ABC v. DEF

Filing 190

OPINION & ORDER re: 174 LETTER MOTION to Seal Certain Exhibits to the Declaration of Nicholas Pastan in Support of Defendants' Motion to Dismiss the Second Amended Complaint addressed to Judge Ronnie Abrams from Ethan M. Posner dated July 15, 2022. filed by McKesson Corporation, McKesson Specialty Care Distribution Corporation, McKesson Specialty Distribution LLC, 171 MOTION to Dismiss the Second Amended Complaint. filed by McKesson Corporation, McKes son Specialty Care Distribution Corporation, McKesson Specialty Distribution LLC. For the foregoing reasons, the motion to dismiss is granted without prejudice. The Clerk of Court is respectfully directed to terminate the motions pending at docket entries 171 and 174. (Signed by Judge Ronnie Abrams on 3/28/2023) (ate)

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UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

USDC-SDNY
DOCUMENT
ELECTRONICALLY FILED
DOC#:
DATE FILED: 03/28/2023

UNITED STATES OF AMERICA et al., ex
rel. ADAM HART,
Plaintiff,
v.

15-CV-0903 (RA)
OPINION & ORDER

MCKESSON CORPORATION, et al.,
Defendants.

RONNIE ABRAMS, United States District Judge:
Plaintiff-Relator Adam Hart brought this qui tam action against McKesson Corporation,
McKesson Specialty Distribution LLC, and McKesson Specialty Care Distribution Corporation
(collectively “McKesson”) on behalf of the United States of America and twenty-eight states. In
the main, Hart alleges that McKesson offered “something of value” to oncology practices that
joined programs requiring them to purchase a substantial proportion of their drugs from
McKesson—namely, two business-management tools, the Margin Analyzer and the Regimen
Profiler, which allowed the practices to increase their profit margins for prescribed medications—
and that doing so violated the federal Anti-Kickback Statute, 42 U.S.C. § 1320a-7b(b), et seq.
(“AKS”). Claims for reimbursement submitted by these practices, Hart asserts, were tainted by
the kickback scheme and thus in violation of the False Claims Act, 31 U.S.C. § 3729, et seq.
(“FCA”), and its state analogues.
The Court previously dismissed the First Amended Complaint filed in this action, finding
that, although Hart had plausibly alleged that the business-management tools at issue constituted
remuneration under the AKS, he failed to plausibly allege that McKesson acted with the requisite

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scienter and failed to plead the fraudulent scheme with particularity as required by Federal Rule
of Civil Procedure 9(b). See United States ex rel. Hart v. McKesson Corp., 602 F. Supp. 3d 575
(S.D.N.Y. 2022) (the “Prior Opinion”). The Court granted leave to amend, and Hart has since
filed a Second Amended Complaint (the “Complaint”), adding new allegations which, he claims,
plausibly allege that McKesson had knowledge of the unlawfulness of the scheme. McKesson has
again moved to dismiss. For the reasons that follow, the motion is granted, albeit again without
prejudice.1
BACKGROUND
The facts giving rise to this action, most of which were also detailed in the Court’s Prior
Opinion, are by now familiar to counsel and the parties. New allegations, as relevant here, are
described in Section VI, see infra at 11–12. All facts are taken from the Complaint and are
assumed to be true for purposes of the present motion. See Stadnick v. Vivint Solar, Inc., 861 F.3d
31, 35 (2d Cir. 2017).
I.

The Parties
McKesson Corporation is a Delaware corporation headquartered in Irving, Texas. Compl.

¶¶ 16, 17. McKesson sells pharmaceuticals, medical supplies, and related services to health care
providers. Id. ¶¶ 2, 42. McKesson Corporation is the parent company of the other McKesson
Defendants, “which are all wholly-owned direct or indirect subsidiaries of McKesson
Corporation.” Id. ¶ 16. McKesson Specialty Distribution LLC is a Delaware limited liability
company and a wholly owned subsidiary of McKesson Corporation. Id. ¶ 17. McKesson Specialty

1

As described infra at 16, 28, the Court concludes that amendment to salvage the claims brought under the
False Claims Act analogues of the twenty-eight states and the District of Columbia would not necessarily be futile.
Accordingly, it determines that dismissal without prejudice is once again warranted, although skeptical that federal
jurisdiction would be proper with further amendment to exclusively bring those state law claims. See 28 U.S.C. §
1367(c)(3).

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Care Distribution Corporation is a Delaware corporation and also a wholly owned subsidiary of
McKesson Corporation. Id.2 Hart alleges, upon information and belief, that during the relevant
time period, McKesson Specialty Health (“MSH”) was a business unit of McKesson Corporation,
McKesson Specialty Care Distribution Corporation, and McKesson Specialty Distribution LLC.
Id. Through MSH, McKesson operated as a wholesale distributor, buying specialty drugs and
reselling them to customers across the country. Id. ¶¶ 2, 17–18, 42.
Plaintiff-Relator Hart was employed by McKesson from August 2011 until September
2014 as a Business Development Executive (“BDE”) in its Specialty Health business unit. Id.
¶ 15. His responsibilities included generating new business opportunities among communitybased oncology practices in the southeastern United States. Id. Once a customer was recruited,
Hart would provide services for the first year, after which a “McKesson Account Executive” was
assigned. Id. The McKesson Account Executive was responsible for maintaining and increasing
sales, but Hart remained in touch with practices through “sales meetings, sales calls, requests for
assistance from other personnel, and communications with coworkers.” Id.
II.

McKesson’s Oncology Business
As relevant here, MSH provided “specialty pharmaceuticals and services to community

oncology practices.” Id. ¶ 49.3 The specialty drugs used in cancer treatment are complex to
manufacture, require special handling, and, as a result, are more expensive than other drugs.
Id. ¶ 41. Some oncology practices obtain the drugs from a specialty pharmacy, which then bills
patients’ insurers. Id. ¶ 43. Others opt to purchase drugs from wholesalers like McKesson, provide

2

In or around May 2013, McKesson Specialty Care Distribution JV LLC merged with McKesson Specialty
Care Distribution Corporation, which became the surviving company. Compl. ¶ 17.
Community oncology practices provide oncology care in an “office setting,” as opposed to providers who
operate in a hospital setting. Compl. ¶ 43.
3

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those drugs to their patients, and then bill the patients’ insurers themselves. Id.
In 2014, the oncology business was MSH’s largest line of business by revenue, generating
$7 billion of MSH’s $9 billion in annual revenue. Id. ¶ 49. There were two divisions of the
oncology business, and Hart worked in the “open market” division, which operated as a traditional
drug wholesaler and distributor. Id. ¶¶ 49–50. The allegations in the complaint are limited to the
practices of the open market division. Id. ¶¶ 50–51.
III.

