UNITED STATES OF AMERICA et al v. MEDCO HEALTH SYSTEMS, INC. et al
OPINION. Signed by Judge Noel L. Hillman on 12/30/2013. (tf, )
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
UNITED STATES OF AMERICA,
STATE OF NEW JERSEY, ex rel.
STEVE GREENFIELD, et al.,
CIVIL NO. 12-522(NLH)(AMD)
MEDCO HEALTH SYSTEMS, INC.,
ACCREDO HEALTH GROUP, INC.,
and HEMOPHILIA HEALTH
MARC M. ORLOW
BEGELMAN & ORLOW, PC
411 ROUTE 70 EAST
CHERRY HILL, NJ 08034
On behalf of Steve Greenfield
JAMES W. CHRISTIE
CHRISTIE, PABARUE & YOUNG, PC
1930 EAST MARLTON PIKE
BUILDING Q, SUITE 3
CHERRY HILL, NJ 08003
JENNIFER G. WICHT
WILLIAMS & CONNOLLY LLP
725 TWELFTH STREET, NORTHWEST
WASHINGTON, DISTRICT OF COLUMBIA 20005
On behalf of defendants
CHARLES SCOTT GRAYBOW
OFFICE OF THE U.S. ATTORNEY
DISTRICT OF NEW JERSEY
970 BROAD STREET
NEWARK, NJ 07102
On behalf of the United States
HILLMAN, District Judge
In this qui tam action, plaintiff Steve Greenfield claims that
defendants violated the federal False Claims Act, as well as
twenty-four state and city statutes regulating false claims.
Presently before the Court is the motion of defendants to dismiss
For the reasons expressed below,
defendants’ motion will be granted, but plaintiff will be granted
leave to re-file his claims should he choose to do so.
Greenfield filed his complaint against defendants Medco Health
Systems, Inc., Accredo Health Group, Inc., and Hemophilia Health
Services, Inc. (“HHS”),1 pursuant to 31 U.S.C. §§ 3729 and 3720,2
According to plaintiff’s complaint, Medco provides pharmacy
services to private and public employers, health plans, labor
unions, government agencies, and those under Medicare Part D
prescription drug plans; Accredo is a wholly owned subsidiary of
Medco, and provides specialty pharmacy services to patients with
complex conditions; and HHS is a subsidiary of Accredo, and it
provides hemophilia therapy management programs in the United
A private individual, otherwise known as a relator, may
bring a civil action in the name of the United States to enforce
§ 3729 of the FCA and may share a percentage of any recovery
resulting from the suit. U.S. ex rel. Wilkins v. United Health
Group, Inc., 659 F.3d 295, 305 (3d Cir. 2011) (citing 31 U.S.C. §
3730(b) & (d)). Because it was filed as a qui tam action, the
entire case was filed under seal in order to allow the United
States and interested states to investigate whether they wished
to intervene in the action and prosecute plaintiff’s claims on
their behalf. See 31 U.S.C. § 3730(b)(2). Neither the United
States government nor any of the states listed in the complaint
chose to intervene in the action. Accordingly, the complaint was
unsealed, and from that point on the case has been publically
accessible. Since the case was unsealed, plaintiff filed two
contending that defendants submitted false claims for payment from
the United States, as well as payment from various states in
violation of their false claim laws, because defendants falsely
certified their compliance with the Anti-Kickback Act, 42 U.S.C. §
1320a-7b(b) (referred herein as the Anti-Kickback statute, or
Plaintiff contends that in his capacity as an area vice-
president of Accredo, he learned of defendants’ fraudulent
practices related to their efforts to maintain and increase sales
of their products to treat hemophilia.
As described in plaintiff’s complaint, hemophilia is a rare
bleeding disorder, and those with the disorder have little or no
Treatment for hemophilia is typically either
“on-demand,” where a patient receives factor replacement therapy to
stop a bleed, or “prophylactic,” where a patient receives factor
replacement therapy to prevent a bleed.
Clotting factor products
are expensive, with the annual cost for the treatment of one
patient ranging from $50,000 to $100,000 or more.
As a result, New
Jersey law requires health benefit providers to contract with
amended complaints. It is plaintiff’s second amended complaint
that defendants are seeking to dismiss, referred to herein as
Plaintiff’s opposition brief makes clear that he is not
asserting an independent claim under the AKS, even though he
lists it as a separate count in his complaint. (Pl. Opp. at 6.)
