Case Information
*1 Before WOLLMAN and SMITH, Circuit Judges, and WRIGHT, District Judge. [1] [2]
____________
*2
SMITH, Circuit Judge.
Relator Shane Lager brought this qui tam action pursuant to the False Claims Act (FCA), 31 U.S.C. §§ 3729 et seq. , alleging that drug manufacturer CSL Behring, LLC, and its parent corporation CSL Behring Limited (collectively, “CSL Behring”) conspired with pharmacies Accredo Health, Inc., (“Accredo”) and Coram LLC (“Coram”) to submit false claims to the United States for reimbursement for prescription drugs. The government declined to intervene. CSL Behring, Accredo, and Coram (collectively, “defendants”) moved to dismiss the complaint based on, among other things, the FCA’s public disclosure bar, 31 U.S.C. § 3730(e)(4)(A). The district court granted the motion. Lager appeals this dismissal, and we affirm. [3]
I. Background
“We accept as true the material allegations in the complaint and present the
facts in the light most favorable to [Lager].”
Kulkay v. Roy
,
Pharmacies that dispense drugs to beneficiaries of government health care programs (such as Medicare) submit claims for reimbursement to the federal *3 government. Since Congress’s enactment in 2003 of the Medicare Prescription Drug, Improvement, and Modernization Act (MMA), 42 U.S.C. §§ 1395w-21–1395w-28, most drugs that Medicare and other government health programs cover are reimbursed based on the average sales price (ASP). See 42 U.S.C. §§ 1395u(o), 1395w-3, 1395w-3a, 1395w-3b. However, the MMA excluded DME infusion drugs, such as Vivaglobin and Hizentra; instead, reimbursements for these drugs are based on 95 percent of the average wholesale price (AWP). While the ASP is based on actual sales data, the AWP is based on figures that the drug manufacturer reports to third-party publishers, such as Red Book. Office of Inspector Gen., U.S. Dep’t of Health & Human Servs., OEI-12-12-00310, Part B Payments for Drugs Infused Through Durable Medical Equipment at 2–3 (2013) (“2013 OIG Report”). And, while the ASP is defined by law, the AWP is not. See Office of Inspector Gen., U.S. Dep’t of Health & Human Servs., OEI-03-05-00200, Medicaid Drug Price Comparison: Average Sales Price to Average Wholesale Price (2005) (“2005 OIG Report”). The ASP is “substantially lower” than the AWP. Id . at 8. For example, in 2004, “[f]or 2,077 national drug codes with ASP and AWP data, ASP [was] 49 percent lower than AWP at the median.” Id .
“Initially, AWP was the average price charged by wholesalers to providers, like
doctors and pharmacies.”
In re Pharm. Indus. Average Wholesale Price Litig
., 491
F. Supp. 2d 20, 33 (D. Mass. 2007),
aff’d
,
Lager brought this qui tam action pursuant to the FCA against CSL Behring, Accredo, and Coram, alleging that they agreed to and engaged in a joint action to defraud the government over the course of several years. Specifically, Lager alleges that CSL Behring reported inflated AWPs for Vivaglobin and Hizentra to third-party publishers when, in actuality, the “true selling price” at which CSL sold the drugs was “substantially less than their falsely reported amounts.” Lager alleges that CSL Behring used the “spread” between the actual cost and the reported AWPs to induce their customers, including Accredo and Coram, to buy its products. Lager alleges that Accredo and Coram then sought out patients covered by government health programs to take advantage of the spread. As a result of the defendants’ conduct, Lager claims that the federal government has overpaid in excess of $100 million for Vivaglobin and in excess of $180 million for Hizentra.
After the United States declined to intervene in Lager’s suit, the defendants moved to dismiss the complaint (1) under the FCA’s public disclosure bar, 31 U.S.C. § 3730(e)(4)(A); (2) for failure to plead fraud with particularity under Federal Rule of Civil Procedure 9(b); and (3) for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). The district court dismissed Lager’s complaint pursuant to the [4]
FCA’s public disclosure bar, which bars an action or claim “if substantially the same
allegations or transactions as alleged in the action or claim were publicly disclosed”
in qualifying sources. 31 U.S.C. § 3730(e)(4)(A). First, the court discussed the
“public disclosures regarding DME infusion drugs, generally.”
United States ex rel.
