting kickbacks from pharmaceutical manufacturers in
exchange for switching patient prescriptions to certain “preferred” drugs, and then
submitting Medicaid reimbursement claims for those drugs in violation of the FCA.
Unlike the Amerisource complaints, however, none of these cases mentions Organon,
Remeron Tablet or Remeron SolTab. Omnicare admits as much, but agues that “[t]he
fact that the prior qui tam complaints involved other drugs is of no merit. At most
Relators merely add different details to the same essential facts disclosed in the earlierfiled qui tam actions.” Omnicare Reply Memo. at 12 (Docket # 158).

21

United States ex rel. St. John LaCorte v. Omnicare, Inc., No. 00-03733 (E.D. La.) (Original
Complaint filed on Dec. 20, 2000) (Docket # 133 Ex. 5).
22

United States ex rel. Lisitza v. Omnicare, Inc., No. 01-07433 (N.D. Ill) [“Lisitza I”] (Original
Complaint filed on Sept. 26, 2001) (Docket # 127 Ex. F.), and United States ex rel. Kammerer v.
Omnicare, Inc., No. 04-2074 (N.D. Ill) [“Kammerer I”].
23

United States ex rel. Maguire v. Omnicare, Inc., No. 02-11436 (D. Mass.) [“Maguire”] (Original
Complaint filed July 26, 2002) (Docket # 127 Ex. A); (First Amended Complaint filed June 22, 2005)
(Docket # 127 Ex. B).
United States ex rel. Lisitza v. TAP Pharmaceutical Products, Inc. et al., No. 07-10026-RGS, (D.
Mass) [“Lisitza II”]. (Second Amended Complaint filed on November 1, 2007) (Docket # 133 Ex. 4).
Lisitza II was originally filed on October 27, 2003 in the Northern District of Illinois as Case No. 03-7578.
The action was subsequently transferred to this district.
United States ex rel. Kammerer v. Abbott Laboratories et al., No. 05-11518 (D. Mass.)
[“Kammerer II”] ( First Amended Complaint filed Oct. 27, 2005) (Docket # 127 Ex. C) On July 26, 2007,
Kammerer II was administratively consolidated with Maguire and Lisitza II by order of the court. The
Massachusetts actions – Maguire, Kammerer II, and Lisitza II – were unsealed on or about October 24,
2008.

20

Omnicare fails to appreciate that the drug itself is an essential element of the
fraudulent scheme alleged against it. Its prior involvement in a scheme involving specific
pharmaceutical manufacturers and drugs does not mean that it necessarily engaged in
such fraudulent conduct with other manufacturers or drugs. See U.S. ex rel. Branch
Consultants v. Allstate Ins. Co., 560 F.3d 371, 380 (5th Cir. 2009) (declining to apply the
first-to-file bar broadly where the allegedly first-filed case does not allege a “true
industry-wide fraud or concerted action among a narrow group of participants” but rather
implicated only four specific insurers among the approximately 95 who participated in the
government program at issue); id. (noting that the “potential for fraud exists in any
government program” and that the allegedly first-filed complaint “tells the government
nothing about which of the ninety-one other insurers . . ., if any, actually engaged in any
fraud.”).
While the FCA’s first-to-file bar precludes a qui tam suit where a prior action gave
the government sufficient notice of the essential elements of fraud, the policy underlying
the provision counsels that the bar should not apply if the government would uncover
such fraud (if at all) only by exhausting its investigative resources. Id. (“[F]orcing the
government to expend its limited time and resources wading through the records of
ninety-one [ ] insurers in an attempt to identify specific instances of fraud would
completely undermine the enforcement component of the FCA’s qui tam provisions.”).
Although Lisitza II alleges that Omnicare’s “kickbacks-for-switching” scheme was

21

“nationwide,”24 these generic allegations of widespread fraud are insufficient to provide
the requisite notice to the government under the first-to-file bar. Johnson & Johnson, 765
F.Supp.2d at 122 (“Only when an earlier filed suit has named a member of the same
corporate family are courts inclined to find generic allegations sufficient to put the
government on notice of a fraudulent scheme involving a specific defendant.”). The firstto-file rule does not bar Relators’ kickback claims against Omnicare.
2. Public Disclosure Bar
Similarly, the public disclosure bar does not preclude the kickback claims against
Omnicare. The allegations made in the LaCorte, Illinois, and Massachusetts actions are
public disclosures. Bahler Medical, 619 F.3d at 111. But since the drug involved is an
essential element of the scheme and, as explained above, prior actions do not discuss
either Organon or Remeron, the prior complaints do not disclose the fraudulent scheme
alleged in the TAC.25 See id. at 110 (“prior public disclosure of fraud occurs when the
essential elements exposing the particular transactions as fraudulent find their way into
the public domain”) (internal quotations omitted); In re Pham. Indus. Avg. Wholesale
Price Litig., 538 F.Supp.2d 367, 287 (D. Mass. 2008) (public disclosure must be
“adequate to set the government squarely on the trail of fraud”) (internal quotation marks