The Business-Management Tools
Hart’s claims are based on McKesson’s usage of two business-management tools—the

Margin Analyzer and the Regimen Profiler—which were offered almost exclusively to practices
that committed to purchasing a significant portion of their drugs from McKesson. Id. ¶ 75.
A. The Margin Analyzer
Beginning in approximately 2011, McKesson offered its customers “complimentary
access” to the Margin Analyzer. Id. ¶ 54. With the benefit of further amendment, the Complaint
now specifies a “non-exhaustive” list of 113 practices from locations throughout the country which
were provided the Margin Analyzer free of charge. Id. ¶ 55. Among other things, the tool allowed
oncology practices like these to compare the reimbursement rates of interchangeable drugs. Id.
¶¶ 58–59. McKesson had identified “therapeutically interchangeable” choices for ten categories
of drugs commonly used by oncology practices. Id. ¶ 64. For any given category, the Margin
Analyzer relied on pricing and reimbursement data to determine which of the similar drugs would
yield the highest profit for the practice. Id. ¶¶ 65, 67. McKesson employees input reimbursement
data from Medicare and private insurers, allowing the tool to analyze the profitability of different
drugs based on a patient’s insurer. Id. ¶¶ 61–63, 65–67.
By way of illustration, the Complaint includes the following illustration of the tool’s utility.
The Margin Analyzer listed five “therapeutically interchangeable” options for parenteral irons.
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Id. ¶ 86. In Q1 2012, McKesson’s data showed that, for Medicare-insured patients, the difference
between acquisition cost and reimbursement price was significantly greater for one brand of
parenteral irons, Feraheme, than other brands. Id. ¶¶ 86–87. For Summit Cancer Care in
Savannah, Georgia, specifically, a switch from prescribing only Infed parenteral irons (margin of
$15.19 per dose), to a mix of 80% Feraheme (margin of $88.52 per dose) and 20% Infed would
increase annualized net profits by $10,560. Id. The Margin Analyzer excerpt below shows the
type of data comparisons available to McKesson representatives and the practices with whom they
shared them:

Compl., Ex. 4 at 7 (Q2 2012 SCC Margin Analyzer).
The Margin Analyzer was used not only to compare the cost and profit margin on a per
drug, per insurer basis, but also to give forward-looking recommendations based on that data.
BDEs or Account Executives were thus able to forecast various scenarios by inputting different
drug mixes or potential payors, and then used those findings to aid the practices in choosing a drug
distribution that was most profitable for the practice. See Compl. ¶¶ 82–87. Because the Margin
Analyzer allowed practices to instantly compare the profit margin of one drug versus others in the
same category, a BDE or Account Executive could identify areas with large profit opportunities.
See id. McKesson personnel met with their customers at “Quarterly Business Reviews” to review
the Margin Analyzer and to provide “a detailed analysis of the practice’s finances and business
operation.” Id. ¶ 71.

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In order to generate these results, the Margin Analyzer required data, including: the fee
schedules published quarterly by the Centers for Medicare and Medicaid Services (“CMS”); the
customer’s quarterly purchase records; the prices at which McKesson sold its drugs; and the fee
schedules of relevant private insurers. Id. ¶¶ 60–62. McKesson employees would gather and input
this data into spreadsheets for each practice, and update them on a quarterly basis as the data
changed. Id.
Because different insurers reimbursed different drugs at different rates, a drug most
profitable for a Medicare patient may not be as profitable for a patient with a given private insurer.
The Margin Analyzer not only accounted for the different reimbursement amounts offered by
different insurers, but synthesized the data into a “cheat sheet” page that recommended the most
profitable drug in each category by payor. See id. ¶¶ 90–91; id., Ex. 3, Q4 2012 SCC Margin
Analyzer. The “cheat sheet” generated for the Summit Cancer Care in Q4 of 2012, for example,
recommended one of three different antiemetic drugs, see Compl. at ¶ 91, depending on whether
the patient was covered by BlueCross BlueShield, Cigna, or Medicare, as seen below:

Id., Ex. 3 at 3 (Q4 2012 SCC Margin Analyzer). As with all of the data in the Margin Analyzer,
McKesson would update these sheets every quarter as reimbursement rates changed. Compl.
¶¶ 93–94. The most cost-effective drugs were subject to change each quarter. Compare id., Ex.
3, Q4 2012 SCC Margin Analyzer, with id., Ex. 5, Q1 2013 SCC Margin Analyzer.
McKesson used the Margin Analyzer in three contexts: to acquire new customers and/or
retain existing customers, id. ¶ 70; to provide consultation and financial advice to existing

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customers at in-person “Quarterly Business Reviews,” id. ¶ 71; and to encourage the purchase of
new drugs (or drugs with new pricing), id. ¶ 72.
B. The Regimen Profiler
The Regimen Profiler worked in much the same way as the Margin Analyzer, but rather
than calculate the margins for an individual drug, it calculated costs for the whole treatment
regimen. Id. ¶¶ 6, 106. Oncology practices typically incur significant non-drug related costs in
the administration of cancer therapy, including the cost of preparing or administering the
treatments, such that the price of the drug itself is only one component of the overall cost. Id.
¶¶ 107, 109. The Regimen Profiler filled this gap—calculating profit margins for the course of
treatment, including non-drug costs. Id. Insurers reimbursed these non-drug costs as well, and so
the Regimen Profiler, like the Margin Analyzer, calculated the profitability of each treatment
regimen on a provider-by-provider basis. Id. ¶ 109. The tool was designed to be used in
conjunction with the Margin Analyzer to understand a practice’s overall profitability and/or
potential profitability. See id., Ex. 1 (Margin Analyzer Sales Sheet). McKesson employed the
Regimen Profiler in the same manner as the Margin Analyzer—to pitch new customers and retain
existing ones. Compl. ¶ 112. Moreover, as with the Margin Analyzer, McKesson made an
“explicit contractual promise” only to commitment program customers to provide the Regimen
Profiler free of charge. Id.
C. McKesson’s Offer of the Business Management Tools to Commitment Program
Customers
Hart alleges that these tools were provided, for free, on a quarterly basis, to a number of
oncology practices throughout the country.

They were not, however, distributed to all of

McKesson’s customers. Instead, the Margin Analyzer and Regimen Profiler were offered, “with
few (or no) exceptions. . . only to physician practices that contracted to join the Onmark Select,

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Prime, or MVP programs.”

Id. ¶ 75 (emphasis in original).