Lager v. CSL Behring, LLC
,
Second, the district court discussed “public disclosures regarding the AWP and ASP for Vivaglobin and Hizentra.” Id . at 789. According to the court, “[t]he third- party publications publish AWPs, while the Centers for Medicare & Medicaid Services (CMS) publishes ASPs for drugs on a quarterly basis.” . Based on publicly available figures derived from CMS and Red Book, Coram had provided the following table to the district court:
Vivaglobin AWP Vivaglobin ASP Hizentra AWP Hizentra ASP Quarter 2007Q4 $127.57 $66.75 N/A N/A 2008Q4 $119.82 $66.06 N/A N/A 2009Q4 $119.96 $67.85 N/A N/A 2010Q4 $119.95 $68.42 N/A $68.72 2011Q4 N/A N/A $151.07 $68.74 2012Q4 N/A N/A $150.66 $68.74 2013Q4 N/A N/A $150.96 $72.44 . at 790. The court characterized this table as “showing the significant spread between ASPs and AWPs for Vivaglobin and Hizentra for the years 2007 through 2013.” Id. at 789.
Third, in response to Lager’s argument that his allegations of fraud are based on the difference between the “actual AWPs” and the “reported AWPs” and not based on the “simple, irrelevant disparity between the ASPs and the reported AWPs” for the drugs, the district court found that “the term ‘actual AWP’ is meaningless in the absence of any statutory or regulatory definitions.” . at 791. The court also found *6 that the “target of relator’s allegations is the difference between the AWPs and what he calls the drugs’ ‘true selling prices’”; according to the court, “true selling prices” are the same as the ASPs for the drugs. .
Having reviewed all the sources that the defendants put forth, the district court concluded that “[a]ll the essential elements of relator’s claims were publicly disclosed before he filed suit.” .
The district “[c]ourt decline[d] to address defendants’ remaining arguments in any detail,” but it did note that Lager’s complaint lacked a “single, specific instance of fraud, much less any representative examples” and therefore failed to satisfy Rule 9(b). . at 793 (quoting United States ex rel. Joshi v. St. Luke’s Hosp., Inc ., 441 F.3d 552, 557 (8th Cir. 2006)). The court denied Lager’s request to amend his complaint and granted the defendants’ motion to dismiss.
II. Discussion
On appeal, Lager argues that the district court erroneously applied the public disclosure bar to his FCA claim because the disclosures that the district court relied on (1) do not readily identify the defendants in this case; and (2) do not contain “substantially the same allegations or transactions,” 31 U.S.C. § 3730(e)(4)(A), as those contained in Lager’s complaint or reveal any of the defendants’ fraudulent activity.
The FCA imposes civil liability on one who “knowingly presents . . . a false or
fraudulent claim [to the government] for payment or approval.” 31 U.S.C.
§ 3729(a)(1)(A). “Almost unique to the FCA are its
qui tam
enforcement provisions,
which allow a private party known as a ‘relator’ to bring an FCA action on behalf of
the Government.”
State Farm Fire & Cas. Co. v. United States ex rel. Rigsby
,
However, “[t]he FCA places a number of restrictions on suits by relators.” .
“At the same time that the statute encourages whistleblowers, it discourages
‘opportunistic’ plaintiffs who ‘merely feed off a previous disclosure of fraud.’”
United States v. Walgreen Co.
,
court shall dismiss an action or claim under this section, unless opposed by the Government, if substantially the same allegations or transactions as alleged in the action or claim were publicly disclosed— (i) in a Federal criminal, civil, or administrative hearing in which the Government or its agent is a party; (ii) in a congressional, Government Accountability Office, or other Federal report, hearing, audit, or investigation; or (iii) from the news media,
unless the action is brought by the Attorney General or the person bringing the action is an original source of the information.
31 U.S.C. § 3730(e)(4)(A) (footnote omitted).
“Dismissal under the public disclosure bar is thus required if (1) the defendant
has shown public disclosure under § 3730(e)(4)(A), and (2) the relator does not fit
§ 3730(e)(4)(B)’s definition of ‘original source.’”
United States ex rel. Paulos v.
Stryker Corp.
,
district court’s determination that the public disclosure bar applies to a relator’s complaint. .
A. Identification of the Defendants
We will first address Lager’s contention that the public disclosures that the district court relied on do not identify the defendants. According to Lager, the public disclosure bar is inapplicable when the disclosures fail to specifically identify the defendants named in the qui tam action with the specific fraud at issue. He asserts that 15 of the 17 disclosures that the district court relied on make no mention of the defendants or of transactions involving Vivaglobin and Hizentra. According to Lager, only two disclosures “specifically discuss the Defendants and Specified Drugs at issue in this litigation” without tying them to the specific fraud. He additionally maintains that only in “very limited circumstances” have courts “applied the public disclosure bar in cases where the defendants named in the qui tam action were identifiable , though not specifically named in the disclosures.” He urges that these cases are inapplicable to the present case because they concern “defendants operating in very narrow industries, and where the public disclosures were of industry-wide fraud.”
