Bartz v. Ortho McNeil Pharmaceuticals, Inc., et al
Filing
145
Judge Richard G. Stearns: ORDER entered granting in part and denying in part 108 J&J defenants' Motion to Dismiss; granting 128 McKesson Specialty's Motion to Dismiss (Zierk, Marsha)
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
CIVIL ACTION NO. 11-10316-RGS
UNITED STATES OF AMERICA,
ex rel. SCOTT BARTZ
v.
ORTHO-MCNEIL PHARMACEUTICAL, INC.; JOHNSON & JOHNSON, INC.;
JANSSEN PHARMACEUTICA, INC.; JANSSEN PHARMACEUTICA
PRODUCTS, LP; MCKESSON CORPORATION; MCKESSON SPECIALTY
PHAMACEUTICAL, LLC; OMNICARE, INC.; JOHNSON & JOHNSON
HEALTH CARE SYSTEMS, INC.; ORTHO-MCNEIL-JANSSEN
PHARMACEUTICALS, INC.; ORTHO-MCNEIL NEUROLOGICS, INC.;
JOM PHARMACEUTICAL SERVICES, INC.; and
CENTOCOR ORTHO BIOTECH, INC.
MEMORANDUM AND ORDER ON
JOHNSON & JOHNSON DEFENDANTS’ and
MCKESSON SPECIALTY PHAMACEUTICAL, LLC’S
MOTIONS TO DISMISS THIRD AMENDED COMPLAINT
March 2, 2012
STEARNS, D.J.
In this qui tam action, plaintiff Scott Bartz, a former employee of defendant
Ortho-McNeil-Janssen Pharmaceuticals, Inc. (Ortho), alleges that the defendants
collectively violated the False Claims Act (FCA), 31 U.S.C. § 3729(a). He also alleges
that Johnson & Johnson, Inc. (J&J), and Ortho-McNeil Pharmaceutical, Inc., two of the
J&J defendants,1 demoted and ultimately terminated him after he confronted corporate
executives with accusations of wrongdoing. Bartz’s allegations against the defendants
have evolved over time, as reflected in the succession of Amended Complaints. They
fall into three broad categories of alleged fraudulent conduct – the manipulation of
rebate amounts owed to the federal government under Medicaid; the false reporting of
the Average Manufacturer Price (AMP) and the Best Price of certain drugs;2 and the
payment of kickbacks to nursing home drug purchasers. At the heart of Bartz’s
allegations is the claim that pharmaceutical distributor McKesson Specialty
Phamaceutical, LLC, took kickbacks from J&J as an inducement to purchase the antipsychotic medication Risperdal Consta.
Defendants’ began, appropriately, with a challenge to the court’s subject matter
jurisdiction, which they contend is ousted by operation of the “public disclosure” and
“first-to-file” bars of the FCA. Defendants characterize Bartz’s Third Amended
1
Bartz refers to defendants Johnson & Johnson; Johnson & Johnson Health Care
Systems, Inc.; Ortho-McNeil-Janssen Pharmaceuticals, Inc.; Ortho-McNeil
Pharmaceutical, Inc.; Ortho-McNeil Neurologics, Inc.; Janssen Pharmaceutica, Inc.;
Janssen Pharmaceutica Products, L.P.; JOM Pharmaceutical Services, Inc.; and
Centocor Ortho Biotech, Inc., as the “J&J defendants.”
2
To obtain Medicare coverage, J&J must report its AMP and Best Price each
quarter, and pay Medicaid a rebate – the greater of 15.1% of AMP or the difference
between AMP and Best Price. Bartz alleges that J&J falsified its quarterly Medicare
reports of both AMP and Best Price. Third Am. Compl. ¶¶ 51-61, 78c.
2
Complaint as a hotchpotch of stale allegations “that were previously presented in
dozens of complaints and other public disclosures.” Mot. to Dismiss at 2. They also
assert that Bartz has not demonstrated that he has “‘direct and independent’ knowledge
of these claims or that he voluntarily disclosed to the government all the information
he had regarding these claims prior to filing his qui tam action as required under 31
U.S.C. § 3730(e)(4)(B).” Id. Bartz parries with his self-portrayal as an “original
source” whose information “came from direct and independent knowledge” as a Sales
Compensation Manager for Ortho, and who as a dutiful citizen “provided his
information to the United States prior to filing [his Complaint].” Opp’n Mem. at 2.
PROCEDURAL BACKGROUND
On September 20, 2005, Bartz emailed the Securities & Exchange Commission
(SEC), alleging that the J&J defendants had committed Medicare and Medicaid fraud.
A month later, on November 16, 2005, Bartz’s counsel presented the United States
Attorney’s Office in Philadelphia with an eighteen-page narrative of Bartz’s claims,
accompanied by 435 pages of documentary “evidence.”3 Orlow Decl. ¶ 4 (Opp’n
Mem. - Ex. 3). Simultaneously, Bartz filed the first iteration of this Complaint in the
United States District Court for the Eastern District of Pennsylvania.
3
Bartz’s original counsel, Marc Orlow and Ross Begelman withdrew from the
case on May 31, 2011, but have since provided Bartz with a supporting affidavit.
3
The 2005 version of the Complaint asserted two claims under the FCA, 31
U.S.C. § 3729(a). Count I alleged that by “hiding discounts and distorting ‘best price’
through purchases of unneeded data, [and] shipments of free drugs, the J&J defendants
were able to avoid paying larger Medicaid rebates which constitutes the making of false
claims.” Compl. ¶ 100. Count II alleged a conspiracy among the J&J defendants,
McKesson, and Omnicare to “hid[e] the discounted/best price through purchases of (1)
unneeded data, (2) shipments of free Drugs, (3) improperly assessing or charging
service fees and/or administrative fees, and (4) receipt of ‘service fees and/or
administrative fees’ not passed onto the Government payors.” Id. ¶ 103. Bartz alleged
that J&J was “inflating [its] earnings” by overstating sales of the drug Risperdal Consta
by “stuffing the distribution channels with large quantities of product ahead of
demand.” Id. ¶ 29. Bartz specifically named McKesson and non-parties Cardinal
Health, Inc., and AmerisourceBergen Corp. as the direct beneficiaries of the scheme
because the “channel stuffing” gave them an “unfair advantage in the Medicare Part B
bidding guidelines.” Id. ¶ 47. Bartz contended that J&J “hid [the] channel stuffing .
. . by reporting [pharmacy sales] once as an ‘Institutional sale,’ and a second time as
a ‘retail sale.’” Id. ¶ 38. The Complaint also stated that Janssen “appears to purchase
sales data from key customers [McKesson] as a way of providing them a discount
while fraudulently hiding the best price.” Id. ¶ 43. Bartz claimed that in 2004,
4
McKesson, Cardinal, and AmerisourceBergen began billing J&J for a “service fee” for
providing previously complimentary services, including overnight shipping, direct
physician or customer billing, and the expedited processing of emergency orders. Bartz
contends that these “fees” were in reality kickbacks.4
Bartz filed supplemental materials with the United States Attorney’s Office on
April 3, 2006, and amended his Complaint on July 7, 2007. Bartz embellished the
Medicaid rebate fraud claim by adding the following details.
The J&J Defendants recklessly and willfully corrupt “Best Price”
calculations and reporting on the J&J Products through a variety of
fraudulent schemes, which upper management executives were and are
aware of by, inter alia, (i) providing discounts in the form of cash
payments or reductions in price that constitute remuneration which they
do not submit, report or certify to CMS [Center For Medicare and
Medicaid Services], (ii) providing free goods that are conditional on the
purchase of other products that constitute remuneration which they do not
submit, report to certify to CMS, (iii) make payment of fees to distributors
and customers such as McKesson and Omnicare requiring no services that
act as discounts, (iv) fraudulently manipulate J&J finance databases, (v)
fraudulent manipulation of data used to calculate prices, [vi] willfully,
recklessly and fraudulently conspires with business partners via contracts,
off the book agreements, payments, and joint ventures which fall outside
Anti-kickback Safe Harbor provisions, all of which are designed to hide
true prices & discounts, and to report false prices to the Government.
