Health Law Daily False claims lawsuit alleging cancer drug scheme survives dismissal attempt
Thursday, February 7, 2019

False claims lawsuit alleging cancer drug scheme survives dismissal attempt

By Leah S. Poniatowski, J.D.

Qui tam suit can proceed against McKesson and another distributor for purported role in prefilled syringe program but first-to-file bar and statute of limitations halt claims against subsidiaries.

A medical company relator sufficiently pleaded that two cancer drug distributors participated in a scheme to pool cancer drugs and sell them in relabeled prefilled syringes to care providers while claiming government reimbursement for the drugs in violation of the federal False Claims Act (31 U.S.C. §3729 et seq), anti-kickback statute (AKS) (42 U.S.C. §1320a-7b), FDA regulations, and similar state claims, a federal district court in New York ruled. However, a subsidiary of the distributor had been named a defendant in a prior qui tam case, triggering the first-to-file bar. Additionally, the sealed nature of the first amended complaint defeated the addition of several other subsidiaries after the statute of limitations had passed because there was no notice to support finding the claims in the second amended complaint related back to the first (U.S. ex rel. Omni Healthcare Inc. v. McKesson Corp., February 4, 2019, Gershon, N.).

Complaint. Omni Healthcare Inc. (Omni), a medical company, alleged that US Oncology, Inc. (a McKesson-acquired subsidiary), Oncology Therapeutics Network Corporation (another McKesson acquisition), McKesson Corp., and other McKesson subsidiaries (collectively, the distributors) purchased several cancer drugs from manufacturers and provided the drugs to health care providers. In addition to the providers, US Oncology sought government reimbursement for the drugs on the doctors’ behalf. Omni asserted that these distributors were engaged in an intentional scheme in which the cancer drugs were removed from their sterile vials which pooled the drug and overfill, and then the drugs were used to fill plastic syringes. The syringes were purportedly labeled with altered NDC numbers and the process was not in compliance with safety and quality control standards, namely destroying the pedigree and expiration dates of the drug. Omni also alleged that the prefilled syringes were sold at a significant discount to providers, which the distributors assured the providers was legal, and that the practice impacted the "Average Sales Price" as calculated by the government for federal program reimbursement purposes, although overfill and adulterated or misbranded drugs are not reimbursable.

Accordingly, based on invoices, Medicare claims, and communications between the parties, Omni filed a qui tam lawsuit alleging: knowing submission of false claims for payment to the government, knowing manufacture or use of false records or statements to obtain a false claim payment, knowing manufacture or use of false records or statements to conceal an obligation to refund the government, conspiracy to violate the FCA, and violations of the corresponding state laws in 30 states, 2 cities, and the District of Columbia.

The original complaint and the first amended complaint were filed under seal, the amended complaint added McKesson, Oncology Therapeutics Network Corporation, and US Oncology, Inc. as defendants. The federal government intervened against the original defendants, AmerisourceBergen Corporation and its affiliates. Omni’s motion to sever the present cause of action from the action against the original defendants was granted. Thereafter, Omni publicly filed a second amended complaint, adding new claims and five McKesson subsidiaries as defendants. The distributors filed the present motion to dismiss.

First-to-file bar. The court explained that lawsuits arising under the FCA may be limited by the first-to-file bar, which disallows a claim "related" to a prior or pending action. At the time Omni’s lawsuit was filed, a similar lawsuit naming US Oncology, Inc. and other defendants was pending. The allegations in the pending lawsuit were nearly identical in asserting that US Oncology used overfill from cancer drugs to be sold in prefilled syringes in a similarly noncompliant routine. The court found that the allegations in the present case relied on the same facts as the pending case and, thus, the first-to-file bar applied to the present claims against US Oncology. However, neither McKesson nor any other subsidiary had been named in the pending lawsuit and without any case law extending to unnamed defendants, the first-to-file bar only applied to US Oncology.

Pleading standards. The court was satisfied that Omni’s allegations were sufficient to meet the federal requirement that they be pleaded "with particularity." FCA complaints can meet this burden by providing plausible allegations that support a strong inference of fraudulent intent. The allegations about the prefilled syringe scheme and how it led care providers to file for reimbursement from the government when those drugs were ineligible, the identification of the drugs involved, the approximate timeframe, and the marketing process met this burden.

Statute of limitations. The FCA a six-year statute of limitations, which Omni agreed applied. However, Omni contended that the second amended complaint related back to the first amended complaint with respect to the subsidiaries. The court did not agree, explaining that notice is an essential element for a claim to relate back which was not possible because the first amended complaint had been sealed. Thus, the claims filed against the subsidiaries added in the second complaint were untimely.

Other federal claims. The court dismissed two of Omni’s claims, holding that the allegation for knowing manufacture or use of false records or statements to conceal an obligation to refund the government was redundant to the allegation of presenting false claims because they were based on the same action. Second, the conspiracy claim was dismissed because there can be no conspiracy between a parent and subsidiary corporation and no actions were alleged before the subsidiary was acquired to sustain the claim.

State law claims. Although the common law claims were dismissed for Omni’s lack of opposition, the claims premised on state law analogous to the False Claims Act were not. Consequently, McKesson Corporation and Oncology Therapeutics Network Corporation remained as defendants against the first two FCA claims and the state statutory claims.

The case is No. 12-CV-6440 (NG) (LB).

Attorneys: Deborah B. Zwany, U.S. Attorney’s Office, for the United States. Courtney R. Rockett (Boies, Schiller, Flexner, LLP) for Omni Healthcare Inc. Christopher Michael Denig (Covington & Burling LLP) for McKesson Corp. and Oncology Therapeutics Network Corp.

Companies: Omni Healthcare Inc.; McKesson Corp.; Oncology Therapeutics Network Corp.

MainStory: TopStory FCANews FraudNews ProgramIntegrityNews QuiTamNews NewYorkNews

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