“Several circuits have . . . addressed the issue of unnamed wrongdoers in the
context of the FCA’s public disclosure bar . . . .”
United States ex rel. Branch
*9
Consultants v. Allstate Ins. Co.
,
Lager asserts that
Cooper
articulates the appropriate standard for identifying
defendants for purposes of the public disclosure bar.
See
The Eleventh Circuit “consider[ed] it to be crucial whether [the defendant] was mentioned by name or otherwise specifically identified in public disclosures” and “consider[ed] separately those sources in which it was identified and those in which it was not.” . at 566. The court held that “[t]he allegations of widespread . . . fraud made in sources in which [the defendant] was not specifically named or otherwise directly identified are insufficient to trigger the jurisdictional bar.” Id . (emphasis added). The court explained:
Requiring that allegations specific to a particular defendant be publically disclosed before finding the action potentially barred encourages private citizen involvement and increases the chances that every instance of specific fraud will be revealed. To hold otherwise would preclude any qui tam suit once widespread—but not universal—fraud in an industry was revealed. The government often knows on a general level that fraud is taking place and that it, and the taxpayers, are losing money. But it has difficulty identifying all of the individual actors engaged in the fraudulent activity. .
“
Cooper
’s holding has its limits,” as evidenced in
Fine
, where the Tenth
Circuit distinguished
Cooper
.
United States ex rel. Kester v. Novartis Pharm. Corp
.,
No. 11 CIV. 8196 CM,
Similarly, in
Gear
, the Seventh Circuit was “unpersuaded by an argument that
for there to be public disclosure, the specific defendants named in the lawsuit must
have been identified in the public records.”
The aforementioned precedent can be reconciled as follows: In Cooper , the disclosures in question were directed at an entire industry in which the government may very well have “difficulty identifying all of the individual actors engaged in the fraudulent activity,”19 F.3d at 566 , and a specific reference would thus be necessary for the government to identify and prosecute the fraud. In Gear , the defendants did not need to be named for the public disclosure bar to be triggered because the specific defendants were already implicated by the disclosures. 436 F.3d at 729. The cases further agree that publicly disclosed allegations from which specific defendants cannot be identified do not invoke the jurisdictional bar.
United States ex rel. Branch Consultants, L.L.C. v. Allstate Ins. Co. , 668 F. Supp. 2d 780, 794 (E.D. La. 2009).
Based on our review of the case law, we conclude that “[i]n order to bar claims
against a particular defendant, the public disclosures relating to the fraud must either
explicitly identify that defendant as a participant in the alleged scheme,
or provide
enough information about the participants in the scheme such that the defendant is
identifiable.
”
Kester
,
As the district court observed, the “[d]efendants identify a number of
disclosures made in qualifying sources.”
CSL Behring
,
*14 to the actual acquisition police [sic] of drugs.”); Patients First: A 21st Century Promise to Ensure Quality and Affordable Health Coverage: Joint Hearing Before the Subcomm. on Health & Subcomm. on Oversight & Investigations of the H. Comm. on Energy & Commerce , 107th Cong. 269 (2001) (statement of Rep. James C. Greenwood) (“[W]e have these drugs that are covered by Medicare, that are reimbursed at statutorily determined phrase, ‘average wholesale price,’ and yet it appears quite obvious that there is nothing average or wholesale about that price and it is based on absolutely nothing, it is a fiction. It appears to be designed fundamentally to create the largest spread possible between what the physician provider actually pays and what Medicare is reimbursed in order to get market share, and it is costing us billions of dollars.”); Medicare Drug Reimbursements: A Broken System for Patients and Taxpayers: Joint Hearing Before the Subcomm. on Health & Subcomm. on Oversight & Investigations of the H. Comm. on Energy & Commerce , 107th Cong. 11 (2001) (statement of Representative Sherrod Brown) (“[T]he so- called average wholesale price scam looks like a textbook case of fraud, waste and abuse. AWP is a bit like the Holy Roman Empire we learned about in school. The Holy Roman Empire to be sure was not holy, and it wasn’t really Roman, and you could hardly call it an empire. It is the same with the average wholesale price. They aren’t the average of anything, they certainly aren’t wholesale, and, in fact, they aren’t even prices. They are a marketing tool.”); Health Care Waste, Fraud, and