Court: District Court, E.D. Missouri; January 19, 2016; Federal District Court
Relator Shane Lager has initiated a qui tam action against CSL Behring, LLC, and CSL Behring Limited, along with specialty pharmacies Accredo Health, Inc. and Coram LLC, under the False Claims Act for allegedly submitting false claims for drug reimbursement. The government opted not to intervene in the case. The defendants have filed motions to dismiss the complaint for failure to state a claim and insufficient service of process.
Lager, who worked at CSL Behring for fourteen years, claims that the company inflated the wholesale prices of its drugs, Vivaglobin and Hizentra, leading government health programs to reimburse pharmacies more than their actual purchase prices. Vivaglobin was sold from 2006 until its discontinuation in 2011, while Hizentra is still available. The drugs are categorized as DME infusion drugs, which are reimbursed based on the average wholesale price (AWP) rather than the average sales price (ASP). Lager alleges that CSL Behring reported inflated AWPs of $133 for Vivaglobin and $151 for Hizentra, while the actual prices were between $65 and $70, resulting in substantial overpayments by the federal government, exceeding $100 million for Vivaglobin and $180 million for Hizentra.
The legal standards governing the motion to dismiss under Rule 12(b)(6) are outlined, emphasizing that the complaint's factual allegations must be taken as true and construed in favor of the plaintiff. Dismissals based on a judge's skepticism regarding the plausibility of the alleged facts are not permissible.
A well-pleaded complaint can proceed even if recovery seems unlikely, focusing on the plaintiff's entitlement to present evidence rather than the likelihood of success. A viable complaint must present sufficient facts to establish a plausible claim for relief, as established in Twombly and Iqbal, requiring factual allegations to surpass mere speculation. Under Rule 9(b), allegations of fraud or mistake must be stated with particularity, detailing the specifics of the fraudulent conduct, including the 'who, what, where, when, and how' of the alleged fraud. While not every detail needs to be specified, some representative examples of misconduct must be included to provide reliability.
The False Claims Act (FCA) prohibits the submission of false claims to the government and allows private citizens to sue on behalf of the government, sharing in the recovery. This incentive system aims to encourage whistle-blowers while preventing opportunistic lawsuits from those with no substantial information. The public disclosure bar was adopted to balance these interests, preventing suits by individuals who do not contribute new information to the revelation of fraud. A public disclosure is defined as information sufficient to alert the government to potential fraudulent activity, and the relator must demonstrate that the public disclosure bar is not applicable.
A court assessing a claim's dismissal due to public disclosure evaluates the relevant public documents as per 31 U.S.C. 3730(e)(4)(A). This statute mandates dismissal if similar allegations or transactions have been publicly disclosed through federal hearings, reports, or media, unless the claimant is an original source, defined as someone who disclosed the information to the government before the public disclosure or possesses independent knowledge that significantly enhances the publicly disclosed information.
Defendants have cited multiple public disclosures indicating that the Average Wholesale Price (AWP) does not accurately reflect actual drug prices. Notably, a 1984 OIG report criticized AWP as inadequate for estimating drug costs. In 1997, an OIG official testified that the wholesale prices used for Medicare reimbursements bore little resemblance to actual prices, and a subsequent report identified significant overpayments made by Medicare based on inflated AWPs. Media reports corroborated these findings, highlighting the manipulation of AWPs by manufacturers to influence sales strategies. Furthermore, congressional hearings revealed that some manufacturers actively marketed based on the difference between drug prices and reimbursement rates, known as the "spread." Disclosures also indicated that this spread could impact physicians' prescribing decisions, potentially leading to overutilization or underutilization of certain drugs.
The Relator contends that the action is not precluded by the public disclosure bar under 3730(e)(4)(A) because prior public disclosures do not encompass all elements of the alleged fraudulent transactions. The public disclosure bar is applicable to qui tam actions that are 'substantially the same' as previously disclosed allegations, but it does not require every fact or legal implication to apply. The key is whether the disclosures adequately alerted the government to potential fraud, regardless of their specificity regarding defendants and drugs.
In 2007, a court found that pharmaceutical companies submitted inflated Average Wholesale Prices (AWPs) that resulted in significant harm. Subsequent disclosures in 2013 highlighted the disparity between AWPs and Average Sales Prices (ASPs) for Durable Medical Equipment (DME) infusion drugs, including specific drugs such as Vivaglobin and Hizentra. The Relator argues that his fraud claims are based on a difference he describes as 'actual AWPs' versus 'reported AWPs,' which lacks statutory definition. Ultimately, the Relator’s claims hinge on the differences between ASPs and AWPs, with the complaint indicating that the actual selling prices align with ASPs.
Key elements of the Relator's allegations were publicly disclosed prior to the lawsuit, including how DME infusion drugs are reimbursed based on AWPs, the inflation of reimbursement payments based on this methodology, and the profit margins that result from the disparity between AWPs and actual costs. This situation has been characterized in the media and various civil lawsuits as fraudulent. The public disclosures have adequately revealed the facts and the misrepresentation by the defendants, thereby fulfilling the requirements of 3730(e)(4)(A). Consequently, the Relator’s claims can only proceed if he qualifies as an 'original source' under 3730(e)(4)(B).
Relator qualifies as an "original source" under two criteria: (1) prior voluntary disclosure of information to the government before any public disclosures, or (2) possessing independent knowledge that materially enhances publicly disclosed allegations, also disclosed voluntarily before filing suit. Relator relies on the second criterion but fails to meet its requirements. He admits to providing a written disclosure of claims and material evidence to the government only when filing the lawsuit, which does not satisfy the pre-filing disclosure requirement aimed at encouraging early reporting of fraud. Most courts have ruled that mandatory disclosures under 3730(b)(2) do not fulfill the pre-filing disclosure obligation of 3730(e)(4)(B). Furthermore, Relator's allegations do not materially add to publicly disclosed information, as independent knowledge of fraudulent activity must be qualitatively different from existing disclosures. Consequently, Relator's claims are barred by the public disclosure doctrine, and the Court will dismiss his FCA claims per 31 U.S.C. 3730(e)(4)(A) and his conspiracy claim under Rule 12(b)(6). The Court also notes that the complaint fails to meet Rule 9(b)'s specificity requirement, lacking concrete examples of alleged fraud. Relator's request to amend the complaint is denied, as amending post-discovery contradicts FCA procedural obligations. Thus, the defendants' motions to dismiss are granted, and their motions for hearing are denied as moot.
Since the late 1960s, nearly all prescription drugs in the U.S. have had an 'average wholesale price' (AWP), published in sources like Red Book and First DataBank. Originally, AWP reflected the average price that doctors and pharmacies paid to wholesalers, who typically marked up the price by 20% to 25%. However, due to market changes, these markups no longer represent actual wholesaler margins, which have decreased to 2% to 3%. The AWP itself remains unchanged despite these market dynamics. The False Claims Act (FCA) included a public disclosure bar that, prior to its amendment on March 23, 2010, prevented jurisdiction over claims based on publicly disclosed allegations. The plaintiff applies the current version of this bar, with the court assuming its applicability without addressing the earlier version. The relator contends that general industry practices do not preclude his claims, but this is deemed irrelevant due to specific disclosures about the differences between the average sales price (ASP) and AWP for Vivaglobin and Hizentra. The statute defines 'average sales price' as the total sales by manufacturers to all purchasers divided by the total units sold.
