UNITED STATES OF AMERICA et al v. OMNICARE, INC. et al
Filing
388
OPINION FILED. Signed by Judge Noel L. Hillman on 11/28/16. (js)
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
HONORABLE NOEL L. HILLMAN
UNITED STATES OF AMERICA ex
rel. Marc Silver, et al.,
CIVIL ACTION NO. 11-1326
Plaintiffs,
OPINION
v.
OMNICARE, INC., et al.,
Defendants.
APPEARANCES:
LISA J. RODRIGUEZ
Schnader Harrison Segal & Lewis LLP
Woodland Falls Corporate Park
220 Lake Drive East
Suite 200
Cherry Hill, NJ 08002-1165
SHAUNA BRIE ITRI
SHERRIE R. SAVETT
DANIEL R. MILLER
Berger & Montague, PC
1622 Locust Street
Philadelphia, PA 19103
JENNIFER VERKAMP
FREDERICK M. MORGAN, JR.
Morgan Verkamp, LLC
700 Walnut Street
Suite 400
Cincinnati, OH 45202
ROSS B. BROOKS
Sanford Heisler, LLP
1350 Avenue of the Americas
31st Floor
New York, NY 10019
Attorneys for Plaintiffs and Relator
1
JUDITH H. GERMANO
Germano Law LLC
460 Bloomfield Avenue
Suite 200
Montclair, NJ 07043
MICHAEL MANTHEI
DAVID M. GLYNN
JEREMY M. STERNBERG
NATHANIEL F. HULME
Holland & Knight LLP
10 St. James Avenue
Boston, MA 02116
Attorneys for Defendant PharMerica Corp.
HILLMAN, United States District Judge:
This is a False Claims Act (“FCA”) suit.
As set forth in the
Court’s previous opinion mainly denying Defendant PharMerica’s
Motion to Dismiss, Relator Marc Silver alleges “that defendants
engaged in a [‘swapping’] scheme that violated the Anti-Kickback
Statute by offering nursing homes below market prices for drugs to
patients insured by Medicare Part A in exchange for referrals of
prescriptions for nursing home patients insured by Medicare Part D
or by Medicaid.”
United States ex rel. Silver v. Omnicare, Inc.,
2014 U.S. Dist. LEXIS 136800 at *1 (D.N.J. Sept. 29, 2014). 1
Silver alleges that PharMerica defrauded the federal government
when it submitted Medicare and Medicaid claims for reimbursement
As stated in the previous opinion, this Court exercises subject
matter jurisdiction pursuant to 28 U.S.C. § 1331 and
§ 1367. U.S. ex rel. Silver, 2014 U.S. Dist. LEXIS 136800 at *4.
1
2
which certified PharMerica’s compliance with the Anti-Kickback
Statute.
At issue is whether the public disclosure bar, or the
original source exception to that bar, apply to Silver’s suit.
Before the Court is PharMerica’s jurisdictional motion to dismiss
pursuant to Fed. R. Civ. P 12(b)(1), which applies to Silver’s
claims based on conduct before March 23, 2010; and PharMerica’s
summary judgment motion, which applies to Silver’s claims based on
conduct after March 23, 2010. 2
For the reasons stated herein, the
Court holds that, as to all of PharMerica’s conduct, the public
disclosure bar applies, and the original source exception does not
apply. 3
Accordingly, both motions will be granted.
The Court will
As will be discussed further infra, in 2010, Congress made
substantive statutory changes to the FCA which materially alter
the analysis of the issues presented. See U.S. ex rel. Moore &
Company, P.A. v. Majestic Blue Fisheries, LLC et al., 812 F.3d
294, 297 (3d Cir. 2016)(“In 2010, Congress amended the public
disclosure bar as part of the Patient Protection and Affordable
Care Act (‘PPACA’). In doing so, it removed the language that
explicitly stated that a court was deprived of ‘jurisdiction’ over
the FCA action if the bar applied to that action . . . and
expanded the definition of ‘original source’ by allowing a relator
who ‘materially adds’ to the publicly disclosed information to
qualify.”). These statutory changes account for PharMerica’s two
different motions addressing the same legal issues.
2
The Motion to Dismiss covers conduct before March 23, 2010, and
the Motion for Summary Judgment covers conduct after March 23,
2010. PPACA’s effective date is March 23, 2010; therefore the
summary judgment motion (rather than the motion to dismiss)
necessarily includes the alleged conduct occurring on March 23,
2010.
3
3
also decline to exercise supplemental jurisdiction over the
remaining state law claims.
I.
Background
The allegations concerning the alleged fraudulent scheme have
been set forth in the Court’s previous opinion and are not
directly implicated by the instant motions.
The following facts
are most relevant to the issues presently before the Court.