Abuse: Hearing Before the Subcomm. on Health of the H. Comm. on Ways & Means , 105th Cong. 63 (1997) (statement of Michael F. Mangano, an OIG official) (“[T]he published wholesale prices that are currently being used . . . to determine [Medicare] reimbursement rates bear little or no resemblance to actual wholesale prices.”); id . at 57 (“The AWP . . . is easily manipulated and greatly inflated.”); Office of Inspector Gen, U.S. Dep’t of Health & Human Servs, OEI-03-97-00290, Excessive Medicare Payments for Prescription Drugs iii (1997) (“1997 OIG Report”) (identifying “Medicare [payments made in 1995] that were 11 to 900 percent greater than drug prices available to the physician and supplier communities”); Bill Alpert, Hooked on Drugs: Why Do Insurers Pay Such Outrageous Prices for Pharmaceuticals? , Barron’s, June 10, 1996, at 15, 18 (reporting that “[i]f most health-care providers can get these prices, is it any wonder an industry wag says that AWP really means ‘Ain’t What’s Paid’?” and stating that “infusion firms like . . . Coram Healthcare . . . owe their sensational profit margins, to various degrees, to their drug spreads” (emphasis added)); Steve Bailey, Profits vs. People , Boston Globe, Apr. 10, 2002, at C1 (recounting a 2001 “report by the inspector general’s office of the US Department of
In addition to the pre-2006 “public disclosures regarding DME infusion drugs,
generally, there have been public disclosures regarding the AWP and ASP for
Vivaglobin and Hizentra.”
CSL Behring
,
ASPs and AWPs for Vivaglobin and Hizentra for the years 2007 through 2013.” . (emphasis added). Furthermore, the 2013 OIG Report addressed excessive payments for DME infusion drugs, although it did not specifically name the defendants or Vivaglobin and Hizentra. The 2013 OIG Report found that “Medicare payment amounts for DME infusion drugs exceeded ASPs by 54 to 122 percent annually.” While it recognized that for “one-third of DME infusion drugs in each year, the payment amounts were below their ASPs,” it also reported that “[m]ost individual drugs had Medicare payment amounts that exceeded ASPs, many by more than two times, in each year.” The OIG’s “results once again show[ed] that AWPs are unrelated to actual prices in the marketplace and that the reliance on an AWP-based payment methodology has cost Medicare hundreds of millions of dollars.” The report cited prior OIG work on the topic of DMEs and AWPs, providing, “Since 1997, OIG has released numerous reports showing that AWPs greatly exceed acquisition costs.” In explaining the data-collection method that the OIG used, the 2013 OIG Report stated:
We used CMS’s payment amount files to select the HCPCS codes that [7] were paid on the basis of DME infusion payment limits (i.e., 95 percent of AWPs from October 1, 2003) in each quarter between 2005 and 2011. As previously stated, during that time, 31 to 38 HCPCS codes were classified as “DME infusion drugs” in any given quarter.
(Emphasis added.)
Viewed collectively, the pre- and post-2006 public disclosures “provide
enough information about the participants in the scheme” to directly identify the
defendants and the subject drugs.
See Kester
,
In summary, we conclude that the pre- and post-2006 disclosures collectively
would have “set the government squarely on the trail” of the defendants’ participation
in the purported fraudulent reporting of prices for DME infusion drugs.
See In re Nat.
Gas Royalties
,
B. Identification of the Subject Matter of the Fraud
Lager also argues that, unlike his complaint, none of the public disclosures that the district court relied upon reveal any of the defendants’ fraudulent activity. According to Lager, the disclosures that the district court relied upon “simply state that AWP does not represent actual wholesale prices” and do not “address fraudulent activity.”
The district court denied the motion to dismiss, finding that the reports failed
to identify the specific defendants or the drugs at issue.
Id
. at 267. The defendants
argued that the reports need not disclose the specific drugs or manufacturers because
the disclosures were “[i]ndustry wide public disclosures” from which the defendants
were “directly identifiable.”
Id.
(alteration in original) (quoting
Gear
,
This case is factually distinguishable from Ven-A-Care . The public disclosures in that case “merely note[d] an average difference between reported AWP and actual acquisition cost” for drugs generally across the Medicaid program. . at 267. By contrast, the present case involves several disclosures, including (1) the pre-2006 disclosure specifically identifying Coram, (2) Red Book and CMS data identifying the prices of Vivaglobin and Hizentra, and (3) the 2013 OIG Report identifying the narrow class of 31 to 38 DME infusion drugs.