The AKS is a criminal statute that does not provide for a private
cause of action. If an entity falsely certifies its compliance
with the AKS, that false certification can serve as a basis for a
civil FCA violation. See 31 U.S.C. §§ 3729–3733.
state-authorized hemophilia home care providers to provide
hemophilia patients with their necessary treatment regimen.
are four major state-authorized hemophilia providers in New Jersey,
and Accredo is one of them.
The Hemophilia Association of New Jersey, Inc. (“HANJ”) was
created to coordinate and provide treatment to hemophilia patients.
HANJ is a tax exempt entity that, through grants, funds referral
entities and makes recommendations to the state for competitive
HANJ formed Hemophilia Services, Inc. (“HSI”), also a
tax exempt organization, which works with treatment centers,
insurers, and participating home care vendors to provide case
management services for the hemophilia population in New Jersey.
Essentially, HSI receives charitable donations, which it grants to
HANJ, and HANJ provides insurance and other financial assistance to
individuals with hemophilia.
According to plaintiff’s complaint, Medco, through Accredo and
HHS, made charitable contributions in the amount of $500,000 or
more to HSI from 2007 through 2009, with the intent to buy
influence and induce referrals to the defendants.
that when defendants informed HANJ that their charitable
contributions would be decreasing, HANJ’s response demonstrated the
quid quo pro arrangement between defendants’ donations and HANJ’s
funneling of patients to defendants’ products.
For example, in
October 2009, the director of HANJ, Elena Bostick, sent an email to
Craig Mears, president of Accredo/HHS, explaining the ramifications
of the reduced funding, including the elimination of the $5,000 a
month donation from Critical Care Services, a company which Accredo
acquired in 2009.
New Jersey has four HTC’s--none of which has
New Jersey has the lowest % of individuals with
hemophilia on Medicaid.
New Jersey has enacted legislation which
insures access to care, access to all
hemophilia products, and to the providers of
those products. This did not occur by
HANJ’s insurance Grant Program currently covers
65 individuals with hemophilia. 49 of these
are your customers.
The State Dept. of Health reimburses less than
50% of the cost of the insurance Grant Program.
The balance of this cost must be borne by
Grants to NJ HTC’s, for the fiscal year ended
6/30/09, exceeded $500,000. These dollars
enabled our centers to continue to function
despite shortfalls in government funding. It
also alleviated the need for HTC’s to explore
340B as a funding solution.
(SAC ¶ 79, Ex. P.)
Bostick concluded that Accredo/HHS’s
elimination of Critical Care’s pledge to HSI “seriously compromises
the necessary level of funding required to continue to provide
Over the next year defendants allegedly discussed the business
ramifications of their reduced contributions to HANJ/HSI on the
sale of their hemophilia products.
According to plaintiff’s
“HTCs” are state-recognized hemophilia treatment centers.
(SAC ¶ 68.) “340B designation” refers to the 340B Drug Pricing
Program, which is a federal program that provides significant
savings on outpatient drugs to qualified participants. (SAC ¶
complaint, in a meeting in October 2010, Bostick again related
HANJ’s arrangement with defendants in which defendants would make
donations to HANJ/HSI, which would in turn fund insurance for
patients who used defendants’ factor products.
insurance plans funded by the charitable contributions of
defendants would not be referred to any other competitor hemophilia
(SAC ¶ 87.)
If defendants reduced their contributions to
HANJ/HSI, patients would be referred to competitors.
(Id. ¶ 89.)
In March 2011, HSI president Jerry Seltzer sent a letter to
its members, stating:
As you are aware insurance costs continue to rise in
the State of New Jersey. Over the past ten years a
successful partnership between Hemophilia Services, Inc.
(HSI), the State of New Jersey and the "authorized" home
care providers, who participate in the HSI program, has
been able to "subsidize" the cost of Insurance Policies
for our "uninsured" patient population.
Unfortunately, due to insufficient funding for this
groundbreaking program, the ability for HSI to continue
to support this program is now in jeopardy for the
balance of 2011. One of our key providers (HHS/Accredo)
has continued to significantly reduce its financial
support for this program over the last two years. In the
recent past, HSI, in cooperation with the Hemophilia
Association of New Jersey (HANJ), and with a
restructuring of the "patient criteria" for obtaining
Insurance Policies, was able to absorb the additional
cost no longer funded by HHS/Accredo. It should be noted
that the cost to purchase Insurance Policies for our
patient population in 2010, alone, approached one million
However, I am writing at this time to advise you
that, beginning January 2011, HHS/Accredo has chosen to
reduce its financial support so significantly, that as a
major participant, this reduction has placed the
Insurance Program in jeopardy of being phased out, and
ceasing to exist in the foreseeable future.
