First Circuit Affirms Dismissal For CVS Caremark Under Public Disclosure Bar
The FCA’s public disclosure bar precludes liability when a relator’s allegations have been publicly disclosed in a list of statutorily enumerated sources. Last week, the First Circuit added to the growing jurisprudence both interpreting the bar and an exception to the bar: the original source exception.
In United States ex rel. Winkelman v. CVS Caremark Corp., No. 15-1991 (June 30, 2016), the relators filed suit alleging that CVS Caremark had overbilled Medicare and Medicaid for certain generic prescription drugs. Payments under these programs are often based on the usual and customary price charged by the pharmacy for any given drug. Here, the relators claimed that CVS Caremark designed a customer loyalty program—called a Health Savings Plan (“HSP”)—that circumvented the applicable usual and customary rate requirements. Specifically, HSP allowed CVS Caremark customers to receive deeply discounted generic drugs in exchange for a nominal up-front payment. The relators, thus, allege that CVS fraudulently induced payments from Medicaid and Medicare by not accounting for HSP prices in its usual and customary rates.
At the time of the lawsuit, CVS Caremark had long since faced similar allegations. In February 2010, a coalition of labor unions issued a report comparing HSP drug prices to the prices charged to government employees enrolled in the Federal Employee Health Benefits Program. The report concluded that the federal insurer paid more than the HSP price for 85% of generic drugs available in both programs. Various media quickly picked-up the story, Congressional testimony was taken, and in November 2010, a Congressional Research Services report addressed the unions’ allegations. Separately, the Connecticut state legislature amended its Medicaid statutes to address programs like HSP and the Connecticut Attorney General served a subpoena on CVS Caremark. The Attorney General’s activities garnered additional media coverage.
Nearly eighteen months after the unions’ report, the relators filed suit in August 2011. After the United States declined to intervene, the district court granted CVS Caremark’s motion to dismiss, reasoning that the unions’ report and the Connecticut Attorney General’s actions triggered the FCA’s public disclosure bar. The First Circuit affirmed. The court first rejected the relators’ claim that the disclosures revealed allegations or transactions that were substantially different from those in their complaint. Specifically, the relators had argued that the public disclosures were focused on price gouging while their FCA complaint was premised on a scheme to defraud Medicare and Medicaid. This was too fine a distinction, and the court found that “the public disclosure bar contains no requirement that a public disclosure use magic words or specifically label disclosed conduct as fraudulent.” It requires only that the government be on notice of the potential fraud without help from the relators.
The First Circuit also denied the relators’ claim that their complaint “materially added” to the public disclosures, thus triggering the protections of the original source exception. The court concluded that allegations regarding: (i) the geographic scope of the scheme was already in the public record; (ii) the temporal scope of the scheme was easily inferred from the public record; (iii) specific examples of misconduct do not provide any significant new information when the underlying conduct was already disclosed; and (iv) intent could materially add to the public knowledge if that evidence was not already in the public domain. Ultimately, the First Circuit affirmed the lower court’s finding that these supposedly material additions to the record “merely confirm[ed]” the state of affairs.
Lastly, the court declined to address a relatively novel question concerning whether the post-2010 reconfigured public disclosure bar is jurisdictional. Such a determination may affect the scope of the relevant record on a motion to dismiss. Although the Court acknowledged that at least two Courts of Appeal had previously held that the bar is not a jurisdictional issue, it found here that the resolution of this question made no difference to the ultimate outcome. Nevertheless, the court dropped a footnote suggesting that the two other circuit courts made a strong argument in finding the public disclosure bar as non-jurisdictional. It concluded by stating, “future litigants would be well-advised to ensure that facts upon which they rely in connection with the adjudication of a motion to dismiss that implicates the public disclosure bar come within the scope of the record cognizable under Rule 12(b)(6).”