The Onmark Select, Prime

Membership, and McKesson Value Program (“MVP”) (collectively the “commitment programs”),
required practices to purchase a certain volume of their drugs from McKesson. Id. ¶ 74. The
Onmark Select program required use of McKesson as the “primary wholesale supplier” for
branded and generic drugs, while the Prime and MVP programs required a commitment to
purchase approximately 90% to 95% of the practice’s branded and generic drugs from McKesson.
Id.
If they did not join one of the commitment programs, oncology practices were still able to
purchase drugs from McKesson. But MSH did not allow non-commitment program customers to
access the business-management tools. Id. ¶¶ 76, 112. One practice, for instance—Hematology
Oncology of the Treasure Coast—sought to end its purchase commitment with McKesson, and
was explicitly told that, if it did so, it would lose access to the Margin Analyzer. Id. ¶ 76.
Although his First Amended Complaint named twelve practices that were allegedly offered
these tools for free and signed commitment programs with McKesson, Hart’s Second Amended
Complaint now alleges a far larger number of practices which fit into this category—including
such diverse practices as Commonwealth Hematology Oncology in Quincy, Massachusetts; Rocky
Mounty Oncology Center PLLC in Casper, Wyoming; Katmai Oncology Group in Anchorage,
Alaska; and Oncare Hawaii, Inc. in Honolulu, Hawaii. Id. ¶ 55. In all, Hart’s Complaint now lists
113 practices from across some thirty states and the District of Columbia, see id., which were
allegedly “offered the Margin Analyzer and/or the Regimen Profiler for free as an inducement to
make a purchase commitment from McKesson.” Id. ¶ 79. The Complaint further claims that
During the sales pitch to practices like those identified in Paragraph 55, McKesson
would populate the Margin Analyzer with the practices’ specific drug utilization
information to demonstrate the utility of the Margin Analyzer. The physician
practices then signed purchase commitments with McKesson and informed

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McKesson that the Margin Analyzer and, in some instances, the Regimen Profiler
were key components of their decision to commit to buying specialty drugs from
McKesson.
Id. ¶ 80. Hart further alleges that, in addition to the practices named in the Complaint, this conduct
occurred nationwide. Id. ¶ 134.
Hart’s complaint also contains allegations that suggest McKesson knew that the Margin
Analyzer and Regimen Profiler were valued by its customers. Sales training materials attached to
the complaint emphasized the importance of the Margin Analyzer to retaining customers. And
McKesson purportedly believed that the tools were important to both enhancing its profitability
and creating “stickiness” among its customers. Id. ¶ 78; id. Ex. 9 at 8–9 (2014 South Region
Meeting Presentation) (describing the importance of “creat[ing] stickiness” through “value-added
services”). Hart also references internal communications in which McKesson concluded at least
some customers stayed with McKesson, over lower cost providers, in order to retain access to the
Margin Analyzer. Id. ¶ 70 (“McKesson acknowledged in internal communications that it has
practice group customers who refuse to leave MSH for lower cost providers of specialty drugs
because those practices would lose access to the Margin Analyzer in the event they did so.”). The
company even allegedly prepared a “customer testimonial video” dedicated to the businessmanagement tools, touting their potential value to community oncology practices. Id. ¶ 130.
McKesson’s view that the tools were important to customer acquisition and retention was
purportedly further emphasized at its in-person sales conferences. At those events, executives
from McKesson made clear that the Margin Analyzer and Regimen Profiler should be at the center
of sales pitches to new customers. Id. ¶¶ 76, 123–26, 146. Indeed, according to Hart, the Margin
Analyzer and Regimen Profiler were “so central to McKesson’s business that McKesson fired one
BDE because he was not sufficiently emphasizing the Margin Analyzer and the Regimen Profiler

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in his sales pitches.” Id. ¶ 125.
IV.

The Anti-Kickback Statute and False Claims Act
The AKS and FCA work in conjunction to create a private right of action for violation of

the federal criminal anti-kickback statute.

The FCA creates liability for any person who

“knowingly presents, or causes to be presented, a false or fraudulent claim for payment or
approval; 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)(A)–(B). Claims are defined as “any request
or demand for money from an officer, agent, employee, or contractor of the United States.” 31
U.S.C. § 3729(b)(2)(A).
The AKS prohibits any individual or entity from “knowingly and willfully offer[ing] or
pay[ing] any remuneration . . . directly or indirectly, overtly or covertly, in cash or in kind to any
person to induce such person . . . to purchase . . . or arrange for or recommend purchasing . . . any
good, facility, service, or item for which payment may be made in whole or in part under a Federal
health care program.” 42 U.S.C. §1320a-7b(b)(2)(B). Claims resulting from an AKS violation
constitute “a false or fraudulent claim” for the purposes of the FCA. 42 U.S.C. §1320a-7b(g); see
also United States v. Novartis Pharms. Corp., 2020 WL 1436706, at *1 (S.D.N.Y. Mar. 24, 2020).
V.

Procedural History
Plaintiff filed his initial complaint on February 6, 2015. Because the action was brought

under the False Claims Act, the complaint was placed under seal to afford the government an
opportunity to intervene. See 31 U.S.C. § 3730(b)(2). The government ultimately declined to
intervene, and the complaint was unsealed as of May 29, 2020. Plaintiff then filed the First
Amended Complaint, which stated claims against McKesson under the FCA, as well as under the
False Claims Act analogues of twenty-eight states and the District of Columbia, based on the same
alleged conduct.
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On May 5, 2022, the Court granted McKesson’s motion to dismiss the First Amended
Complaint, finding that although the First Amended Complaint plausibly alleged that the Margin
Analyzer and Regimen Profiler constituted “remuneration” under the AKS, and that they “have
substantial value apart from the products offered by McKesson,” Prior Opinion, 602 F. Supp. 3d
at 586–87, Hart had not adequately pleaded McKesson acted with the scienter required under the
AKS, id. at 592. See also id. at 594 (noting that the AKS requires allegations which “give rise to
a plausible inference that McKesson knew its conduct was unlawful”). The Court reserved
judgment on whether Hart had pleaded a nationwide scheme. See id. at 598.
Hart was granted leave to amend to correct the pleading issues identified in the Court’s
dismissal order. See id. at 598–99. He filed a Second Amended Complaint on June 7, 2022, see
Dkt. 159, and McKesson once again moved to dismiss. the Court heard oral argument on the
motion on March 15, 2023.
VI.

The Second Amended Complaint’s New Allegations of Scienter
Following the Court’s prior dismissal—in addition to naming additional practices which

were given the Margin Analyzer and Regimen Profiler free of charge, and further allegations
regarding McKesson employees’ general awareness of the AKS—Hart added two new sections to
the Complaint. The first, entitled “Additional Allegations of Scienter,” includes allegations about
previously undescribed conversations between Hart and other McKesson employees about the
possibility that the company’s provision of the tools may violate the AKS. Compl. ¶¶ 163–66. In
key part, this section alleges that an Ernst & Young analysis valuing the Margin Analyzer and
Regimen Profiler at $125,000 and $25,000 per year, respectively, was sent to several McKesson
executives. Id. ¶ 160. According to Hart, McKesson’s Senior Vice President of Open Market
Sales then emailed a presentation containing those valuations to the Vice President of Payer and
Revenue Cycle Services, with a note in the body of the email stating: “You didn’t get this from
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me . . . ok?” Id. (ellipses in original). The section further alleges that, while at a live web-based
training on the AKS, Hart sent an instant message to his supervisor “stating that McKesson’s
current sales practices, which included using the Margin Analyzer and the Regimen Profiler as
free inducements to secure purchase commitments, violated the compliance policies that were
presented in the training session,” and that his concerns were “dismissed.” Id. ¶ 164. Finally, the
section alleges that Hart had “frequent conversations” with the creator of the Margin Analyzer
while the two were traveling for sales pitches, and that they discussed concerns that McKesson
was “inappropriately exploiting the value-added business tool.” Id. ¶ 166.
The second additional section, “McKesson Has Destroyed Documents Evidencing Its
Conduct,” boldly alleges that McKesson purposefully destroyed evidence relevant to the present
action. Id. § VII(G). It asserts that “McKesson has shown knowledge of guilt” by “taking steps
to conceal evidence of its prior activity.” Id. ¶ 167. “For example, although [McKesson]
previously touted the Margin Analyzer on its website, including through a customer testimonial
video,” the Complaint alleges, it “has since taken down the video and claimed to have lost or
destroyed [it].” Id. So too, the section details the “destr[uction] [of] critical documents relating to
the allegations in this case, even after it had a duty to preserve such documents.” Id. ¶ 168.
LEGAL STANDARD
When considering a motion to dismiss under 12(b)(6), a court must “accept all allegations
in the complaint as true and draw all inferences in the non-moving party’s favor.” LaFaro v. New
York Cardiothoracic Grp., PLLC, 570 F.3d 471, 475 (2d Cir. 2009) (cleaned up). The complaint
must “contain sufficient factual matter . . . to ‘state a claim to relief that is plausible on its face,’”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S.
544, 570 (2007)), and must be dismissed if it fails to state a claim upon which relief can be granted,

