United States ex rel. Winkelman v. CVS Caremark Corp.

• Citation: 827 F.3d 201
• Decision Date: 30 June 2016
• Docket Number: No. 15–1991,15–1991
• Parties: United States ex rel. Myron Winkelman and Stephani Martinsen, Plaintiffs, Appellants, v. CVS Caremark Corporation et al., Defendants, Appellees.
• Court: U.S. Court of Appeals — First Circuit

827 F.3d 201

United States ex rel. Myron Winkelman and Stephani Martinsen, Plaintiffs, Appellants

v.CVS Caremark Corporation et al., Defendants, Appellees.

No. 15–1991

United States Court of Appeals, First Circuit.

June 30, 2016

Brian Wojtalewicz, with whom Wojtalewicz Law Firm, Ltd., Appleton, MN, Timothy G. Lynch, Swartz & Lynch LLP, Boston, MA, Neil P. Thompson, Robert P. Christensen, Robert P. Christensen, P.A., James G. Vander Linden, and Levander & Vander Linden, P.A., Minneapolis, MN, were on brief, for appellants.

Ken Paxton, Attorney General of Texas, Jeffrey C. Mateer, First Assistant Attorney General, James E. Davis, Deputy Attorney General for Civil Litigation, Raymond C. Winter, Chief, Civil Medicaid Fraud Division, Cynthia O'Keeffe, Deputy Chief, Civil Medicaid Fraud Division, and Richard E. Salisbury, Assistant Attorney General, Civil Medicaid Fraud Division, on brief for State of Texas, amicus curiae.

Grant A. Geyerman, with whom Enu Mainigi, Craig D. Singer, Roy S. Awabdeh, and Williams & Connolly LLP Washington, DC, were on brief, for appellees.

Before Howard, Chief Judge, Selya and Lynch, Circuit Judges.

SELYA, Circuit Judge.

The False Claims Act (FCA), 31 U.S.C. §§ 3729 –3733, authorizes private parties to bring qui tam actions on the government's behalf alleging fraud on government programs. Although such actions can be powerful weapons for rooting out chicanery shrouded in darkness, the FCA forbids private suits once the sun has shone on the essential features of the alleged misconduct. Thus, courts generally must refuse to entertain FCA suits “if substantially the same allegations or transactions as alleged in the action ... were [already] publicly disclosed” through certain enumerated sources. Id. § 3730(e)(4)(A).

Applying this provision, known as the public disclosure bar, the court below determined that the complaint in this action rested on allegations that were already in the light of day. See United States ex rel. Winkelman v. CVS Caremark Corp. , 118 F.Supp.3d 412, 425 (D. Mass. 2015). Consequently, it dismissed the relators' suit. See id. After careful consideration, we affirm.

I. BACKGROUND

We draw the essential facts from the relators' second amended complaint and other documents, described infra , that may be considered at the motion-to-dismiss stage.

The relators, Myron Winkelman and Stephani Martinsen, brought this qui tam action under the FCA and (in its current form) the analogous statutes of eleven states. In it, they challenged particular billing practices of CVS Caremark Corp. and certain affiliated companies (collectively, CVS). The main target of their complaint was CVS's conduct with respect to a program that the company had instituted in 2008. That program was known as the Health Savings Pass (HSP). A consumer could join the HSP program by paying a nominal enrollment fee (originally $10 and later increased to $15). HSP membership entitled a consumer, among other things, to purchase a range of generic prescription drugs from CVS at discounted prices (either $9.99 or $11.99 for a 90–day supply).

The relators assert that the HSP framework was a carefully constructed artifice that allowed CVS to fraudulently overbill Medicare Part D and Medicaid. Both of these federal healthcare programs contain conditions designed to control the cost to the government of prescription drugs. One such condition is of particular pertinence here: that condition bases payments for prescription drugs by Medicaid and Medicare on the lowest of several potential metrics, one of which is the usual and customary (U&C) price charged by a pharmacy for a given drug. See 42 C.F.R. § 403.806(d)(7) (Medicare Part D); id. § 447.512(b)(2) (Medicaid). For Medicare Part D, the federal government has promulgated a single definition of the U&C price: “the price that an out-of-network pharmacy ... charges a customer who does not have any form of prescription drug coverage for a covered Part D drug.” Id. § 423.100. Medicaid is a program that is jointly administered by the federal government and the several states, so each state provides its own definition of the U&C price.¹

The relators allege that CVS designed the HSP program to circumvent the applicable U&C requirements; that the HSP prices reflect the actual U&C prices charged by CVS under all the relevant federal and state statutes and regulations; and that CVS defrauds the government by not reporting the HSP prices as its U&C prices. They offer examples of drugs for which the U&C price reported by CVS was higher than the price charged to participants in the HSP program, allegedly leading to overpayments by Medicaid and Medicare Part D.