24

Lisitza II First Am. Compl. ¶ 27 (Docket # 127 Ex. K) (alleging that the “kickbacks-forswitching” scheme “was not limited to the named ‘preferred’ medications, but was undertaken by TAP
[Pharmaceuticals], other ‘preferred’ drug manufacturers, and Omnicare nationwide, for other drugs
wherever such wholesale switching was possible and profitable, costing the government and private
insurance companies tens of millions of dollars.”).
25

Likewise, the 2009 Settlement Agreement between Omnicare and the United States, which
covered Omnicare’s acceptance of kickbacks in exchange for purchasing and promoting Johnson &
Johnson’s drug Risperdal, fails to disclose the essential elements of fraud alleged here. Docket # 127 Ex.
D. The same goes for the 2006 Settlement Agreement in the Illinois actions. Docket # 127 Ex. I.

22

omitted). Generalized claims of industry-wide fraud also will not trigger the public
disclosure bar. United States ex rel. Cooper v. Blue Cross and Blue Shield of Fla., Inc.,
19 F.3d 562, 566 (11th Cir. 1994) (allegations of widespread Medicaid fraud made in
sources in which a particular insurance company was not specifically named or otherwise
directly identified were insufficient to trigger the public disclosure bar); U.S. ex rel.
Baltazar v. Warden, 635 F.3d 866, 868 (7th Cir. 2011) (“As far as we can tell, no court of
appeals supports the view that a report documenting widespread false claims, but not
attributing them to anyone in particular, blocks qui tam litigation against every member of
the entire industry.”).
The State of Texas investigated Organon’s marketing and sales practices with
regard to Remeron while it was deciding whether to intervene in Relators’ qui tam suit.
As part of its investigation, the Texas Attorney General acquired certain documents from
Organon in response to a Civil Investigative Demand served on the pharmaceutical
company. Texas agreed to share these documents with Relators for their use in this
case. See Nov. 13, 2008 Letter from Texas Attorney General’s Office to Relators (Docket
# 95 Ex. 1).
Omnicare argues that the Texas documents constitute public disclosures under
section 3730(e)(4). Since these documents were produced in connection with Relators’
qui tam suit, however, they are not “public disclosures” under the FCA. See U.S. ex rel.
Fry v. Guidant Corp., No. 3:03-0842, 2006 WL 1102397, at *8 (M.D. Tenn. Apr. 25,
2006)(documents produced to Tennessee Attorney General by defendant in connection
with qui tam suit, which were subsequently shared with relator in same suit, “would not
23

have made their way to the public absent the filing of the qui tam case” and “do not,
therefore, qualify as ‘public disclosures’ for purposes of public disclosure bar”) (citing
U.S. ex rel. Wang v. FMC Corp., 975 F.2d 1412, 1416 (9th Cir. 1992) (“Evidence publicly
disclosed for the first time during the discovery phase of a qui tam suit is not barred from
use in that same suit by section 3730(e)(4)(A). If it were, qui tam plaintiffs would have
little choice but to waive their right to discovery for fear of disclosing information that
would bar the claims for which they might wish discovery in the first place.”)). Cf. U.S. v.
Northrop Corp., 5 F.3d 407, 411 (9th Cir. 1993) (extending Wang to situation where
disclosure results from a criminal investigation by the government based on information
provided by a qui tam plaintiff); id. (“[T]here is no reason to draw a distinction between
disclosure resulting from civil discovery by the government or a qui tam plaintiff, and
disclosure resulting from a criminal investigation by the government based on information
provided by a qui tam plaintiff. Such a distinction would allow the government to limit the
potential recovery of qui tam plaintiffs unfairly simply by initiating a criminal investigation,
and would subvert Congress’s desire to combat fraud by providing broad incentives for
qui tam suits.”).
Defendants’ reliance on Seal 1 v. Seal A, 255 F.3d 1154, 1161-62 (9th Cir. 2001),
is misplaced. There, relator filed a qui tam suit under the FCA against Packard-Bell
NEC, Inc. (“PBNEC”), which prompted a government investigation into PBNEC’s
allegedly fraudulent practices. That investigation turned up documents disclosing
probable fraud not only by PBNEC but also by Zenith, one of its competitors. After the
U.S. Attorney allowed relator to review documents obtained during the PBNEC
24