4
Bartz also alleged a retaliation claim under New Jersey’s Conscientious
Employee Protection Act, N.J.S.A. 34:19-3, based on the alleged repercussions of his
internal complaint to J&J that it had committed “Sarbanes Oxley violations.” Id. ¶¶
292-299.
5
First Am. Compl. ¶ 30 (Dkt # 14). See also id. ¶¶ 68-107, 157.
Bartz filed a Second Amended Complaint on October 30, 2007, adding five
government entities as plaintiffs and alleging that the J&J defendants had failed to
report accurate AMP, Average Sales Price (ASP), and Best Price for various drugs by
failing to properly account for free goods, discounts, bundled sales, and service fees in
the price listings.5 Id. ¶¶ 68-104. On October 15, 2008, the United States declined to
intervene in Bartz’s lawsuit. See Dkt # 25.
On February 10, 2011, Bartz amended his Complaint again, making substantial
additions (as well as deletions) to his claims in a 141-page, 358-paragraph Third
Amended Complaint. See Dkt #74. Many of the allegations echoed past iterations of
the Complaint, such as the non-reporting of data purchases and the gifting of goods,
and data manipulation resulting in fraudulent reporting of AMP and Best Price. Bartz
expanded the list of drugs said to figure in the illegal price reporting and kickback
scheme to include Razadyne IR and Razadyne ER, and Risperdal. Bartz contends that
J&J reported false and fraudulent (inflated) Average Wholesale Price (AWP),
Wholesale Acquisition Cost (WAC), AMP, ASP, Best Price, and non-Federal Average
5
Bartz’s allegations had previously centered on the J&J drug Risperdal Consta.
In the Second Amended Complaint, Bartz added allegations regarding the Alzheimer
drug Razadyne (manufactured by Ortho-McNeil Neurologics, Inc.), while abandoning
the “channel stuffing” claims against all defendants.
6
Manufacturers Price (non-FAMP) for these drugs causing retailers to receive inflated
payments and reimbursements, making J&J products more attractive to retailers, and
wrongfully reducing the rebate payments J&J owed to Medicaid.6 Bartz alleges that
the false price reports resulted from hidden discounts (primarily in the form of free
goods), the underreporting of sales, the inflating of AMPs, the use of dummy accounts,
and the misclassification of purchasers. Id. ¶¶ 152-199. Bartz maintains that various
free goods, “performance rebates,” “administrative fees,” discounts, and service fee
payments to Omnicare and drug wholesalers were illegal “kickbacks.” Id. ¶¶ 232-258.
With regard to McKesson Specialty, Bartz asserts that it accepted kickbacks
from J&J in connection with its purchase of J&J products. Bartz alleges that J&J’s
payment arrangements with McKesson Specialty (“and other distributors”), included
illegal “kickbacks” in the form of “prompt pay cash discounts,” fees paid to distributors
6
Bartz claims that in 2004, J&J began excluding its sales to Omnicare
pharmacies from its calculation of AMP. Bartz also contends that J&J excepted any
drugs gifted to Omnicare (and others) from Best Price reporting, even when the
bestowed drug was contingent on Omnicare’s future purchases of the same drug. Third
Am. Compl. ¶ 167. Bartz includes spreadsheets for sales of Risperdal from January of
2004 through June of 2005, recorded at $0.00 WAC. Id. ¶ 169. He also provides
spreadsheets that allegedly indicate that invoiced sales of J&J products to “long term
care pharmacies were significantly lower than the sell-out from those pharmacies.” Id.
¶ 170. As an example, Bartz notes that in 2004, invoiced sales of Risperdal to long
term care pharmacies were $376,069,057, while the sell-out was $485,287,183. Id.
7
for previously free services, “price protection payments,” “discounts” to Group
Purchasing Organizations, and payments for training materials and services. Id. ¶¶
232-258. Bartz alleges that the “kickbacks” caused “Omnicare and others to file false
reports for reimbursement to various healthcare programs” making the scheme
actionable as a per se violations of the FCA (§§ 3729(a)(1), (2), (3), and (7)), and the
false claims acts of twenty-two states, the District of Columbia, and the City of New
York. See Opp’n Mem. at 5. To date, no State has moved to intervene in this lawsuit.
The Third Amended Complaint includes counts under 31 U.S.C. § 3729(a)(1)
of the FCA for the presentation of false claims (Count I); a newly-minted FCA count
for payment of kickbacks in violation of the federal Anti-Kickback Statute (AKS), 42
U.S.C. § 1320a-7b (Count II); retaliation in violation of 31 U.S.C. § 3730(h) of the
FCA (Count III); violations of the New Jersey CEPA, N.J.S.A. 34:19-1 (Count IV);
intentional infliction of emotional distress (Count V); and violations of various state
FCAs (Counts VI - XXX).7 Defendants Omnicare, Inc., and McKesson Corporation
7
Like the federal FCA, these state statutes impose liability on any person who:
(1) knowingly presents, or causes to be presented, a false or fraudulent claim for
payment or approval to a state; (2) knowingly makes, or causes to be made or used, a
false record or statement to get a false or fraudulent claim paid or approved by the
state; or (3) conspires to defraud the state by getting a false claim allowed or paid. See,
e.g., Cal. Gov’t Code § 12651(a)(1)-(3); Ga. Code Ann. § 49-4-18.1(a)(1)-(3); Haw.
Rev. Stat. § 661-1(a)(1)-(3); 740 Ill. Comp. Stat. § 175/3(a)(1)(A)-(C); Ind. Code § 511-5.5-2(b); N.J. Stat. Ann. § 2A:32C-1; N.H. Rev. Stat. § 167:61-b(VII)(b); N.M.
8
moved to dismiss the FCA counts of the Third Amended Complaint. On February 23,
2011, Judge Paul Diamond granted J&J’s unopposed motion to transfer venue of the
case from the Eastern District of Pennsylvania to this court. On June 10, 2011, Bartz
dismissed his claims against Omnicare and McKesson pending consent from the United
States, the named States, and this court’s approval. See 31 U.S.C. § 3730(b)(1); Mass.
Gen. Laws ch. 12, § 5C(2).
The J&J defendants and McKesson Specialty now move to dismiss the Third
Amended Complaint based on the FCA’s public disclosure and first-to-file bars.
Defendants list a series of lawsuits filed prior to Bartz’s November 16, 2005 Complaint
that contain allegations that J&J reported false AWP, WAC, AMP, and Best Price. In
his Opposition to J&J’s Motion to Dismiss, Bartz withdrew the AWP and WAC pricing
fraud claims against all defendants. Opp’n Mem. at 11 n.11.
FACTUAL BACKGROUND
Bartz, a New Jersey resident, was employed by various J&J defendants from
August 23, 1999, to April 20, 2007. Bartz initially worked as a sales representative for
Janssen Pharmaceutica, Inc., where he was promoted to “Senior Analyst, Sales
Incentive Compensation” on February 17, 2003. Third Am. Compl. ¶ 11. On January
Stat. Ann. § 27-14-4(A)-(D); N.Y. State Fin. Law § 189(1)(a)-(c); 63 Okla. St. Ann.
§ 5053.6; R.I. Gen. Laws Ann. 1956, § 9-1.1-5.
9
5, 2004, Bartz was transferred to Ortho, and on January 5, 2004, was promoted to
“Sales Incentive Compensation Manager.” Id. ¶¶ 11, 107-109, 126. On June 7, 2005,
Bartz was demoted, ostensibly because his “internal customers were not happy,
including [the] National Sales Director . . . [and] Field Sales Director.” Id. ¶ 105. On
June 27, 2005, Bartz received a notice of “Reassignment” with a concomitant salary
reduction and change in the structure of his bonus earnings. Id. ¶ 108. In July of 2005,
he received a “very critical evaluation from his supervisor.” Id. Bartz was terminated
by J&J on April 20, 2007, allegedly in retaliation for his whistleblowing.