Relator Silver has never worked for, nor done business with,
PharMerica. (SUF ¶ 5)
However, Silver is generally knowledgeable
about the nursing home business, and the pharmacy business,
because he is a former owner of both a nursing home and a
pharmacy. (SUF ¶ 4)
Thus, Silver knew about the Balanced Budget
Act of 1997’s effect on the nursing home industry, which set the
stage for potential swapping transactions.
Specifically, Silver
testified that the law “totally changed the financial picture for
nursing homes in the United States,” (SUF ¶ 24), because as to
Medicare Part A patients, the government switched from a
reimbursement system based on actual costs, to a prospective
payment per diem fixed cost system. (SUF ¶ 25-26)
According to
Silver, this new arrangement provided the “clear motive” for
pharmacies and nursing homes to engage in swapping transactions.
(Silver Dep. p. 61-62)
4
A. HHS-OIG documents indicate that illegal swapping transactions
may be occurring in the nursing home business
As quoted in Silver’s Third Amended Complaint, the Health and
Human Services - Office of the Inspector General (HHS-OIG), in
1999, stated in an advisory opinion, that suppliers who offer
“‘discounts on business for which the purchaser pays the supplier,
in exchange for the opportunity to service and bill for higher
paying Federal health care program business reimbursed directly by
the program to the supplier’” violate the Anti-Kickback Statute.
(TAC ¶ 61)
Although the Advisory Opinion analyzed swapping
transactions between nursing homes (referred to as “skilled
nursing facilities” or “SNFs”) and an ambulance company (i.e., not
nursing homes and pharmacies) the opinion specifically stated that
the ambulance company’s inquiry
‘comes amidst a considerable number of informal
inquiries and anecdotal reports regarding discounts to
SNFs that this Office has received since the enactment
of the SNF PPS [(prospective payment system)].
These
inquiries and reports suggest that suppliers of a wide
range of SNF services are giving SNFs discounts for PPSbusiness that are linked, directly or indirectly to
referrals of Part B business.’
(TAC ¶ 62)(emphasis added).
The Third Amended Complaint also quotes a March, 2000, HHSOIG “Program Guidance for Nursing Facilities,” which relied upon
the 1999 Advisory Opinion, and explained,
‘[s]wapping occurs when a supplier gives a nursing
facility discounts on Medicare Part A items and services
in return for the referrals of Medicare Part B business.
5
With swapping, there is a risk that suppliers may offer
a SNF an excessively low price for items or services
reimbursed under PPS in return for the ability to service
and bill nursing facility residents with Part B
coverage.’
(TAC ¶ 64)
The HHS-OIG, in 2008, stated again that “‘swapping
arrangements violate the anti-kickback statute’”:
‘nursing facilities should not engage in swapping
arrangements by accepting a low price from a supplier or
provider on an item or service covered by the nursing
facility’s Part A per diem payment in exchange for the
nursing facility referring to the supplier or provider
other Federal health care program business, such as Part
B business excluded from consolidated billing, that the
supplier or provider can bill directly to a Federal
health care program.’
(TAC ¶ 65)(quoting HHS-OIG Supplemental Compliance Program
Guidance for Nursing Facilities).
B. A Centers for Medicare and Medicaid Services (“CMS”) report
indicates that long-term care pharmacies provide prescription
drugs to nursing homes at little to no charge
In December 2004, The Lewin Group prepared a report entitled,
“CMS Review of Current Standards of Practice for Long-Term Care
Pharmacy Services; Long-Term Care Pharmacy Primer.” (Def’s Ex. F)
The report indicated that, as to long-term care pharmacies
(“LTCPs”) in particular, conditions were ripe for swapping
transactions:
[i]n today’s environment, LTCPs provide many services to
nursing facilities at little to no charge. When LTCPs
do charge for services, the pricing for services is
difficult to determine since services are often bundled
together.
As a result there is a great deal of
6
uncertainty in the market regarding the cost to LTCPs of
providing services of the potential charge structure that
would exist in the market if LTCPs were reimbursed
directly for the services they provide.
. . . .
Medicaid reimbursement rates are important to LTCPs not
only because Medicaid accounts for the largest portion
of LTCP revenue, but also because Medicaid rates are
often used to set a pricing ‘floor’ in the industry,
effectively setting the lowest price in the market and
thereby guaranteeing minimum reimbursement rates to
LTCPs.
This practice arises for two reasons.
First,
LTCPs are concerned that offering nursing facilities
rates lower than Medicaid’s for non-Medicaid residents
could be viewed as an ‘inducement’ to attract Medicaid
business and would be in violation of Fraud and Abuse
statutes. Second, some Medicaid programs include a ‘most
favored nation’ status clause in their contracts that
require LTCPs to grant Medicaid the best price in the
market; effectively, if a LTCP contracts with a nursing
facility for a reimbursement rate below that of Medicaid,
it must extend that same price to the Medicaid program.