investigation, relator brought a separate qui tam suit against Zenith. The district court
held that it had jurisdiction over relator’s FCA case against PBNEC, but dismissed the
Zenith case for lack of jurisdiction under the public disclosure bar. The Ninth Circuit
affirmed, noting that the PBNEC relator was an “an outsider to the Zenith investigation
who now seeks to profit from it as an FCA relator.” 255 F.3d at 1162. Unlike the Seal 1
relator, Relators here have sued the same defendants throughout; they are not pursuing
a case against a new defendant based on the Texas documents.
E. Rules 9(b) and 12(b)(6)
Having ascertained that the court has jurisdiction over off-label marketing claims
against Organon and kickback claims against Omnicare, I next evaluate whether these
claims merit dismissal for failure to state a claim under Fed. R. Civ. P. 12(b)(6) or failure
to plead fraud with particularity under Fed. R. Civ. P. 9(b).26
To survive a motion to dismiss under Rule 12(b)(6) “a complaint must contain
sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its
face.” Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009) (internal quotation marks omitted).
The facts pleaded must allow the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged. Id.
Fed. R. Civ. P. 9(b) also applies to Relators’ claims under 31 U.S.C. § 3729(a)(1)(3). U.S. ex rel. Gagne v. City of Worcester., 565 F.3d 40, 45 (1st Cir. 2009). To comply
with the rule, a complaint must specify the “time, place, and content of an alleged false

26

“In alleging fraud or mistake, a party must state with particularity the circumstances
constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person’s mind may be
alleged generally.” Fed. R. Civ. P. 9(b).

25

representation”; conclusory allegations are insufficient. Id. See also U.S. ex rel. Gagne v.
City of Worcester, No. 06-40241, 2008 WL 2510143, at *4 (D. Mass. June 20, 2008)
(Rule 9(b) requires pleader to set forth with particularity the “who, what, when, where,
and how of the alleged fraud”). Still, “the rule may be satisfied . . . where, although some
questions remain unanswered, the complaint as a whole is sufficiently particular to pass
muster under the FCA.” Gagne, 565 F.3d at 45 (internal quotation marks omitted).
1. Off-Label Marketing Claims Against Organon
To state a claim under FCA subsections (a)(1)-(3), Relators must sufficiently plead
that the Medicaid reimbursement claims filed as a result of Organon’s conduct (here, its
off-label promotion of Remeron) were “false or fraudulent.” Organon contends that if a
state Medicaid program chooses to reimburse a claim for a drug prescribed for off-label
use, then that claim is not “false or fraudulent,” and liability cannot therefore attach for
reimbursement. The court agrees. See United States ex rel. Rost v. Pfizer, Inc., 253
F.R.D. 11, 16 (D. Mass. 2008) (discussing approvingly defendant’s argument that state
approval undermines the assertion of a “false claim”); U.S. ex rel. Franklin v. ParkeDavis, Div. of Warner-Lambert Co., No. 96-11651, 2003 WL 22048255, at * 3 (D. Mass.
Aug. 22, 2003) (noting that if the Medicaid statute gives states the discretion to cover offlabel, non-compendium prescriptions, and a state exercised its discretion to cover such
prescriptions, then an off-label prescription in that state would not be a false claim).
Organon’s argument assumes that state Medicaid programs have the discretion to cover
reimbursement for off-label use of a drug that is not supported by a citation in a medical
compendium listed in the Medicaid statute; whether the Medicaid statute authorizes such
26