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see Fed R. Civ. P. 12(b)(6). A complaint that offers only “‘labels and conclusions’ or ‘a formulaic
recitation of the elements of a cause of action, will not do.’” Id. (quoting Twombly, 550 U.S. at
555). Nor will a complaint suffice if it contains only “‘naked assertion[s]’ devoid of further
‘factual enhancement.’” Id. (quoting Twombly, 550 U.S. at 557).
Because FCA claims “fall within the express scope of Rule 9(b),” Gold v. MorrisonKnudsen Co., 68 F.3d 1475, 1476-77 (2d Cir. 1995) (per curiam), a relator must “state with
particularity the circumstances constituting fraud,” Fed. R. Civ. P. 9(b). While the circumstances
of the fraud must be pled with particularity, “[m]alice, intent, knowledge, and other conditions of
a person’s mind may be alleged generally” under Rule 9(b). Fed. R. Civ. P. 9(b). Where an FCA
claim is predicated on a violation of the AKS, both the FCA and AKS violations must be pled in
compliance with Rule 9(b). United States v. Novartis Pharms. Corp., 2020 WL 1436706, at *3
(S.D.N.Y. Mar. 24, 2020) (citing United States ex rel. Polansky v. Pfizer, Inc., 822 F.3d 613, 61718 (2d Cir. 2016) and United States ex rel. Bilotta v. Novartis Pharm. Corp., 50 F. Supp. 3d 497,
513-14 (S.D.N.Y. 2014)). Claims under the FCA state analogues must also satisfy Rule 9(b).
Novartis, 2020 WL 1436706, at *3 (citing United States ex. rel. Arnstein v. Teva Pharms. USA,
Inc., 2016 WL 750720, at *11 (S.D.N.Y. Feb. 22, 2016) (“Arnstein”)). To satisfy Rule 9(b)’s
heightened pleading requirement, a complaint must “adduce specific facts supporting a strong
inference of fraud.” United States ex rel. Chorches for Bakr. Est. of Fabula v. Am. Med. Response,
Inc., 865 F.3d 71, 82 (2d Cir. 2017).
DISCUSSION
In its motion to dismiss, McKesson contends that the Second Amended Complaint remains
unable to state a claim as a matter of law, as it still: (1) fails to plausibly allege that Defendants
acted with the required scienter under the AKS; and (2) fails to plead the fraudulent scheme with

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particularity. For the reasons that follow, the Court finds that, even with the benefit of specific
instruction on the failings of the First Amended Complaint in the Court’s Prior Opinion, a year of
discovery, and another chance to amend his pleadings, Hart has failed to include sufficient factual
allegations to support a plausible interference that McKesson acted with knowledge that its
conduct was unlawful, as required under the federal AKS. 4

The Court therefore grants

McKesson’s motion, and dismisses the Second Amended Complaint.
I.

Hart Fails to Plausibly Allege that McKesson Acted with the Requisite Scienter
The AKS prohibits a person from “knowingly and willfully offer[ing] or pay[ing] any

remuneration (including any kickback, bribe, or rebate) . . . to purchase, lease, order, or arrange
for or recommend purchasing, leasing, or ordering any good, facility, service, or item for which
payment may be made . . . under a Federal health care program.” 42 U.S.C. § 1320a-7b(b)(2).
Hart is not only required to plead that McKesson offered these tools to its customers, but that it
did so with a culpable—i.e., “knowing[] and willful[],” id.—mental state.
A.

The Scienter Requirement of the AKS

Where an FCA claim is based on a violation of the AKS, the AKS scienter requirement
must also be satisfied. As this Court previously held, “to satisfy the AKS’s scienter requirement,
Hart must plead facts that give rise to a plausible inference that McKesson knew its conduct was
unlawful.” Prior Opinion, 602 F. Supp. 3d at 595; see also id. at 593–94 (collecting cases and
considering the legislative history). In the time since that opinion, the Second Circuit has
confirmed this reading of the AKS. See Pfizer, Inc. v. United States Dept. of Health and Human
Servs., 42 F.4th 67, 77 (2d Cir. 2022). In Pfizer, the Circuit explained that, while a plaintiff need

4

Because the Court finds that the requisite scienter was not alleged to state a claim under the AKS, it need not
consider McKesson’s arguments in the alternative that Hart has failed to plead the alleged fraud with sufficient
specificity under Federal Rule of Civil Procedure 9(b).

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not establish a defendant acted with a “bad purpose” or “corrupt intent” to state a claim under the
AKS, the statute’s use of “willful” means that it requires “a voluntary, intentional violation of a
known legal duty”—for the defendant to “know[] that [its] conduct is illegal.” Id. (quoting United
States v. Bishop, 412 U.S. 346, 360 (1973)); see also id. (observing that “Congress added the
willfulness element to the AKS to avoid punishing ‘an individual whose conduct, while improper,
was inadvertent’”) (quoting H.R. Rep. 96-1167, at 59 (1980)). Put differently, because the “AKS
does not apply to those who are unaware that [(conduct constituting kickbacks)] [is] prohibited by
law and accidentally violate the statute,” the statute requires proof of an “intentional violation of
a known legal duty.” Id.
Perhaps in light of the Circuit’s statutory interpretation in Pfizer, Hart has declined to once
again press his challenge as to the required mental state under the AKS, and now acknowledges
that his Complaint must plausibly allege that McKesson acted with knowledge that its conduct was
illegal. Opp. at 5. Nevertheless, Hart continues to argue that such knowledge can be shown via a
two-step set of allegations. Specifically, he asserts that, where pleadings allege that a defendant
“(1) knows that the AKS prohibits the provision of anything of value as an inducement, yet (2)
engages in intentional conduct to provide things of value as inducements anyway,” such
allegations state a claim under the AKS. Opp. at 5.
Such a two-step approach, however, was specifically rejected by this Court before. See
Prior Opinion, 602 F. Supp. 3d at 595–96 (observing that “awareness of the requirements of the
AKS and the general unlawfulness of inducements” coupled with “facts to support the conclusion
that the tools may constitute ‘remuneration’” were not enough to “support a finding that McKesson
knew this particular course of conduct was unlawful”). The same argument from Hart now merits
the same conclusion. Hart’s Complaint must contain factual allegations from which the Court can