(Ex. F, p. 1, 19-20)
C. Two sources report that PharMerica is one of only several
LTCPs in the “highly concentrated LTCP market”
In June 2007, a Harvard Medical School report, created for
the Medicare Payment Advisory Commission, stated that “[t]he LTCP
market is highly concentrated.
Three companies, Omnicare,
PharMerica, and Kindred Pharmacy Services (KPS), account for
around 60% of the sector’s revenues.” (Def’s Ex. G)
The report
further stated that PharMerica was second only to Omnicare in
terms of number of “nursing home beds” serviced in the United
States. (Id.)
7
The Medicare Payment Advisory Commission, in turn, reported
to Congress that “[t]he LTCP market is highly concentrated, with
the top three firms accounting for two-thirds of nursing home
beds: Omnicare covers about 850,000 of the nation’s 1.7 million
beds (50 percent), PharMerica covers 220,000 (13 percent), and
Kindred Pharmacy Services (KPS) covers 100,000 (6 percent).”
(Def’s Ex. H)
D. PharMerica’s public financial statements show that PharMerica
was making a profit
Silver examined PharMerica’s Form 10-Ks, available on the
Internet. (SUF ¶ 10)
He testified that he used the information
reported -- in particular, PharMerica’s costs, gross profits, and
its “‘bottom line’”-- and, based on that information, inferred
that PharMerica must be selling prescription drugs to nursing
homes at “below cost per diems,” (Silver Dep. p. 72-73), and that
“PharMerica, they were getting substantially less from their . . .
Medicare reimbursements than they were from their Medicaid
reimbursements.” (Id. p. 203)
According to Silver, PharMerica’s
reported profit figures indicated to him that PharMerica must have
engaged in swapping transactions with the nursing homes it
serviced. (Id.)
E. Other non-public sources “confirm” what Silver already
inferred
Silver met and spoke with Andrew Lenick, a consultant for
certain nursing homes that contracted with PharMerica. (SUF ¶ 47)
8
Lenick generally explained that the competition between Omnicare
and PharMerica was intense and each were “lowering prices” to gain
nursing home business. (Silver Dep. p. 85-86)
Silver testified,
“[Lenick] just confirmed everything that I . . . either was able
to confirm myself or my suspicions.” (Id. p. 83-84)
Significantly, Lenick did not tell Silver that PharMerica was
offering below cost per diem pricing; to the contrary, Lenick
stated that he negotiated ‘fair market prices’ with PharMerica.
(SUF ¶ 50-52)
Silver also “ma[de] random phone calls to” nursing homes
during which conversations he “learned that the whole industry was
using some form of discount pricing,” (Silver Dep. p. 55), but no
one told him that PharMerica or any other institutional pharmacy
was offering discounts below cost. (SUF ¶ 42)
Silver testified
these phone calls “confirmed” his suspicions that PharMerica was
offering below cost per diem pricing. (Silver Dep. p. 56, 83-84)
II. Legal Standards
A.
Rule 12(b)(1) motion to dismiss standard
A motion to dismiss pursuant to Federal Rule of Civil
Procedure 12(b)(1) challenges the existence of a federal court’s
subject matter jurisdiction.
Facial attacks contest the
sufficiency of the pleadings, and in reviewing such attacks, the
Court accepts the allegations as true. Common Cause of Pa. v.
Pennsylvania, 558 F.3d 249, 257 (3d Cir.), cert. denied, 558 U.S.
9
1091, 130 S. Ct. 1015, 175 L. Ed. 2d 618 (2009).
Factual attacks,
on the other hand, require the Court to weigh the evidence at its
discretion, meaning that the allegations in the complaint have no
presumptive truthfulness.
See Mortensen v. First Fed. Sav. & Loan
Ass'n, 549 F.2d 884, 891 (3d Cir. 1977).
It is undisputed that PharMerica’s 12(b)(1) motion asserts a
factual attack.
B.
Summary judgment standard
Summary judgment is appropriate where the Court is satisfied
that “‘the pleadings, depositions, answers to interrogatories, and
admissions on file, together with the affidavits, if any,’ . . .
demonstrate the absence of a genuine issue of material fact” and
that the moving party is entitled to a judgment as a matter of
law. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986)(citing
Fed. R. Civ. P. 56).
An issue is “genuine” if it is supported by evidence such
that a reasonable jury could return a verdict in the nonmoving
party’s favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248
(1986).
A fact is “material” if, under the governing substantive
law, a dispute about the fact might affect the outcome of the
suit. Id.