DISCUSSION
“To survive a motion to dismiss, 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 omitted). “While a complaint
attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual
allegations, a plaintiff’s obligation to provide the grounds of his entitlement to relief
requires more than labels and conclusions, and a formulaic recitation of the elements
of a cause of action will not do.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555
(2007) (internal citations and quotations omitted). “A suit will be dismissed if the
complaint does not set forth ‘factual allegations, either direct or inferential, respecting
each material element necessary to sustain recovery under some actionable legal
10
theory.’” United States ex rel. Hutcheson v. Blackstone Med., Inc., 647 F.3d 377, 384
(1st Cir. 2011), quoting Gagliardi v. Sullivan, 513 F.3d 301, 305 (1st Cir. 2008).
Bartz’s federal FCA claims are based on 31 U.S.C. § 3729(a)(1) and (a)(2).
Subsection (a)(1) prohibits the knowing presentment of a false claim for payment to the
government, or (as alleged here) causing such a presentment to be made. Subsection
(a)(2) prohibits the creation or use of false records and statements as part of a scheme
to persuade the government to pay a false claim. While subsection (a)(1) requires an
actual presentment of a false claim, subsection (a)(2) prohibits making or the causing
to be made a false record or statement in support of a false claim.8
The review begins, where it must, with the J&J defendants and McKesson
Specialty’s jurisdictional challenges under the “public disclosure,” “first-to-file,” and
“original source” bars. “Nothing can justify adjudication of a suit in which . . . there
is some [ ] obstacle to justiciability.” Sherman v. Cmty. Consol. Sch. Dist. 21, 980 F.2d
8
These and other provisions of the FCA were significantly amended by the
Fraud Enforcement and Recovery Act of 2009 (FERA), Pub. L. No. 111-21, 123 Stat.
1617 (2009). Most FERA amendments took effect on May 20, 2009. The amendment
to Section 3729(a)(2) applies retroactively to claims pending on or after June 7, 2008.
See United States ex rel. Carpenter v. Abbott Labs., Inc., 723 F. Supp. 2d 395,
401-403 (D. Mass. 2010) (analyzing FERA’s effective date and retroactivity
provisions). While Bartz makes reference in his Third Amended Complaint to FERA’s
amendments (see n.1), all of his allegations involve events occurring between 1999 and
2007, before FERA’s effective date and prior to the retroactive application of Section
3729(a)(2). Accordingly, the pre-FERA version of the FCA applies in this case.
11
437, 440 (7th Cir. 1992). Whether a relator is qualified to bring a qui tam action under
the FCA is a question of subject matter jurisdiction. See Rockwell Int’l Corp. v. United
States, 549 U.S. 457, 468 (2007). “The basis for jurisdiction must be apparent from
the facts existing at the time the complaint is brought.” United States ex rel. Poteet v.
Medtronic, Inc., 552 F.3d 503, 510 (6th Cir. 2009), citing Steel Co. v. Citizens for a
Better Env’t, 523 U.S. 83, 94-95 (1998).
Public Disclosure Bar of the FCA
By act of Congress, a relator is barred from filing a qui tam complaint under the
FCA based
upon the public disclosure of allegations or transactions in a criminal,
civil, or administrative hearing, in a congressional, administrative, or
Government Accounting 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). A sequential four-step analysis is followed in determining
whether a lawsuit is precluded by the public disclosure bar:
(1) whether there has been public disclosure of the allegations or
transactions in the relator’s complaint; (2) if so, whether the public
disclosure occurred in the manner specified in the statute; (3) if so,
whether the relator’s suit is “based upon” those publicly disclosed
allegations or transactions; and (4) if the answers to these questions are
in the affirmative, whether the relator falls within the “original source”
exception as defined in § 3730(e)(4)(B).
United States ex rel. Rost v. Pfizer, Inc., 507 F.3d 720, 728 (1st Cir. 2007), abrogated
12
on other grounds by Allison Engine Co. v. United States ex rel. Sanders, 553 U.S. 662
(2008).
Allegations of fraud are publicly disclosed when they are placed in the “public
domain.” Rost, 507 F.3d at 730-731. See also United States ex rel. Doe v. John Doe
Corp., 960 F.2d 318, 322 (2d Cir. 1992). While the allegations need not be common
fodder, they must be disseminated beyond the government’s inner precincts. See Rost,
507 F.3d at 728. If the court finds a prior disclosure of an alleged fraud, it then
determines whether the disclosure comes from one of the three statutorily specified
sources – (1) “criminal, civil, or administrative hearing[s],” (2) “congressional,
administrative, or Government Accounting Office report[s], hearing[s], audit[s], or
investigation[s],” or (3) “from the news media.” United States ex rel. Poteet v. Bahler
Med., Inc., 619 F.3d 104, 113 (1st Cir. 2010), quoting Graham Cnty. Soil & Water
Conservation Dist. v. United States ex rel. Wilson, 130 S. Ct. 1396, 1401-1402 (2010).
Allegations contained in a civil or criminal complaint that are on file in a court clerk’s
office, or are reported in the news media are “publicly disclosed” for purposes of §
3730(e)(4)(A). Poteet, 619 F.3d at 111 (“A civil complaint filed in court qualifies as
a public disclosure. The cases are in agreement.”), citing Kennard v. Comstock Res.,
Inc., 363 F.3d 1039, 1043 (10th Cir. 2004) (“Once a complaint is filed, a civil action
has commenced and public disclosure has occurred. . . . It is not necessary that the
13
filing clerk or any member of the public [actually] read the complaint.”). See also
United States v. Johnson Controls, Inc., 457 F.3d 1009, 1013 (9th Cir. 2006) (civil
complaint filed in state court satisfies the disclosure rule).9
The J&J defendants and McKesson Specialty assert that Bartz’s FCA claims are
barred by a parade of previously filed cases.
J&J lists the following “public
disclosures” of Bartz’s allegations: various AWP cases (J&J’s Mem. - Exs. 1 - 8);
several news media reports (Id. - Exs. 14, 15, 18 and 19); and several Massachusetts
FCA cases - Maguire, Kammerer, and Lisitza (Id. - Exs. 9 - 11). To determine
whether these various sources trigger the public disclosure bar, the court must compare
their content with Bartz’s Amended Complaint and extract any “substantial
similarit[ies]” in their factual assertions. Poteet, 619 F.3d at 114. The test is one of
similarity, and not originality of sources. “[A]s long as the relator’s allegations are
substantially similar to information disclosed publicly, the relator’s claim is ‘based
upon’ the public disclosure even if he actually obtained his information from a different
source.” United States ex rel. Ondis v. City of Woonsocket, 587 F.3d 49, 57 (1st Cir.
2009).
9
The United States Supreme Court also reads the phrase “administrative . . .
report, hearing, audit, or investigation” to encompass not only federal, but also state
and local, government sources. See Graham Cnty., 130 S. Ct. at 1411.