discretion is up for debate.
The statute appears to give states the ability to choose whether they will cover offlabel, non-compendium prescriptions. See 42 U.S.C. § 1396r-8(d)(1)(B)(i) (“A State may
exclude or otherwise restrict coverage of a covered outpatient drug if – (i) the prescribed
use is not for a medically accepted indication. . . .”) (emphasis added). An off-label use
that is not supported by a citation in a listed medical compendium is “not for a medically
accepted indication.” Id. § 1396r-8(k)(6) (defining “medically accepted indication” as any
use approved by the FDA or supported by a citation in a medical compendium listed in
the Medicaid statute). On the other hand, the statute appears to limit a state’s discretion
to restrict coverage only to “covered outpatient drug[s],” the definition of which does not
include drugs “used for a medical indication which is not a medically accepted indication”
(i.e., non-compendium drugs prescribed for off-label use). See 42 U.S.C. § 1396r8(k)(3).27
Relators do not allege, and Organon does not concede, that any state denies
Medicaid coverage for an off-label prescription not included in a medical compendium.
Nor do they allege that states must deny coverage of such prescriptions under the
Medicaid statute; they allege only that states “may” do so. TAC ¶¶ 207-208. This is
insufficient to establish that Medicaid reimbursement claims for Remeron filed because of
Organon’s off-label marketing scheme were “false or fraudulent.” Relators’ off-label
27

The Parke-Davis court noted this statutory ambiguity, and invited an amicus brief from the
federal government on the issue. 2003 WL 22048255, at * 3. It ultimately left the debate unresolved,
however, because the defendant conceded that at least eight states did not provide reimbursement for
off-label drug prescriptions not included in a medical compendium; thus, the court found that defendant’s
argument did not provide a basis for summary judgment under the FCA and was relevant only to
damages. Id.

27

marketing claims fail under Rule 12(b)(6). See U.S. ex rel. Nathan v. Takeda
Pharmaceuticals North America, Inc., No. 1:09-cv-1086, 2011 WL 2182422, at *3 (E.D.
Va. May 4, 2011) (dismissing relator’s FCA claims because “Relator failed to plead facts
that would establish that off-label prescriptions for [drug at issue] were not reimbursable
under each of the government programs that Relator identifies.”).
2. Kickback Claims against Omnicare
Relators’ claims against Omnicare are based on allegations that Organon paid
Omnicare two types of illegal kickbacks: (1) market share rebates and discounts
pursuant to written purchasing agreements (“discount kickbacks”); and (2) other
incentives such as research grants, sponsorship of annual meetings, data purchasing
agreements, nominal-price transactions, and participation in corporate partnership
programs (“collateral kickbacks”). See TAC ¶¶ 121-32, 133-41. Omnicare argues that
the claims based on discount kickback allegations fail because all discounts and rebates
were disclosed in accordance with the safe harbor provisions of the Anti-Kickback
Statute.28 42 U.S.C. § 1320a-7b(b)(3)(E); 42 C.F.R. § 1001.952(h). Further, it argues
that all kickback claims against it fail because Relators do not articulate with particularity
Omnicare’s involvement in the fraudulent kickback scheme.
(a) Anti-KickBack Statute’s Safe Harbor Provisions

28

Omnicare does not argue that the statutory discount exception applies. Under the discount
exception, criminal penalties shall not apply to “a discount or other reduction in price obtained by a
provider of services or other entity under a Federal health care program if the reduction in price is
properly disclosed and appropriately reflected in the costs claimed or charges made by the provider or
entity under a Federal health care program[.]” 42 U.S.C. § 1320a-7b(b)(3)(A). See also United States v.
Shaw, 106 F.Supp.2d 103, 113 (D. Mass. 2000) (describing the discount exception and the safe harbor
provisions as independent bases for a defendant to claim an exemption from liability under the statute).

28

The Anti-Kickback Statute’s criminal penalties do not apply to “any payment
practice specified by the Secretary [of Health and Human Services]” in applicable
regulations. 42 U.S.C. § 1320a-7b(b)(3)(E). These so-called “safe harbors” carve out
certain payments, including “discounts,” from the statute’s definition of illegal
remuneration.
A drug buyer, like Omnicare, must comply with certain standards in order to invoke
the discount safe harbor’s protection. 42 C.F.R. § 1001.952(h). First, “[t]he discount
must be made at the time of the sale of the good or service or the terms of the rebate
must be fixed and disclosed in writing to the buyer at the time of the initial sale of the
good or service[.]” 42 C.F.R. § 1001.952(h)(1)(iii)(A). Second, the buyer must provide,
“upon request by the Secretary or a State agency” an “invoice, coupon or statement”
from the seller that “fully and accurately” reports such discount. 42 C.F.R. §
1001.952(h)(1)(iii)(B), (h)(2)(iii)(B).
Omnicare argues that the market-share discounts and rebates included in its
Remeron purchasing agreements with Organon meet these standards because the
agreements fixed and disclosed the terms of the discounts and rebates, and because
Relators have not alleged that Omnicare failed to provide the contracts reflecting the
discounts and rebates upon request by the government. Relators respond that the
rebate amounts and discounts were not properly disclosed because the contracts did not
disclose the complete terms and conditions of the discount or rebate (i.e., that the
payments were made to induce or in exchange for drug conversion and therapeutic
interchange) and that the full terms and amounts of the discount were allegedly
29

