United States ex rel. Hart v. McKesson Corp.

• Decision Date: 05 May 2022
• Docket Number: 15-CV-0903 (RA)
• Citation: 602 F.Supp.3d 575
• Parties: UNITED STATES of America et al., EX REL. Adam HART, Plaintiff, v. MCKESSON CORPORATION, et al., Defendants.
• Court: U.S. District Court — Southern District of New York

602 F.Supp.3d 575

UNITED STATES of America et al., EX REL. Adam HART, Plaintiff,

v.MCKESSON CORPORATION, et al., Defendants.

15-CV-0903 (RA)

United States District Court, S.D. New York.

Signed May 5, 2022

Andrew Chun-Yang Shen, Bradley E. Oppenheimer, David L. Schwarz, James McCormick Webster, III, Kellogg, Hansen, Todd, Figel & Frederick PLLC, Washington, DC, Larry Zoglin, Pro Hac Vice, Stephen Hasegawa, Phillips & Cohen LLP, San Francisco, CA, Ari Yampolsky, Constantine Cannon LLP, San Francisco, CA, Rishi Bhandari, New York, NY, for Plaintiff Adam Hart.

Elisa S. Solomon, Covington & Burling LLP, New York, NY, Pro H. Ethan M. Posner, Shanya Jina Dingle, Krysten Rosen Moller, Covington & Burling LLP, Washington, DC, Thomas Garten, Covington & Burling LLP, Palo Alto, CA, for Defendants McKesson Corporation, McKesson Specialty Distribution LLC, McKesson Specialty Care Distribution JV LLC, McKesson Specialty Care Distribution Corporation.

OPINION & ORDER

RONNIE ABRAMS, United States District Judge:

Plaintiff-Relator Adam Hart has filed this qui tam action against McKesson Corporation, McKesson Specialty Distribution LLC, and McKesson Specialty Care Distribution Corporation (collectively "McKesson") on behalf of the United States of America, the States of California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Illinois, Indiana, Iowa, Louisiana, Massachusetts, Michigan, Minnesota, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Oklahoma, Rhode Island, Tennessee, Texas, Virginia, Washington, and the District of Columbia (collectively "the States"). Hart alleges that McKesson offered business-management tools to specialty oncology practices that joined programs requiring them to purchase a substantial proportion of their drugs from McKesson, and that doing so violated the Anti-Kickback Statute ("AKS"). 42 U.S.C. § 1320a-7b(b). Any claims for reimbursement submitted by these practices to the United States or the States, he asserts, were tainted by the kickback scheme and thus in violation of the federal False Claims Act, 31 U.S.C. § 3729 et seq. ("FCA"), and the corresponding state laws, see Am. Compl. ¶¶ 1, 3.

McKesson has moved to dismiss, arguing that: (1) Hart fails to plausibly allege that the business-management tools constituted remuneration under the AKS; (2) Hart fails to plausibly allege that Defendants acted with the requisite scienter; and (3) Hart fails to plead the fraudulent scheme with the particularity required by Federal Rule of Civil Procedure 9(b). For the reasons that follow, Defendants’ motion to dismiss is granted, though Plaintiff is granted leave to amend.

BACKGROUND¹

I. The Parties

McKesson Corporation is a Delaware corporation headquartered in Irving, Texas. Am. Compl. ¶ 15. McKesson sells pharmaceuticals, medical supplies, and related services to health care providers. Id. ¶¶ 2, 40. McKesson Corporation is the parent company of the other McKesson Defendants, "which are wholly-owned direct or indirect subsidiaries of McKesson Corporation." Id. ¶ 15. McKesson Specialty Distribution LLC is a Delaware limited liability company and a wholly-owned subsidiary of McKesson Corporation. Id. ¶ 16. McKesson Specialty Care Distribution Corporation is a Delaware corporation and also a wholly-owned subsidiary of McKesson Corporation. Id.² Hart alleges, upon information and belief, that during the relevant time period, McKesson Specialty Health ("MSH") was a business unit of McKesson Corporation, McKesson Specialty Care Distribution Corporation, and McKesson Specialty Distribution LLC. Id. Through MSH, McKesson operated as a wholesale distributor, buying specialty drugs and reselling them to customers across the country. Id. ¶¶ 2, 16-17, 40.

Plaintiff-Relator Hart was employed by McKesson from August 2011 until September 2014 as a Business Development Executive ("BDE") in its Specialty Health business unit. Id. ¶ 14. His responsibilities included generating new business opportunities among community-based oncology practices in the southeastern United States. Id. Once a customer was recruited, Hart would provide services for the first year, after which a "McKesson Account Executive" was assigned. Id. The McKesson Account Executive was responsible for maintaining and increasing sales, but Hart remained in touch with practices through "sales meetings, sales calls, requests for assistance from other personnel, and communications with coworkers." Id.

