Express Scripts, Inc. et al v. Pharmland LLC et al
Filing
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OPINION MEMORANDUM AND ORDER - IT IS HEREBY ORDERED that the Motion to Dismiss, [Doc. No. 51 ] is denied. Signed by District Judge Henry Edward Autrey on 12/29/17. (KJS)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
EASTERN DIVISION
EXPRESS SCRIPTS, INC. and
MEDCO HEALTH SOLUTIONS
Plaintiff,
vs.
PHARMLAND, LLC D/B/A LIFECARE
PHARMACY, et al.,
Defendants.
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Case No. 4:15CV1251 HEA
OPINION, MEMORANDUM AND ORDER
This matter is before the Court on Defendants= Motion to Dismiss Count IV of
Plaintiff’s Second Amended Complaint, [Doc. No. 51]. Plaintiff opposes the
Motion. For the reasons set forth below, the Motion is granted.
Facts and Background
Plaintiff’s Second Amended Complaint alleges:
Express Scripts is a Pharmacy Benefit Manager (“PBM”) offering a range of
services to clients that include managed care organizations, health insurers,
third-party administrators, employers, union-sponsored benefit plans, workers’
compensation plans, and government health programs. Express Scripts helps clients
improve healthcare outcomes for their members while helping plan sponsors address
access and affordability concerns resulting from rising drug costs.
Prescription drugs are dispensed to members of the health plans Express
Scripts serves through networks of retail pharmacies under non-exclusive contracts
with Express Scripts.
The integrity and reputation of Express Scripts’ pharmacy provider network is
critical, so Express Scripts maintains an ongoing network provider quality
assurance, audit, and investigation program.
Lifecare was a member of one or more Express Scripts pharmacy networks
pursuant to an Express Scripts, Inc. Pharmacy Provider Agreement (“Agreement”).
The Agreement between Lifecare and Express Scripts was, at all relevant times, a
valid contract and supported by adequate consideration. When Lifecare agreed to
participate in the Express Scripts pharmacy networks, it agreed to abide by the
Agreement.
For years, Lifecare reported to Express Scripts and Medco that it operated a
traditional retail pharmacy, with less than 5% of its business devoted to dispensing
compounded medications. However, upon information and belief, this
representation was untrue. After identifying multiple suspect claims submitted by
Lifecare, Express Scripts initiated an investigation in early December 2014 based on
suspicion of fraudulent activity.
On or about December 31, 2014, Express Scripts notified Lifecare that its
investigation had uncovered “multiple discrepancies,” and that Express Scripts
intended to withhold payments to Lifecare until the investigation was complete.
On the same date, Express Scripts wrote to Lifecare requesting documentation
to verify that certain prescriptions were actually prescribed and dispensed between
May and November of 2014. Lifecare was to provide the verification documentation
by no later than January 7, 2015. No documentation was ever provided. Instead,
Lifecare abruptly and without any explanation reversed $1,311,618.78 in claims
already paid by Express Scripts to Lifecare, leaving Lifecare’s account with a
$1,308,958.50 balance due to Express Scripts.
At the same time, Lifecare closed its retail operations, ceased all pharmacy
operations, and sold its location to Walgreens.
Under normal conditions, amounts reversed by a provider like Lifecare would
be offset against future payments. However, because Lifecare closed and ceased
submitting new claims to Express Scripts, Express Scripts was prevented from
recouping the amount of the reversed claims.
Despite multiple requests for payment, Lifecare never paid Express Scripts
the amount owed. On March 5, 2015, Express Scripts provided written notification
that it was terminating Lifecare as an Express Scripts pharmacy provider for failure
to cooperate in the audit and investigation.
On March 7, 2015, Express Scripts provided Lifecare with written
notification of an additional $702,014.08 in uncontested discrepancies arising out of
the investigation initiated in December 2014. Lifecare was to remit payment by
March 23, 2015. Lifecare never paid Express Scripts for the discrepant claims.