“In considering a motion for summary judgment, a
district court may not make credibility determinations or engage
in any weighing of the evidence; instead, the non-moving party’s
evidence ‘is to be believed and all justifiable inferences are to
10
be drawn in his favor.’” Marino v. Indus. Crating Co., 358 F.3d
241, 247 (3d Cir. 2004)(citing Anderson, 477 U.S. at 255).
Initially, the moving party bears the burden of demonstrating
the absence of a genuine issue of material fact. Celotex, 477 U.S.
at 323 (“[A] party seeking summary judgment always bears the
initial responsibility of informing the district court of the
basis for its motion, and identifying those portions of ‘the
pleadings, depositions, answers to interrogatories, and admissions
on file, together with the affidavits, if any,’ which it believes
demonstrate the absence of a genuine issue of material fact.”);
see also Singletary v. Pa. Dept. of Corr., 266 F.3d 186, 192 n.2
(3d Cir. 2001) (“Although the initial burden is on the summary
judgment movant to show the absence of a genuine issue of material
fact, ‘the burden on the moving party may be discharged by
‘showing’ -- that is, pointing out to the district court -- that
there is an absence of evidence to support the nonmoving party’s
case’ when the nonmoving party bears the ultimate burden of
proof.”)(citing Celotex, 477 U.S. at 325).
Once the moving party has met this burden, the nonmoving
party must identify, by affidavits or otherwise, specific facts
showing that there is a genuine issue for trial. Celotex, 477 U.S.
at 324.
A “party opposing summary judgment ‘may not rest upon the
mere allegations or denials of the . . . pleading[s.]’” Saldana v.
Kmart Corp., 260 F.3d 228, 232 (3d Cir. 2001).
11
For “the non-
moving party[ ] to prevail, [that party] must ‘make a showing
sufficient to establish the existence of [every] element essential
to that party’s case, and on which that party will bear the burden
of proof at trial.’” Cooper v. Sniezek, 418 F. App’x 56, 58 (3d
Cir. 2011)(citing Celotex, 477 U.S. at 322).
Thus, to withstand a
properly supported motion for summary judgment, the nonmoving
party must identify specific facts and affirmative evidence that
contradict those offered by the moving party. Anderson, 477 U.S.
at 257.
III. Analysis
A. FCA claim based on conduct before March 23, 2010
1. The public disclosure bar
“The FCA’s public disclosure bar ‘deprives courts of
jurisdiction over qui tam suits when the relevant information has
already entered the public domain through certain channels.’”
United States ex rel. Judd v. Quest Diagnostics Inc., 638 F. App’x
162, 165 (3d Cir. 2015)(quoting Graham Cnty Soil & Water
Conservation Dist. v. United States ex rel. Wilson, 559 U.S. 280,
285 (2010)).
The public disclosure bar applies if there was a
public disclosure via a source enumerated in the False Claims Act,
31 U.S.C. § 3730(e)(4)(A); the information disclosed “constituted
allegations or transactions of fraud”; and “the relator’s
complaint is based upon those public disclosures.” United States
12
ex rel. Zizic v. Q2Administrators, LLC et al., 728 F.3d 228, 23537 (3d Cir. 2013)(internal citation and quotation omitted).
PharMerica contests only the second and third prongs of the
analysis. 4
a. “Transactions of fraud”
“A transaction warranting an inference of fraud is one that
is composed of a misrepresented state of facts plus the actual
state of facts.” Zizic, 728 F.3d at 236.
The Third Circuit has
“adopted a formula to represent when information publicly
disclosed in a specified source qualifies as [a] . . . transaction
of fraud: If X + Y = Z, Z represents the allegation of fraud and X
and Y represent its essential elements.
In order to disclose the
fraudulent transaction publicly, the combination of X and Y must
be revealed, from which readers or listeners may infer Z, i.e.,
the conclusion that fraud has been committed.” Id.
“[T]he public
disclosure bar applies if either Z (fraud)[,] or both X
(misrepresented facts) and Y (true facts)[,] are publicly
disclosed by way of a listed source.” Id.
The parties agree that in this case, the alleged
misrepresented state of facts (X) is that PharMerica was in
compliance with the Anti-Kickback Statute.
The alleged true state
Relevant to the instant suit, the enumerated sources include
“congressional, administrative, or Government Accounting Office
report[s], hearing[s], audit[s], or investigation[s],” as well as
“news media” reports. 31 U.S.C. § 3730(e)(4)(A)(2005).
13
4
of facts (Y) is that PharMerica had engaged in swapping
transactions with nursing homes which violated the Anti-Kickback
Statute.
Silver argues Y, the true state of facts, was not disclosed
by the enumerated sources upon which he relied.