If you are a client of HHS/Accredo or a participant
in HSI's Insurance Program, on behalf of the HSI Board, I
request that you IMMEDIATELY contact Craig Mears,
President of HHS/Accredo. . . .
It should be noted that if we do not receive a
commitment from HHS/Accredo to restore financial support
for the coming year (2011), “sadly” we will have to
notify the State of NJ that the very successful Insurance
Program for our uninsured patient population is in danger
of being “phased out” due to lack of funds. . . .
(SAC ¶ 92, Ex. I-1.)
As a result of Seltzer’s letter, approximately 75 Accredo/HHS
clients expressed their concern over the funding cuts by sending
letters to Accredo/HHS.
Plaintiff claims that Accredo/HHS then
began to analyze the loss of business they had already experienced,
and could continue to experience in the future, due to HANJ/HSI’s
reaction to defendants’ reduced donations.
analysis questions included whether there was a quantifiable return
on investment if they increased contributions from $175,000 to
$350,000 and what was the likely business deterioration to the New
Jersey market share if contributions were not increased.
Based on this analysis, plaintiff contends that Accredo
convinced Medco to restore funding to $350,000, with Mears
explaining that when they reduced their contributions to HANJ/HSI,
they saw a decline in business because HANJ/HSI wanted defendants
to fund the insurance for patients using defendants’ products.
the 72 patients HSI provided insurance for, 58 were Accredo
patients, and HANJ/HSI wanted Accredo to pay an equivalent amount.
(Id. ¶ 98.)
Plaintiff contends that Medco “found the additional
money” to increase the donations so that they would not lose
business and maintain the referrals to their hemophilia products.
(Id. ¶ 99, quoting Accredo vice-president Bruce Scott, “[O]kay, so
we’re at the point where they understand that we are willing to
continue and willing to increase our contribution back to 350K and
it is clear to them that we are not willing to contribute to an
organization that is placing us in an unfavorable position with
Plaintiff claims that defendants knew that their arrangement
with HANJ/HSI was an illegal kickback scheme, because the
arrangement evidences defendants’ control over a charity, the lack
of independence between defendants and the charity, defendants’
financial interest in the donations, and the connection between the
donations and referrals, all of which violate the Anti-Kickback
statute, as interpreted by the Office of Inspector General in its
Advisory Opinion 10-19.
(SAC ¶¶ 101-107.)
Plaintiff contends that
in addition to providing gifts, in the form of dinners, lunches,
refrigerators, and equipment to patients that exceed the safe
harbor amount ($10 per item/$50 limit per year), in order to
influence the patient’s continued use of Accredo,5 this quid pro
quo scheme between defendants and HANJ/HSI is a violation of the
AKS, which has therefore caused defendants to falsely certify their
Plaintiff claims that these gifts violate the Civil
Monetary Penalty Law, 42 U.S.C. § 1320a-7(a), (“CMPL”) because
they improperly attempt to induce patients’ choice of Medicare or
Medicaid providers, and these gifts therefore violate the FCA.
Plaintiff’s claims concerning these excessive gifts are discussed
in more detail below.
compliance with the AKS, a violation of the False Claims Act.
Defendants have moved to dismiss plaintiff’s complaint in its
entirety on several bases, including plaintiff’s failure to comply
with Rule 9(b) for his FCA claims, plaintiff’s inability to link
his allegations to any federally funded program, and plaintiff’s
lack of specificity as to Medco’s actions.
Defendants have also
asked this Court to decline to continue exercising supplemental
jurisdiction over plaintiff’s state law claims.
opposed defendants’ motion.6
Subject matter jurisdiction
This Court has jurisdiction over plaintiff’s federal claims
under 28 U.S.C. § 1331, and supplemental jurisdiction over
plaintiff’s state law claims under 28 U.S.C. § 1367.
Standard for Motion to Dismiss
When considering a motion to dismiss a complaint for failure
to state a claim upon which relief can be granted pursuant to
Federal Rule of Civil Procedure 12(b)(6), a court must accept all
well-pleaded allegations in the complaint as true and view them in
the light most favorable to the plaintiff.
F.3d 347, 351 (3d Cir. 2005).