Under the Agreement, Express Scripts is entitled to recover funds from
Lifecare associated with claims that were not submitted in accordance with the
Agreement.
For example, Section 3.1.a of the Provider Agreement states:
ESI may refuse to pay any claim or may reverse payment of any claim that is
not submitted in accordance with the terms and conditions of this Agreement.
Section 3.2.a of the Provider Agreement states that “any payments made to
[Lifecare] in excess of any amount properly determined to be due by ESI may be
recovered by ESI from [Lifecare]…”
Section 5.3 of the Provider Manual states that “[c]laims not submitted in
accordance with [the Provider Agreement and the Provider Manual] are subject to
reversal and recoupment of paid claims.”
A total of $1,998,417.81 was reversed and/or subject to recoupment for
failure by Lifecare to substantiate that the claims submitted to Express Scripts were
valid.
Despite repeated demand for payment, Lifecare has refused to reimburse
Express Scripts, in breach of the Agreement.
In addition to recouping money paid to Lifecare, under Section 5.1 of the
Provider Manual, Express Scripts may recover an additional 15% of the total value
of claims for which Express Scripts’ investigation revealed that Lifecare violated the
terms of the Agreement. Fifteen percent of the amount identified above is
$299,762.67, leaving a total of $2,298,180.48 due to Express Scripts pursuant to the
terms of the Agreement.
Mazariegos and Nundy dominated and controlled Lifecare and operated it in
such a way that it was merely an alter ego used for the personal benefit of
Mazariegos and Nundy, and a cover for fraud against Express Scripts and others.
Mazariegos and Nundy made all corporate decisions for Lifecare, controlled
all financial decisions for Lifecare, and exercised complete control over what claims
to submit and what debts to repay from Lifecare’s funds. As a result, the entity
known as Lifecare was no more than the reflection of the decisions made and actions
taken by Mazariegos and Nundy.
In 2014, Mazariegos and Nundy entered into a marketing agreement with
Centurion Compounding Inc. (“Centurion”), which employed sales representatives
to market compounded medications to beneficiaries of health care plans. These
medications—generally creams for pain and scars—typically ranged in price from
$900 to $21,000 for a one-month supply. Centurion, Mazariegos, and Nundy entered
into further agreements with physicians. Together, these parties participated in an
illegal kickback scheme, in which Centurion recruited potential patients whose
insurance would cover the high-cost medication and directed those patients to
certain physicians. Those physicians completed preprinted prescription forms, often
at after-hours, offsite clinics at hotels and retail stores. The physicians sent the
prescriptions to Lifecare. Lifecare (as directed by Mazariegos and Nundy) filled the
prescriptions and submitted claims for the prescriptions to the patients’ health care
plans.
For each claim paid, Mazariegos and Nundy paid illegal kickbacks to
Centurion (50% of the proceeds) and the physician (10-15%) using Lifecare funds.
In addition to the illegal kickback scheme, Mazariegos and Nundy have
admitted that they directed Lifecare to bill Medicare over $1 million for
compounded medications that were made with ingredients that they knew Medicare
did not cover.
A federal investigation was initiated on or around December 3, 2014 into the
illegal kickback scheme. In or around March 2017, Mazariegos and Nundy pled
guilty to using their control of Lifecare as part of a conspiracy to commit healthcare
fraud against federal insurance benefit programs. Their fraudulent behavior further
extended to directing Lifecare to perpetuate a fraud against Express Scripts.
Mazariegos and Nundy controlled Lifecare’s claims submissions and
determined which claims should be billed to Express Scripts. Mazariegos and
Nundy controlled Lifecare’s bank accounts that received the payment of claims from
Express Scripts.
Using their control and complete domination over Lifecare’s policy and
business practices, Mazariegos and Nundy, through Lifecare, submitted millions of
dollars in false and invalid prescription claims to Express Scripts. Mazariegos and
Nundy later directed Lifecare to reverse these claims, thereby acknowledging that
Lifecare was not entitled to payment.
