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

• Citation: 913 F.Supp.2d 125
• Decision Date: 20 December 2012
• Docket Number: Civil Action No. 09–4672.
• Parties: UNITED STATES of America, ex rel. Anthony R. SPAY, Plaintiff, v. CVS CAREMARK CORPORATION; Caremark Rx, LLC (f/k/a Caremark Rx, Inc.); Caremark, LLC (f/k/a Caremark, Inc.); SilverScript, LLC (f/k/a Silverscript Inc.), Defendants.
• Court: United States District Courts. 3th Circuit. United States District Court (Eastern District of Pennsylvania)

913 F.Supp.2d 125

UNITED STATES of America, ex rel. Anthony R. SPAY, Plaintiff,

v.CVS CAREMARK CORPORATION; Caremark Rx, LLC (f/k/a Caremark Rx, Inc.); Caremark, LLC (f/k/a Caremark, Inc.); SilverScript, LLC (f/k/a Silverscript Inc.), Defendants.

Civil Action No. 09–4672.

United States District Court, E.D. Pennsylvania.

Dec. 20, 2012.

Adam D. Miller, Paul A. Traina, Engstrom Lipscomb & Lack, Los Angeles, CA, Jonathan D. Lichterman, Meckler Bulger Tilson Marick & Pearson LLP, Michael I. Leonard, Chicago, IL, Marc S. Raspanti, Michael A. Morse, Pamela Coyle Brecht, Pietragallo Gordon Alfano Bosick & Raspanti LLP, Philadelphia, PA, for Plaintiff.

Michael Patrick Matthews, Foley & Lardner LLP, Tampa, FL, Thomas M. Gallagher, Barry H. Boise, Megan L. Traversari, Peter M. Smith, Robin P. Sumner, Pepper Hamilton & Scheetz, Philadelphia, PA, Robert H. Griffith, Foley & Lardner LLP, Chicago, IL, for Defendants.

MEMORANDUM

BUCKWALTER, Senior District Judge.

Currently pending before the Court is the Motion by Defendants CVS Caremark Corporation, Caremark RX, LLC, Caremark, LLC, and Silverscript, LLC (collectively “Defendants”) to Dismiss Relator's First Amended Complaint. For the following reasons, the Motion is denied in its entirety.

I. FACTUAL AND PROCEDURAL BACKGROUND

The present litigation is an action to recover damages and civil penalties on behalf of the United States of America arising from false and/or fraudulent records, statements and claims made, used, and caused to be made, used, or presented by Defendants. (Am. Compl. ¶ 1.) At this stage of the litigation, the Court takes the facts directly from the Amended Complaint.¹

A. General Background on Medicare and the Medicare Part D Program²

Medicare is a federally funded and administered health insurance program for certain groups, primarily elderly and disabled persons. The Department of Health and Human Services (“HHS”) administers the Medicare program through the Centers for Medicare and Medicaid Services (“CMS”). There are four major components to the Medicare program: (1) Part A, the hospital insurance benefits program, 42 U.S.C. §§ 1395c, 1395d; (2) Part B, the supplemental medical insurance benefits program, which generally pays for a percentage of certain medical and other health services, including physician services, 42 U.S.C. §§ 1395j, 1395k, 1395 l; (3) Part C, the Medicare Advantage program, which allows CMS to contract with public and private entities to provide, at a minimum, Medicare Part A and B benefits to certain Medicare beneficiaries, 42 U.S.C. § 1395w–21–28, et seq.; and (4) Part D, the voluntary prescription drug benefit program. 42 U.S.C. § 1395w–101, et seq.

Part D was established in 2003 by the Medicare Prescription Drug, Improvement, and Modernization Act, Pub. L. 108–173, 117 Stat. 2066, which set up a voluntaryprescription drug benefits program for Medicare enrollees. Part D became effective January 1, 2006. 42 U.S.C. § 1395w–101(a)(2). An individual may enroll in Part D if he or she lives in the service area of a Part D plan and is entitled to Medicare benefits under Part A or enrolled under Part B. 42 U.S.C. § 1395w–101(a)(3)(A); 42 C.F.R. § 423.30(a).

Unlike Parts A and B, Medicare Part D is based on a private market model, wherein Medicare contracts with private entities, known as Part D “sponsors” to administer prescription drug plans. Part D benefits are provided by a Part D plan sponsor, which is either a prescription drug plan (“PDP”), a Medicare Advantage organization that offers a Medicare Advantage prescription drug plan (“MA–PD plan”), a Program of All–Inclusive Care for the Elderly (“PACE”) organization offering a PACE plan including qualified prescription drug coverage, or a cost plan offering qualified prescription drug coverage. 42 C.F.R. § 423.4. The Part D plan sponsor must provide qualified prescription drug coverage which includes “standard prescription drug coverage” or “alternative prescription drug coverage” with at least actuarially equivalent benefits. 42 U.S.C. § 1395w–102; 42 C.F.R. § 423.104(c). The requirements for standard or alternative prescription drug coverage relating to deductibles, benefit structure, initial coverage limits, out-of-pocket expenditures, etc., are set out in the Medicare Statute and its regulations. 42 U.S.C. § 1395w–102(b); 42 C.F.R. § 423.104(d)(3). Plans may also provide supplemental prescription coverage, which can include reductions in cost-sharing (such as deductibles or coinsurance percentages) or covering certain drugs that would qualify as a covered Part D drugs if they were not among the drugs described at 42 U.S.C. § 1396r–8(d)(2), (d)(3) and excluded from the definition of a Part D drug at 42 U.S.C. § 1395w–102(e)(2)(A).

