United States Ex Rel. Spay v. CVS Caremark Corp.
875 F.3d 746
| 3rd Cir. | 2017Background
- Medicare Part D is a prospective-payment drug benefit administered by private Sponsors; Sponsors (via PBMs like Caremark) submit Prescription Drug Event (PDE) records to CMS for reconciliation and payment.
- Two PDE data fields at issue: Prescriber ID and Prescriber ID Qualifier; CMS’s PDE system would reject PDEs missing those fields, so PBMs used "dummy" Prescriber IDs to prevent rejection and ensure pharmacies and patients were paid/served.
- Caremark’s system defaulted missing/invalid Prescriber IDs to dummy identifiers; between 2006–2007 Caremark used numerous dummy IDs that did not identify actual prescribers.
- Relator Spay (qui tam) alleged Caremark knowingly submitted false PDEs and false certifications in violation of the False Claims Act (pre-2009 FCA); the government declined to intervene.
- The district court granted summary judgment for Caremark, relying on a government-knowledge inference (finding CMS knew of and accepted dummy IDs) to negate scienter; the Third Circuit agreed the inference was wrongly applied but affirmed on alternative grounds: lack of materiality.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the government-knowledge inference negates scienter | Spay: CMS did not expressly authorize Caremark; defendants acted knowingly so inference should not apply | Caremark: CMS knew of and tolerated industry use of dummy IDs, so defendants lacked required scienter | Court: Government-knowledge inference requires (1) government knowledge and (2) defendant’s knowledge that government knew; first prong met, second not proven for Caremark — inference inapplicable here |
| Whether pre-2009 FCA contained a materiality element and standard | Spay: Materiality uncertain pre-2009; Universal Health limited to post-2009 | Caremark: Materiality exists and CMS’s conduct shows non-materiality | Held: FCA has long included a materiality requirement; Universal Health applies and the common-law/neder standard governs |
| Whether Caremark’s use of dummy Prescriber IDs was "material" to CMS’s payment decision | Spay: Dummy IDs rendered PDEs false and thus material to payment | Caremark: CMS routinely paid claims despite knowledge of dummy IDs, signaling non-materiality | Held: Misstatements were not material because CMS repeatedly paid such claims despite actual knowledge and signaled no change until after the period at issue |
| Whether summary judgment was appropriate | Spay: Genuine disputes exist about knowledge and materiality | Caremark: No genuine dispute; entitlement to judgment as a matter of law | Held: Affirmed summary judgment for Caremark on materiality ground despite district court’s erroneous reliance on government-knowledge inference |
Key Cases Cited
- Burlbaw v. Orenduff, 548 F.3d 931 (10th Cir. 2008) (describing government-knowledge inference to negate scienter when government knew and cooperated)
- Shaw v. AAA Eng’g & Drafting, 213 F.3d 519 (10th Cir. 2000) (distinguishing cases where government knowledge and cooperation negated intent)
- Kreindler & Kreindler v. United Techs. Corp., 985 F.2d 1148 (2d Cir. 1993) (discussing limits of government-knowledge defense)
- Marcus v. Hess, 317 U.S. 537 (1943) (historical FCA context; government-knowledge bar and materiality discussion)
- Universal Health Servs., Inc. v. Escobar, 136 S. Ct. 1989 (2016) (establishing materiality as an essential FCA element and that government payment despite known noncompliance is strong evidence of non-materiality)