United States ex rel. Stone v. OmniCare, Inc.
| Decision Date | 07 July 2011 |
| Docket Number | No. 09 C 4319,09 C 4319 |
| Parties | UNITED STATES OF AMERICA, et al. ex rel. JOHN STONE, Plaintiffs, v. OMNICARE, INC., Defendant. |
| Court | U.S. District Court — Northern District of Illinois |
MEMORANDUM OPINION AND ORDER
In a twenty-four count qui tam complaint, Relator alleges that Defendant OmniCare, Inc. submitted false claims to the government of the United States and numerous individual states. Relator was an employee of Defendant, and he further alleges retaliatory discharge for his actions in uncovering Defendant's alleged fraud.
Count I is a claim under 31 U.S.C. 3729(a)(1)(G) for unlawful retention of overpayments under the federal Medicare and Medicaid programs in 2000-2005. The overpayments were rooted in allegedly false or fraudulent claims made by Defendant's pharmacies, later revealed to corporate management through an audit process and yet still retained by Defendant. Count II is brought under the same provision and relates to allegedly retained overpayments made to pharmacies that OmniCare had acquired in the one-year period preceding a 2008 audit. Count III alleges a false claim in connection with OmniCare's alleged illicit stockpiling of the drug Synagis. Count IV alleged a Medicaid pricing scheme.1 Count V encapsulates the conduct alleged in Counts I-III as fraud on Medicare under the FCA. For clarity's sake I deem itsparagraphs merged into Counts I-III. Counts VI-XXII are claims under twenty-eight state false claims acts. Count XXIII repackages the alleged fraud on the state Medicaid programs described in counts VI-XXII on the basis that the federal government reimbursed the states and was therefore harmed. Count XXIV is the federal retaliation claim.
Viewed in the light most favorable to the non-movant, the factual background is as follows. OmniCare, Inc. is the nation's largest provider of pharmaceuticals and related ancillary services to long-term health care institutions, such as assisted living facilities, retirement centers, and hospices. The ancillary services include things such as intravenous and nutrition products, respiratory therapy, and assorted durable medical goods. OmniCare owns and operates these services at facilities in several states. In 2008, Defendant generated roughly 100 million dollars in revenue from these ancillary services, sixty percent - or 60 million dollars - of which came from the government programs Medicare and Medicaid.
Relator worked for the defendant, OmniCare, as Vice President for Internal Audit. In that capacity, he conducted two key audits of OmniCare's Medicare and Medicaid claims, one for claims submitted in 2000-2005 (the "Wave I" audit) and one for claims from 2008 ("Wave II"). Wave I took place in 2007. It consisted of an audit of thirty-nine claims spanning eighteen facilities per year from 2000-05. This number does not reflect all claims, rather it was a "probe sample" audit, which Relator describes in his complaint as "one which lacks random selection such that results could be statistically extrapolated." Its purpose was to inform OmniCare whether systemic problems may exist with respect to claims made on Medicare and State Medicaid and to prompt further claims-level investigation as needed. Relator asserts that Wave Idid, in fact, inform OmniCare of such problems. Relator claims that OmniCare should have inquired further but did not do so. Rather, OmniCare provided a limited repayment to Medicare that did not reflect the full extent of overpayments and falsely proclaimed the federal government to have been made whole. OmniCare allegedly made no repayment to the State Medicaid programs.
Wave II took place in 2008. Wave II repeated essentially the same process as that in Wave I, this time for pharmacies newly acquired by OmniCare. It was limited to the year 2008 and examined thirty claims across fifteen facilities. Relator alleges that Wave II made OmniCare aware of claims and payments made to pharmacies for which there was no substantiation, but that OmniCare took no corrective action in response to Wave II.
Relator further alleges that OmniCare submitted false claims for Medicaid reimbursements with respect to the pediatric drug Synagis. Relator alleges that OmniCare intentionally stockpiled excess amounts of Synagis in contravention of FDA-approved discard instructions. OmniCare would then use the inappropriatelyretained quantities to fill additional prescriptions, all the while purchasing more (essentially unnecessary) Synagis under the pretext that the retained quantities were actually discarded per the label instructions. OmniCare is claimed to have used those purchases as the basis for further Medicare reimbursement.