A Part D sponsor submits a bid in the year prior to the calendar year in which Part D benefits will actually be delivered. Id. § 423.265. The bid contains a per member per month (“PMPM”) cost estimate for providing Part D benefits to an average Medicare beneficiary in a particular geographic area. Id. §§ 423.265, 423.272. From the bids, CMS calculates nationwide and regional benchmarks which represent the average PMPM cost. Id. § 423.279. If the Part D plan sponsor's bid exceeds the benchmark, the enrolled beneficiary must pay the difference as part of a monthly premium. Id. § 423.286. CMS then provides each Part D plan sponsor with advance monthly payments equal to the Part D plan sponsor's standardized bid, risk adjusted for health status, minus the monthly beneficiary premium, estimated reinsurance subsidies for catastrophic coverage, and estimated low-income subsidies. 42 C.F.R. § 423.293

When a pharmacy dispenses drugs to a Medicare beneficiary, it submits an electronic claim to the beneficiary's Part D plan and receives reimbursement from the plan sponsor for the costs not paid by the beneficiary. The Part D plan sponsor then notifies CMS that a drug has been purchased and dispensed through a document called a Prescription Drug Event (“PDE”) record, which includes the amount paid to the pharmacy. The PDE is an electronically created document that includes at least thirty-seven fields of information about a specific drug transaction. (Defs.' Mot. Dismiss, Ex. B, Instructions: Requirements for Submitting Prescription Drug Event Data (“CMS Instructions”), April 26, 2006, at 9.) CMS uses the information in the PDE at the end of the payment year to reconcile its advance payments to the sponsor with actualcosts the plan sponsor incurred. Id. If a Part D Plan sponsor's actual costs exceed the estimated costs, the plan sponsor may be able to recoup some of its losses through a risk sharing agreement with CMS. Id. at 9–10. If a Part D Plan sponsor's estimated costs exceed its actual costs by a specified amount, payments to the Part D Plan sponsor for the year are reduced and the Plan sponsor will have to pay back some its estimated payments. Id.

Part D Plan sponsors subcontract with many entities to provide drugs to the Medicare Part D beneficiaries enrolled in their plans, including subcontracts with pharmacy benefit managers (“PBM”) who provide drugs through mail order and pharmacies. As a condition for receiving its monthly payment from CMS, a Part D Plan sponsor must certify the accuracy, completeness and truthfulness of all data related to the payment, which may include enrollment information, claims data, bid submission data, and any other data specified by CMS. 42 C.F.R. § 423.505(k)(1). If the claims data has been generated by a subcontractor of a Part D plan sponsor, such as a PBM, that entity must “similarly certify” that the claims data it has generated is accurate, complete and truthful, and must acknowledge that it will be used to obtain federal reimbursement. 42 C.F.R. § 423.505(k)(3). Part D Plan sponsors must also certify in their contracts with CMS that they agree to comply with all federal laws and regulations designed to prevent fraud, waste, and abuse. 42 C.F.R. § 423.505(h)(1). CMS regulations require that all subcontracts between Part D plan sponsors and downstream entities, including pharmacies and PBMs, contain language obligating the pharmacy to comply with all applicable federal laws, regulations, and CMS instructions. 42 C.F.R. § 423.505(i)(4)(iv).

B. The Parties and Other Relevant Entities

1. The Relator/Plaintiff

Relator/Plaintiff Anthony R. Spay is a licensed physician with approximately thirty-seven years of diversified experience within the pharmacy industry. (Am. Compl. ¶¶ 8–21.) He is not only a licensed pharmacist, but has been involved with pharmacy management, benefits management, long-term care, behavioral health, executive management, prescription drug fraud/abuse detection, audition, and recovery for many of the nation's largest payers and pharmacy claims processors. ( Id.)

2. The Defendants

Defendant CVS Caremark Corporation (“CVS Caremark”) is the largest provider of prescriptions and related healthcare services in the United States. ( Id. ¶ 22.) CVS Caremark participates in the Medicare Part D prescription drug program and has provided Part D Pharmacy Benefits Manager (“PBM”) services to its clients' Part D Plans through its subsidiaries, Silverscript, Inc., Caremark LLC, CaremarkPCS, CVS Caremark Part D Services, LLC, and RxAmerica, LLC. ( Id. ¶ 33.) Since 2006, CVS Caremark has served as a Medicare Prescription Drug Plan (“PDP”) sponsor that contracts with Medicare to provide prescription drug benefits in all fifty states, the District of Columbia, and Puerto Rico through SilverScript Insurance Company (“SSIC”) and Accendo Insurance Company (“Accendo”). ( Id. ¶ 34.) In addition, CVS Caremark operates thousands of retail pharmacies, as well as mail order and specialty pharmacies that process Part D prescriptions and dispense Part D drugs to Medicare beneficiaries. ( Id. ¶ 36.) Since 2006, CVS Caremark, through its subsidiary SSIC, a Medicare Prescription Drug Plan Sponsor, has provided Medicare ...