United States v. McKesson Corp.

• Decision Date: 21 May 2021
• Docket Number: Case No. 21-mc-80065-JCS
• Parties: UNITED STATES OF AMERICA, et al., Plaintiffs, v. MCKESSON CORPORATION, et al., Defendants.
• Court: U.S. District Court — Northern District of California

UNITED STATES OF AMERICA, et al., Plaintiffs, v. MCKESSON CORPORATION, et al., Defendants.

Case No. 21-mc-80065-JCS

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA

May 21, 2021

ORDER DENYING MOTION TO COMPEL WITHOUT PREJUDICE

Re: Dkt. No. 1

I. INTRODUCTION

Plaintiff-Relator Omni Healthcare, Inc. ("Omni") brings a Motion to Compel third party California State Board of Pharmacy ("Board") to comply with the subpoena duces tecum that Omni served on it in connection with a False Claims Act case that is currently pending in the Federal District Court for the Eastern District of New York, United States of America, et al., ex rel. Omni Healthcare Inc. v. McKesson Corporation, et al., Case No. 12-cv-06440-NG-ST ("the Underlying Litigation"). The Board objects to the subpoena on the grounds that it is overbroad and unduly burdensome and contends various privileges apply to the discovery Omni seeks. A hearing on the Motion was held on May 21, 2021. For the reasons stated below, the Motion is DENIED without prejudice.

II. BACKGROUND

A. The Underlying Litigation

In the Underlying Litigation, qui tam plaintiff Omni asserts claims against McKesson Corporation and various related entities (collectively, "McKesson" or "McKesson entities") under the federal False Claims Act ("FCA"), 31 U.S.C. § 3729 et seq, and comparable State laws, including the California False Claims Act ("CFCA"), Cal. Gov't Code § 12651(a)(1), on behalf of the United States, various States (including the State of California), the District of Columbia, and two cities. Declaration of George F. Carpinello in Support of Motion to Compel California State Board of Pharmacy to Comply with Subpoena Duces Tecum ("Carpinello Decl."), Ex. 7 (Second Amended Complaint in Underlying Litigation ("SAC")). Omni describes the conduct that is the basis for its claims as follows:

6. This action arises from Defendants' unlawful conduct in connection with their manufacture, distribution, and sale of various injectable oncology, anemia, and related drugs in pre-filled syringes for administration to cancer patients undergoing chemotherapy treatment as well as other immuno-compromised patients (the "Pre-Filled Syringe Program"). The drugs at issue include Aloxi®, Procrit®, Aranesp®, Neupogen®, Taxotere®, and Kytril® (in both brand and generic forms) (the "Oncology Drugs"), which all contained significant amounts of overfill. Combined, Defendants engaged in their unlawful conduct from 2001 until at least 2010, and engaged in this conduct with respect to [Omni] from 2007 through 2010.

7. Specifically, and as described in greater detail below, Defendants repackaged or compounded the Oncology Drugs in an unlawful manner that was unapproved by the United States Food and Drug Administration ("FDA") and in non-sterile conditions, resulting in false claims being submitted (i) for drugs that were unapproved by the FDA; (ii) for adulterated and misbranded drugs that were repackaged or compounded in a manner in which they could become compromised, lacking purity, and generally below the standards they were represented or expected to possess by the governments; (iii) for improperly harvesting overfill, such that the governments were billed improperly for drug product that was not covered for reimbursement; (iv) for improperly harvesting overfill and charging for that overfill, along with the original drug product, in pre-filled syringes when the overfill in question was not used to calculate the Average Sales Price ("ASP"), causing the governments to pay artificially inflated prices for the drug product; and (v) for Oncology Drugs purchased as a result of Defendants' unlawful kickback to physicians for purchasing pre-filled syringes.

8. To ensure that a doctor is able to withdraw the full amount of a drug sold in an FDA-approved container, typically a glass vial, the containers holding the Oncology Drugs contain more of the product than the amount indicated on the label. This excess amount is called "overfill." Providers are not allowed to bill for any excess drug, such as overfill, for which the drug manufacturer does not charge. Nor are they allowed to bill for unapproved drugs, such as those repackaged in unapproved facilities or otherwise in violation of FDA guidelines.

9. Moreover, most of these vials are expressly marked for "single use," i.e., the contents may be extracted only once because they do not contain preservatives or antiseptic chemicals to prevent bacterial or fungal growth.