He argues that to
reveal the alleged true state of facts, PharMerica’s publicly
filed financial statements “would need to break out, on a nursing
home by nursing home basis, the net income it received from the
nursing home for drugs only for its Medicare Part A patients and
the net income it received for drugs from servicing that same
nursing home’s Medicare Part D and Medicaid patients.” (Opposition
Brief, p. 15-16)
Elaborating on this reasoning at oral argument, Silver’s
counsel explained that the publicly disclosed information did not
reveal “the revenue side” of PharMerica’s alleged swapping
transactions.
Counsel argued that Silver provides the revenue
side of the equation in the form of a small number of contracts
that PharMerica negotiated with specific nursing homes that stated
particular per diem prices.
This argument fails for two reasons.
First, Silver cannot
explain how the specific per diem prices he obtained support any
conclusion regarding PharMerica’s net income for Medicare Part A
patients on one hand, and Medicare Part D and Medicaid patients on
the other.
In this respect, his own argument is internally
14
inconsistent: he asserts that to disclose the fraudulent
transaction, the public documents would have to disclose
PharMerica’s net income, yet even the non-public documents Silver
obtained do not contain such information.
Second, Silver clearly testified at his deposition that he
did not need to know such specifics to conclude that PharMerica
had engaged in illegal swapping; the aggregate numbers were
sufficient. (Silver Dep. p. 376-77)
Silver testified that the
cost of dispensing medications, reported in PharMerica’s 10K, was
an indication that PharMerica had engaged in swapping: “I mean,
come on, $10 a day for medication for the sickest and frailest of
the elderly on Medicare?
You know, it is not-- these are the sick
patients, and PharMerica is selling their medications at $8 a day?
$10 a day? Come on.”
(Id. p. 72-73); see also (id. p. 203)(“the
profit PharMerica was making certainly couldn’t be – they couldn’t
be making anything from Medicare based on $8 a day, $10 a day . .
. . So you don’t have to be Price Waterhouse to understand that.
You could make that analysis pretty easy.”), (id. p. 27374)(“there’s a lot of data out there on the Internet . . . on
transition to . . . PPS as to what the costs are.
And when you
read them, it doesn’t seem possible that PharMerica when they add
in all their costs could be making a profit.”); cf. Third Amended
Complaint ¶ 153 (“Relator owned an institutional pharmacy . . . .
In 2006, his acquisition costs averaged $29.41 per patient per
15
day, and his operational costs averaged $10.88 per patient, per
day.
Thus, just to break even, he needed to get paid $40.29 per
patient, per day.
Thus viewed, it is virtually certain that
PharMerica offered prices to nursing homes which fell below its
own acquisition costs, and even further below its own total costs.
The reason is simple-- PharMerica recaptured those losses, and
handsomely profited, by billing Medicaid and Medicare Part D at
substantially higher prices.”)(emphasis in original), Third
Amended Complaint ¶ 180 (“Given the amount of drugs being taken by
each [nursing home] patient, and the rising cost of drugs overall,
how can a pharmacy make money by providing drugs to nursing home
patients for $14/day?
The answer is, it can’t.”).
The Court concludes that the information cumulatively
disclosed in the publicly available documents was sufficient to
support an inference that PharMerica allegedly engaged in swapping
transactions with nursing homes, and therefore the true state of
facts (Y) was publicly disclosed.
As set forth above, the HHS-OIG documents stated that
swapping transactions may be taking place between nursing homes
and their various service providers.
Then, the CMS report stated
that conditions were ripe for swapping transactions specifically
between nursing homes and long-term care pharmacies.
As to long-
term care pharmacies, it was publicly reported that the market was
highly concentrated, with PharMerica being one of the top three
16
pharmacies accounting for two-thirds of all nursing home beds in
the United States.
Thus, all of this information taken together
strongly suggested that PharMerica, being one of three top longterm care pharmacies contracting with nursing homes, was likely
engaging in illegal swapping.
According to Silver himself, the last piece of information he
needed to conclude that PharMerica was, indeed, engaging in
swapping was provided by PharMerica’s own publicly disclosed
financial statements.
This information, considered cumulatively, was sufficient to
“put the government on the trail” of the fraud, United States ex
rel. Schumann v. Astrazeneca Pharms. LP, 2013 U.S. Dist. LEXIS
10582 at *26 (E.D. Pa. Jan. 25, 2013), aff’d by United States ex
rel. Schumann v. AstraZeneca Pharms. L.P., 769 F.3d 837 (3d Cir.
2014), therefore the public disclosure bar applies. See United
States ex rel. Doe v. Staples, Inc., 773 F.3d 83, 87 (D.C. Cir.