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plausibly infer that McKesson acted with the knowledge that its conduct—offering the Margin
Analyzer and Regimen Profiler free of charge to oncology practices that contracted to join the
programs requiring them to purchase a certain volume of McKesson drugs—was unlawful. See
United States ex rel. Suarez v. AbbVie Inc., 2019 WL 4749967, at *13–*14 (N.D. Ill. Sept. 30,
2019) (“Suarez I”); see also United States ex rel. Forney v. Medtronic, Inc., 2017 WL 2653568, at
*4–5 (E.D. Pa. June 19, 2017).
Hart’s argument in the alternative that the Complaint’s state law claims should survive,
even failing plausible allegations of scienter under the federal AKS, also fails. To be sure, Hart
does bring claims under the False Claims Act analogues of twenty-eight states and the District of
Columbia. See Compl. ¶ 13 (citing each of the state FCAs, such as the California False Claims
Act, Cal. Gov’t Code § 12650 et seq.). And, as Hart argues, some of those state law regimes have
anti-kickback statutes of their own which do not incorporate a “willfulness” scienter requirement
as does the federal AKS. See Opp. at 4 n.1 (citing Tex. Hum. Res. Code §§ 36.0011(a),
36.002(12)). But Hart’s complaint here does not allege a violation of the states’ FCA analogues
by way of kickbacks under each of those state law regimes. Rather, it alleges that “Defendants’
actions . . . also violate the laws of the States, each of which has enacted a false claims act
analogous to the federal FCA, each of which requires compliance with the AKS as a condition of
payment of Medicaid reimbursement . . . .” Compl. ¶ 13 (emphasis added). Put differently: his
Complaint brings claims under both the federal FCA and the states’ FCAs by way of a violation
of the federal AKS.
Accordingly, as in its Prior Opinion, the Court treats the state law claims together with the
federal claims, as each here ultimately require—but are missing—plausible allegations of the
requisite scienter under the federal AKS.

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B.

Hart’s Amended Allegations of Scienter

Hart’s Complaint now includes allegations of conversations he shared with other
McKesson employees about the purportedly “inappropriate” nature of the company’s use of the
business tools in sales, allegations related to an email containing valuations of the tools shared by
a company executive, and additional allegations regarding McKesson’s general trainings on the
AKS. For the reasons that follow, none of these allegations suffice to plausibly allege that
McKesson acted with knowledge that providing the Margin Analyzer and Regimen Profiler free
of charge to certain oncology practices was unlawful.
First, Hart now claims that he sent an instant message to his direct supervisor, Bennett
Holtzman, during a live web-training presentation on McKesson’s compliance policies that they
were both attending. Hart alleges that the message stated:
that McKesson’s current sales practices, which included using the Margin Analyzer
and the Regimen Profiler as free inducements to secure purchase commitments,
violated the compliance policies that were presented in the training session.
Holtzman dismissed [Hart’s] concerns and responded by instructing [him] to
continue his sales work and not to worry about the compliance policies that
prohibited the sales practices that [Hart] . . . had been instructed by McKesson
executives to use.
Compl. ¶ 164. This message and response, however, falls short of alleging that McKesson knew
that its conduct was unlawful. As the court in United States ex rel. Fitzer v. Allergan, Inc. (“Fitzer
I”), held, “the fact that Relator told Allergan that he believed the physician locator violated the
AKS . . .[does not] indicate[] that Allergan was acting with malintent.” 2021 WL 4133713, at *7
(D. Md. Sept. 10, 2021) (emphasis added); see also United States ex rel. Fitzer v. Allergan, Inc.,
2021 WL 5840874, at *4 (D. Md. Dec. 9, 2021) (“Fitzer II”) (noting the allegation “that Relator
told Allergan it was violating the AKS provides no facts that relate to Allergan’s state of mind”).
If anything, the allegations here are even weaker than those at issue in Fitzer I. There, the relator
specifically indicated that the conduct at issue, Allergan’s provision of a “physical locator,”
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violated the AKS. Here, by comparison, the Complaint only goes so far as alleging that Hart
indicated that McKesson’s general “sales practices” (which, through artful pleading, he alleges
“included using the Margin Analyzer and Regimen Profiler”) violated the company’s compliance
policies. Compl. ¶ 164.
Hart’s attempt, moreover, to liken his allegations of these instant messages to the laterfiled amended complaint in Fitzer II, which ultimately survived a motion to dismiss, is unavailing.
The Fitzer II court specifically noted that it was the third amended complaint’s allegation that the
vice president of sales “debate[d]” the legality of the scheme, and said that he would raise it with
the CEO, which finally sufficed to allege the requisite scienter. Fitzer II, 2021 WL 5840874, at
*3–4. At most, Hart here alleges that he raised generalized compliance concerns to his immediate
sales supervisor via instant messenger during a training. That conversation is unlike the final
iteration of the pleadings in Fitzer II, wherein unlawful conduct was raised to the highest levels
of the defendant company, and those complaints were considered and nevertheless disregarded.
See 2021 WL 5840874, at *4. Instead, just like the dismissed second amended complaint in Fitzer
I, see 2021 WL 4133713, at *7, a general statement made to a regional manager that “current sales
practices” violated “compliance policies,” Compl. ¶ 164, will not do to allege that McKesson was
knowingly violating the law.
Similarly, Hart’s allegations of newly recalled conversations with fellow McKesson sales
employees about how the use of the Margin Analyzer and Regimen Profiler was “unethical” and
“wrongful,” id. ¶¶ 165–66, are insufficient to plausibly allege that the company had the requisite
scienter. Specifically, Hart asserts that he shared his concerns about the tools given that they
purportedly encouraged customers to purchase “the highest margin drugs,” therefore leading to