14
In August of 2003, the State of Montana filed suit against J&J (and others)
alleging the reporting of false AWP, AMP, and Best Price “by failing to accurately
account for [defendants’] practices of offering free goods, volume discounts, credits,
[and] rebates” and by failing to properly account for “chargebacks, credits, rebates,
hidden price discounts and/or other unlawful financial inducements, including free
samples.” Montana v. Abbott Labs., Inc., No. CV-02-09-H-DWM (D. Mont. Aug. 1,
2003) Compl. ¶¶ 9, 12; compare Bartz Compl. ¶¶ 612, 651. The City of New York
made almost identical allegations against J&J in a 2004 lawsuit – that J&J reported
false AWP, AMP, and Best Price for its pharmaceutical products by failing to properly
account for “chargebacks, two percent prompt pay discounts, free samples distributed
by sales representatives, and other credits, rebates and hidden discounts and financial
incentives.” City of N.Y. v. Abbott Labs., Inc., No. 04-CV-06054 (S.D.N.Y. Aug. 4,
2004) Compl. ¶¶ 117-121. The New York Complaint also alleged that J&J paid “an
array” of illegal “inducements to stimulate sales of [its] drugs . . . including . . . volume
discounts, and rebates or free goods . . . designed to result in a lower net cost to the
purchaser while concealing the actual cost price beneath a high invoice price.” Id. ¶
120.
The AWP class action litigation (a collection of non-qui tam cases) consolidated
before Judge Saris also predated Bartz’s claims. In the AWP cases, plaintiffs alleged
15
that J&J’s false reporting of AWPs was part of a conspiracy with others in the
pharmaceutical distribution chain to conceal “volume discounts, rebates, off-invoice
pricing, [and] free goods,” by “ke[eping them] ‘off the book[s],’ so as to not be
reflected in the AWP.” In re Pharm. Indus. Average Wholesale Price Litig., MDL
1456, Civ. No. 01-12257, Third Am. Compl. ¶ 183 (D. Mass. Oct. 17, 2005); see also
id. (alleging “non-public financial inducements to stimulate [drug] sales”); id. ¶ 447
(listing each of the J&J drugs also identified in Bartz’s Third Amended Complaint).
On April 11, 2005, relator Dr. William St. John LaCorte, in a Second Amended
Complaint filed in Louisiana, alleged that J&J subsidiary Janssen paid “financial
inducements in the form of discounts, remuneration, rebates, or kickbacks” to
AmerisourceBergen subsidiary PharMerica in order to promote the sales of its drugs.
United States ex rel. LaCorte v. AmerisourceBergen Corp., 02-3168 (D. La. 2005),
Second Am. Compl. ¶ 118. LaCorte also alleged that “[t]he financial inducements the
Defendants receive from pharmaceutical manufacturers [identified to include Janssen]
in exchange for achieving and maintaining the targeted market share result in these
manufacturers charging the Defendants substantially less for the substituted drugs than
the ‘best prices’ for these drugs these pharmaceutical companies are reporting and
certifying to the DHHS [Department of Health & Human Services] each quarter.” Id.
¶ 127. LaCorte contended that as a result, “[t]he United States government is not . .
16
. receiving the actual ‘best price’ for these drugs required by law and the
manufacturer’s Rebate Agreement with the Secretary of the DHHS” because the
pharmaceutical manufacturers submit “inaccurate utilization, cost and pricing data . .
. to the DHHS, CMS, and other government agencies.” Id. ¶¶ 127-128. LaCorte also
specified that “Janssen gave [AmerisourceBergen subsidiary] PharMerica price
discounts or rebates or other financial incentives on the purchase of Risperdal.” Id. ¶
163. In exchange, PharMerica obtained “unauthorized financial inducements from
Janssen to promote the use of Risperdal and increase its market share,” resulting in
Risperdal being favored over cheaper alternatives. Id. ¶ 168. See also id. ¶¶ 158-175.
In March of 2005, a lawsuit filed by the Commonwealth of Pennsylvania alleged
that J&J “used free goods . . . as a method of providing hidden price concessions or
reductions in the acquisition costs for their drugs,” including the provision of “free
product bundled with other products, such as ‘buy ten get one free’ deals.”
Commonwealth of Pennsylvania v. Abbott Labs., No. 212 M.D. 2004, Am. Compl. ¶¶
97-98 (J&J - Ex. 1). Pennsylvania also alleged that J&J falsely reported AWP, AMP,
and Best Price by omitting the accounting of “free goods” and by failing to properly
account for “routine discounts, rebates, off-invoice transactions, . . . and other
inducements offered to participants in the drug distribution chain.” Id. ¶¶ 103, 505,
710-711.
17
Defendants also point to several FCA actions filed in this session. On July 16,
2002, Deborah Maguire, a former Omnicare employee, filed suit alleging that Omnicare
accepted kickbacks in exchange for ordering J&J’s Risperdal. See United States ex
rel. Maguire v. Omnicare, Inc., No. 02-11436-RGS (D. Mass. July 16, 2002).
Specifically, the Maguire Complaint alleged that Omnicare “solicit[ed] price discounts
from drug manufacturers in exchange for promises that Omnicare’s consulting
pharmacists would recommend particular drugs.” Maguire Am. Compl. ¶ 26; see also
id. ¶ 18 (alleging that “Omnicare’s promises to recommend particular drugs through its
pharmacy consultants” were not sheltered by the AKS’s “safe harbor” provisions).
Thereafter, on October 28, 2003, and October 27, 2005, plaintiffs David
Kammerer and Bernard Lisitza, respectively, filed related cases naming J&J, among
others, as a defendant. Kammerer alleged that Omnicare had received kickbacks from
J&J to give purchasing preference to its products, allegedly in violation of both the
AKS and FCA. See United States ex rel. Kammerer v. Omnicare, (D. Mass. 0511518-RGS), First Am. Compl. ¶¶ 2-4, 48, 53-59. The kickbacks to Omnicare were
allegedly in the form of “‘post-purchase discounts’ and rebates, as well as free goods,
price-freezes, grants and other cash payments.” Id. ¶ 2. Kammerer also alleged that
J&J “concealed cash and in-kind remuneration intended to secure Omnicare’s business,
including free product and various cash payments,” and that such inducements were
18
wrongly excluded from J&J’s best price reports “on various products.” Id. ¶ 58.
In United States ex rel. Lisitza v. Pfizer, No. 03-C-5958 (E.D. Pa. 2003), Lisitza
alleged that Omnicare received kickbacks from J&J’s subsidiary Ortho-McNeil to favor
its products over others, again violating both the AKS and FCA. Compl. ¶¶ 2-6, 53-62
(J&J - Ex. 11). The Lisitza Amended Complaint (filed in November of 2006) alleged
that “the result” of the kickback scheme was that Omnicare was given “a far better net
price on its ‘preferred’ medication than it gave any other entity – after the kickbacks
were subtracted. This net price was Defendant Manufacturers’ true ‘best price.’ [J&J]
did not disclose this actual best price to the government. As a result, [J&J’s] Medicaid
rebates were grossly understated.” Lisitza Am. Compl. ¶ 13.
The Complaint in United States ex rel. Pauly v. Johnson & Johnson, No.
CV06-2461 (C.D. Cal. 2006) (J&J - Ex. 13), was filed on April 26, 2006, prior to the
filing of Bartz’s Second and Third Amended Complaints. The Pauly Complaint
contained allegations that the J&J defendants “concocted a new illegal scheme to
disguise discounts to wholesalers so that defendants could then falsely report an
inflated ASP in their quarterly ASP reports to CMS.” Id. ¶ 14. Pauly also contended
that the J&J defendants had “funnel[ed] undisclosed discounts to a select group of
Remicade® wholesale distributors, while giving discount prices to end purchasers,”
while “knowingly [not reporting] these discounts as adjustments in their quarterly ASP
19
calculations to CMS.” Id. ¶ 15. Also echoed in Bartz’s Third Amended Complaint is
the allegation by Pauly that the J&J defendants engaged in an “Inventory Fee” scheme
that was, “in reality, a disguised volume discount . . . to encourage medical providers
purchasing their drugs to receive an inflated reimbursement rate from CMS.” Id. ¶ 18.