2014)(“our inquiry focuses not on the additional incriminating
information a relator supplies, but instead on whether the quantum
of information already in the public sphere was sufficient to set
government investigators on the trail of fraud.”)(internal
citation and quotation omitted); Natural Gas Royalties Qui Tam
Litig. v. Pac. Gas & Elec. Co., 562 F.3d 1032, 1043 (10th Cir.
2009)(“We therefore conclude that the allegations of industrywide
gas mismeasurement disclosed in the 1995 complaint and the Senate
17
Committee documents were sufficient to set the government on the
trail of the fraud as to all Defendants and thus that the
allegations in Relator’s 1997 complaints were publicly
disclosed.”); Dingle v. Bioport Corp., 388 F.3d 209, 214 (6th Cir.
2004)(“The fact that the information comes from different
disclosures is irrelevant.
All that is required is that public
disclosures put the government on notice to the possibility of
fraud.
These two sources, in combination, certainly achieve that
requirement.”).
b. “Based upon” the public disclosures
“To be based on . . . transactions of fraud, claims need not
be actually derived from public disclosures.
Rather, claims need
only be supported by or substantially similar to public
disclosures.” Zizic, 728 F.3d at 237 (internal citations and
quotations omitted).
“The public disclosure bar covers . . .
actions even partly based upon such . . . transactions.” Id. at
238.
Silver makes two arguments in support of his position that
his allegations are not “based upon” the publicly disclosed
transactions of fraud.
First, he argues that the transactions were not publicly
disclosed. (Opposition Brief, p. 24)
Court disagrees.
18
As set forth above, the
Second, Silver states, “PharMerica completely ignores nonpublic information relator relied upon.” (Opposition Brief, p. 26)
That Silver relied upon non-public disclosures in addition to the
substantial public disclosures, however, is irrelevant to this
portion of the legal analysis because the Third Circuit has
clearly stated that the public disclosure bar applies to “actions
even partly based upon” public disclosures. Zizic, 728 F.3d at
238.
Silver’s Third Amended Complaint extensively relies upon, and
quotes, the HHS-OIG documents. (Third Amended Complaint ¶¶ 156163)
Therefore Silver’s allegations are “supported by,” Zizic,
728 F.3d at 237, and based upon, those public disclosures.
The Court thus concludes that the public disclosure bar
applies to Silver’s FCA claim based on conduct before March 23,
2010.
Accordingly, the Court must next consider whether the
original source exception applies.
2. The original source exception
“Even if the public disclosure bar would otherwise apply to a
claim, it does not when ‘the person bringing the action is an
original source of the information.’
The term ‘original source’
means an individual who has direct and independent knowledge of
the information on which the allegations are based and has
voluntarily provided the information to the Government before
filing an action . . . which is based on the information.” Zizic,
19
728 F.3d at 239 (quoting the pre-PPACA version of the FCA); see
also Schumann, 769 F.3d at 841 (“Congress defined an ‘original
source’ as ‘an individual who has direct and independent knowledge
of the information on which the allegations are based and has
voluntarily provided the information to the Government before
filing an action under this section which is based on the
information.’”)(quoting the pre-PPACA version of the FCA).
a. “Direct” knowledge
“Direct knowledge is knowledge obtained without any
intervening agency, instrumentality, or influence: immediate.
Such knowledge has also been described as first-hand, seen with
the relator’s own eyes, unmediated by anything but the relator’s
own labor, and by the relator’s own efforts, and not by the labors
of others, and not derivative of the information of others.”
Schumann, 769 F.3d at 845 (internal citations and quotations
omitted).
Silver points to no evidence that would support a conclusion
that he had immediate knowledge of any of the specific factual
allegations which his FCA claim relies upon.
It is undisputed
that Silver never worked for, nor did business with, PharMerica.
(SUF ¶ 5)
All of Silver’s alleged facts are derivative of the
information he gathered from other, mostly public, sources.
While
his own experience as a CPA, nursing home owner and pharmacy owner
gave him the knowledge to understand the significance of the
20
facts, it still remains undisputed that the facts themselves did
not come from Silver, they came from enumerated sources, Mr.
Lenick, and nursing homes.
The undisputed record shows that
Silver had no first-hand information about PharMerica’s
transactions with nursing homes.
b. “Independent knowledge”
“The independent knowledge requirement means that knowledge
of the fraud cannot be merely dependent on a public disclosure.”
Schumann, 769 F.3d at 845 (internal citation and quotation
omitted); see also Zizic, 728 F.3d at 240 (“A relator’s knowledge
is independent if it does not depend on public disclosures.”).
“‘[T]he relator must possess substantive information about the
particular fraud, rather than merely background information which
enables a putative relator to understand the significance of a
publicly disclosed transaction or allegation.