Evancho v. Fisher, 423
It is well settled that a pleading
Plaintiff has also filed a motion for leave to file a sur
reply, which defendants have opposed. Because the Court has
considered plaintiff’s sur reply, as well as defendants’ response
to plaintiff’s sur reply, the Court will therefore grant
is sufficient if it contains “a short and plain statement of the
claim showing that the pleader is entitled to relief.”
Civ. P. 8(a)(2).
Under the liberal federal pleading rules, it is
not necessary to plead evidence, and it is not necessary to plead
all the facts that serve as a basis for the claim.
Gulf Oil Corp., 562 F.2d 434, 446 (3d Cir. 1977).
“[a]lthough the Federal Rules of Civil Procedure do not require a
claimant to set forth an intricately detailed description of the
asserted basis for relief, they do require that the pleadings give
defendant fair notice of what the plaintiff’s claim is and the
grounds upon which it rests.”
Baldwin Cnty. Welcome Ctr. v. Brown,
466 U.S. 147, 149-50 n.3 (1984) (quotation and citation omitted).
A district court, in weighing a motion to dismiss, asks “‘not
whether a plaintiff will ultimately prevail but whether the
claimant is entitled to offer evidence to support the claim.’”
Bell Atlantic v. Twombly, 550 U.S. 544, 563 n.8 (2007) (quoting
Scheuer v. Rhoades, 416 U.S. 232, 236 (1974)); see also Ashcroft v.
Iqbal, 556 U.S. 662, 684 (2009) (“Our decision in Twombly expounded
the pleading standard for ‘all civil actions’ . . . .”); Fowler v.
UPMC Shadyside, 578 F.3d 203, 210 (3d Cir. 2009) (“Iqbal . . .
provides the final nail-in-the-coffin for the ‘no set of facts’
standard that applied to federal complaints before Twombly.”).
Following the Twombly/Iqbal standard, the Third Circuit has
instructed a two-part analysis in reviewing a complaint under Rule
First, the factual and legal elements of a claim should
be separated; a district court must accept all of the complaint's
well-pleaded facts as true, but may disregard any legal
Fowler, 578 F.3d at 210 (citing Iqbal, 129 S. Ct. at
Second, a district court must then determine whether the
facts alleged in the complaint are sufficient to show that the
plaintiff has a “‘plausible claim for relief.’”
Iqbal, 129 S. Ct. at 1950).
A complaint must do more than allege
the plaintiff's entitlement to relief.
Id.; see also Phillips v.
Cnty. of Allegheny, 515 F.3d 224, 234 (3d Cir. 2008) (stating that
the “Supreme Court's Twombly formulation of the pleading standard
can be summed up thus: ‘stating . . . a claim requires a complaint
with enough factual matter (taken as true) to suggest’ the required
This ‘does not impose a probability requirement at the
pleading stage,’ but instead ‘simply calls for enough facts to
raise a reasonable expectation that discovery will reveal evidence
of’ the necessary element”).
A court need not credit either “bald assertions” or “legal
conclusions” in a complaint when deciding a motion to dismiss.
re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1429-30 (3d
The defendant bears the burden of showing that no
claim has been presented.
Hedges v. U.S., 404 F.3d 744, 750 (3d
Cir. 2005) (citing Kehr Packages, Inc. v. Fidelcor, Inc., 926 F.2d
1406, 1409 (3d Cir. 1991)).
Finally, a court in reviewing a Rule 12(b)(6) motion must only
consider the facts alleged in the pleadings, the documents attached
thereto as exhibits, and matters of judicial notice.
Overseas Agencies, Inc. v. Kwong Shipping Grp. Ltd., 181 F.3d 410,
426 (3d Cir. 1999).
A court may consider, however, “an
undisputedly authentic document that a defendant attaches as an
exhibit to a motion to dismiss if the plaintiff’s claims are based
on the document.”
Pension Benefit Guar. Corp. v. White Consol.
Indus., Inc., 998 F.2d 1192, 1196 (3d Cir. 1993).
If any other
matters outside the pleadings are presented to the court, and the
court does not exclude those matters, a Rule 12(b)(6) motion will
be treated as a summary judgment motion pursuant to Rule 56.
R. Civ. P. 12(b).
Pleading standard under Fed. R. Civ. P. 9(b)
Because the SAC in this case alleges violations of the federal
FCA, plaintiff’s allegations with respect to these claims must
satisfy the heightened pleading requirements of Fed. R. Civ. P.
Foglia v. Renal Ventures Management, LLC, 830 F. Supp. 2d 8,
13 (D.N.J. 2011) (citing United States ex rel. LaCorte v.
