United States ex rel. Banigan v. Pharmerica, Inc.

• Decision Date: 19 February 2020
• Docket Number: No. 18-1487,18-1487
• Parties: UNITED STATES, EX REL. James BANIGAN and Richard Templin; State of Florida, State of Illinois, State of Indiana, State of Louisiana, Commonwealth of Massachusetts, State of Michigan, State of New Mexico, State of New York, State of Tennessee, State of Texas, Commonwealth of Virginia, State of North Carolina, ex rel. James Banigan and Richard Templin, Plaintiffs, Appellants, State of California, State of Colorado, State of Connecticut, State of Delaware, District of Columbia, State of Georgia, State of Hawaii, State of Maryland, State of Minnesota, State of Montana, State of Nevada, State of New Hampshire, State of New Jersey, State of Oklahoma, State of Rhode Island, State of Wisconsin, City of Chicago, ex rel. James Banigan and Richard Templin, Plaintiffs, v. PHARMERICA, INC., Defendant, Appellee, Omnicare, Inc.; Organon Pharmaceuticals USA, Inc.; Organon USA, Inc.; Schering Plough Corp.; Akzo Nobel NV.; Merck & Co., Inc.; Organon Biosciences N.V. ; Organon International, Inc., Defendants.
• Court: U.S. Court of Appeals — First Circuit

950 F.3d 134

UNITED STATES, EX REL. James BANIGAN and Richard Templin; State of Florida, State of Illinois, State of Indiana, State of Louisiana, Commonwealth of Massachusetts, State of Michigan, State of New Mexico, State of New York, State of Tennessee, State of Texas, Commonwealth of Virginia, State of North Carolina, ex rel. James Banigan and Richard Templin, Plaintiffs, Appellants,

State of California, State of Colorado, State of Connecticut, State of Delaware, District of Columbia, State of Georgia, State of Hawaii, State of Maryland, State of Minnesota, State of Montana, State of Nevada, State of New Hampshire, State of New Jersey, State of Oklahoma, State of Rhode Island, State of Wisconsin, City of Chicago, ex rel. James Banigan and Richard Templin, Plaintiffs,

v.PHARMERICA, INC., Defendant, Appellee,Omnicare, Inc.; Organon Pharmaceuticals USA, Inc.; Organon USA, Inc.; Schering Plough Corp.; Akzo Nobel NV.; Merck & Co., Inc.; Organon Biosciences N.V. ; Organon International, Inc., Defendants.

No. 18-1487

United States Court of Appeals, First Circuit.

February 19, 2020

Zenobia Harris Bivens and Michael Hurta, Houston, TX, with whom Joel M. Androphy, Berg & Androphy, Michael E. Mone, Jr., Boston, MA, Patricia L. Kelly, and Esdaile, Barrett, Jacobs & Mone were on brief, for appellants.

Benjamin M. McGovern, Boston, MA, with whom James D. Smeallie, Michael Manthei, and Holland & Knight LLP were on brief, for appellee.

Before Torruella, Lipez, and Kayatta, Circuit Judges

LIPEZ, Circuit Judge.

James Banigan and Richard Templin (collectively, "relators") brought this qui tam action under the False Claims Act ("FCA") and several of its state law equivalents alleging that PharMerica, Inc. ("PharMerica") defrauded the government by participating in a Medicaid scheme that rewarded it financially for incentivizing physicians to change patients' prescriptions to the drug manufacturer Organon's antidepressant medications. The district court dismissed the relators' FCA action under the public disclosure bar, which excludes from the subject matter jurisdiction of federal courts qui tam actions that are "based upon the public disclosure of allegations or transactions" in a civil "hearing," among other sources. 31 U.S.C. § 3730(e)(4)(A) (2006).¹

Although we share the district court's view that an earlier FCA action involving the same scheme triggers the public disclosure bar, we conclude, contrary to the district court, that Banigan falls within an exception to that bar as an "original source of the information." Id. We therefore reverse the district court's dismissal of the FCA action against PharMerica and remand for further proceedings.

I.

A. Legal Background

"The FCA prohibits the knowing submission of false or fraudulent claims to the United States." United States ex rel. Poteet v. Bahler Med., Inc., 619 F.3d 104, 107 (1st Cir. 2010) (citing 31 U.S.C. § 3729(a) ). The relators' FCA claims are based on PharMerica's alleged violations of the Anti-Kickback Statute ("AKS"), which prohibits the solicitation or receipt of "any remuneration (including any kickback, bribe, or rebate)" in exchange for purchasing or ordering any good 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)(1)(B). The AKS was designed to prevent medical providers from making decisions based on improper financial incentives rather than medical necessity and to ensure that federal health care programs do not bear the costs of such decisions. See United States v. Patel, 778 F.3d 607, 612 (7th Cir. 2015). The AKS was amended in 2010 "to create an express link to the FCA," Guilfoile v. Shields, 913 F.3d 178, 189 (1st Cir. 2019), but the courts had already recognized that "liability under the False Claims Act can be predicated on a violation of the Anti-Kickback Statute." United States ex rel. Westmoreland v. Amgen, Inc., 812 F. Supp. 2d 39, 54 (D. Mass. 2011) (collecting cases).

