United States v. Prof'l Compounding Ctrs. of Am.
| Decision Date | 27 March 2023 |
| Docket Number | SA-14-CV-00212-XR |
| Parties | UNITED STATES OF AMERICA ex rel. PETER HUESEMAN Plaintiff v. PROFESSIONAL COMPOUNDING CENTERS OF AMERICA, INC., Defendant |
| Court | U.S. District Court — Western District of Texas |
ORDER ON MOTION TO DISMISS
On this date, the Court considered Defendant Professional Compounding Centers of America, Inc.'s motion to dismiss (ECF No 84), the Government's response (ECF No. 91) Defendant's reply (ECF No. 94), and the parties' oral arguments at the hearing held on June 16, 2022. After careful consideration, the Court DENIES the motion.
Defendant Professional Compounding Centers of America (“PCCA”) sells chemical ingredients to compounding pharmacies. Compounding is a practice in which a licensed pharmacist combines, mixes, or alters ingredients of a drug to create a medication tailored to the needs of an individual patient. PCCA's pharmacy customers (“members”) use these ingredients to prepare and dispense compound medications for patients. The United States of America (the “Government”) alleges that, from 2012 to 2015, PCCA and its members reported fraudulently inflated prices for its ingredients for reimbursement purposes and thereby enriched themselves at the expense of the federal TRICARE program, which provides health care coverage for activeduty military personnel, military retirees, and military dependents. See ECF No. 66.
The Government alleges that PCCA established and reported fraudulently inflated Average Wholesale Prices (“AWPs”)-the pricing metric frequently used to determine TRICARE reimbursement for compound claims-relative to the price at which it actually sold ingredients to member pharmacies. The Government further alleges that PCCA marketed the large “spreads” between the actual selling prices of its ingredients and their respective AWPs to induce its customers to buy its ingredients in violation of the federal Anti-Kickback Statute (“AKS”), 42 U.S.C §§ 1320a-7b(b). Those customers then submitted claims for compounds containing PCCA ingredients to TRICARE for payment based on PCCA's inflated AWPs, allowing pharmacies to receive “reimbursement” in amounts that were hundreds or thousands of dollars more than what they actually paid to acquire the underlying ingredients in the compound prescription. As explained more fully herein the Government asserts claims under the False Claims Act (“FCA”), 31 U.S.C. § 3729(a), and federal common law against PCCA for its role in causing TRICARE to pay hundreds of millions of dollars for false and fraudulently inflated claims for compound prescription drugs. ECF No. 66.
The Government acknowledges that PCCA does not itself submit claims for reimbursement to TRICARE. Id. ¶ 52. Instead, as a pharmaceutical supplier, PCCA sells ingredients to compound pharmacies who use those ingredients to prepare and dispense prescription compound drugs to patients. Id. PCCA reports AWPs for each of its ingredients to the publishers of drug pricing compendia, which federal health care programs and private insurance companies use to calculate reimbursement rates. Id. ¶¶ 52-54.
Separately, PCCA's pharmacy customers submit claims for payment to TRICARE for compound drugs containing PCCA ingredients. Id. ¶ 52. These claims are submitted electronically to Express Scripts, Inc. (“ESI”), which contracts with the Government to administer prescription drug coverage for TRICARE beneficiaries. Id. ¶ 40. The claims contain, among other things, information about the patient, the prescriber, the pharmacy, the ingredients in the compound drug, pricing information for the ingredients, and the date the prescription was filled. Id. ¶ 42.
Pharmacies are required to submit prescription drug claims, including compound claims, to ESI in the current National Council for Prescription Drug Programs (“NCPDP”) Telecommunications Standard format. Id. ¶ 43. Under the standard for compound pharmacy claims adopted on January 1, 2012 (the “NCPDP D.0” standard), pharmacies are required to submit detailed information about each ingredient within a compound formula, including (1) the ingredient's National Drug Code (“NDC”);[1](2) the quantity of the ingredient; and (3) pricing information for the ingredient. Id. ¶ 44. For its part, TRICARE generally reimbursed compound prescription claims based on the lowest of three measurements, in light of the quantity of each ingredient in the compound:
The Government alleges that TRICARE frequently uses the AWPs for each ingredient in a compound drug to determine the amount pharmacies are reimbursed for the compound prescription claims they submit. Id. Moreover, PCCA allegedly assisted its customers in manipulating their U&C prices through its billing software to ensure that pharmacies would be reimbursed according to AWPs rather than an alternative, lower price. Id. ¶ 117. The billing software, PK Software, allowed customers to submit claims to third-party payers, including TRICARE, and allegedly featured a setting that enabled pharmacies to automatically report their U&C price for a compound as equal to the AWP-based price. Id.