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higher costs for patients and payors. Id.5 He also describes a conversation he shared with another
employee about how it was “inappropriate” for McKesson to provide the Margin Analyzer to Open
Market customers because it had been “created originally” for customers of U.S. Oncology
(USON”). Id. ¶ 166. As in Fitzer I, allegations about things that Hart said to other sales employees
within the company, without more, does not establish what McKesson believed about offering the
business tools to oncology practices. See Fitzer I, 2021 WL 4133713, at *7. But even if the Court
were to credit Hart’s allegations as somehow speaking to the company’s knowledge, beliefs about
the “inappropriate” or “unethical” nature of providing the business tools is, without more,
insufficient to adequately plead purported knowledge of unlawfulness—let alone an “intentional
violation of a known legal duty,” Pfizer, 42 F.4th at 77.
Second, Hart attempts to allege McKesson knew of the illegality of providing the Margin
Analyzer and Regimen Profiler based on an email from Kirk Kaminsky, then the Senior Vice
President of Open Market Sales, forwarding certain USON documents to Dianna Verrilli, Senior
Vice President of Payer Solutions, with a cover message reading: “You didn’t get this from me . .
. ok?” Compl. ¶ 160. The Court is unpersuaded that the Complaint’s reliance upon this email and
its attachments plausibly alleges knowledge of unlawfulness.
As an initial matter, although the Complaint did not specifically attach the email or its
attachments, the Court may consider these documents because they were incorporated by
reference. See In re Cocoa Servs., LLC, 2018 WL 1801240 (Bankr. S.D.N.Y. Apr. 13, 2018)
(quoting McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184, 191 (2d Cir. 2007) (“The materials
that may be considered on a motion to dismiss are those ‘asserted within the four corners of the

5

The allegation that the tools would lead to practices necessarily prescribing the highest-cost drugs is
inconsistent with other allegations in the Complaint. In the Complaint’s attached Exhibit 3, for instance, the highest
margin drug recommended to Summit Cancer Care was often a less-expensive option. See, e.g., Compl., Ex. 3
(comparing ARANSESP, $1626.32 with a profit of -$454.04, with PROCRIP $1327.39 with a profit of $222.35).

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complaint . . . and any documents incorporated in the complaint by reference.’”)). Indeed, even if
Hart had not incorporated the email and its attachments into the Complaint, given his extensive
and specific reliance upon them to allege scienter, the Court “may nevertheless consider” them, as
“the [C]omplaint relies heavily upon [their] terms and effect, which renders the document[s]
‘integral’ to the [C]omplaint.” Chambers v. Time Warner, Inc., 282 F.3d 147, 153 (2d Cir. 2002)
(cleaned up).
With the benefit of the email and its attachments, it is not clear that the cover message
relates to the Margin Analyzer or Regimen Profiler at all, or that information about the valuation
of those programs, specifically, is what Kaminsky was referring to. The email attached three
separate documents totaling 170 pages, each covering a range of materials—everything from
physician compensation, see Pastan Decl., Ex. 1(b) at 8, to rates of return on invested capital, see
id. at 14, to McKesson’s vision insurance and retirement plans for employees, see id, Ex. 1(c) at
27–28. Indeed, the Margin Analyzer was only referenced three times, and the Regimen Profiler
twice, across all of those pages—and even then, only in passing within descriptive cells of a 61sheet table valuing a range of services, see id., Ex. 1(b) at 27, 32, 37, and 53, or buried in the body
of text on page 82 of an 84-page summary document, see id., Ex. 1(c) at 82.
In any event, even if the Court were to accept that Kaminsky’s cover email was in reference
to the tools, his message does not plausibly allege that he had any belief that McKesson’s provision
of the Margin Analyzer or Regimen Profiler free of charge was in any way unlawful. His message
could have been included for any number of reasons: perhaps because Verrilli should not have
been receiving materials from the Open Market business unit, for instance, or because Ernst &
Young had only provided certain executives of the company with a draft assessment. These
suppositions are not for the Court to make, as it is a plaintiff who must make the allegations

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required to plausibly support his claims. In short: the documents attached do not lead to a plausible
inference that the cover email was in reference to the business tools at issue—let alone that
McKesson had knowledge of the purported illegality of offering them free of charge to select
practices. Contra Compl. ¶ 160 (alleging the email “indicat[ed] [Kaminsky’s] knowledge that
McKesson’s provision of these value-added business tools for free . . . was wrongful and
unlawful”).
Beyond the newly described conversations with fellow McKesson sales employees and the
Kaminsky email, Hart’s Complaint merely reiterates (albeit in more extended form) allegations
that McKesson had general knowledge of the requirements of the AKS and the unlawfulness of
inducements in violation of the statute. He alleges that internal company policies, for instance,
prohibited providing of “things of value” to induce purchases of items that would ultimately be
reimbursed by government sponsored health care providers, and that employees received trainings
on the AKS’s demands. See, e.g., id. ¶¶ 143–45. But as the Court specifically observed in its Prior
Opinion, allegations like these, even coupled with those that McKesson knew that the Margin
Analyzer and Regimen Profiler were business tools with independent value, do not support an
inference of scienter as required by the AKS. See 602 F.3d at 596 (“Allegations that McKesson
knew remuneration to induce purchases was prohibited in general, however, cannot alone support
a finding that McKesson knew this particular course of conduct was unlawful.”).
The Complaint continues to lack specific allegations of the type that other courts have
found to support a plausible inference of knowledge that the conduct was unlawful, such as actions
taken to conceal the fraudulent scheme, Suarez II, 503 F. Supp. 3d at 735; United States ex rel.
Strunck v. Mallinckrodt Ard LLC, 2020 WL 362717, at *4 (E.D. Pa. Jan. 22, 2020); notice from
counsel that the program may be unlawful, United States v. Teva Pharms., 2021 WL 4132592, at

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*6; United States v. Millennium Radiology, Inc., 2014 WL 4908275, at *8 (S.D. Ohio Sept. 30,
2014); United States ex rel. Banigan v. Organon USA Inc., 2016 WL 10704126, at *3 (D. Mass.
Aug. 23, 2016) (internal document characterizing relationship as a “quid pro quo” was sufficient
to establish dispute as to scienter at summary judgment stage); cancellation of the program due to
concerns over its lawfulness, United States ex rel. Wood v. Allergan, Inc, 246 F. Supp. 3d 772, 829
(S.D.N.Y. 2017), rev’d on other grounds, 899 F.3d 163 (2d Cir. 2018); or a service without
legitimate value that was a pretext to provide remuneration, Arnstein, 2016 WL 750720, at *17
(describing relator’s allegation that company-sponsored speaker programs were “shams”).
To the contrary, the conduct complained of here was, based on the Complaint’s own
allegations and attached exhibits, openly advertised and even widely discussed. Such allegations
undermine any claim that McKesson was intentionally violating a known legal duty. See, e.g.,
United States v. Novartis AG, 2011 WL 13234720, at *9 (E.D.N.Y. Feb. 8, 2011) (“Plaintiffs do
not allege any facts, circumstantial or otherwise, that Novartis believed, or acted in a way
suggesting it believed, that its marketing . . . was illegal. Rather, and in contrast to other cases
where the courts have found sufficiently pleaded AKS claims, Plaintiffs’ amended complaint
suggests Novartis allegedly paid kickbacks to physicians quite openly.”). In United States v.
Valley Campus Pharmacy, Inc., for instance, the court observed that “Relator’s allegations seem
to indicate that Defendants thought their offering of PA services was lawful, as they advertised
these services openly on their website and in a presentation in Las Vegas.” 2021 WL 5406148, at
*3 (C.D. Cal. Oct. 12, 2021), aff’d 2023 WL 195514 (9th Cir. Jan. 17, 2023). Allegations of open,
public behavior “coincides more with merely the intent to use [the services at issue] as a ‘sales and
marketing tool,’ and not a knowingly unlawful means of obtaining referrals.” Id. As such, they
“do not support a plausible inference of scienter” under the AKS. Id.