As with their fraudulent Medicare submissions, Mazariegos and Nundy
exercised complete control over Lifecare’s representations to Express Scripts that it
had purchased, and was entitled to reimbursement for, prescription ingredients that
Lifecare could never substantiate.
Similarly, Mazariegos and Nundy exercised complete control over all of
Lifecare’s submissions of claims for reimbursement for which Lifecare was never
able to provide copies of valid prescriptions.
Moreover, Mazariegos and Nundy exercised complete control over the
decision to reverse claims for which Lifecare had already been paid over a million
dollars, and complete control over the decision to not reimburse Express Scripts for
those claims.
Mazariegos and Nundy used Lifecare’s corporate entity status as a shield for
defrauding Express Scripts so that they could employ the funds Lifecare owed to
Express Scripts for Mazariegos’ and Nundy’s own personal use or to pay for their
illegal kickback scheme.
Shortly after receiving Express Scripts’ notice of termination and defaulting
on over one million dollars owed to Express Scripts, Mazariegos and Nundy
embarked on a lavish and extravagant spending spree using, upon information and
belief, Lifecare’s funds that were properly due and owing to Express Scripts.
At or around the same time that Mazariegos and Nundy were directing
Lifecare reverse claims to fail to pay Express Scripts, and at or around the same time
that Express Scripts and the federal government began investigating Lifecare,
Mazariegos purchased a fleet of extravagant sports cars including a 2015
Lamborghini Huracan; Porsche 911 convertible; 2015 Ferrari 458 convertible; 2015
Nissan GT-R; Ferrari 360 convertible; Maserati Granturismo; and other property in
Florida. Mazariegos has acknowledged that these purchases were made using
Lifecare assets, as they are subject to forfeiture as proceeds traceable to the
commission of a federal health care offense.
Just days after receiving Express Scripts’ notice of termination and after
reversing over $1.3 million claims already paid to Lifecare, Mazariegos purchased
an $800,000 house, two new Ferraris, a Porsche, and a Lamborghini, all with assets
that he has now admitted were acquired using Lifecare proceeds.
While failing to pay his business debts to Express Scripts, Mazariegos spent
over a million dollars on sports cars and a house. Therefore, Mazariegos stripped
Lifecare’s assets in order to avoid the demand of creditors like Express Scripts.
However framed, at least sometime in 2014, Lifecare became a front for fraud
perpetuated by Mazariegos and Nundy and a mechanism to attempt to defraud
creditors, evade existing obligations, and escape liability for admitted debts.
With respect to Count IV, Plaintiff alleges that Lifecare was dominated and
controlled by Mazariegos and Nundy in such a way that it was merely the alter ego
for Mazariegos and Nundy. They exercised complete control and domination over
every decision made by Lifecare, including, but not limited to, decisions regarding
what claims to submit, what claims to reverse, and what claims to repay (or, in this
case, not repay) Express Scripts.
In stripping the assets of Lifecare for their own personal use, Mazariegos and
Nundy used Lifecare as a cover to defraud creditors, evade existing obligations, and
to hide invalid, false, and fraudulent prescription claims.
Through their alter ego Lifecare, Mazariegos and Nundy knowingly
submitted millions of dollars in unsupported and undocumented prescription claims
to Express Scripts and Medco in 2014.
In submitting these claims for reimbursement, Mazariegos and Nundy,
through their alter ego Lifecare, represented that the prescriptions were valid,
supported by legitimate pharmacy records, and used ingredients actually purchased
by Lifecare. In particular, for each and every false and invalid prescription claim
submitted to Express Scripts for payment, Mazariegos and Nundy, through Lifecare,
continued to make affirmative representations that the claims were based on
accurate ingredient costs; the claims were supported by valid prescriptions and
purchase records; the U&C prices were accurate; the claims were not being
submitted to circumvent plan design; and Lifecare would collect the applicable
copayment for the claims.