SmithKline Beecham Clinical Labs., Inc., 149 F.3d 227, 234 (3d Cir.
1998) (noting that Rule 9(b) “requires plaintiffs to plead fraud
with particularity, specifying the time, place and substance of the
defendant's alleged conduct[,]” and thus “provides sufficient
deterrence against overly broad allegations” under the False Claims
Accordingly, plaintiff must plead “with particularity the
circumstances constituting fraud[,]” but “[m]alice, intent,
knowledge, and other conditions of a person's mind may be alleged
Fed. R. Civ. P. 9(b).
The Third Circuit has held that
“‘Fed. R. Civ. P. 9(b) requires plaintiffs to plead the
circumstances of the alleged fraud with particularity to ensure
that defendants are placed on notice of the ‘precise misconduct
with which they are charged, and to safeguard defendants against
spurious charges' of fraud.’”
Foglia, 830 F. Supp. 2d at 13
(quoting Craftmatic Sec. Litig. v. Kraftsow, 890 F.2d 628, 645 (3d
Cir. 1989)) (other citations omitted).
As stated above, plaintiff claims that defendants’ actions
relating to their contributions to HANJ/HSI and excessive gifts to
Medicare/Medicaid patients violate the False Claims Act, 31 U.S.C.
§ 3729(a)(1), (2), (3) (Counts One, Two, and Three).7
The primary purpose of the FCA8 “is to indemnify the
Counts Five through Twenty-Eight allege violations of the
false claim acts of several states and cities.
As explained in U.S. ex rel. Wilkins v. United Health
Group, Inc., 659 F.3d 295, 303-304 (3d Cir. 2011), on May 20,
2009, Congress enacted the Fraud Enforcement and Recovery Act of
2009 (FERA), Pub.L. No. 111–21, 123 Stat. 1617 (2009), which
amended the FCA and re-designated 31 U.S.C. § 3729(a)(1) as 31
U.S.C. § 3729(a)(1)(A) and 31 U.S.C. § 3729(a)(2) as 31 U.S.C. §
3729(a)(1)(B). The pre-FERA version of the FCA imposed liability
[A]ny person who—
(1) knowingly presents, or causes to be presented, to
government - through its restitutionary penalty provisions against losses caused by a defendant’s fraud.”
U.S. ex rel.
Wilkins v. United Health Group, Inc., 659 F.3d 295, 303-304 (3d
Cir. 2011) (quotations and citations omitted).
In order to
establish a prima facie FCA violation under section 3729(a)(1), a
an officer or employee of the United States Government
or a member of the Armed Forces of the United States a
false or fraudulent claim for payment or approval;
(2) knowingly makes, uses, or causes to be made or
used, a false record or statement to get a false or
fraudulent claim paid or approved by the Government.
31 U.S.C. § 3729(a)(1)-(2).
The FCA as FERA has amended it, now imposes liability on:
[A]ny person who—
(A) knowingly presents, or causes to be presented, a
false or fraudulent claim for payment or approval;
(B) knowingly makes, uses, or causes to be made or
used, a false record or statement material to a false
or fraudulent claim[.]
31 U.S.C. § 3729(a)(1).
The FCA defines “material” as “having a natural tendency to
influence, or be capable of influencing, the payment or receipt
of money or property.” 31 U.S.C. § 3729(b)(4). For purposes of
this case both versions of the FCA define a claim in pertinent
part as a “request or demand ... for money or property that ...
is presented to an officer, employee, or agent of the United
States....” 31 U.S.C. § 3729(c) (pre-FERA); 31 U.S.C. §
3729(b)(2)(A)(I) (post-FERA). FERA contains a retroactivity
provision which applies only to section 3729(a)(1)(B), and
provides that that clause “take [s] effect as if enacted on June
7, 2008, and appl[ies] to all claims under [the FCA] that are
pending on or after that date.”
Pub.L. No. 111–21 § 4(f)(1),
123 Stat. at 1625.
Even though plaintiff’s complaint contains pre-FERA and
post-FERA claims, the differences are not material to the Court’s
plaintiff must prove that “(1) the defendant presented or caused to
be presented to an agent of the United States a claim for payment;
(2) the claim was false or fraudulent; and (3) the defendant knew
the claim was false or fraudulent.”
Id. at 304-05 (citations
There are two categories of false claims under the FCA: a
factually false claim and a legally false claim.
A claim is factually false when the claimant
misrepresents what goods or services that it provided to the
Government and a claim is legally false when the claimant knowingly
falsely certifies that it has complied with a statute or regulation
the compliance with which is a condition for Government payment.