Any provider seeking reimbursement from TRICARE must comply with TRICARE's antifraud and abuse provisions, 32 C.F.R. § 199.9(a)(4), which are incorporated into the Government's contract with ESI, see ECF No. 66 ¶ 168.
To qualify for reimbursement from TRICARE, a drug must be “medically or psychologically necessary [for] the diagnosis and treatment of illness or injury.” 32 C.F.R. § 199.4(a)(1)(i); see also 32 C.F.R. § 199.4(g)(15). To be medically or psychologically necessary, a drug must, among other things, constitute “appropriate medical care” as defined in TRICARE's regulations. 32 C.F.R. § 199.2. This requires that the care be “furnished economically.” Id.
TRICARE's regulations further provide that fraud or abuse by a pharmacy or other provider may result in denial of the provider's claims or the exclusion or suspension of the provider from participation in the TRICARE program. Id. §§ 199.9(b), (f). Fraudulent practices include arrangements between a supplier and provider that result in claims with unnecessary charges to TRICARE and arrangements designed to overcharge TRICARE, including kickbacks. Id. §§ 199.9(c)(12)-(13). Abusive practices include billing TRICARE at rates in excess of those routinely charged to the general public or other third-party payers for similar services or billing substantially in excess of customary or reasonable charges. Id. §§ 199.9(b)(2), (7).
ESI's Provider Manuals likewise prohibit pharmacy providers from undermining the U&C or compound price, including by manipulating the U&C price or separating cash business from third-party payer business. Id. ¶ 46. ESI Manuals also explicitly prohibit pharmacies from submitting compound claims with inflated AWPs or for amounts in excess of the pharmacy's acquisition costs, “taking into account a reasonable markup.” Id. ¶ 47.
A claim for reimbursement from a federal health care program for items or services resulting from a violation of the Anti-Kickback Statute “constitutes a false or fraudulent claim for purposes of [the FCA].” 42 U.S.C. § 1320a-7b(g). Thus, claims submitted to federal health care programs that result from AKS violations are per se false or fraudulent within the meaning of the FCA. The AKS makes it illegal for an individual or entity to knowingly and willfully:
[O]ffer[] or pay[] any remuneration (including any kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or in kind to any person to induce such person . . . to purchase, lease, [or] order . . . any good, facility, service, or item for which payment may be made in whole or in part under a Federal health care program.
42 U.S.C. § 1320a-7b(b)(2). Specific intent to violate the AKS is not required to establish a violation. Id.. § 1320a-7b(h).
In 2003, guidance from the Department of Health & Human Services, Office of the Inspector General (“OIG”) explicitly warned that AWP manipulation by pharmaceutical manufacturers combined with active marketing of the spread was “strong evidence” of an AKS violation:
If a pharmaceutical manufacturer purposefully manipulates the AWP to increase its customers' profits by increasing the amount the federal healthcare programs reimburse its customers, the anti-kickback statute is implicated. Unlike bona fide discounts, which transfer remuneration from a seller to a buyer, manipulation of the AWP transfers remuneration to a seller's immediate customer from a subsequent purchaser (the federal or state government). Under the anti-kickback statute, offering remuneration to a purchaser or referral source is improper if one purpose is to induce the purchase or referral of program business. In other words, it is illegal for a manufacturer knowingly to establish or inappropriately maintain a particular AWP if one purpose is to manipulate the “spread” to induce customers to purchase its product .... The conjunction of manipulation of the AWP to induce customers to purchase a product with active marketing of the spread is strong evidence of the unlawful intent necessary to trigger the anti-kickback statute. Active marketing of the spread...
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