On January 25, 2013, the U.S. District Court for the Eastern District of Pennsylvania dismissed with prejudice the False Claims Act (“FCA”) claims that were alleged by a qui tam relator against two drug manufacturers because the whistleblower’s allegations were substantially similar to those that had been previously publically disclosed and the relater was not an original source of information. The court then also declined to exercise supplemental jurisdiction over the remaining state law claims. U.S. ex rel. Schumann v. AstraZeneca Pharmaceuticals LP, No. 03-5423, 2013 WL 300745 (E.D. Penn. Jan. 25, 2013). The same court previously dismissed identical FCS claims against Bristol-Meyers Squbb Company in an earlier opinion. U.S. ex rel. Schumann v. AstraZeneca PLC, No. 03-5423, 2010 WL 4025904 (E.D. Penn. Oct. 13, 2010).
Specifically, the relator is a registered pharmacist and, from December 1999 to January 2003, was the vice-president of pharmaceutical contracting for Medco, one of the largest pharmacy benefit managers and mail-order pharmacies in the country. Medco provides services to health plans, including negotiating drug rebates with manufacturers, developing pharmacy networks and managing formularies. Defendants AstraZeneca Pharmaceuticals LP and AstraZeneca LP (collectively, “AZ”) manufactured, marketed and sold the brand name drugs, Prilosec and Nexium.
Under federal law, drug manufactures who participate in government programs must pay rebates to the government to prevent the government from paying more than the manufacturer’s best price for the drug. Relator alleged that AZ entered into sham contracts with Medco to induce it to purchase and dispense to government plan patients its brand-name drugs, rather than the generic form, in violation of the Anti-Kickback Statute and caused false reports and false claims for reimbursement of those drugs to be submitted to the government. Relator also alleged that AZ submitted false best price reports for its brand-name drugs, causing false claims for rebates of Medicaid and 340B expenditures to be submitted to the government. In particular, the alleged sham contracts related to the drugs, Prilosec and Nexium. Allegedly, this resulted in the government’s overpayment for these drugs.
AZ filed the underlying motion to dismiss based on its contention that the Relator’s allegations were already publicly disclosed and that the Relator did not qualify as an original source. In particular, the False Claims Act requires that a whistleblowers’ claims may not be based on allegations that were previously publically disclosed in a hearing or through the media and that the relator must be an original source of the information. The FCA public disclosure bar is “designed to strike a balance between encouraging private persons to root out fraud and stifling parasitic lawsuits based on information already know[n] to the government.” U.S. ex rel. Schumann. v. AstraZeneca Pharmaceuticals LP, No. 03-5423, 2013 WL 300745, at *3 (E.D. Penn. Jan. 25, 2013). While Relator claims that his allegations against AZ are different from prior disclosures because he asserted specific claims against Highmark Blue Cross Blue Shield and United Health Group, the court found this to be “a distinction without a consequence.” Id. at *6. Rather, the nature of the fraud was not changed and the allegations against AZ for violating the FCS were not changed by the participation of Highmark and United in contract negotiations. Therefore, the court found that the naming of an additional entity does not change the nature of the publicly disclosed fraud which was already sufficient to put the government on notice of the alleged fraud.
The court also noted that where the public disclosure bar applies, a relator must also establish that he had direct and independent knowledge of the wrongdoing to pursue his claim. Moreover, the direct knowledge cannot be derived from the information of others. Ultimately, the court held that it is not sufficient for a relator to have learned the information in the course of his employment, but must do so without deriving that information from others. Accordingly, Relator’s descriptions of contract negotiations and other meetings in which he participated was found not to be sufficient to explain how he obtained direct and independent knowledge of the ultimate fraud, kickbacks and the use of sham prices to obtain overpayments from the government.
For these reasons, the court dismissed the Relator’s claims with prejudice against AZ because the Relator’s kickback and best price claims failed to overcome the FCA’s public disclosure bar, were substantially similar to allegations already disclosed, and the Relator failed to establish that he was an original source. The court also noted that the Relator had already had ample time to cure these deficiencies.
You can find a copy of the decision here –> Schumann decision
For more information on the Schuman decision or related issues, please feel free to contact Daniel Meier or any member of our health care practice group for a further discussion.