The representations made by Mazariegos and Nundy, through their alter ego
Lifecare, as described were false, and Defendants knew that they were false when
Mazariegos and Nundy, through Lifecare, made the representations to Express
Scripts.
Express Scripts, on the other hand, did not know they were false at the time
Defendants made such representations.
Defendants knew that the representations were material to Express Scripts’
decision to pay Lifecare over $1.9 million for false and/or invalid prescription
claims that Defendants submitted to Express Scripts.
Express Scripts relied on Defendants’ representations, to their detriment, and
have been damaged by at least $1,998,417.81.
Defendants move to dismiss for lack of subject matter jurisdiction, for failure
to plead fraud with specificity and for failure to state a claim for Aworthless@
services.
Discussion
Defendants contend that Plaintiff has failed to allege fraud with sufficient
particularity pursuant to Rule 9(b) of the Federal Rules. Complaints alleging fraud
must comply with Rule 9(b) of the Federal Rules. Under Rule 9(b), Athe
circumstances constituting fraud ··· shall be stated with particularity.@ Rule 9(b)=s
Aparticularity requirement demands a higher degree of notice than that required for
other claims,@ and Ais intended to enable the defendant to respond specifically and
quickly to the potentially damaging allegations.@ United States ex rel. Costner v.
URS Consultants, Inc., 317 F.3d 883, 888 (8th Cir.2003) (citing Abels v. Farmers
Commodities Corp., 259 F.3d 910, 920-21 (8th Cir.2001)). To satisfy the
particularity requirement of Rule 9(b), the complaint must plead such facts as the
time, place, and content of the defendant=s false representations, as well as the details
of the defendant=s fraudulent acts, including when the acts occurred, who engaged in
them, and what was obtained as a result. See, e.g., Schaller Tel. Co. v. Golden Sky
Sys., Inc., 298 F.3d 736, 746 (8th Cir.2002). The complaint must identify the Awho,
what, where, when, and how@ of the alleged fraud. Costner, 317 F.3d at 888 (citing
Parnes v. Gateway 2000, Inc., 122 F.3d 539, 550 (8th Cir.1997)); U.S. ex rel. Joshi v.
St. Luke's Hosp., Inc., 441 F.3d 552, 556 (8th Cir. 2006). Rule 9(b) of the Federal
Rules of Civil Procedure requires that A[i]n all averments of fraud ... the
circumstances constituting fraud ... shall be stated with particularity.@ Rule 9(b)
requires more than Aconclusory and generalized allegations.@ Joshi, 441 F.3d 552,
557(citing Schaller Tel. Co. v. Golden Sky Sys., Inc., 298 F.3d 736, 746 (8th
Cir.2002) (A>[C]onclusory allegations that a defendant's conduct was fraudulent and
deceptive are not sufficient to satisfy [Rule 9(b) ].=@) (quoting Commercial Prop. Inv.
v. Quality Inns, 61 F.3d 639, 644 (8th Cir.1995).
The Court agrees with Plaintiff that it has set forth the who, what, where, when
and how of each of the allegedly false claims. In its description of the fraudulent
claims, Plaintiff details who took the actions and what actions were taken in
attempting to defraud Plaintiff, the timeframe within which these actions were taken,
where and how Defendants allegedly defrauded Plaintiff. As the Eighth Circuit
acknowledged in Joshi, ANothing requires [the plaintiff] to state every factual detail
concerning every alleged fraudulent claim submitted....@ Joshi, 441 F.3d at 560.
Thus, the detailed Second Amended Complaint sufficiently sets forth the alleged
fraud with the requisite particularity as mandated by Rule 9(b).
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Conclusion
Based upon the foregoing, the Motion to Dismiss Count IV is denied.
Accordingly,
IT IS HEREBY ORDERED that the Motion to Dismiss, [Doc. No. 51] is
denied.
Dated this 29th day of December, 2017.
________________________________
HENRY EDWARD AUTREY
UNITED STATES DISTRICT JUDGE
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