United States ex rel. Kester v. Novartis Pharmaceuticals Corp.
43 F. Supp. 3d 332
S.D.N.Y.2014Background
- Relator David M. Kester (a former Novartis sales manager) filed a qui tam FCA action alleging Novartis and several specialty pharmacies (Caremark/CVS, Accredo, Curascript) ran kickback schemes (rebates, referrals, and "high-touch" pharmacy outreach) to induce recommendations, causing false claims to federal programs. The Government intervened against Novartis; several states intervened on state claims.
- Relator alleged five drug-specific schemes (Myfortic, Exjade, Gleevec, Tasigna, TOBI) and that pharmacies submitted claims to Medicare, Medicaid, FEHBP, and TRICARE while falsely certifying Anti-Kickback Statute (AKS) compliance.
- Defendants moved to dismiss under Rules 12(b)(1), 12(b)(6), and 9(b); the Court previously resolved Rule 9(b) issues in part and addressed false-certification theory in Novartis IV.
- The Court construed the post-2010 public-disclosure bar as still jurisdictional and applied the two-prong test (substantially similar public disclosure; original source) to Caremark; found 2008 state AG suits and news disclosed essentially the same Caremark conduct through Feb 2008 and barred claims before a cutoff.
- The Court held Caremark-related allegations are barred for conduct before March 23, 2010, except that Relator had direct knowledge of Caremark only from March 2009 forward and must prove he voluntarily disclosed to the Government pre-filing for March 2009–March 2010 period (limited discovery allowed). Claims after March 23, 2010 survived.
- On the merits, the Court found (a) AKS compliance was a precondition to payment (even pre-2010) and (b) Relator adequately pleaded express and/or implied false certifications for Medicare and certain state Medicaid programs (New York, Illinois, Michigan, Florida) and for federal programs after March 2010; claims to FEHBP were dismissed (AKS inapplicable). Several state-Medicaid and TRICARE pre-2010 allegations were dismissed without prejudice for failure to identify express certification bases.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Is the post-2010 public-disclosure bar jurisdictional? | Relator: amendment moved bar to merits (non-jurisdictional). | Defendants: remains jurisdictional and mandates dismissal if met. | Court: remains jurisdictional; applies public-disclosure test. |
| Do 2008 public disclosures bar Caremark claims? | Kester: public filings omitted key facts (Novartis, specific drugs, referrals, high-touch program), so not substantially similar. | Caremark: 2008 state AG complaints and publicity disclosed core elements (rebates, drug-switching, promotion). | Court: 2008 disclosures were substantially similar to Caremark allegations through Feb 2008; those claims barred up to March 23, 2010; post-March 23, 2010 claims survive. |
| Did Relator qualify as an "original source" for Caremark period March 2009–March 2010? | Kester: he had direct, independent knowledge and voluntarily provided info to DOJ pre-filing. | Caremark: disputes voluntariness and scope of direct knowledge. | Court: Kester had direct knowledge only from March 2009 forward; voluntariness/timing disputed — limited jurisdictional discovery ordered on whether he provided info to Government before filing. |
| Were claims "false" under the FCA via AKS violations (express or implied certification)? | Kester: pharmacies made express/implied certifications of AKS compliance; AKS noncompliance renders claims false (pre- and post-2010). | Defendants: AKS was not a precondition to payment pre-2010; some programs (FEHBP) excluded; many state Medicaid certification bases not pleaded. | Court: AKS was a precondition to payment pre-2010; FEHBP claims dismissed; implied certifications viable post-2010; express certifications adequately pleaded for Medicare and NY/IL/MI/FL Medicaid pre-2010; other state and TRICARE pre-2010 claims dismissed without prejudice to replead. |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (pleading must state plausible claim)
- Bell Atlantic v. Twombly, 550 U.S. 544 (2007) (plausibility standard for Rule 12(b)(6))
- Mikes v. Straus, 274 F.3d 687 (2d Cir. 2001) (defines factual vs. legal falsity; false-certification framework)
- United States ex rel. Kirk v. Schindler Elevator Corp., 601 F.3d 94 (2d Cir. 2010) (public-disclosure bar analysis; "substantially similar")
- Springfield Terminal Ry. v. Quinn, 14 F.3d 645 (D.C. Cir. 1994) (public disclosure must reveal essential elements of fraud to bar qui tam)
- United States ex rel. Fine v. Sandia Corp., 70 F.3d 568 (10th Cir. 1995) (public disclosures can alert government to likelihood of future misconduct despite temporal gap)
- Leveski v. ITT Educ. Servs., 719 F.3d 818 (7th Cir. 2013) (absence of temporal overlap is pertinent in public-disclosure analysis)
- Sebelius v. Auburn Regional Med. Ctr., 133 S. Ct. 817 (2013) (statutory text governs whether a rule is jurisdictional)
- Gonzalez v. Thaler, 132 S. Ct. 641 (2012) (Congress must clearly state jurisdictional rules, but need not use 'magic words')