J&J next points to contemporary news stories and industry journal publications
that anticipated the basic outline of Bartz’s claims. In 2004, the Wall Street Journal
reported that AmerisourceBergen, Cardinal Health, and McKesson “aim to charge
brand-drug companies fees for services the wholesalers have long performed, such as
packing, shipping, and billing for drugs, as well as for some extras, such as providing
data.” Heather Won Tesoriero, Drug Wholesalers Change Methods – Distributors Set
Service Fees For Manufacturers In Shift From ‘Arbitrage’ Approach, Wall St. J., Nov.
12, 2004, at C3. Similar reports appeared in the trade journals. See R. David Yost,
New Economics of the Pharmaceutical Supply Chain, 62 Am. J. Health-Syst. Pham.
525-526 (Mar. 2005) (reporting that “[t]he big three distributors (AmerisourceBergen,
Cardinal Health, and McKesson) . . . are driving additional efficiencies in the supply
chain as the distributor-manufacturer relationship evolves to a fee-for-service model.
In this model, pharmaceutical manufacturers pay wholesalers for the services they
provide in moving products from the manufacturers to customers.”); Cardinal to
Restate Earnings; Urgency Behind Fee-For-Service?, The Pink Sheet, Sept. 20, 2004,
20
Vol. 66, No. 38, Article # 660380023 (“The Cardinal [Health earnings] restatement is
likely to encourage wholesalers to continue to be aggressive in seeking to move past
those contracts to a fee-for-service arrangement. . . . That reality may be one factor in
the decision by Cardinal and McKesson to set deadlines for manufacturers to accept
new contracting models that involve payment directly for distribution services.”); Jim
Miller, New Supply-Chain Dynamics Create a Distribution Services Sector, Pharm.
Tech., at 86 (Jan. 2004) (identifying AmerisourceBergen, Cardinal Health, and
McKesson as distributors using a “new distribution business model [which] will
emphasize a fee-for-service relationship between the pharmaceutical company and the
distributor. Distributors will receive a negotiated fee for storing the product, handling
and fulfilling orders from pharmacies, and shipping the drug to the pharmacies. They
expect to receive premium fees for higher-value services such as handling drugs that
require maintenance of a cold chain or controlled substances requiring extra
security.”).10 McKesson Specialty points the court to two additional articles regarding
the practice of pharmaceutical wholesalers charging administrative fees for services
previously provided for free. See Dinah Wisenberg, UPDATE: Drug Wholesaler
10
The U.S. Government subsequently endorsed this transition to a
fee-for-service model by permitting fees to be paid for these services and excluding
these fees from price reporting. See, e.g., 2010 Patient Protection and Affordable Care
Act, Pub. L. No. 111-148, 42 U.S.C. § 1396r-8(k)(1)(B)(I).
21
Warnings Reflect Ongoing Pressure, Dow Jones News Service, Oct. 6, 2004; Dinah
Wisenberg, UPDATE: AmerisourceBergen Slashes FY05 Forecast, Dow Jones News
Service, Mar. 28, 2005. It also points to a government report regarding “prompt
payment discounts” to demonstrate that these were no secret prior to Bartz’s first filing
of his Complaint. See U.S. Gov’t Accountability Office, GAO-05-102, Medicaid Drug
Rebate Program: Inadequate Oversight Raises Concerns About Rebates Paid to States,
Feb. 2005 at p. 17, available at http://www.gao.gov/new.items/d05102.pdf. (“In
examining manufacturers’ practices, we found that they generally provided a prompt
payment discount of 2 percent of the purchase price to wholesalers and others that
purchased drugs from them directly, when they paid within a specified period. In most
cases, when the manufacturers we reviewed sold a drug directly to a purchaser, they
reduced the purchaser’s price by any applicable prompt payment discount when
determining best price and AMP.”).
As a matter of law, the information in these previously filed complaints and news
reports are “public disclosures” for purposes of the barring rule of the FCA. See
Poteet, 619 F.3d at 113. A comparison of these disclosures with the allegations made
by Bartz demonstrates that all of the “essential elements” of Bartz’s claims – the
allegedly false AMP and Best Price arising from free goods and hidden discounts, and
the “kickbacks” in the form of discounts and payment of administrative fees to promote
22
particular pharmaceutical products – were in the public domain prior to Bartz’s various
Complaints through the AWP Litigation, the Massachusetts Litigation, the LaCorte,
Pauly, Montana, City of New York, and Commonwealth of Pennsylvania lawsuits, and
general news reporting. Although these materials did not specifically reference the
ASP and non-FAMP reporting, their allegations regarding AWPs, WACs, AMPs, and
Best Prices were more than sufficient to place the government on notice of J&J’s
alleged reporting fraud.11 See, e.g., Ondis, 587 F.3d at 58 (“When the material
elements of a fraud are already in the public domain, the government has no need for
a relator to bring the matter to its attention.”); United States ex rel. Branch Consultants
v. Allstate Ins. Co., 560 F. 3d 371, 380 (5th Cir. 2009) (“[O]nce the government knows
the essential facts of the fraudulent scheme, it has enough information to discover
related fraud.”); United States ex rel. Gilligan v. Medtronic, Inc., 403 F.3d 386, 391
(6th Cir. 2005) (applying public disclosure bar where prior allegations, although
reflecting “a slightly different type of fraud than the fraud alleged . . . were sufficiently
general that they could encompass the fraud alleged in the qui tam action.”). As J&J
persuasively argues, “the data included and excluded in ASP is, by statute, the same
as Best Price.” 42 U.S.C. § 1395w-3a. Similarly, there are significant similarities
11
While Bartz states in his Opposition Memorandum that he is withdrawing the
AWP and WAC pricing fraud claims, some of the related allegations remain relevant
to the court’s consideration of other of Bartz’s claims.
23
between the data rules for AMPs, Best Price, and non-FAMP.12 See 42 U.S.C. §
1396r-8(k)(1) (AMP); 42 U.S.C. § 1396r-8(c)(1)(c) (Best Price); 38 U.S.C. §
8126(h)(5) (non-FAMP).
Bartz claims that he slips under the public disclosure bar because he has gathered
for government consumption additional tidbits, including financial accounting records
and explanations of internal accounting policies. Regardless of the value to the
government of these elaborations on what was already known, the public disclosure
bar’s focus is on notice and not detail.
Allowing such a suit would allow potential qui tam plaintiffs to avoid the
public disclosure bar by pleading their complaints with more and more
detailed factual allegations slightly different from more general allegations
already publicly disclosed. Given that the purpose of the qui tam action
is to prosecute fraud of which the government is unaware, such a result
would not advance Congress’ purpose, and would only multiply the
number of parasitic qui tam actions pursued by plaintiffs.
Dingle v. Bioport Corp., 388 F.3d 209, 215 (6th Cir. 2004).
Bartz argues that the Best Price allegations brought to light prior to his
Complaint were too vague to qualify as true (and therefore disqualifying) disclosures.
This court rejected this same argument in Lisitza:
[i]n County of Suffolk (New York) v. Abbott Labs., Inc., No. 03-C-10643,
MDL No. 1456 (D. Mass. Aug. 1, 2003), the plaintiff County alleged that
12
As J&J notes, “[n]on-FAMP is, after all, Non-Federal Average Manufacturer
Price and AMP is Average Manufacturer Price.” J&J Mem. at 11 n.5.
24
J & J and others had reported false best prices and did not as a matter of
routine “report the actual ‘best price’” to Medicaid, and while “utiliz[ing]
an array of other inducements to stimulate sales of their drugs . . .
including educational grants, volume discounts, and rebates.” Suffolk
Compl. ¶¶ 84, 87. Suffolk specifically named . . . Risperdal, . . . and
Levaquin, id. ¶¶ 250-251, many of the same drugs identified in the
relators’ best price allegations. Similarly, the Westchester and Rockland
Complaints accused J & J, among others, of “routinely” failing to report
best prices by omitting “discounts, free samples and other inducements.”
