U.S. ex rel. Foster v. Bristol-Myers Squibb Co.

• Decision Date: 24 September 2008
• Docket Number: Civil Action No. 9:05-CV-84-TH JURY.
• Citation: 587 F.Supp.2d 805
• Parties: UNITED STATES of America, ex rel., John David FOSTER, Plaintiffs, v. BRISTOL-MYERS SQUIBB COMPANY, Defendant.
• Court: U.S. District Court — Eastern District of Texas

587 F.Supp.2d 805

UNITED STATES of America, ex rel., John David FOSTER, Plaintiffs, v. BRISTOL-MYERS SQUIBB COMPANY, Defendant.

Civil Action No. 9:05-CV-84-TH JURY.

United States District Court, E.D. Texas, Lufkin Division.

September 24, 2008.

COPYRIGHT MATERIAL OMITTED

Clayton Edward Dark, Jr., Attorney at Law, Lufkin, TX, K. Camp Bailey, Fletcher Vines Trammell, Robert Wayne Cowan, Bailey Perrin Bailey, Houston, TX, J. Kevin McClendon, US Attorney's Office, Plano, TX, for Plaintiffs.

Trevor R. Jefferies, Hogan & Hartson LLP, Houston, TX, Mitchell J. Lazris, Hogan & Hartson, Washington, DC, Nicholas G. Stavlas, Hogan & Hartson LLP, Baltimore, MD, for Defendant.

MEMORANDUM OPINION AND ORDER

THAD HEARTFIELD, District Judge.

Before the Court is Defendant's Motion to Dismiss Relator's Complaint and Memorandum of Points and Authorities in Support [Clerk's Docket No. 22], filed December 13, 2007. Having considered the motion, the responsive briefs, the record and the applicable law, the Court enters the following order.

I. FACTUAL & PROCEDURAL BACKGROUND

Relator John David Foster ("Relator" or "Foster") brings this qui tam action against Defendant Bristol-Myers Squibb Company ("Defendant" or "BMS"), alleging violations of the Federal False Claims Act¹ (the "FCA") and similar state statutes.² In plain terms, Foster accuses BMS of (1) giving illegal bribes and kickbacks to an HMO in order to induce doctors to prescribe BMS drugs; and (2) reporting inflated prices for those drugs to in order to avoid paying Medicaid rebates to the government.

A. The Factual Basis of Foster's Claims

Foster previously worked for one of BMS's competitors: the pharmaceutical company Parke-Davis. Foster was Parke-Davis's National Account Manager for accounts in Texas and Louisiana from June 1998 through September 2000. In this position, he was responsible for selling pharmaceutical products to health maintenance organizations ("HMOs") and other managed care entities. One such HMO was the Oschner Health Plan ("OHP"), which operated in Louisiana and the Eastern District of Texas. OHP was a large regional HMO, with approximately 200,000 individual members and some 700 affiliated doctors. One of Foster's tasks at Parke-Davis was convincing OHP to give unrestricted formulary access to Parke-Davis's cholesterol-lowering drug, Lipitor.

For the uninitiated, a formulary is a list of medications for which an HMO provides coverage. J.B.D.L. Corp. v. Wyeth-Ayerst Laboratories, Inc., 485 F.3d 880, 884 (6th Cir.2007). Formularies come in a variety of shapes and sizes. Id. An HMO with an "open formulary" structure will pay for drugs not listed on the formulary; one with a "closed formulary" will not. Id. Additionally, some HMOs use incentive-driven formularies, which may influence drug selection by assigning different co-payment amounts to different drugs. Id. So, a formulary's composition can have a significant effect on pharmaceutical sales— and drug company profits. "Because a drug's inclusion on an [HMO's] formulary can dictate prescription choices for patients covered by [HMOs], drug manufacturers seek to secure inclusion on [HMO] formularies as well as favorable placement within those formularies through financial rewards, including rebates, to [HMOs]." Id.

Foster claims that both Parke-Davis and BMS used such financial rewards to fight for position on OHP's "very restrictive" formulary. (Relator's Compl. at 9). Specifically, he explains that Parke-Davis's Lipitor competed against BMS's cholesterol-lowering drug, Pravachol—and Pravachol prevailed. Pravachol was included in the OHP formulary; Lipitor was not. As such, Foster's goal was for Lipitor to take Pravachol's place. According to Foster, both Parke-Davis and BMS provided financial benefits to OHP representatives to influence their formulary decisions, resulting in a "bidding war" between the two companies. Id. at 10. OHP encouraged and escalated this bidding war by notifying each company of the various rebates, grants, donations and incentives the other was offering.

Foster claims that in negotiations that occurred between February 1998 and January 1999, various OHP representatives told him about incentives provided by BMS, including retroactive rebates; cash grants to OHP's pharmacy department; and research grants, consulting and speaking fees, and other compensation given to the head of OHP's Pharmacy and Therapeutics Committee, Dr. Richard Milani. (Relator's Compl. at 11-15). Apparently, these incentives were better than those offered by Parke-Davis—and Pravachol maintained its place on the OHP formulary. Foster was told that Parke-Davis would have to beat BMS's incentives before Lipitor would be added the formulary. However, Parke-Davis was unable to do so; BMS's incentives were too great.