10. Nonetheless, Defendants learned that they could maximize profitsat the governments' expense by harvesting overfill in covered drug products such as the Oncology Drugs, pooling the Oncology Drugs, and then repackaging them in bulk into non-sterile and plastic pre-filled syringes, despite the clear risk to vulnerable cancer patients.

11. Defendants would sell the pre-filled syringes to oncology centers, medical practices, and physicians (collectively, "healthcare providers"), who, in turn, would seek reimbursement for amounts sold in the government-approved vials and quantities. As a result, the governments were billed for an amount of drug product in the pre-filled syringes greater than the amount of vials originally sold by the drug manufacturers, thus allowing Defendants or the healthcare providers to obtain government funds for drugs that were never, in fact, charged for by the drug manufacturers.

Id. ¶¶ 6-11. Omni alleges McKesson knowingly defrauded the federal and State governments on whose behalf it brings the Underlying Litigation and seeks treble damages on its claims. Id., Prayer for Relief.

B. The Board

According to the Board's executive officer, Anne Sodergren, the Board was formed in 1891 and is a state healthcare oversight agency created to protect public health and safety. Declaration of Anne Sodergren in Support of Nonparty California Board of Pharmacy's Opposition to Omni Healthcare, Inc.'s Notice of Motion and Motion to Compel California State Board of Pharmacy to Comply With Subpoena Duces Tecum ("Sodergren Decl.") ¶ 2 (citing Cal. Bus. & Prof. Code, § 4001.1). This goal is accomplished, in part, through the Board's licensing, regulation, and enforcement of the pharmacy practice, including regulating "individuals and businesses that dispense, compound, provide, store and distribute prescription drugs and devices and pharmaceutical services to the public or to other health care practitioners, in compliance with state and federal law." Id. The Board also licenses "pharmacists, pharmacist interns, pharmacy technicians, designated representatives, pharmacies, wholesalers, [and] outsourcing facilities, among other facilities." Id. ¶ 3. Sodergren states that in the fiscal year 2019-2020, there were 141,741 Board licensees in the State of California. Id.

The Board maintains files on licensees that often include personal information, including not only social security numbers and dates of birth but also criminal history, information about mental or physical illness and financial information. Id. ¶ 3. These records are organized by licensee name and number; the Board does not maintain records by drug product name or the typeof disease that a drug treats." Id. ¶ 13. The Board has a legacy computer system that maintains very basic information, and it does not have a text search function. Id. ¶ 19.

The Board employs licensed pharmacist inspectors to conduct pharmacy/wholesaler inspections and investigations. Id. ¶ 4. There are currently 57 such inspectors employed by the Board. Id. "[I]nspections are triggered for a variety of reasons including: receipt of consumer complaints, required annual inspections for specific license types, mandated inspections as a condition of licensure or renewal, monitoring of probationers, or routine inspections to determine if a pharmacy complies with all state and federal laws and regulations." Id. According to Sodergren, in the 2018-2019 fiscal year, the Board conducted approximately 3,462 inspections in California. Id. When an inspection is conducted, the Board inspector issues a written inspection report to the licensee. Id. Although the Board maintains "a central network file for investigation reports[,]" "investigations are not saved based on the type of investigation that was conducted." Id. ¶ 19.

When the Board receives complaints from consumers involving pharmaceutical care, the complaint is first evaluated to determine whether it falls within the Board's jurisdiction, that is, if it involves an individual or entity regulated by the Board and if the complaint violates California Pharmacy law. Id. ¶ 5. If it does, the complaint is referred to a Board inspector for investigation. Id. According to Sodergren, "[d]uring the last fiscal year, the Board received 2,647 complaints and closed 2,910 investigations." Id. She further states that "[f]rom July 1, 2009, to June 30, 2019, the Board closed 35,631 investigations and substantiated violations in 20,376 of those investigations." Id. As of June 15, 2020, there were 1,371 Board investigations pending. Id. The Board's investigation files range from a few hundred pages to thousands of pages in length and often contain confidential and private information about the licensee, as well as third-party patients, doctors, and consumers. Id. ¶ 6. "These files typically include the investigation report prepared by the Board inspector, a copy of the patient/ consumer complaint, and multiple other items received or reviewed in the course of the investigation." Id. Many investigation files are stored at the Board's off-site state records facility, which charges for the retrieval and refiling of the records, as well as courier and/or mail delivery services." Id. ¶ 19.

When a Board investigation results in a referral for disciplinary action, the first step in the formal disciplinary process is typically the filing of an "accusation," which is the initial pleading. Id. ¶ 7. The disciplinary process may be resolved through...