concealed in various sham collateral contracts.
Given the statutory details, Relators have the better of the argument. The safe
harbor provision defines “discount” as a “reduction in the amount a buyer . . . is charged
for an item or service based on an arms-length transaction.” 42 C.F.R. § 1001.952(h)(5).
This definition is exhaustive. 42 C.F.R. § 1001.952(h)(5)(vii) (the term “discount” does not
include “other remuneration, in cash or in kind, not explicitly described in paragraph (h)(5)
of this section”). And the term does not embrace collateral kickbacks or reductions in
price which are not passed on to Medicaid, as alleged in the TAC. See 42 C.F.R. §
1001.952(h)(5)(i)-(iii) (excluding from the definition of discount “cash payment or cash
equivalents”; “supplying one good or service without charge or at a reduced charge to
induce the purchase of a different good or service”; “a reduction in price applicable to one
payer but not to Medicare, Medicaid, or other Federal health care programs”). Therefore,
the kickback allegations against Omnicare are not protected by the discount safe harbor.
See also Johnson & Johnson, 765 F.Supp. 2d at 125 (rejecting defendant’s invocation of
safe harbor provisions because “[w]hile the raw amounts of the rebates may have been
disclosed, the terms and conditions of their payment were not”); cf. United States v. Shaw,
106 F.Supp.2d 103, 115-16 (D. Mass. 2000) (“Nor is it the case, as defense argues, that
[under the statutory discount exception] any discount, ‘properly disclosed and
appropriately reflected’, is exempt from criminal liability. What makes the activity illegal is
not the label that someone attaches to the form of the transaction, even if the form may
give rise to the rebuttable inference of illegality. The reason behind the transaction and
the requisite state of mind underlying the criminal act are more significant than form and
30

label.”).
(b) Claims Under § 3729(a)(1)
FCA subsection (a)(1) requires that the defendant knowingly present a false claim
for payment to the government. To meet this “presentment requirement” under Rule 9(b),
the complaint must identify with particularity the false claims for payment submitted to the
government, by pleading at least some details such as
the dates of the claims, the content of the forms or bills submitted, their
identification numbers, the amount of money charged to the government, the
particular goods or services for which the government was billed, and
individuals involved in the bills, and the length of time between the alleged
fraudulent practices and the submission of claims based on those practices.
U.S. ex rel. Karvelas v. Melrose-Wakefield Hosp., 360 F.3d 220, 232-33 (1st Cir. 2004),
abrogated in non-relevant part by Gagne, 565 F.3d at 46 n.7. Relators have done so,
identifying claims for reimbursement that Omnicare submitted to Medicaid for Remeron
during the years when Omnicare was allegedly receiving illegal kickbacks. See TAC ¶¶
142-43, and Ex. 66.
Relators have sufficiently pled the “who, what, and when” of Omnicare’s
participation in the kickback scheme, but Omnicare argues that Relators fail to allege with
particularity how the discounts and rebates induced Omnicare to participate in the
therapeutic interchange program or convert prescriptions from Remeron Tablet to
Remeron SolTab. The TAC contains allegations supporting the claim that rebate
payments drove Omnicare’s conversion of prescriptions. For example, on May 20, 2002,
when Organon amended its contract with Omnicare to increase the conversion rebate if
Omnicare met certain targets, “Omnicare promptly converted 94% of Remeron
31