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Hart’s allegations that McKesson purportedly destroyed documents do not alter the Court’s
conclusion.6 Taken as true for purposes of the present motion, these allegations do not give rise
to the plausible inference that McKesson destroyed documents in order to conceal conduct it knew
was unlawful. Rather, Hart alleges that McKesson removed references to the Margin Analyzer
from it’s public-facing website, see Compl. ¶ 167; that it no longer has the consumer testimonial
video regarding those tools (which is nevertheless already described in substance by the
Complaint), see id., and that it “does not appear to have maintained and/or preserved” records of
either its employees’ emails related to the business tools, or records of their AKS compliance
training, see id. at 168–70. Apart from conclusory allegations that the ostensible destruction of
these materials is evidence of “guilt” or that McKesson “knew its conduct was wrongful,”
however, the Complaint does not provide specific allegations to support the plausible inference
that McKesson engaged in document destruction in order to conceal evidence which would
demonstrate scienter under the AKS. Contra, e.g., Burciaga v. GEO Grp., Inc., 2017 WL
10605270 (S.D. Cal. Feb. 28, 2017) (finding that the evidence that “Defendant destroy[ed] records
to keep them from ACA auditors” was sufficient to meet the FCA scienter standard); SEC v.
Suterwalla, 2008 WL 9371764 (S.D. Cal. Feb. 4, 2008) (alleging the plaintiff destroyed documents
protected by an injunction in order to conceal fraud).
Moreover, the cases that Hart cites to argue that his new allegations plausibly allege

6

While the Court does not rely on this for purposes of the present motion, and accepts each of the Complaint’s
allegations as true, it is worth noting that, during the course of discovery prior to the filing of the present Complaint,
Magistrate Judge Cott considered at least some of Hart’s accusations that McKesson had destroyed evidence—namely,
those related to the destruction of materials on Hart’s laptop, see Compl. ¶¶ 168, 170—and found them to be entirely
unsupported. See Dkt. 138 (letter motion from Hart to Judge Cott raising the same allegations); Dkt. 144, Tr. (Jan.
12, 2022), at 5:17–20 (“I don’t think there is enough in the record . . . to suggest that there was some improper
destruction of these documents”); id. at 21:22–22:4 (“As presented [any document destruction] seems to have occurred
in the normal course . . . companies like McKesson rightfully engage in appropriate destruction in the regular course.”).
It is true, however, as Plaintiff emphasized at oral argument before this Court, that Judge Cott did not consider specific
allegations related to the destruction of a customer testimonial video, see Compl. ¶ 167, nor those related to the failure
to preserve records of McKesson employees’ AKS compliance training, see id. ¶ 169.

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knowledge of illegality do not salvage his claims, as each are distinguishable. A first set of those
cases included specific allegations that defendants were provided with (and reviewed) detailed
information—at the highest levels of the business—about how the conduct complained of violated
the AKS, and that such concerns were specifically considered.

In United States v. Teva

Pharmaceuticals USA, Inc., 560 F. Supp. 3d 412 (D. Mass. 2021), for instance, the government
highlighted the fact that Teva employees circulated a law firm’s advice to the company “warning
of the risks associated with donations to copay assistance charities” under the AKS, the specific
conduct complained of in that action. Id. at 421–22. So too, in United States v. Genesis Glob.
Healthcare, 2021 WL 4268279 (S.D. Ga. Sept. 20, 2021), the district court highlighted investment
documents given to executives of the defendant company which “informed [them] about the
AKS’s prohibition against” the specific conduct complained of, and “warned that [the] investments
. . . were suspect.” Id. at *12. The Genesis court further described that, when defendant’s
executives specifically discussed the practice at an investor meeting, an “initial investor raised
concerns about the scheme’s legality under the AKS with [the executives] and subsequently
backed out of the investment.” Id. Allegations like these—evincing specific consideration
regarding the legality of a given scheme under the AKS—suffice to allege that the defendant acted
with knowledge that the scheme was unlawful. See also, e.g., Strunck, 2020 WL 362717, at *4
(citing allegations that company’s VP received articles discussing the illegality of the at-issue
conduct and knew similar conduct was unlawful). But the Complaint here—unlike in Teva,
Genesis, or Strunck—contains no allegations that McKesson executives either received or
considered advice regarding the legality of providing the Margin Analyzer and Regimen Profiler
to select oncology practices.
Other cases relied upon by Hart involved distinct allegations that defendants were engaging

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in conduct that either violated internal policies prohibiting the specific conduct as unlawful under
the AKS, or which was widely recognized within the industry as illegal. In United States v. Teva
Pharmaceuticals USA, Inc., 2019 WL 1245656 (S.D.N.Y. Feb. 27, 2019), internal company
guidance prohibited the specific conduct at issue in the action, based on the company’s stated belief
that such conduct may run afoul of the AKS. See id. at *9–12. Similarly, United States ex rel.
Bilotta v. Novartis Pharmaceuticals Co. involved allegations that defendants had repeatedly
violated internal policies and industry guidance related to speaker programs. See 50 F. Supp. 3d
497, 518–21 (S.D.N.Y. 2014). There, the pleadings alleged that Novartis ethics and compliance
policies specifically required that speaker programs be held at venues “conducive to an exchange
of medical information,” and that food and beverages should be “ancillary to meaningful
discussion” and “modest in quantity and cost.” Id. at 519. The district court emphasized that
“Novartis’s conduct—as alleged in the pleadings—violates each of these policies, raising a strong
inference that Novartis acted knowingly and willfully in using the speaker events to induce
prescription-writing in violation of the anti-kickback laws.” Id. Finally, United States ex rel.
Pasqua v. Kan-Di-Ki, 2012 WL 12895229 (C.D. Cal. June 18, 2012), involved allegations that the
conduct which was the subject of the action was “known throughout the health care industry” to
violate the AKS “at the time Defendants engaged in such conduct.” Id. at *5.
Here, by contrast, while Hart alleges that McKesson had general internal policies regarding
the AKS, see, e.g., Compl. ¶¶ 8, 157–59, he does not allege that it had specific policies warning
that provision of the Margin Analyzer or Regimen Profiler to practices free of charge may have
been unlawful. Similarly, Hart does not allege that providing business management tools like the
Margin Analyzer and Regimen Profiler were widely recognized “throughout the health care
industry” at the time, Pasqua, 2012 WL 12895229, at *5, to raise AKS-related concerns. Quite to