According to Foster, he learned the secret to BMS's success in December 1998 from Vanessa Pappion, a BMS regional account representative. Pappion told Foster that BMS was able to offer such large discounts and bonuses to OHP (while still turning a profit) because BMS did not include the incentives in the "best price" amount it reported to Medicaid for Pravachol and another drug called Glucophage.³ By falsely inflating its "best price," BMS reduced its obligation to pay Medicaid rebates. According to Foster, this scheme mitigated the cost of the OHP incentives. Foster claims that OHP's pharmacy director, Tim Hambacher also described this practice to him in March 1999, stating that "the cash incentives provided by BMS effectively lowered the dose price of its products but was given in such a way as to not affect reports of `best price.'" (Relator's Compl. at 15).

Plainly, appreciating these allegations requires some understanding of the Medicaid reimbursement program.

B. Medicaid Reimbursement

The Medicaid reimbursement program ensures that Medicaid has access to the same price discounts and deals received by commercial customers. In re: Pharmaceutical Industry Average Wholesale Price Litigation, 538 F.Supp.2d 367 (D.Mass. 2008). The program requires a drug manufacturer, on a quarterly basis, to pay rebates to state Medicaid offices that have subsidized the purchase of that manufacturer's drugs during that quarter. Id.; see 42 U.S.C. § 1396r-8. The rebate due is calculated by multiplying the difference between the "Average Manufacturer Price" ("AMP") and the "Best Price" for the covered drug by the total number of units paid for by the state during that rebate period. Id. The AMP is defined as "the average price paid to the manufacturer for the drug in the United States by wholesalers for drugs distributed to the retail pharmacy class of trade." 42 U.S.C. § 1396r-8(k)(l)(A). The "Best Price" is defined as "the lowest price available from the manufacturer during the rebate period" and must include "cash discounts, free goods that are contingent on any purchase requirement, volume discounts, and [non-exempted] rebates." 42 U.S.C. § 1396r-8(c)(1)(C)(I)-(ii). The Best Price ensures that the government is provided the lowest price on drugs.

Under the Medicaid rebate program, each drug manufacturer is required to report both the AMP and the Best Price for each of its covered drugs to the Centers for Medicare and Medicaid Services ("CMS"). Joel M. Androphy & Mark A. Correro, Whistleblower and Federal Qui Tam, Litigation-Suing the Corporation for Fraud, 45 S. Tex. L.Rev. 23, 39 (2003). CMS then calculates the unit rebate amount and reports it to the state Medicaid agencies. Id. The states then use the unit rebate amount, and data from pharmacies about prescription drug utilization during the quarter, to calculate the rebate owed to them by the drug manufacturer. Id. As such, the system depends on accurate reporting by drug manufacturers. But, that is exactly what Foster claims BMS failed to do.

C. Foster's Allegations

(1) Best Price Claims

Foster's primary allegation is that BMS did not accurately report its Best Price. He claims that from 1998 through 2002, BMS did not factor the financial incentives given to OHP into its Best Price reports— and, therefore, paid the state Medicaid programs less in rebates than what BMS actually owed.

(2) Kickback Claims

Additionally, Foster argues that the rebates, discounts, grants and other incentives paid by BMS were intended to make doctors prescribe BMS pharmaceuticals over other drugs. Foster argues that by paying financial incentives to OHP officials— and thereby obtaining a place on the OHP formulary—BMS "all but guarantee[d] that OHP doctors would prescribe Defendant's drugs over competing products to OHP participants and nonparticipants alike." Foster concludes that by doing so, BMS violated the Federal Anti-Kickback Statute ("AKS"), 42 U.S.C. § 1320a-7b(b). The AKS "criminalizes the payment of kickbacks, bribes, or other inducements to doctors in an effort to influence decisions about prescriptions that are reimbursed by a federal health care program." Rost v. Pfizer, 507 F.3d 720, 724 (1st Cir.2007); see United States v. Miles, 360 F.3d 472, 480 n. 3 (5th Cir.2004) (citing 42 U.S.C. § 1320a-7b(b) (2)(B) as prohibiting payments that are intended to induce a party to "recommend purchasing leasing or ordering any good ... for which payment may be made in whole or in part under a Federal health care program."); see also United States ex rel. Thompson, 125 F.3d 899, 901 (5th Cir.1997). Foster further asserts that these inducements caused health care providers to prescribe BMS's drugs Pravachol and Glucophage and then submit reimbursement claims to government-funded health programs. Foster argues that such reimbursement claims constitute false claims for payment (actionable under the FCA) because if the government had known about BMS's unlawful kickbacks, it would not have paid the health care providers' reimbursement claims.

(3) Section 340B Claims

Finally, Foster alleges that BMS submitted false claims by overcharging entities qualified by...