Relatedly, falsely certifying compliance with the
Anti–Kickback statute in connection with a claim submitted to a
federally funded insurance program is actionable under the FCA.
U.S. ex rel. Kosenske v. Carlisle HMA, Inc., 554 F.3d 88, 94 (3d
Thus, to state a viable claim that defendants violated
the AKS and, in turn, violated the FCA, the key allegation must be
that defendants’ alleged conduct is tied to payment from the United
Plaintiff argues that he has met his burden, under Rule 9(b),
It is unclear whether plaintiff’s FCA claims regarding
excessive gifts are predicated on violations of the CMPL, and if
they are, it is unclear whether such claims are viable. This
issue is addressed below.
to show that defendants’ improper charitable contributions and
gifts to patients are tied to payment from the United States
“[T]he facts plead in the Complaint show that the
Defendants offer and give substantial inducements to HANJ/HSI
that support hemophilia patients, disguised as ‘charitable
donations’ when, in fact, such donations are prohibited
‘remuneration’ under the AKA because they are intended to induce
referrals of hemophilia patients who receive benefits from Federal
health care programs.”
(Pl. Opp. at 26.)
To demonstrate that
defendants’ alleged “prohibited remuneration” is connected to
patients who receive benefits from the federal government,
plaintiff points to the following allegations in his complaint:
The Complaint identifies and alleges that there were
approximately 646 hemophilia patients in New Jersey as of
the first quarter of 2011 and Defendant Hemophilia Health
Services (HHS) had 401 of these individuals as active
patients, or approximately 62% of the New Jersey Market
[Complaint ¶ 71]. In addition, the Complaint also
alleges and states that HANJ/HSI had 77 insurance
recipients of which 59 were HHS clients [Complaint ¶ 83,
Exhibit G-4]. Therefore, on the face of the Complaint
itself, of the 401 HHS hemophilia patients, only 59 had
private insurance, leaving the remaining 342 as part of
the population that were beneficiaries of a Federal
Health Care Program [Complaint ¶¶ 8, 9, 11, and 70].
(Pl. Opp. at 3.)
Plaintiff also refers to Exhibit N to his
complaint, which is a chart of Medco’s hemophilia patients, listing
the amount of factor each uses, each patient’s insurer, and the
“gift” provided to them, such as snacks, lunches and dinners.
few of these patients are listed as federal Medicare recipients.
The viability of plaintiff’s claims regarding charitable donations
and excessive gifts will be addressed separately.
1. Charitable contributions
Accepting as true that defendants’ charitable contributions to
HANJ/HSI were intended to induce referrals to defendants’
hemophilia treatment products, and that defendants’ actions
demonstrated prohibited control over the charity’s use of its
donations, the facts pleaded in plaintiff’s complaint are not
sufficient, under his Rule 9(b) burden, to show that any of those
contributions are tied to federal funds.
To the contrary, the quid
pro quo scheme between HANJ/HSI and defendants alleged by plaintiff
appear to demonstrate that defendants’ contributions were used by
HANJ/HSI to avoid the need to avail themselves of any federal
The heads of HANJ and HSI both tied defendants’ contributions
to their ability to fund private insurance programs for hemophilia
Elena Bostick pointed out that defendants’ grants
“alleviated the need for HTC’s to explore 340B [the federal drug
benefit program] as a funding solution.”
(SAC ¶ 79, Ex. P.)
Similarly, Jerry Seltzer noted that without defendants’
contributions, HSI’s privately funded insurance program would be
(SAC ¶ 92, Ex. I-1.)
Indeed, according to the
claims in plaintiff’s complaint, HANJ and HSI were so dependent on
the contributions from defendants to pay the private insurance
premiums for their members that they practically extorted
defendants into continuing their contributions by essentially
blacklisting defendants and instituting a negative letter writing
Defendants’ own cost-benefit analysis of whether to maintain
their contributions to HANJ/HSI, as pleaded in plaintiff’s
complaint, also demonstrates that avoidance of the use of any
federal benefits source was defendants’ goal as well.
analyzing the “likely business deterioration to NJ market share if
we don’t increase” their charitable donations to HANJ/HSI, the data
showed that “NJ HTC’s will resort to developing 340B programs
placing all new and existing business at risk.
For any patient
that switches to a 340B program, we will lose 100% of the margin
associated with that patient unless we are able to service the 340B
program, in which case we will lose approximately 50% to 60% of the
margin . . . .”