But the filing of the relators' action did not mark the first occasion that CVS's HSP pricing came under scrutiny. In February of 2010, a coalition of labor unions under the banner “Change to Win” issued a report comparing the HSP drug prices charged by CVS with prices charged by CVS for the same drugs to federal employees enrolled in the Federal Employee Health Benefits Program (FEHBP). The report concluded that in its role as the FEHBP's pharmacy benefits manager, CVS overcharged by “hundreds of millions of dollars.” This conclusion rested primarily on the report's finding that the prices charged by CVS to the FEHBP were higher than the counterpart HSP prices for 85% of generic drugs available in both programs. News outlets pounced upon the Change to Win report and reported its findings extensively.

The allegations attracted attention in Washington as well: a Change to Win representative testified before Congress in late February of 2010 and advocated revising the FEHBP prescription drug program. In November of 2010, a Congressional Research Service (CRS) report rehearsed some of Change to Win's allegations.

Meanwhile—after the issuance of the Change to Win report but before the issuance of the CRS report—Connecticut altered its statutes to explicitly require CVS to take its HSP prices into account in its dealings with the state's Medicaid program. CVS responded by threatening to end the HSP program in Connecticut. Battling back, the Attorney General of Connecticut announced that he had subpoenaed CVS to obtain details related to the administration of the HSP program. In a press release, issued in June of 2010, the Attorney General vouchsafed that:

CVS Caremark's actions are at odds with other pharmacies that have extended their discount program drug pricing to the state Medicaid program and may be inconsistent with CVS Caremark's actions in other states.

Under the Health Savings Pass program, consumers pay $10 a year to fill a 90–day prescription of one of 400 generic drugs for $9.99 and receive other benefits. State law requires pharmacies to charge Medicaid the lowest drug price they offer consumers, which the state says obligates CVS to provide the Health Savings Pass discount, potentially saving taxpayers millions of dollars.

CVS disagreed, prompting the General Assembly to approve a law in the last session clarifying the requirement. CVS responded by threatening to end its Health Savings Pass program in Connecticut.

The press release highlighted the fact that CVS was continuing to offer the HSP program to consumers in other states. It declared that CVS “has an obligation to charge the state of Connecticut the same discounted price for drugs for Connecticut Medicaid recipients that CVS Caremark charges to customers enrolled in the [HSP] pharmacy discount program.” The ensuing subpoena sought information about how HSP prices “compared to those billed Connecticut's Medicaid program,” CVS's costs for those medications, the details of HSP enrollment in Connecticut, and information about states in which the program operated.

The Attorney General's activities attracted appreciable media attention, and all of the significant information contained in the press release was replicated in the ensuing media coverage. The media also reported CVS's response, including the company's assertion that Connecticut's Medicaid regulations did not require CVS to pass on HSP prices to the state Medicaid program.

It was not until August of 2011—over a year after the outpouring of publicity regarding CVS's refusal to give Connecticut the benefit of its HSP pricing—that the relators brought this suit. The relators filed an amended complaint in March of 2013, and a second amended complaint in June of 2014. These various iterations of the complaint were kept under seal while the federal government and the designated states considered whether to intervene. See 31 U.S.C. § 3730(b)(2).

Once the United States and all the states named in the second amended complaint had declined to intervene, the district court unsealed the action on August 11, 2014. See id. CVS then moved to dismiss. See Fed. R. Civ. P. 12(b)(1), (6). Its flagship claim was that the publicity surrounding the Change to Win initiative and the actions of the Connecticut Attorney General triggered the FCA's public disclosure bar. The relators opposed the motion. After briefing and argument, the district court found the public disclosure bar dispositive and dismissed the action. See Winkelman , 118 F.Supp.3d at 425. This timely appeal followed.

II. ANALYSIS

On appeal, the relators insist that the disclosures surrounding the Change to Win report and the Connecticut controversy do not suffice to trigger the public disclosure bar. We divide our treatment of their asseverational array into three segments. First, we clear some procedural underbrush affecting the scope of the relevant record. Second, we determine whether a public disclosure occurred and, if so, whether that disclosure limned a fraud substantially similar to the one alleged in the complaint. Finally—having concluded that the public disclosure bar is in place—we analyze whether the relators qualify for an exception to that bar as original sources.

A. The Scope of the Record .

Our standard of review is clear: we engage in a de novo canvass,...