Relator presented the results of Wave II to OmniCare's Internal Audit committee in a formal document. In the document, he noted "deficiencies" with respect to government claims. In addition to the deficiencies noted in the document, he claims to have verbally stated that the deficiencies resulted in "fraud" on Medicare and State Medicaid programs. Thereafter, OmniCare's CEO is alleged to have told Relator to "begin looking for other employment."Relator claims this none-too-subtle suggestion meant that OmniCare effectively discharged him for lawful conduct that was in furtherance of an FCA action.
Relator's main federal allegation is that Defendant has violated the False Claims Act, as amended in the Fraud Enforcement and Recovery Act ("FERA" or the "amended FCA") of 2009, see 31 U.S.C. § 3729(b)(3), and the Patient Protection and Affordable Care Act of 2010 (PPACA). Pub. L. 111-148, 124 Stat. 119.
is liable to the United States for a civil penalty. 31 U.S.C. § 3729(a)(1)(G).2 As amended on May 20, 2009 by FERA, the FCA defines an "obligation" as, among other things, "an established duty, whether or not fixed, arising...from the retention of an overpayment." 31 U.S.C. § 3729(b)(3). Section 3729(a)(1)(G) claims are often characterized as "reverse false claims," as they implicate situations in which the charge is falsehood in paying monies to the United States rather than in securing payment from the government. See, e.g., United States ex rel. Lamers v. City of Green Bay, 998 F. Supp. 971 (E.D. Wis. 1998) ().
There have been two important changes to the FCA and other relevant federal law that are at issue here. The first was the addition of a definition for the term "obligation" as described above. 31 U.S.C. § 3729(b)(3). The second is the enactment of PPACA. This broad health care reform legislation included a provision targeting retention of an overpayment. Specifically, as applies here, § 6402(a) of PPACA states that "[a]n overpayment must be reported and returned...by...the date which is 60 days after the date on which the overpayment was identified." 42 U.S.C. § 1320a-7k(d)(2).
The parties agree that there was no liability for "retention of an overpayment" prior to FERA's amendments to the FCA. See United States ex rel. Yannacopolous v. General Dynamics, 636 F. Supp. 2d 739, 752 (N.D. Ill. 2009). Further, the parties agree that the statute did not explicitly address its retroactive effect. Finally, the parties agree that the claims at issue are alleged to have been made in 2000-2005 and 2008.
Where the Relator and Defendant part ways is in how "retention of an overpayment" liability attaches. Defendant claims that because no liability could have attached when the claims were made, applying such liability would work an impermissible retroactive effect. Relator disputes this, claiming that "'retention of an overpayment' constitutes a continuing violation of the False Claims Act." Relator further characterizes this as "the continuing conduct of retention after [May 20, 2009, the effective date of amended FCA]." Under Relator's theory, liability can be pinned down to a specific date, May 22, 2010. This is because PPACA's new 60-day deadline for reporting and returning overpayments went into effect on March 23, 2010 and instantly attached to overpayments retained on that day, including all of Defendant's alleged false claims from 2000-2005 and 2008. In Relator's words, every day Defendant does not pay back thosealleged overpayments Defendant continues to be "in possession of government monies to which it [is] not entitled."
The Supreme Court has established a two-part inquiry to determine the permissibility of retroactive application of a statute. Landgraf v. USI Film Prods., 511 U.S. 244, 280 (1994); also Labojewski v. Gonzales, 407 F.3d 814, 818 (7th Cir. 2005). First, the court discerns whether Congress spoke directly on the point of whether the statute should have retroactive effect. Id. Prospectivity is the default in the absence of clear Congressional intent to the contrary. Id.
Second, if Congress has not clearly spoken, "the court must determine whether the new statute would have retroactive effect, i.e., whether it would impair rights a party possessed when he acted, increase a party's liability for past conduct, or impose new duties with respect to transactions already completed." Landgraf, 511 U.S. at 280. The purpose of this step is to determine whether the presumption against retroactivity is triggered. Labojewski, 407 F.3d at 819. The conclusion that a statute has retroactive effect demands a "common sense, functional judgment about 'whether the new provision attaches new legal consequences to events completed before...
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