II. McKesson's Oncology Business

As relevant here, MSH provided "specialty pharmaceuticals and services to community oncology practices." Id. ¶ 47.³ The specialty drugs used in cancer

treatment are complex to manufacture, require special handling, and, as a result, are more expensive than other drugs. Id. ¶ 39. Some oncology practices obtain the drugs from a specialty pharmacy, which then bills patients’ insurers. Id. ¶ 41. Others opt to purchase drugs from wholesalers like McKesson, provide those drugs to their patients, and then bill the patients’ insurers themselves. Id.

In 2014, the oncology business was MSH's largest line of business by revenue, generating $7 billion of MSH's $9 billion in annual revenue. Id. ¶ 47. There were two divisions of the oncology business, and Hart worked in the "open market" division, which operated as a traditional drug wholesaler and distributor. Id. ¶¶ 47-48. The allegations in the complaint are limited to the practices of the open market division. Id. ¶¶ 48-49.

III. The Business-Management Tools

Hart's claims are based primarily on McKesson's usage of two business-management tools—the Margin Analyzer and the Regimen Profiler—which were offered almost exclusively to practices that committed to purchasing a significant portion of their drugs from McKesson. Id. ¶ 69.

A. The Margin Analyzer

Beginning in approximately 2011, McKesson offered its customers "complimentary access" to the Margin Analyzer. Id. ¶ 52.⁴ Among other things, the tool allowed oncology practices to compare the reimbursement rates of interchangeable drugs. Id. ¶¶ 54-55. McKesson had identified "therapeutically interchangeable" choices for ten categories of drugs commonly used by oncology practices. Id. ¶ 60. For any given category, the Margin Analyzer relied on pricing and reimbursement data to determine which of the similar drugs would yield the highest profit for the practice. Id. ¶¶ 61, 63. McKesson employees input reimbursement data from Medicare and private insurers, allowing the tool to analyze the profitability of different drugs based on a patient's insurer. Id. ¶¶ 57-59, 61-63.

Hart's complaint includes the following illustration of the tool's utility. The Margin Analyzer listed five "therapeutically interchangeable options" for parenteral irons

. Id. ¶ 77. In Q2 2012, McKesson's data showed that, for Medicare-insured patients, the difference between acquisition cost and reimbursement price was significantly greater for one brand of parenteral irons, Feraheme, than other brands. Id. For Summit Cancer Care in Savannah, Georgia, specifically, a switch from prescribing only Infed parenteral irons (margin of $15.20 per dose), to a mix of 80% Feraheme (margin of $88.50 per dose) and 20% Infed would increase annualized net profits by $10,560. Id. ¶ 78. The Margin Analyzer excerpt below shows the type of data comparisons available to McKesson representatives and the practices:

See Am. Compl. Ex. 4 (Q2 2012 SCC Margin Analyzer).

The Margin Analyzer was used not only to compare the cost and profit margin on a per drug, per insurer basis, but also to give forward-looking recommendations based on that data. BDEs or Account Executives were able to forecast various scenarios by inputting different drug mixes or potential payors, and then used those findings to aid the practices in choosing a drug distribution that was most profitable. See Am. Compl. ¶¶ 73-78. Because the Margin Analyzer allowed practices to instantly compare the profit margin of one drug versus others in the same category, a BDE or Account Executive could identify areas with large profit opportunities. See id. McKesson personnel met with their customers at "Quarterly Business Reviews" to review the Margin Analyzer and to provide "a detailed analysis of the practice's finances and business operation." Id. ¶ 65.

In order to generate these results, the Margin Analyzer required data, including: the fee schedules published quarterly by the Centers for Medicare and Medicaid Services ("CMS"); the customer's quarterly purchase records; the prices at which McKesson sold its drugs; and the fee schedules of relevant private insurers. Id. ¶¶ 56-58. McKesson employees would gather and input this data into spreadsheets for each practice, and update them on a quarterly basis as the data changed. Id.

Because different insurers reimbursed different drugs at different rates, a drug most profitable for a Medicare patient may not be as profitable for a patient with a given private insurer. The Margin Analyzer not only accounted for the different reimbursement amounts offered by different insurers, but synthesized the data into a "cheat sheet" page that recommended the most profitable drug in each category, by payor. See id. ¶¶ 81-82; id. Ex. 1 Q4 2012 SCC Margin Analyzer; id. Ex. 5 Q1 2013 SCC Margin Analyzer. The "cheat sheet" generated for the Summit Cancer

Care in Q4 of 2012, for example, recommended one of three different antiemetic drugs depending on whether the patient was covered by BlueCross BlueShield, Cigna, or Medicare. See Am. Compl. at ¶ 82; Q4 2012 SCC Margin Analyzer.

As with all the data in the Margin Analyzer, McKesson would update these sheets every quarter as reimbursement rates changed. Am. Compl. ¶¶ 84-85. The most cost-effective drugs were subject to change each quarter. Compare Q4 2012 SCC Margin Analyzer with Q1 2013 SCC Margin Analyzer.

McKesson used the Margin Analyzer in three contexts: to acquire new customers and/or retain existing customers, id. ¶ 64; to...