(SAC ¶ 96.)
This analysis shows that it would be
in defendants’ best interests to steer clear of any federal funding
Contrary to plaintiff’s argument, the data included in
plaintiff’s complaint does not assist in demonstrating a tie
between defendants’ contributions and the use of federal funds.
The complaint states that in 2011, 59 of 401 hemophilia patients
using defendants’ products had private insurance provided by
Plaintiff claims that the remaining 352 patients using
defendants’ products must therefore be recipients of federal
Because federal funds were used to pay for patients’ use
of defendants’ products, and because defendants were falsely
certifying their compliance with the AKS (due to their quid pro quo
scheme with HANJ/HSI), plaintiff contends he has stated valid
claims for FCA and AKS violations.
Plaintiff’s math (and his corresponding assumption that
federal funds are implicated) is too attenuated and derivative to
state a viable claim under the heightened Rule 9(b) standard, and
even under the regular Rule 8(a) standard.
There are no factual
allegations to support the conclusion that the remaining 352 HHS
patients were under a federal prescription drug program.
simply fails to demonstrate with the requisite degree of clarity
and certainty a connection between defendants’ alleged kickback
scheme with HANJ/HSI and payments from the federal government.10
According to plaintiff, defendants gave charitable
contributions to HANJ/HSI so that HANJ/HSI would steer its members
to hemophilia treatment centers to prescribe patients with
defendants’ hemophilia products.
Plaintiff claims that this
evidences an overall scheme of false certification of compliance
It is unclear whether Plaintiff’s allegations concerning
gifts provided to Medco patients on Medicare exceeding the
maximum dollar amount permitted by the AKS is an allegation of a
separate illegal scheme or somehow related to the allegations
concerning charitable donations. In any amended pleading,
Plaintiff should clarify this point.
with the AKS to secure payment from federal funds.
is no doubt that pharmaceutical companies provide gifts to patients
and make contributions to charities based, in part, on their
ultimate goal to maximize profits, plaintiff here has not pleaded
sufficient facts with the requisite particularity to suggest that
defendants’ actions alleged violate the FCA.
The fact, however, that 352 HHS patients were not privately
insured through funding from the kickback scheme alleged leaves
open the question of what kind of financial assistance these
patients received, especially when considering the high medical
costs associated with the treatment of hemophilia.
open question is not sufficient to meet the Rule 9(b) pleading
requirement to state “with particularity” that the 352 HHS patients
must have therefore received federal assistance, the Court will not
foreclose plaintiff from filing a third amended complaint should he
be able to properly comply with the Rule 9(b) standard to more
concretely, rather than through inference, plead that defendants’
charitable contributions were intended to, and did, induce
referrals of patients receiving federal support to defendants’
Accordingly, plaintiff’s complaint premised on his contention
that defendants’ charitable contributions violated the FCA through
false compliance with the AKS will be dismissed without prejudice
to plaintiff’s right to re-file this claim within 30 days, if he
can do so consistent with the Court’s direction above.11
Plaintiff also claims that defendants provided Medicare
recipients with improper gifts so that they would be favorable to
the HTCs’ continued prescription of defendants’ hemophilia
To support this claim, plaintiff refers to Exhibit N to
his complaint, which is a chart of Medco’s hemophilia patients.
The chart lists the amount of factor each patient uses, each
patient’s insurer, and the “gift” provided to them, such as snacks,
lunches and dinners.
A few of these patients are listed as federal
Plaintiff’s complaint is unclear how these alleged excessive
gifts violate the FCA.
In one paragraph of his complaint,
plaintiff claims that these gifts exceed the nominal amount
permitted under the Civil Monetary Penalty Law, 42 U.S.C. § 1320a7(a):
Because the Court will dismiss plaintiff’s claims based on
defendants’ charitable contributions because of plaintiff’s
pleading deficiencies, it is unnecessary to address defendants’
arguments that plaintiff’s claims must be dismissed against Medco
because of plaintiff’s inability to adequately plead any FCAviolative conduct by Medco, separate from Accredo/HHS, or that
plaintiff has not pleaded any viable conspiracy. It is important
to note that should plaintiff re-file his claims based on
defendants’ charitable contributions, he must not only comply
with Rule 9(b) with regard to pleading how the contributions are
tied to federal funds, but he must also comply with Rule 9(b) as
to Medco’s alleged involvement, as well as to the elements of any
Defendants, in order to keep the hemophilia patients that
have been referred, have also violated the Civil Monetary
Penalty provisions of Section 1128A(a)(5) of the Social
Security Act, 42 U.S.C. §1320a-7(a) as enacted as part of
Health Insurance Portability and Accountability Act of
1996 (HIPAA) by offering and/or providing its hemophilia
patients who are Medicare or Medicaid beneficiaries
“remuneration” that it “knows or should know is likely to
influence the beneficiary's selection of a particular
provider.” . . . . Defendants’ representatives routinely
and systematically provide gifts that exceed the
permitted limit to keep hemophilia patients receiving
specialty pharmaceuticals, which include expensive meals
and other gifts. . . . A substantial portion of this cost
is borne by Federal Health Care programs. The market
place for providers is competitive but also limited. The
practices of Medco described herein corrupts this market
and results in excess cost to the federal fisc.