If the latter were
enough to qualify the relator as an original source, then a
cryptographer who translated a ciphered document in a public court
record would be an original source, an unlikely interpretation of
the phrase.’” Schumann, 769 F.3d at 845 (quoting U.S. ex rel.
Stinson, Lyons, Gerlin, & Bustamonte, P.A. v. The Prudential Ins.
Co., 944 F.2d 1149, 1160 (3d Cir. 1991)); see also Zizic, 728 F.3d
at 240 (“we have repeatedly rejected the argument that a relator’s
knowledge is independent when it is gained through the application
21
of expertise to information publicly disclosed under §
3730(e)(4)(A).”).
In opposition to PharMerica’s argument that Silver’s
knowledge is not independent, Silver argues that “the Complaint
contains allegations related to the per diem revenue PharMerica
obtained from nursing homes for their Medicare Part A patients,”
and “[t]he Complaint also describes the costs of providing drugs
to nursing homes for Part A patients.” (Opposition Brief, p.
29)(emphasis added).
This argument fails.
The independent knowledge inquiry focuses not on the
allegations of the complaint, but rather the source of a relator’s
knowledge.
That the complaint alleges certain facts does not tell
the Court where those facts came from.
Silver’s brief leaves the
critical question-- how does Silver know what he alleges?-unanswered.
Particularly when the ultimate inquiry is
jurisdictional in nature (i.e., Silver bears the burden of
establishing jurisdiction), this deficiency matters.
Moreover, as already discussed, Silver’s argument that he
independently supplied the specific dollar figures for
PharMerica’s per diem cost of providing certain drugs is directly
contradicted by Silver’s own deposition testimony.
Silver
testified that he did not know what PharMerica’s individual costs
and prices were (Silver Dep. p. 59-60, 67, 86, 138, 155, 202-05,
209, 379, 393-94), and further, that he did not need to know such
22
information to determine that PharMerica was allegedly engaging in
swapping transactions. (Silver Dep. p. 376-77)
The uncontradicted
fact that Silver himself did not need such information precludes
the Court from holding that such information was “substantive.”
Schumann, 769 F.3d at 845.
Based on the record before the Court, Silver appears to be
the paradigmatic “cryptographer.” Schumann, 769 F.3d at 845.
Silver “appli[ed] [his] expertise,” Zizic, 728 F.3d at 240, as a
CPA, pharmacy owner, and nursing home owner to determine the
significance of the publicly disclosed facts.
He clearly stated
so in his deposition:
I can only rely upon what’s out there on the basis of
disclosure, public disclosure, but I also have the
ability to look at my expertise running an institutional
pharmacy, running a nursing home and then take that and
say, hey, I suspect there’s a problem.
What do you
think, attorneys? And then let the attorneys advise me.
(Silver Dep. p. 394-95); see also (id. at p. 58-59)(“I’m a CPA, I
ran an institutional pharmacy, I operated a health care complex
for many years. . . . I have the expertise to ascertain and report
what I believe the [per diem prices] would be.”), (id. at p.
351)(“owning a pharmacy, running a pharmacy, having decades in –
as a nursing home manager and provider of services would certainly
make me suspicious that $11 a day could easily be construed as
commercially unreasonable based on my knowledge of medication
costs and based on my knowledge of what it would cost to operate
23
an institutional pharmacy which I did.
And which I was able to
compare my costs with looking at the $11 per diem.”).
The record evidence, as a matter of law, fails to support the
conclusion that Silver is an original source.
Accordingly, this
Court lacks jurisdiction over Silver’s FCA claim based on conduct
before March 23, 2010, and PharMerica’s Rule 12(b)(1) motion will
be granted.
B. FCA claim based on conduct on and after March 23, 2010
1. The public disclosure bar
While the PPACA altered the public disclosure bar analysis
regarding enumerated sources, Majestic Blue Fisheries, 812 F.3d at
297, the change does not affect the legal analysis in this case
because Silver does not rely on any pre-PPACA enumerated sources.
Thus, the Court relies on the analysis set forth above at III.,
A., 1., and holds that the public disclosure bar applies to
Silver’s FCA claim based on conduct after March 23, 2010.
2.
The original source exception
The original source exception, as amended by the PPACA,
provides, “‘original source’ means an individual . . . (2) who has
knowledge that is independent of and materially adds to the
publicly disclosed allegations or transactions, and who has
voluntarily provided the information to the Government before
filing an action under this section.” 31 U.S.C. § 3730(e)(4)(B).