Westchester Compl. ¶¶ 79, 236; Rockland Compl. ¶¶ 78, 236. Finally, the
Nevada Complaint accused J & J of “routinely requir[ing] customers [to]
keep secret the prices they were being charged for J & J drugs” and
omitting from its “best price” calculations numerous “inducements” such
as “volume discounts, rebates, [and] educational grants.” Nevada Compl.
¶¶ 302, 316, 392. These complaints, singly and collectively, brought to
light all of the “essential elements” of Lisitza’s best price allegations.
Lisitza, 765 F. Supp. 2d at 123-124.13 Finally, compounding the bar to Bartz’s claims
are the lawsuits brought by the Pennsylvania Attorney General and the State of Illinois
naming J&J and alleging false price reporting based upon “free goods, hidden price
concessions . . . rebates, discounts and other incentives.”
Commonwealth of
Pennsylvania v. TAP Pharm. Prod., Inc., No. 212 M.D. 2004, Compl. ¶¶ 97-98 (filed
March 14, 2005); State v. Abbott Labs, Inc., No. 05-CH-02474, Compl. ¶¶ 56, 60, 63
(Ill. Cir. Ct. 2005) (filed Feb. 7, 2005). This assemblage of publicly disclosed material
13
Bartz argues that several of the prior cases discussed by the court in its Lisitza
decision were not qui tam cases. Opp’n Mem. at 10. There is nothing in the FCA’s
public disclosure exception or precedential case law declaring non-qui tam cases
incapable of alerting the government to fraud any more so than newspaper and trade
publications.
25
had set the government squarely on any trail of fraud long before Bartz arrived on the
scene with his claims and allegations.
Original Source
Despite the apparent prior public disclosures of the essential elements of Bartz’s
claims, a possible “escape hatch” nonetheless remains open if Bartz can show that he
is their “original source.” See Ondis, 587 F.3d at 58-59. A relator claiming to be an
“original source” must (1) “ha[ve] ‘direct and independent knowledge’ of the
information supporting [his] claims and (2) [must have] ‘provided the information to
the Government before filing an action.’” United States ex rel. Duxbury v. Ortho
Biotech Prods., L.P., 579 F.3d 13, 16 (1st Cir. 2009). The word “before” is important:
section 3730(b)(4) “does not permit us to consider the Information which was provided
[to the government] after the filing of the [second-filed] Complaint.” Id. at 33. See
also United States ex rel. Nowak v. Medtronic, Inc., 2011 WL 3208007, at *18 (D.
Mass. July 27, 2011). On the issue of whether he in fact is an “original source,” Bartz
bears the burden of proof.
See 31 U.S.C. § 3731(c); Glaser v. Wound Care
Consultants, Inc., 570 F.3d 907, 913 (7th Cir. 2009).
Bartz’s claim to be an original source makes its first appearance in the Third
Amended Complaint, where it is said in passing that “the allegations set forth in the
Complaint are based upon the direct and independent knowledge of the relator, a
26
former insider of the J&J Defendants . . . . This lawsuit is based solely on information
and knowledge obtained by Relator in his position as a J&J insider.” Third Am.
Compl. ¶ 13. No supporting details are offered. Nor do the three prior iterations of the
Complaint contain any mention of disclosures to the government or statements that
would corroborate Bartz’s status as an original source.14 See Duxbury, 579 F.3d at 28
(“[W]e are under no obligation to credit McClellan’s conclusory [original source]
allegations, which simply parrot the elements of the statute.”). Viewed as a single
piece, the Complaints present a kaleidoscope of ever-shifting parties and fraud claims.
While the initial Complaint had focused on so-called “channel stuffing,” by the time the
Third Amended Complaint had evolved, these claims had disappeared to be replaced
by generic allegations of kickbacks in violation of the AKS, and the claims of
fraudulent price reporting have shrunk to allegations involving only the AMP and Best
Price.
In his Opposition, Bartz makes the claim that he was “well positioned to observe
14
J&J asserts in its Reply Brief that Bartz’s counsel admit that much of the
information contained in the Third Amended Complaint was gleaned from the Texas
Attorney General’s investigative files – materials obtained after Bartz’s initial
Complaint was filed. See Reply at 8 & n.9; Opp’n Mem. - Exs. C & F. Bartz counters
with the affidavit of Susan Miller, an Assistant Attorney General for the State of Texas,
who avers that her office files contain date-stamped materials from Bartz from
December 5, 2006, with additional materials dated May 30, 2007. The Third Amended
Complaint was filed in this court on February 10, 2011.
27
first-hand the sales data used to calculate sales bonuses.” Opp’n Mem. at 13. Bartz
cites as his sources for sales information J&J’s “Information Management Department”
(including Xponent®, Plan Trak™, and DDD™), and data derived from records obtained
from Omnicare, McKesson and VA CARES. Third Am. Compl. ¶¶ 92-96. However,
on the operative elements of his claims (fraudulent price reporting and kickbacks),
Bartz makes no showing even suggesting any first-hand knowledge. He simply states
in an affidavit that he “copied numerous documents and data from the computer
systems I had access to as part of my employment. I provided the documents and data
to my counsel to forward to the United States and the various states.” Bartz Decl. ¶ 3.
J&J points out that AMP and Best Price, under current program requirements,
are reported in the Drug Data Reporting System, which is a Centers for Medicare and
Medicaid Services (CMS) system, not a J&J system, and that only certain enumerated
employees can access the CMS system using their Social Security numbers. Cf. 42
C.F.R. 447.510(g). Similarly, ASP is reported to CMS through a proprietary system.
Bartz does not claim that he had access to either of these systems either directly or
surreptitiously.
With regard to the timing of Bartz’s government disclosures, his former counsel
states that on September 20, 2005, Bartz emailed the SEC a summary of his allegations,
and then on November 16, 2005, counsel delivered to the Philadelphia U.S. Attorney’s
28
Office an eighteen-page narrative, with 435 pages of attachments, outlining J&J’s
“Medicare/Medicaid fraud, violation of federal securities laws and concealing the ‘best
prices’ of J&J drugs.” Orlow Decl. ¶ 4. Noticeably missing from this recital is any
evidence that Bartz was in fact an original source of the claims made in his initial
Complaint, much less the revisionist claims set out in the Third Amended Complaint.
First-to-File Rule
Even if one were to assume that Bartz qualified as an original source regarding
the allegations in the Third Amended Complaint, his FCA counts would still be barred
by the first-to-file rule. Once a relator files a qui tam action 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). The First Circuit has held that
§ 3730(b)(5) “bar[s] a later allegation [if it] states all 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 United States ex rel. LaCorte v. SmithKline
Beecham Clinical Labs., Inc., 149 F.3d 227, 232-233 (3d Cir. 1998) (under the
“essential facts” standard, § 3730(b)(5) can still bar a later claim “even if that claim
incorporates somewhat different details,” so long as it states “the same elements of a
fraud described in [the] earlier suit.”). This jurisdictional bar serves the dual purpose
of preventing parasitic claims based on allegations already known to the government
29
and of avoiding duplicative suits.
A sealed Complaint is considered for purposes of the first-to-file bar, which the
First Circuit has held to be “‘exception-free.’” Duxbury, 579 F.3d at 33, quoting
United States ex rel. Lujan v. Hughes Aircraft Co., 243 F.3d 1181, 1187 (9th Cir.
2001). The goal of the first-to-file bar is “to provide incentives to relators to ‘promptly
alert [] the government to the essential facts of a fraudulent scheme.’” Duxbury, 579
F.3d at 24, quoting Lujan, 243 F.3d at 1188. Its purpose is to “stop repetitive claims.”
Id. at 1187. The only caveat that this court has applied, consistent with Poteet, 552
F.3d at 516, is that “if the first complaint is either jurisdictionally precluded or legally
incapable of serving as a complaint . . . then it does not properly qualify as a ‘pending
action’ brought under the FCA, 31 U.S.C. § 3730(b)(5).”15 Lenke, 604 F. Supp. 2d at
15
In a recent D.C. Circuit opinion, Chief Judge Sentelle held that “first-filed
complaints need not meet the heightened standard of Rule 9(b) to bar later complaints;
they must provide only sufficient notice for the government to initiate an investigation
into the allegedly fraudulent practices, should it choose to do so.” United States ex rel.