(SAC ¶¶ 9, 10, 11.)
Later in his complaint, in his three counts
for FCA violations, plaintiff claims that these excessive gifts
violate the FCA because they were illegal inducements that resulted
in false payments by the federal government.
(See SAC ¶¶ 115, 116,
Thus, plaintiff’s complaint appears to contend that
defendants’ alleged violation of the CMPL serves as the basis for
his FCA claims.
As explained above, a claim is considered false under the FCA
when the claimant knowingly falsely certifies that it has complied
with a statute or regulation the compliance with which is a
condition for government payment.
U.S. ex rel. Wilkins v. United
Health Group, Inc., 659 F.3d 295, 304 (3d Cir. 2011).
point out, however, that a violation of the CMPL cannot serve as
the basis for a FCA claim.
(See Def. Br. at 12-13.)
opposition to defendants’ motion to dismiss, plaintiff does not
appear to contest this, and clarifies that his FCA claims based on
the excessive gifts are predicated not on the CMPL, but rather the
In his opposition brief, plaintiff contends that defendants
maintain billing privileges with Medicare and signed a provider
agreement form 855s, wherein defendants agreed that payment by
Medicare is conditioned upon compliance with the anti-kickback
(Pl. Opp. at 15-16.)
Because defendants’ gifts are not
considered “nominal,” and are intended to induce patient use of
defendants’ hemophilia products, plaintiff claims that these gifts
violate the AKS, and the prescriptions stemming from the illegal
gifts result in payments by the federal government in violation of
In other words, plaintiff claims that defendants are paid
by Medicare for the prescriptions procured by illegal kickbacks to
This articulation of plaintiff’s FCA claims
based on excessive gifts is not so precisely stated in his
Plaintiff’s complaint demonstrates that defendants give
certain non-nominal gifts to patients whose prescriptions are paid
for by Medicare.
The deficiency in his claim is that this fact
alone is not sufficient under Rule 9(b) to make the leap that the
gifts are violations of the AKS, and that defendants expressly and
falsely certified compliance with AKS when they received payment
from federal funds for prescriptions resulting from those illegal
Plaintiff’s opposition brief does a better job of
substantiating his FCA claims based on the excessive gifts, but his
brief cannot cure the pleading deficiencies in his complaint.
Thus, as with his claims based on defendants’ charitable
contributions, plaintiff’s FCA claims based on illegal gifts to
patients must be dismissed.
The Court, however, will provide
plaintiff with 30 days to re-file these claims should he be able to
do so consistent with Rule 9(b).12
For the reasons expressed above, defendants’ motion to dismiss
plaintiff’s claims arising under federal law will be granted.
Because plaintiff’s federal claims are dismissed, and because this
case is still at the pleading stage, the Court declines to exercise
supplemental jurisdiction over his state law claims.
See 28 U.S.C.
§ 1367(c)(3) (providing that a district court may decline to
exercise supplemental jurisdiction over state law claims when it
“has dismissed all claims over which it has original
jurisdiction”); Elkadrawy v. Vanguard Group, Inc., 584 F.3d 169,
174 (3d Cir. 2009) (affirming district court's dismissing state law
claims after federal claims were dismissed).
See note 11 with regard to plaintiff’s conspiracy claims
and his claims against Medco should he choose to file a third
plaintiff’s state law claims are also dismissed.13
however, is provided 30 days to re-file his claims in a third
amended complaint should he be able to do so consistent with the
direction provided by the Court herein.
An appropriate Order will be entered.
December 30, 2013
At Camden, New Jersey
s/ Noel L. Hillman
NOEL L. HILLMAN, U.S.D.J.
If plaintiff chooses to file a third amended complaint, it
is also his choice as to whether to pursue his claims based on
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