When a relator brings a qui tam action on behalf of the government, the United States is entitled, but not required, to intervene and take over the prosecution of the case. 31 U.S.C. § 3730(b)(2). If the government declines to intervene, the relator has the right to proceed with the suit on the government's behalf. Id. § 3730(c)(3). Whether the government intervenes or not, the relator is usually entitled to receive a percentage of any settlement or any damages that are awarded. Id. § 3730(d)(1)-(2).

The public disclosure bar is designed to prevent opportunistic relators enticed by the financial incentives that the FCA provides "from bringing parasitic qui tam actions," see Poteet, 619 F.3d at 107, that is, suits that are "based upon the public disclosure of allegations or transactions in," as relevant here, a civil "hearing."² 31 U.S.C. § 3730(e)(4)(A). A lawsuit is "based upon" a prior public disclosure if the relator's allegations are "substantially similar to" the information already in the public domain. United States ex rel. Ondis v. City of Woonsocket, 587 F.3d 49, 58 (1st Cir. 2009). The statute includes an exception to the jurisdictional bar, however, when "the person bringing the action is an original source" who has "direct and independent knowledge of the information on which the allegations are based." Id. § 3730(e)(4)(A)-(B). Thus, the court retains jurisdiction over the qui tam action if the relator is an original source, even though the allegations are substantially similar to the information revealed in the prior public disclosure.

B. Factual Background

1. Facts Alleged by Relators³

PharMerica is one of the largest long-term care pharmacy companies in the United States, providing pharmacy supplies and services to nursing homes and other facilities. Most nursing homes contract with long-term care pharmacy companies like PharMerica which, in turn, contract with pharmaceutical companies⁴ to purchase the medications that will be dispensed to nursing home residents. Nursing homes also often have a dedicated physician who works closely with the in-house nurses and pharmacy staff to provide medical care to residents. This structure means that long-term care pharmacy companies and their pharmacists exert considerable influence over the choice of medications used in nursing homes.

The relators are both former employees of the pharmaceutical company Organon, which manufactures antidepressants called Remeron

Tablet and Remeron SolTab. Remeron Tablet was patented, developed, and put on the market first. The patent for Remeron Tablet expired in 1998, and generic manufacturers were expected to enter the market in 2001. To stymie generic competition, Organon developed Remeron SolTab -- a disintegrating tablet that is a "variant" form of Remeron Tablet -- and launched it in 2001. Because Remeron SolTab was not considered "equivalent" to Remeron Tablet, generic competitors were unable to manufacture and market a similar product to Remeron SolTab.

For years, Organon offered only modest discounts of about 2% on its medications as incentives when contracting with long-term care pharmacy companies. The relators acknowledge that those incentives arguably fall within a limited exception to the AKS for fixed discounts given to group purchasing organizations. See 42 U.S.C. § 1320a-7b(b)(3)(C). Between 1999 and 2000, however, Organon began offering contract terms that included greater, non-exempt discounts on Remeron

Tablet in an effort to increase its market share. Those contracts included an 8% to 14.8% "ramp-up" discount for the first five months of the contract term, followed by a discount of anywhere between 8% and 15% that depended upon the market share held by Remeron Tablet (referred to as a market-share discount). Those deals incentivized long-term care pharmacy companies to switch prescriptions from other drugs to Remeron Tablet, thereby boosting its market share and the discount awarded by Organon to the companies. Making that switch on the basis of profit potential rather than the "medical propriety" of a given drug, the relators allege, violates the AKS.

The switch from a medication prescribed by the patient's doctor to a medication preferred by the pharmacy is referred to as "therapeutic interchange," and it can be accomplished in several ways. The pharmacy can try to persuade physicians to write new prescriptions to move a patient to the preferred drug by touting its supposed advantages. Or the pharmacy can use a device called an "NDC lock," which sets up the pharmacy's computer system so that only the preferred drug may be dispensed by the pharmacist. When an NDC lock blocks a drug from being dispensed, the pharmacist must quickly obtain from the physician a new prescription for that patient for a preferred drug that is not blocked. Or the pharmacy can ask physicians to sign broader agreements that cede to the pharmacist "their authority to choose what drug will be prescribed within a particular class."

PharMerica entered into a series of contracts with Organon, beginning in 1999 and lasting until 2005, that included incentives for PharMerica to purchase Remeron

Tablet and Remeron SolTab and to engage in therapeutic interchange. The first iteration of the contract included only a "ramp-up" discount followed by a market-share discount. Then, in 2000, PharMerica agreed to implement a therapeutic interchange program. Its contract with Organon provided for a "ramp-up" discount, a market share discount, a "therapeutic interchange bonus" for switching prescriptions for other companies' antidepressants to Remeron Tablet or Remeron SolTab, and a "conversion rebate" for changing Remeron Tablet prescriptions to Remeron SolTab. Eventually, all of the discounts were changed to rebates.⁵ Through several contract amendments, Organon continued to provide ramp-up rebates, market-share rebates, conversion rebates, and therapeutic interchange bonuses to PharMerica in various forms until the end of 2005.

Two executives at Organon, ...