Batiste v. SLM Corp., 659 F.3d 1204, 1210 (D.C. Cir. 2011). Judge Sentelle reasoned
that
[n]othing in the language of Section 3730(b)(5) incorporates the
particularity requirement of Rule 9(b), which militates against reading
such a requirement into the statute. The statutory text imposes a bar on
complaints related to earlier-filed, “pending” actions. The command is
simple: as long as a first-filed complaint remains pending, no related
complaint may be filed. Further, Rule 9(b) is designed to protect
defendants in fraud cases from frivolous accusations and allow them to
prepare an appropriate response. Section 3730(b) is designed to allow
30
323 (internal citations omitted).
Bartz maintains that he has pled “different types of wrongdoing, based on
different material facts” than prior relators and that the “fraud he alleges gives rise to
a separate recovery of actual damages by the government.” Opp’n Mem. at 16. Bartz
contends that
(1) [his] Medicaid Rebate Claims are not precluded because, although
Kammerer and Lisitza pled a similar claim, their Medicaid Rebate Claims
are not “pending” – they were dismissed by this Court for jurisdictional
reasons, and neither Duxbury nor Pauly pled such a claim; (2) [his] Price
Reporting Claim is not precluded because none of the four relators pled
the widespread, detailed false ASP and non-FAMP pricing scheme Bartz
pled; and (3) with respect to [his] Kickback Fraud Claims, the free goods
and other specified kickbacks provided to Omnicare and others by J&J
during the time Bartz worked at J&J were not pled by any of the four
relators.
recovery when a qui tam relator puts the government on notice of
potential fraud being worked against the government, but to bar copycat
actions that provide no additional material information. As the district
court found, a complaint may provide the government sufficient
information to launch an investigation of a fraudulent scheme even if the
complaint does not meet the particularity standards of Rule 9(b).
Id. But see Walburn v. Lockheed Martin Corp., 431 F.3d 966, 973 (6th Cir. 2005) (“A
complaint that is insufficient under Rule 9(b) is dismissed precisely because it fails to
provide adequate notice to the defendant of the fraud it alleges. . . . A complaint that
fails to provide adequate notice to a defendant can hardly be said to have given the
government notice of the essential facts of a fraudulent scheme, and therefore would
not enable the government to uncover related frauds.” (internal citations omitted)).
31
Id. at 17.
None of these assertions bears scrutiny. In the first instance, the LaCorte
Second Amended Complaint (filed April 11, 2005) alleged that J&J reported false Best
Prices for products including Risperdal, and made various payments to wholesalers and
their subsidiaries, including AmerisourceBergen, that allegedly amounted to illegal
kickbacks. See, e.g., LaCorte Compl. ¶ 72 (defendants – including wholesaler
AmerisourceBergen and its subsidiaries – “solicit[ed] and receive[d] special deals,
‘arrangements’, and other incentives and inducements in exchange for their agreement
to create, drive and maintain market share for these companies’ [including Janssen]
products,” among them, Risperdal); id. ¶ 127 (“The financial inducements the
Defendants receive from pharmaceutical manufacturers in exchange for achieving and
maintaining the targeted market share result in these manufacturers charging the
Defendants 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.”); id. (“The United States government is not . . . receiving the actual ‘best
price’ for these drugs required by law and the manufacturer’s Rebate Agreement with
the Secretary of the DHHS.”); id. ¶ 128 (alleging that the pharmaceutical manufacturers
submit “inaccurate utilization, cost and pricing data . . . to the DHHS, CMS, and other
government agencies.”); and id. ¶¶ 163, 168 (“Janssen gave [AmerisourceBergen
32
subsidiary] PharMerica price discounts or rebates or other financial incentives on the
purchase of Risperdal,” and PharMerica obtained “unauthorized financial inducements
from Janssen to promote the use of Risperdal and increase its market share.”).
Bartz argues, unpersuasively, that none of the cited first-filed cases were pending
actions under § 3730(b)(5). Again, this is not the case. The Kammerer, Lisitza,
Maguire, and Duxbury complaints were not dismissed in their entirety under Rule 9(b),
and all were pending at the time Bartz filed this litigation in November of 2005. See
Lujan, 243 F.3d at 1188 (a later-dismissed action was “pending” “for purposes of §
3730(b)(5) because [the first] action was pending when [the relator] brought her
claim.”); United States ex rel. Chovanec v. Apria Healthcare Grp., Inc., 606 F.3d 361,
365 (7th Cir. 2010) (same). The Pauly Complaint, filed in April of 2006, alleged (as
does Bartz) that J&J reported false ASPs, which did not include undisclosed discounts
for inventory service fees. Pauly alleged that J&J and its wholly-owned subsidiary
Centocor (a J&J defendant in this case) “[have] a history of allegedly falsely inflating
the AWP of its drugs under Medicaid . . . to market[] the spread [which] amounts to
an illegal kickback to providers.” Pauly Compl. ¶ 13. Pauly averred that “with the
advent of the new ASP pricing structure for Medicare Part B drugs, effective January
1, 2005, [J&J and Centocor] concocted a new illegal scheme to disguise discounts to
wholesalers so that [they] could then falsely report an inflated ASP in their quarterly
33
reports to CMS.” Id. at ¶ 14. Pauly further explained in excruciating detail how J&J
and Centocor carried out the scheme with regard to J&J’s drug Remicade (a drug
named by Bartz in his Third Amended Complaint). This identicality of elements with
the prior-filed complaints is fatal to Bartz’s claims.
FCA Retaliation Claim
The FCA protects employees from being “discharged, demoted, . . . or in any
other manner discriminated against in the terms and conditions of employment . . .
because of lawful acts done by the employee . . . in furtherance of an [FCA] action . .
. , including investigation for, initiation of, testimony for, or assistance in an [FCA]
action. . . . ” 31 U.S.C. § 3730(h). An FCA retaliation claim requires proof of three
elements: “(1) the employee must have been engaging in conduct protected under the
Act; (2) the employer must have known that the employee was engaging in such
conduct; and (3) the employer must have discriminated against the employee because
of her protected conduct.” Cafasso, United States ex rel. v. Gen. Dynamics C4 Sys.,
Inc., 637 F.3d 1047, 1060 (9th Cir. 2011), quoting United States ex rel. Hopper v.
Anton, 91 F.3d 1261, 1269 (9th Cir. 1996). An employee terminated because he or she
attempts to expose a violation of the False Claims Act is entitled to reinstatement, back
pay, and other appropriate compensation. See 31 U.S.C. § 3730(h)(2).
Tracking the language of § 3730(h), Bartz asserts that J&J retaliated against him
34
by “demoting, harassing and terminating his employment.” Third Am. Compl. ¶ 291.
J&J counters that Bartz is not entitled to whistleblower protection because he did not
make J&J specifically aware of his FCA claims.
Relator does not allege that he complained to J&J of false claims to the
government; instead he alleges that he complained about “inaccurate
data” and “Sarbanes Oxley violations,” referencing his “channel stuffing”
claims. [Third Am. Compl.] ¶ 113; see also [Second Am. Compl.] ¶¶
132-154 (same). These allegations do not
support a § 3730(h)
retaliation claim.
J&J Mem. at 29.