As the Third Circuit has explained, after the PPACA, “[t]he focus
24
now is on what independent knowledge the relator has added to what
was publicly disclosed.” Majestic Blue Fisheries, 812 F.3d at 300.
a. “Independent of” the publicly disclosed transactions
To determine whether Silver’s knowledge is independent under
the post-PPACA FCA, the Court must “compare [Silver’s] knowledge
with the information that was disclosed through the public
disclosure sources enumerated in § 3730(e)(4)(A).” Majestic Blue
Fisheries, 812 F.3d at 305.
Here, Silver’s knowledge is essentially coterminous with the
information in the enumerated sources.
Silver himself was clear
that the non-public information he obtained from Mr. Lenick and
his calls to nursing homes only “confirmed” what he already knew,
inferred or suspected.
Silver has not raised a triable issue of material fact as to
whether his knowledge was independent; the Court holds as a matter
of law that Silver’s knowledge was not independent, rather it was
almost entirely dependent on the public disclosures in the
enumerated sources.
b. “Materially adds to” the publicly disclosed transactions
“[A] relator materially adds to the publicly disclosed . . .
transaction of fraud when [he] contributes information-- distinct
from what was publicly disclosed-- that adds in a significant way
to the essential factual background: the who, what, when, where
25
and how of the events at issue.” Majestic Blue Fisheries, 812 F.3d
at 307.
The record is clear that Silver added no significant
information or details concerning the essential facts of
PharMerica’s alleged swapping transactions.
The who -- nursing
homes and long-term care pharmacies (specifically PharMerica,
Omnicare, and KPS)-- were identified in the HHS-OIG documents, the
CMS report, and the Medicare Payment Advisory Commission’s report
to Congress.
The mechanics of the swapping transactions, and why
they were illegal-- i.e., the what, where, and how-- were also
disclosed in the HHS-OIG documents.
Lastly, the “when” could also
be determined from the 1997 change in the Medicare law in
conjunction with PharMerica’s financial documents and the HHS-OIG
documents.
Here, again, Silver’s reliance on a handful of non-public
contracts containing specific per diem prices is a red herring.
Those specific prices are insufficient to support any conclusion
as to PharMerica’s revenue streams, and whether such contracts
were profitable.
Therefore, the contract price details, as a
matter of law, do not materially add to the public disclosures.
Silver points to no record evidence raising a triable issue
of fact as to whether he contributed non-public information that
materially added to PharMerica’s alleged illegal swapping scheme.
26
Accordingly, PharMerica’s Motion for Summary Judgment will be
granted.
C.
Supplemental state law claims
The Third Circuit has repeatedly stated, “‘where the claim
over which the district court has original jurisdiction is
dismissed before trial, the district court must decline to decide
the pendent state law claims unless considerations of judicial
economy, convenience, and fairness to the parties provide an
affirmative justification for doing so.’”
Hedges v. Musco, 204
F.3d 109, 123 (3d Cir. 2000)(citing 28 U.S.C. § 1367(c)(3), and
quoting Borough of West Mifflin v. Lancaster, 45 F.3d 780, 788 (3d
Cir. 1995))(emphasis added); cf. Sarpolis v. Tereshko, 625 F.
App’x 594, 600 (3d Cir. 2016)(affirming district court’s retention
and exercise of supplemental jurisdiction under § 1367(c)(3)
because the district court had “an affirmative justification for
exercising supplemental jurisdiction.”)(quoting Hedges).
Here, PharMerica has specifically asked the Court to decline
supplemental jurisdiction over the many claims Silver asserts
pursuant to 28 individual states’ false claims statutes.
In
opposition, Silver asserts that “forcing the parties to litigate
in 28 different forums would decrease judicial economy and
efficiency” and “substantially increase legal fees and court
costs.” (Opposition to 12(b)(1) Motion, p. 32).
27
The Court questions whether dismissal without prejudice of
the supplemental state law claims will necessarily result in 28
individual suits in 28 different fora.
Moreover, even if this is
the result, as PharMerica observes, judicial economy may be
enhanced insofar as it would give each local forum the opportunity
to apply its own statutory law.
Conversely, retention of supplemental jurisdiction will
necessarily require this Court to apply 28 individual state
statutes in a single suit-- an unwieldy task.
Thus, the Court finds no sufficient affirmative justification
for retaining supplemental jurisdiction of the remaining state law
claims.
Those claims will be dismissed without prejudice to
Silver’s right to refile in the appropriate state forum (or fora).
IV. Conclusion
For the reasons set forth above, PharMerica’s Motion to
Dismiss and Motion for Summary Judgment will be granted in their
entirety, and the Court will decline to retain supplemental
jurisdiction over the remaining state law claims.
An appropriate
Order accompanies this Opinion.
Dated: November 28, 2016
At Camden, New Jersey
___s/ Noel L. Hillman____
Noel L. Hillman, U.S.D.J.
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