Health Law Daily Relators not original sources without direct knowledge
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Wednesday, May 2, 2018

Relators not original sources without direct knowledge

By Jeffrey H. Brochin, J.D.

Relators who filed a False Claims Act (FCA) action against long-term care pharmacy providers were barred by the public disclosure bar and the original source exception did not apply to them absent a showing that they had direct knowledge of the information on which the fraud allegations were based. Knowledge obtained more than a year after the alleged kick-back scheme concluded, and not in the regular course of job duties, did not constitute direct knowledge (U.S. ex rel. Banigan v. Pharmerica, April 30, 2018, Zobel, R.).

Background. Two qui tam relators who worked in sales, account management, or government accounts positions for a pharmaceutical company, originally filed a qui tam action against the company and its related long-term care pharmacy providers (LTCPs) including PharMerica, Inc. (PharMerica). In 2012, the court dismissed all federal and local claims against PharMerica as well as against eighteen state claims. The parties later voluntarily dismissed all but three of the remaining state claims which PharMerica subsequently sought to have dismissed as well. At the same time, the relators filed a motion to revive the claims dismissed in 2012. For the reasons stated below, the court granted PharMerica’s motion to dismiss, and denied the relators’ motion to revive the prior dismissals.

Establishing the ‘law of the case.’ The relators alleged that from 1999 through 2005 the pharmaceutical company violated the Anti-Kickback Statute (AKS) by offering financial incentives to LTCPs including to PharMerica, to prescribe its antidepressant Remeron®. Pursuant to the scheme, the relators alleged that PharMerica filed hundreds of millions of dollars in fraudulent claims for Medicaid drug reimbursements in violation of the FCA. The court noted that it is the law of the case that this kickback scheme was first revealed in a 2002 complaint filed in the Eastern District of Louisiana (identified as Banigan I by the court.).

Public disclosure bar. Because the FCA only rewards relators who alert the government to fraud of which it previously had no knowledge, the court had held the bulk of the claims in Banigan I to be jurisdictionally barred by an earlier action. Specifically, the court referenced the FCA’s public disclosure bar which provides that no court shall have jurisdiction over an action based upon the public disclosure of allegations or transactions in a civil hearing, unless the action is brought by the Attorney General or the person bringing the action is an original source of the information. Therefore, the court in Banigan I applied the public disclosure bar without analysis of the exception for original sources, and the relators have now moved for reconsideration.

Independent—but not direct. The court found that the facts raised no dispute as to the independence of either relator’s knowledge, because the information they gleaned from co-workers was clearly not based on Banigan I. Therefore, the court focused on the element of the relators’ knowledge also being direct. The co-workers had shared their information with the relators due to concerns over job security, and the need to have an "insurance policy" to use against the company in the event that their jobs were threatened. One of the relators saw none of the co-workers’ material firsthand and did not investigate the matter further. Furthermore, the scheme had fully concluded by December 31, 2005, and the relator still had not seen any of the materials at issue as of early 2006 when he moved to a new position.

The second relator approached the first in April, 2007 at which time the first relator confirmed the existence of the scheme, and the two of them decided to investigate further by digging up old business plans and reviewing old Remeron LTCP contracts. The court found that although the first relator claimed contemporaneous knowledge of the alleged fraud, he did not see any of the corroborating documents until more than a year after the scheme concluded, and even then not in the regular course of his job duties but as part of collateral research and investigations. This, the court ruled, was insufficient to show direct knowledge.

For substantially the same reasons, the second relator was not deemed an original source: he claimed no contemporaneous knowledge of the alleged fraud, having been hired over a year after the scheme’s conclusion, and his status as an original source could not be redeemed by the conclusory allegation that he became aware of the scheme through the normal course of his job duties. Based on the foregoing, the court found that neither relator has direct knowledge of the fraud scheme and that therefore neither one could be deemed an original source thereby circumventing the public disclosure bar. PharMerica’s motion to dismiss was granted, and the relators’ motion to revive dismissed claims was denied.

The case is No. 1:07-cv-12153-RWZ.

Attorneys: Gregg D. Shapiro, Office of the U.S. Attorney, for the United States. Benjamin Sokoly (Winston & Strawn LLP) and Aaron M. Katz (Ropes & Gray LLP) for Omnicare, Inc. Benjamin M. McGovern (Holland & Knight, LLP) for PharMerica, Inc.

Companies: Omnicare, Inc.; PharMerica, Inc.

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