This argument misstates the requirements of an FCA retaliation claim. The issue
is not whether the employee in so many words informed the employer of the exact
nature of his investigative activities, but whether the employer knew (or believed) of
the employee’s “disloyal” acts, and punished him accordingly. In the Third Amended
Complaint, Bartz has pled that J&J knew that he “had engaged in ‘whistleblowing
activities’ and that he’d made ‘allegations about Medicaid’” as reflected in a memo
signed by H.R. Director Stephany Jones.16 Third Am. Compl. ¶ 124. Bartz also states
16
Bartz also alleges that
[h]e also became aware that sales data used by the J&J Defendants to
report financial results as well as AMP, ASP, AWP, non-FAMP, and Best
Price, did not match sales data delivered by IM to the Incentive
Compensation Department (“IC”) where Relator worked. Specifically,
data delivered by IM to IC excluded sales of J&J Products that were
35
that he made numerous complaints to J&J about (what he viewed as) the company’s
illegal practices. As the First Circuit instructs, a plaintiff
need not have known that his actions could lead to a qui tam suit under
the FCA, or even that a False Claims Act existed, in order to demonstrate
that he engaged in protected conduct. See United States ex rel. Yesudian
v. Howard Univ., 153 F.3d 731, 741 (D.C. Cir. 1998) (holding that “even
an investigation conducted without contemplation-or knowledge of the
legal possibility of-a False Claims Act suit can end up being ‘in
furtherance’ of such an action”). However, conduct protected by the FCA
is limited to activities that “reasonably could lead” to an FCA action; in
other words, investigations, inquiries, testimonies or other activities that
concern the employer’s knowing submission of false or fraudulent claims
for payment to the government. See id. at 740.
United States ex rel. Karvelas v. Melrose-Wakefield Hosp., 360 F.3d 220, 237 (1st Cir.
2004), abrogated on other grounds by United States ex rel. Gagne v. City of Worcester,
565 F.3d 40, 42 (1st Cir. 2009). The allegations of Bartz’s Third Amended Complaint
made to the VA, Omnicare and certain McKesson distribution centers and
McKesson customers. Furthermore, Relator learned free goods invoiced
to Omnicare with a WAC of $0.00 were excluded from databases used by
the J&J Defendants to determine and report AMP, BP, ASP, and nonFAMP. Relator confirmed [the] discrepancies . . . but when Relator
pointed out the errors, the J&J Defendants failed and refused to correct
the errors, and began attempting to silence him. . . . By March 2005,
Relator had a good faith, objective basis to believe, and did in fact believe
that the data errors were the result of a cover-up by IM of fraudulent
activity by the J&J Defendants, because his efforts to correct what he
originally viewed as errors were met with stiff resistance by the J&J
Defendants.
Third Am. Compl. ¶¶ 99-101.
36
are sufficient to meet this pleading standard for a retaliation claim.17
McKesson Specialty
Bartz’s claim in his initial Complaint was that J&J paid kickbacks in the form
of fees to McKesson Specialty for services it had originally provided free of charge,
and for channel stuffing with regards to Risperdal Consta sales. The Third Amended
Complaint refers to McKesson and McKesson Specialty collectively. Bartz has since
dismissed McKesson from this litigation. In his Opposition Bartz states that his claim
against McKesson Specialty (which is contained in Count II) is “one in which
kickbacks are provided to McKesson Specialty and physicians for purchasing Risperdal
Consta.” Bartz argues that J&J made the “payments to McKesson . . . in connection
with ‘marketing the spread’ for Risperdal Consta to physicians.” Opp’n Mem. at 3,
citing the Third Am. Compl. ¶¶ 225-231, 258.
McKesson entered into several agreements with the J&J Defendants for
the marketing and sale of Risperdal Consta during the time Bartz was
employed by the J&J Defendants. As Bartz explained, “[i]n the case of
Risperdal Consta, the retailer may be either the physician, since this is a
physician-administered drug, or a specialty pharmacy from which the
physician may direct the patient to purchase the Risperdal Consta and
which will deliver it to the physician for administering.” Id. at ¶ 255, n.5.
In other words, McKesson operated as the specialty pharmacy for
Risperdal Consta, selling this physician-administered drug to physicians
and clinics, which then administered the drug to patients and submitted
17
Relator notes in his Opposition Memorandum that he “has decided not to
pursue his claim for intentional infliction of emotional distress.” Opp’n Mem. at 29.
37
claims for reimbursement for the drug-“buying and billing” the drug, and
receiving the benefit of the spread – the kickback. For those physicians
who chose not to “buy and bill” Consta, but did administer it, McKesson
sold Consta to specialty pharmacies which themselves sold the drug
directly to patients, delivering it to physicians for their administration to
the purchasing patients. Those specialty pharmacies received the benefit
of the spread – or kickback – and submitted claims for reimbursement to
payors, including Medicare, Medicaid, Tricare and other government
health care providers.
When McKesson sold Consta to physicians and clinics, it was a direct
purchaser, not a purchasing agent. Id. at ¶ 258. In this role, McKesson
is not entitled to an “administrative fee” under the Safe Harbor Provisions
of the AKS. Id. The J&J Defendants paid McKesson an “administrative
fee” of 3% to 3.5% for this service, which “fee” was originally
denominated as a discount, then later the word “discount” changed to
“fee.” Id. at ¶ 257. However denominated, the fee or discount was not
subject to an AKS safe harbor, as it was a hidden discount and there was
no fair market value determination of the value of the services McKesson
was providing to the J&J Defendants, and, in fact, in its role as direct
purchaser, McKesson was not legally entitled to receive “administrative
fees.” In addition, McKesson received a “prompt pay” discount of 2%,
whether or not it met the required payment terms. When it did not meet
such terms, this “prompt pay discount” was an illegal kickback and not
within a safe harbor. Id. Thus, these reductions in cost of Risperdal
Consta to McKesson were illegal kickbacks.18
Opp’n Mem. at 4-5.
In March of 2010, the AKS was amended to state that “a claim that includes
items or services resulting from a violation of this section constitutes a false or
fraudulent claim for the purposes of [the FCA].” Patient Protection and Affordable
18
It is important to note that these FCA claims set out in Bartz’s Opposition are
not those pled against McKesson Specialty in the Third Amended Complaint.
38
Care Act (PPACA), Pub. L. No. 111-148, 124 Stat. 119 § 6402(g) (2010). This
amendment expressly applies only to drugs dispensed after July 1, 2010. Id. Bartz’s
employment at J&J terminated on April 20, 2007, and Bartz fails to identify any illegal
“kickback” allegedly paid to McKesson Specialty after 2006. See Third Am. Compl.
¶¶ 232-258. As a result, the PPACA amendment is inapplicable to Bartz’s Relator’s
claim against McKesson Specialty. Moreover, as set out above, several of the
previously-filed Complaints name J&J as defendant and specify Risperdal as part of the
kickback scheme.19 See In re Natural Gas Royalties Qui Tam Litig., 566 F.3d 956,
962 (10th Cir. 2009) (“[T]he identity of a defendant constitutes a material element of
a fraud claim.”).
ORDER
For the foregoing reasons, the J&J defendants’ motion to dismiss Counts I and
II is ALLOWED, but the motion is DENIED as to Counts III and IV (N.J. CEPA).
Bartz has WAIVED Count V.
McKesson Specialty’s motion to dismiss is
ALLOWED. Because the FCA retaliation claim is the only remaining federal claim,
the court declines supplemental jurisdiction over the state false claims act counts –
19
This court has previously held that for purposes of the first-to-file rule,
“specifying a formulaic drug as part of a kickback scheme is synonymous with naming
the company that produces it.” United States ex rel. Lisitza v. Johnson & Johnson,
765 F. Supp. 2d 112, 121-122, n.15 (D. Mass. 2011).
39
Counts VI through XXX. See 28 U.S.C. § 1367(c)(2) (“the [state health care fraud]
claim(s) substantially predominate[] over the [retaliation] claim over which the district
court has original jurisdiction.”). The court will retain jurisdiction over the New Jersey
state retaliation claim.
SO ORDERED.
/s/ Richard G. Stearns
________________________________
UNITED STATES DISTRICT JUDGE
40
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