“[T]he preclusive effect of section 3730(e)(4)(A) . . . appl[ies] only when ‘the
critical elements of the fraudulent transaction themselves [are] in the public domain.’”
United States ex rel. Rabushka v. Crane Co.
,
Here, Lager’s complaint alleges that the defendants “engaged in a joint action and an explicit or tacit agreement to defraud the government” through CSL Behring’s intentional and knowing inflation of prices that it reported to third-party publications for its sales of Vivaglobin and Hizentra to Accredo, Coram, and other customers. Lager alleges that CSL Behring’s intent was “to cause the AWP’s reported by the Pricing Compendia to be substantially higher than the actual price at which the products are sold at wholesale.” According to Lager, CSL Behring knew “that the inflated governmental payment amounts w[ould] substantially exceed the actual wholesale pricing that such payment amounts are supposed to equal.” As to the subject drugs, Lager alleges that CSL Behring reported a $133 AWP for Vivaglobin to the third-party publications during the period in question, while “the true selling price at which CSL sold Vivaglobin . . . rang[ed] from $65 to $70.” This resulted in an “approximately 190% to 204%” “‘spread’ between the reported AWP and the true selling price of Vivaglobin.” “For Hizentra,” Lager alleges that CSL Behring reported a $151 AWP to the third-party publications during the period in question, while “the true selling price of Hizentra by CSL to their customers was approximately . . . $65 [to] $70.” This resulted in an “approximately 215% and 232%” “‘spread’ between the reported AWP and the true selling price.” Lager claims that “CSL [actually] sold the drugs for the far lower true prices, rather than at the published AWP.” And “because each [reimbursement claim] was supported by, and the reimbursement amount was determined from, the false and misleading price information provided by Defendants *20 in connection with the Specified Drugs,” Lager alleges that “[e]ach of the claims at issue is a false claim.”
We conclude that all elements critical to Lager’s complaint theory were already
in the public domain before Lager brought suit. Lager’s allegations of purported fraud
on the part of the defendants are substantially the same as those revealed in the public
disclosures, both pre- and post-2006.
Cf. United States ex rel. Morgan v. Express
Scripts, Inc.
,
Second, several of the public disclosures also questioned the
legality
of
manufacturers’ use of the AWP. In 2007, multi-district class litigation ensued in
which a class composed of patients, third-party payors, benefit plans, pharmacies, and
governmental entities alleged that pharmaceutical manufacturers violated the FCA
by overpricing drugs based on the AWP.
Wholesale Price Litig
.,
Finally, we, like the district court, find it “apparent from the complaint that the
target of [Lager’s] allegations is the difference between the AWPs and what he calls
the drugs’ ‘true selling prices.’”
CSL Behring
,
In summary, we find that the following essential elements of Lager’s claims were publicly disclosed prior to him filing suit:
DME infusion drugs are reimbursed based on AWPs; AWPs are not based on actual sales data but are based on figures supplied by manufacturers to the third-party publishers; using AWP-based reimbursement results in inflated payments to providers; manufacturers *22 and providers profit from the spread between AWP-based reimbursement rates and actual costs; providers seek out patients covered by federal programs in order to maximize their reimbursements; and the AWPs for Vivaglobin and Hizentra are approximately twice the ASPs for the drugs. This state of affairs has been labeled as a scam and fraud by the press and in multiple civil lawsuits. .
III. Conclusion
Accordingly, we affirm the judgment of the district court.
______________________________
Notes
[1] The Honorable Lavenski R. Smith became Chief Judge of the United States Court of Appeals for the Eighth Circuit on March 11, 2017.
[2] The Honorable Wilhelmina M. Wright, United States District Judge for the District of Minnesota, sitting by designation.
[3] The Honorable Carol E. Jackson, United States District Judge for the Eastern District of Missouri.
[4] CSL Behring additionally moved to dismiss for insufficient process pursuant to Federal Rule of Civil Procedure 12(b)(5).
[5] The district court concluded that Lager failed to satisfy the original source
exception to the public disclosure bar.
CSL Behring
,
[6]
See, e.g.
,
Wholesale Price Litig
.,
[7] Healthcare Common Procedure Coding System Code.
[8] Lager cites as “on point” a case in which a district court denied the defendants’
motion to dismiss a relator’s FCA claim under the public disclosure bar.
See United
States ex rel. Ven-A-Care v. Actavis Mid. Atl. LLC
,