Health Law Daily Motion to dismiss denied for North Carolina pharmacy accused of fraudulent billing scheme
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Friday, April 16, 2021

Motion to dismiss denied for North Carolina pharmacy accused of fraudulent billing scheme

By Gregory Kane, J.D., M.B.A.

A motion to dismiss False Claims Act complaints against two North Carolina pharmacists and their company was denied because the claims were sufficiently pled.

Two North Carolina pharmacists who ran a small-town pharmacy were unsuccessful in dismissing False Claims Act (FCA) (31 U.S.C. §3729 et seq) complaints by a relator and the United States against them and their company alleging a fraudulent billing scheme for prescription drugs designed to defraud Medicaid and Medicare (U.S. ex. rel. Lowery v. All Medicines, Inc., April 14, 2021, Flanagan, L.).

Background. Two licensed pharmacists operated as the pharmacy manager and office manager of All Medicines, Inc. a small, closely held pharmacy in North Carolina. The pharmacy billed more than $8,000,000.00 for prescription drugs and medications between 2014 and 2017 that was reimbursed by Medicare and Medicaid. According to a former employee who brought this action as a relator, the pharmacy would print drug labels, bill a prescription and receive payment even though the prescription drug was never filled, picked up or provided to a patient. This practice was abruptly changed in 2016 by the pharmacists when questions were raised about possible fraudulent billing. In addition, the pharmacists and their employees were aware that claims were billed for prescription drugs that were often not dispensed or for which a cheaper medication was dispensed. According to their former employee, the pharmacists engaged in four types of false billing schemes: (1) billing for prescription drugs that were not in the pharmacy inventory; (2) billing for more expensive extended release medications rather than cheaper generic immediate release medications that had been dispensed; (3) billing for prescription drugs based on fake prescriptions; and (4) billing for name brand prescription drugs rather than the generic drug actually dispenses. Specific examples of each of these schemes was detailed in the complaint. The schemes allowed the pharmacists to increase their profits, salaries and cash withdrawals.

The former employee filed am FCA complaint containing eight different claims against the pharmacists and the pharmacy alleging that they had submitted false claims to the United States and the state of North Carolina through Medicare and Medicaid healthcare programs in the course of pharmacy billing and reimbursement practices. After multiple extensions, the government intervened and filed a complaint similar to the original. The pharmacists moved to dismiss the claims for failure to state a claim and for insufficient pleading.

Sufficiently pled. The former employee alleged sufficient facts to state claims with particularity. The complaint alleged the time, place and contents of the false representations. The contents of the representations are alleged with details, including specific examples and descriptions of the structure of each of the asserted schemes. It was reasonable to infer that the pharmacy, by virtue of the fact that it was both owned and under management of the pharmacists, in a small town, was a small, closely held and managed business. It was reasonable to infer that the pharmacists directed, oversaw or caused false statements to be made by employees of the pharmacy acting within the scope of their employment. Some of the allegations in the complaint went even further than this inference by alleging both direct control of the pharmacy’s practices—such as the abrupt change in billing practices—and an alleged admission of knowledge that prescription drugs were not being provided as billed. As such, it was reasonable to infer that the pharmacists caused false claims to be submitted and caused the alleged fraudulent schemes to persist. The complaint need not allege only actual knowledge or implied knowledge as the claims may proceed under either theory in the alternative as they were pled. As to the pharmacy itself, it was plausible to infer that the pharmacists were acting for their employer as well as for their own benefit. As the claims were supported by the applicable legal standards and the allegations of the complaint, the motion to dismiss was denied.

The case is No. 7:17-CV-128-FL.

Attorneys: John R. Taylor (Zaytoun Law Firm, PLLC) for Bronson Lowery. Elliot Sol Abrams (Cheshire Parker Schneider, PLLC) for All Medicines, Inc. d/b/a Townsend's Pharmacy and James Craig Bell.

Companies: All Medicines, Inc. d/b/a Townsend's Pharmacy

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