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the contrary, the Complaint itself highlights that McKesson openly advertised the Margin Analyzer
and Regimen Profiler tools, see Compl. ¶¶ 130, 167, and further attaches documents referencing
similar business management tools provided by other healthcare companies at the time, see Dkt.
176-5 at 17 (McKesson analysis of competitor business tools). And, as the Court noted in the Prior
Opinion dismissing the First Amended Complaint, at least some OIG guidance appears to have
recognized that the provision of certain types of tools and support do not run afoul of the AKS.
See 602 F. Supp. 3d at 589–90. The 2003 OIG Compliance Program Guidance for Pharmaceutical
Manufacturers, 68 Fed. Reg. 23,731 (May 5, 2003), for instance, acknowledges that companies
may provide certain support services which do not implicate the AKS. OIG Advisory Opinions
further indicated—at the time of McKesson’s alleged conduct here—that simply because a product
or service has value does not necessarily mean that it violates the AKS. See, e.g., OIG Adv. Op.
No. 12-20 (concluding software products did not violate the AKS); OIG Adv. Op. No. 00-10
(concluding that providing information regarding insurance coverage and reimbursement did not
violate the AKS).
Lastly, Hart relies on several cases in which there was no question that the defendant knew
that direct payments to induce referrals violated the AKS—a situation plainly inapposite to the
allegations here. See, e.g., United States v. Mittal, 36 F. App’x 20 (2d Cir. 2006) (defendant
received cash payments for referrals); United States v. Nowlin, 640 F. App’x 337 (5th Cir. 2016)
(defendant agreed to refer clients in exchange for commissions); United States v. Moshiri, 858
F.3d 1077, 1082 (7th Cir. 2017) (defendant admitted that “his relationship with the Hospital had
turned into receiving payment for patient referrals”).
As before, while Hart’s Complaint plausibly identifies conduct that could constitute
unlawful inducement under the AKS, and that McKesson had general awareness of the AKS’s

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requirements, it fails to plausibly allege that McKesson provided the Margin Analyzer and
Regimen Profiler to practices free of charge with the requisite scienter. See, e.g., Forney, 2017
WL 2653568, at *4–*5 (“[Relator alleged] that the effect of the scheme was to induce physicians
to refer Medtronic’s products to their patients, [but had] not alleged that its subjective purpose was
to do so.”). Congress could have adopted a different scienter requirement when it passed the AKS,
but specifically chose to impose the willfulness element that it did, and this Court is bound by that
choice, as interpreted by the Second Circuit. See Pfizer, 42 F.4th at 77. Having failed to plausibly
allege this scienter under the statute, Hart thus fails to state a claim as a matter of law, and
McKesson’s motion to dismiss is granted.
II.

Leave to Amend
Whether to grant leave to further amend a complaint is committed to the “sound discretion

of the district court.” McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184, 200 (2d Cir. 2007).
“Ordinarily, a plaintiff should be granted leave to amend at least once after having the benefit of a
court’s reasoning in dismissing the complaint.” Obra Pia Ltd. v. Seagrape Inv’rs LLC, 2021 WL
1978545, at *3 (S.D.N.Y. May 18, 2021). This is especially true on the Court’s first ruling on a
motion to dismiss. Loreley Financing (Jersey) No. 3 Ltd. v. Wells Fargo Secs. LLC, 797 F.3d 160,
190 (2d Cir. 2015) (“Without the benefit of a ruling, many a plaintiff will not see the necessity of
amendment or be in a position to weigh the practicality and possible means of curing specific
deficiencies.”); see also Cresci v. Mohawk Valley Cmty. Coll., 693 F. App’x 21, 25 (2d Cir. 2017)
(“The proper time for a plaintiff to move to amend the complaint is when the plaintiff learns from
the District Court in what respect the complaint is deficient. Before learning from the court what
are its deficiencies, the plaintiff cannot know whether he is capable of amending the complaint
efficaciously.”). “Granting leave to amend is futile,” however, “if it appears that plaintiff cannot
address the deficiencies identified by the court and allege facts sufficient to support the claim.”
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Panther Partners Inc. v. Ikanos Commc’ns, Inc., 347 F. App’x 617, 622 (2d Cir. 2009).
Here, Hart has already had the benefit of multiple rounds of amendment—the latest of
which came after the Court granted leave to amend in a thirty-five-page opinion clearly delineating
remaining deficiencies in the pleadings. See Prior Opinion, 602 F. Supp. 3d at 595 (“[T]o satisfy
the AKS’s scienter requirement, Hart must plead facts that give rise to a plausible inference that
McKesson knew its conduct was unlawful . . . ”). Even with the benefit of the Court’s instruction,
however, Hart has proven unable to plausibly allege that McKesson acted with the requisite
scienter under the federal AKS.
Nevertheless, Hart’s Complaint does bring claims under the FCA analogues of twentyeight states, as well as the District of Columbia. Because “many of [those state law regimes] have
their own analogous anti-kickback statutes,” Compl. ¶ 13, it is conceivable that Hart could amend
the pleadings to specifically allege that McKesson had the requisite scienter to violate the AKS
counterparts of those states which do not incorporate the same “willfulness” standard, and thereby
bring claims under those states’ FCAs. To be sure, the Court is skeptical that it would retain
jurisdiction over a possible Third Amended Complaint exclusively raising these state claims. See,
Kolari v. New York-Presbyterian Hosp., 455 F.3d 118, 122 (2d Cir. 2006) (the doctrine of pendent
jurisdiction over state-law claims is traditionally “a doctrine of discretion, not of plaintiff’s right”);
see also 28 U.S.C. § 1367(c)(3) (clarifying a district court “may decline to exercise supplemental
jurisdiction” if it has “dismissed all claims over which it has original jurisdiction”). But, in the
exercise of its discretion, it nevertheless grants Hart leave for further amendment, should he have
a good faith basis for doing so.

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CONCLUSION
For the foregoing reasons, the motion to dismiss is granted without prejudice. The Clerk
of Court is respectfully directed to terminate the motions pending at docket entries 171 and 174.7

SO ORDERED.
Dated:

March 28, 2023
New York, New York
Hon. Ronnie Abrams
United States District Judge

The Court grants in part and denies in part McKesson’s motion to seal Exhibits 1(b)–1(d), 2, 4, and 5 to the
Declaration of Nicholas Pastan, filed in conjunction with McKesson’s motion to dismiss the Second Amended
Complaint. See Dkt. 174.
7

While McKesson has established that portions of these documents relate to internal business and sales
discussions, and that they include information from executive presentations and confidential business modeling, any
sealing request must be narrowly tailored under Lugosch v. Pyramic Co. of Onondaga, 435 F.3d 110 (2d Cir. 2006),
and related cases, to protect only “highly proprietary” commercial information from public disclosure, GoSMiLE, Inc.
v. Dr. Jonathan Levine, D.M.D. P.C., 769 F. Supp. 2d 630, 649–50 (S.D.N.Y. 2011) (allowing sealing of documents
attached as exhibits where they “contain[ed] highly proprietary material concerning the defendants’ marketing
strategies, product development, costs and budgeting”). Accordingly, no later than April 28, 2023, McKesson is
ordered to file proposed redacted versions of Exhibits 1(b)–1(d), 2, 4, and 5, specifically redacting only those portions
of the documents that reflect such “highly proprietary” confidential business information.

29