prescriptions [that month], the highest rate of conversion for any long-term care pharmacy
provider.” TAC ¶ 130. Further, the TAC references a meeting between Dan Maloney,
Omnicare’s Vice President of Pharmaceutical Purchasing, and an Organon representative
on or about January 25, 2002. Notes from that meeting indicate that Omnicare explicitly
instructed American Pharmaceutical Supply (“APS”) – an LTCP that it acquired in late
2001 or early 2002 – to convert from Remeron to Remeron SolTab without asking
questions because it was a financial decision. TAC ¶ 168, Ex. 60.29 The complaint further
alleges that, in “November 2001, Omnicare’s corporate officers met with [John] Maddox
[of Organon] and told him that they wanted to develop a ‘partnership’ with Organon and
that Omnicare ‘could really drive [market] share for Remeron SolTab.’” TAC ¶ 127.
Maddox and Omnicare’s Maloney are also alleged to have discussed Omnicare’s desire
to have different purchasing contracts prepared for its members in different states; the
contracts would differ based on the state’s method of calculating its Medicaid
reimbursements, and “Omnicare would put pressure on their members to buy via the
correct contract.” TAC ¶ 127 and Ex. 59. These allegations describe the “how” of the
kickback scheme with sufficient particularity. Gagne, 565 F.3d at 45.
On the other hand, Relators’ collateral kickback allegations fail to satisfy Rule 9(b).
Relators allege that Organon’s 2001 Business Plan budgeted for sponsorship of
Omnicare annual meetings, data purchases, and other initiatives, TAC ¶ 134, and that

29

The notes read “Discussed APS moving into the Omnicare ‘family[.]’ They just finished
meetings, where they were given instructions to USE Remeron SolTab. CONVERT from Remeron to
RST [Remeron SolTab]. DON’T ASK QUESTIONS, THIS IS A FINANCIAL DECISION WITH CLINICAL
ADVANTAGES.” TAC Ex. 60 (capitalization in original).

32

Organon’s 2003 budget estimated $50,000 for “Omnicare Partnership Initiatives” in the
form of educational grants. TAC ¶ 141. That Organon budgeted for payments to
Omnicare does not confirm that such payments were actually made, that Omnicare
solicited them, or that the payments were inducements to participate in the conversion or
therapeutic interchange scheme alleged. Relators’ conclusory allegation that “Omnicare
actively pursued Organon to participate in corporate partnership programs, which were
mainly ways to funnel money to Omnicare in exchange for Remeron prescriptions,” TAC ¶
141, does not satisfy Rule 9(b).
Relators also allege that Organon and Omnicare “traded proposals to study
Remeron in the long-term care patient population.” TAC ¶ 135. Yet they concede that
Organon rejected as too expensive Omnicare’s proposed study, TAC ¶ 137, and, in
February 2001, it canceled the other study, telling “Omnicare to cease work . . . and
[paying] it for its work up to that point.” TAC ¶ 139. They do not allege that such
payments did not reflect the value of the work performed. Finally, Relators allege that in
November 2001, Organon sold Omnicare a quantity of Remeron SolTab at a nominal
price, upon the verbal understanding that the “offer was contingent upon Omnicare’s later
purchase of a similar quantity of Remeron SolTab at contracted pricing.” TAC ¶ 140. But
they do not identify the employees involved in the deal, nor allege that Omnicare made
the subsequent purchase under the terms of the purported verbal agreement.
In sum, Relators’ direct kickback claims against Omnicare survive under
subsection (a)(1), but their collateral kickback claims fail for lack of particularity under
Rule 9(b).
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(c) Claims Under § 3729(a)(2) and (a)(3).
In Allison Engine Co., Inc. v. U.S. ex rel. Sanders, 553 U.S. 662, 672-73 (2008),
the Supreme Court imposed a specific intent requirement upon all suits brought under
subsections (a)(2) and (a)(3).30 Subsection (a)(2) requires proof that “the defendant made
a false record or statement for the purpose of getting a false or fraudulent claim paid or
approved by the government.” Allison Engine, 553 U.S. at 671 (internal quotation marks
omitted). The defendant must have “intend[ed] the Government to rely on that false
statement as a condition of payment.” Id. at 672. Under subsection (a)(3)’s conspiracy
provisions, it is insufficient to plead “that the alleged conspirators agreed upon a fraud
scheme that had the effect of causing a private entity to make payments using money
obtained from the Government[]”; rather, the complaint must show that the defendants
“intended ‘to defraud the Government.’” Id. Furthermore, if defendants are alleged to
have made a false record or statement to induce government payment of a false or
fraudulent claim, the complaint must show that they “agreed that the false record or
statement would have a material effect on the Government’s decision to pay the false or
fraudulent claim.” Id. at 672-73.
Relators allege that Omnicare is “the nation’s largest provider of pharmacy
services to long-term care facilities,” TAC ¶ 26; Medicaid patients make up the majority of
residents in long-term care facilities, id. ¶ 42; Omnicare representatives wanted to partner
30

The 2009 FERA amendments eliminated subsection (a)(2)’s specific intent requirement.
FERA made these amendments retroactive to any claims for reimbursement pending on June 7, 2008.
See U.S. ex rel. Carpenter v. Abbott Laboratories, Inc., 723 F.Supp.2d 395, 402-03 (D. Mass. 2010).
Since Relators concede that no claims for reimbursement were pending on June 7, 2008, the 2009
amendments do not apply to this case, and I therefore apply the version of the FCA that was in force
prior to the 2009 amendments, including the specific intent requirement.

