District Court Declines to Dismiss Whistleblower False Claims Act Case Alleging Medicare Part D Fraud


In United States ex rel. Spay v. CVS Caremark Corp., Civil Action No. 09-4672, 2012 U.S. Dist. LEXIS 180602 (E.D. Pa. Dec. 20, 2012), the U.S. District Court for the Eastern District of Pennsylvania ruled that a False Claims Act (“FCA”) whistleblower complaint alleging that defendant pharmacy benefits managers knowingly submitted false claims to the Medicare Part D prescription drug benefit program stated a claim for relief under the FCA, 31 U.S.C. §§ 3729 et seq. Judge Ronald L. Buckwalter held that the relator had sufficiently alleged: (1) that the defendants submitted “claims” to the Government when they reported on prescription drug transactions; (2)that these claims were “false” based on “false certification” and “worthless services” theories; and (3) that the defendants were liable for knowing failure to return overpayments under the pre-Fraud Enforcement and Recovery Act of 2009 (“FERA”) version of § 3729(a)(7).

Allegations and Procedural History: In the Medicare Part D program, CMS makes advance monthly payments to Part D sponsors based on a bid submitted by the sponsor in the year before the benefits are to be delivered.  The bid is a “per member per month cost” estimate for providing benefits to an average beneficiary in a particular geographic area. CMS reconciles on an annual basis what it previously paid with the actual costs incurred by the sponsor. CMS does this in part by relying on “Prescription Drug Events” (PDEs), which are electronic documents generated by sponsors (or the sponsors’ subcontractors, such as pharmacy benefit managers) that notify CMS that a drug has been purchased and dispensed. A PDE includes at least thirty-seven fields of information, such as the dollar amount the sponsor paid to the pharmacy, about a specific drug transaction.

The relator alleged, among other things, that the pharmacy benefit manager defendants—CVS Caremark Corporation, Caremark Rx, LLC, Caremark, LLC, Silverscript, LLC—submitted false claims to Medicare Part D by including false physician identification numbers (PINs) and maximum allowable cost pricing on the PDEs it submitted to CMS, and by failing to conduct material aspects of statutorily-required Drug Utilization Reviews (DURs) before dispensing drugs, such as reviews as to whether drugs were being used in excess, despite gender contraindications, when expired or without requisite, prior approval.

Ruling on Whether Relator Sufficiently Pled Submission of “Claim” Under § 3729(a)(2): The defendants’ contracts with the sponsor required them to submit PDEs directly to CMS. Relying on CMS program instructions that stated that PDEs “will enable CMS to make payment,” the court held that when the defendants submitted PDEs to CMS they “clearly” were submitting “claims” under § 3729(a)(2).

Ruling on Whether Relator Sufficiently Pled “Falsity” of Claims Under § 3729(a)(1): With regard to the false PINs and maximum allowable cost pricing on the PDEs, the court ruled that these false statements rendered the claims false because defendants were required by 42 C.F.R. § 423.505(k)(3) to certify that the PDEs submitted to CMS were accurate, complete and truthful, and to acknowledge that the data in the PDEs would be used to obtain federal reimbursement. The court rejected the defendants’ argument that this certification was only a condition of payment for sponsors, not PBMs, and held that the relator, by identifying false statements on the PDEs, had sufficiently pled “falsity” under a “false certification theory.” With regard to the relator’s allegation that the claims were false under a “worthless services theory” in light of the failure to conduct proper DURs, the court noted that the defendants’ contract with the sponsor required that they comply with all federal requirements. The court held that the defendants consequently “effectively represented that they had performed the proper DUR services and were submitting and seeking payment for only claims that were paid in accordance with federal regulations.”Spay, 2012 U.S. Dist. LEXIS 180602, at *87-*88.

Ruling on Whether Relator Sufficiently Pled “Reverse False Claim”: The court also found that the relator sufficiently alleged a “reverse false claim” under the pre-FERA version of § 3729(a)(7), a provision that imposes liability on any person “who knowingly makes, uses, or causes to made or used, a false record or statement to conceal, avoid, or decrease an obligation to pay or transmit money or property to the Government.” The court explained that, as a matter of statutory interpretation, it was not legally significant that the Part D sponsor, rather than the defendant pharmacy benefit managers, had the contractual obligation to return money to the Government. The relator’s complaint was sufficient because it alleged “an obligation on the part of [the sponsor] to pay or transmit money to the government, which, due to the alleged false claims by Defendants, was not paid or transmitted.” Id. at *129 (second emphasis added).