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with Organon and “drive [market] share for Remeron SolTab,” id. ¶ 127; Omnicare
negotiated the form of its purchasing agreements with Organon based on the state’s
method of calculating its Medicaid prescription drug reimbursement, id. ¶ 127 and Ex. 59;
Omnicare submitted false claims for reimbursement for Remeron to state Medicaid
programs, id. ¶ 142; and the “ultimate submission [by LTCPs] . . . of false claims to the
state Medicaid programs was a foreseeable factor in the Government’s loss, and a
consequence of the Defendants’ fraudulent schemes.” TAC ¶ 327. Construed in the light
most favorable to Relators, these allegations sufficiently plead that Omnicare knew that
Medicaid would be the primary payor for long-term care prescriptions, that it agreed to
participate in the kickback scheme, and that it was amply familiar with the Medicaid
system to know that any false record or statement it submitted would be material to the
government’s decision to pay or approve a claim. These allegations are sufficient to
plead specific intent under subsections (a)(2) and (a)(3). See U.S. v. Hawley, 619 F.3d
886, 895-96 (8th Cir. 2010) (government made sufficient showing of intent under
subsection (a)(2) to survive summary judgment, where defendant had extensive
experience selling federally reinsured crop insurance to know that false insurance
applications and acreage reports would be material to the government’s decision to pay or
approve the false claim); U.S. v. Ven-A-Care v. Actavis Mid. Atl. LLC, 659 F.Supp.2d 262,
270 (D. Mass. 2009) (“Given the structure of the Medicaid system, the natural and
foreseeable consequence of submitting a false claim to Medicaid is that the United States
will provide funds to pay the false claim.”).
III. State and Local Claims
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Relators concede that Count XXXI, alleging fraud against the City of Chicago,
should be dismissed. The parties agree that the following state and local false claims
statutes mirror the FCA: California, Delaware, District of Columbia, Florida, Hawaii,
Illinois, Indiana, Massachusetts, Minnesota, Montana, Nevada, New Jersey, New Mexico,
New York, North Carolina, Oklahoma, Rhode Island, Tennessee, and Virginia. Dismissal
of all federal claims (save for the retaliation claim (Count V)) against Organon and
PharMerica, likewise calls for dismissal of all claims against them under these
aforementioned statutes.31 Pending further briefing by the parties, I decline to dismiss the
state and local claims against Omnicare, or to dismiss the remaining state claims against
Organon and PharMerica.
IV. Conclusion
PharMerica’s Motion to Dismiss (Docket # 123) is ALLOWED as to all federal
claims (Counts I-III), and all state and local claims as enumerated in Part III of this
Memorandum of Decision. The Organon Defendants’ Motion to Dismiss (Docket # 128) is
ALLOWED as to Counts I-IV, and all state and local claims as enumerated in Part III of
this Memorandum of Decision. Omnicare’s Motion to Dismiss (Docket # 125) is
ALLOWED as to Relators’ collateral kickback claims, and otherwise DENIED. Count
XXXI is dismissed against all defendants.
The following claims remain against PharMerica and the Organon Defendants:
Counts X (Georgia), XIV (Louisiana), XVI (Michigan), XIX (New Hampshire), XXVI
(Texas), XXVIII (Wisconsin), XXIX (Connecticut), XXXII (Colorado), XXXIII (Maryland),
31

Counts VI-IX, XI-XIII, XV, XVII-XVIII, XX-XXV, XXVII, XXX, XXXIV.

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and XXXV (Common Fund Relief). Count V also survives against the Organon
Defendants only. All federal, state and local claims (except for Count XXXI) survive
against Omnicare to the extent they are not based on collateral kickback allegations.

June 1, 2012
DATE

/s/Rya W. Zobel
RYA W. ZOBEL
UNITED STATES DISTRICT JUDGE

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