By Brian Craig, J.D.
The former drug company employee was an "original source" of information for PharMerica’s alleged kickback scheme.
The U.S. Court of Appeals for the First Circuit has reinstated a 13-year-old whistleblower lawsuit alleging that pharmacy provider PharMerica, Inc. accepted kickbacks from drugmaker Organon in exchange for having Medicaid patients use its antidepressant drug Remeron. In reversing the district court’s decision to dismiss the case brought under the False Claims Act, the unanimous three-judge panel held that a former Organon employee who received emails from one of the key architects of the scheme and brought the action as a whistleblower was an "original source" of information about the alleged kickback scheme (U.S. ex rel. Banigan v. PharMerica, Inc., February 19, 2020, Lipez, K.).
PharMerica is one of the largest long-term care pharmacy companies in the United States, providing pharmacy supplies and services to nursing homes and other facilities. Two former employees of Organon, James Banigan and Richard Templin, brought a qui tam action under the False Claims Act (FCA) and several of its state law equivalents alleging that PharMerica defrauded the government by participating in a Medicaid scheme that rewarded it financially for incentivizing physicians to change patients’ prescriptions to the drug manufacturer Organon’s antidepressant medications. The district court dismissed the FCA action under the public disclosure bar, which excludes from the subject matter jurisdiction of federal courts qui tam actions that are "based upon the public disclosure of allegations or transactions" in a civil "hearing," among other sources. The former company executives and several states appealed.
Public disclosure bar. The First Circuit first held that the public disclosure bar applies. The public disclosure bar applies when (1) there has been a prior, public disclosure of fraud, (2) that prior disclosure of fraud emanated from a source specified in the statute’s public disclosure provision, and (3) the relator’s qui tam action is based upon that prior disclosure of fraud. Here, the complaint itself refers to the fraudulent conduct as a single "Medicaid scheme." The Medicaid scheme described in the complaint is indistinguishable in all material respects from the fraudulent scheme disclosed in a previous lawsuit that was a matter of public record.
Original source exception. While recognizing that the public disclosure bar applies, the First Circuit also found that the whistleblower and former employee was an "original source" of information for PharMerica’s alleged kickback scheme and an exception under the FCA. Under the FCA, a court retains jurisdiction over an action that is based on a prior public disclosure if "the person bringing the action is an original source of the information." 31 U.S.C. § 3730(e)(4)(A). To qualify as an original source, a relator must have direct and independent knowledge of the information upon which his own allegations were based.
The FCA requires only that the person have direct and independent knowledge of the information on which the allegations are based, not direct and independent knowledge of the fraudulent acts themselves. Knowledge based entirely on research into public records, review of publicly disclosed materials, or some combination of these techniques do not arise as an "original source." On the other end of the spectrum, knowledge obtained from personal observation of a fraudulent act or participation in it would clearly meet the directness requirement.
Here, the appeals court found that Banigan’s personal knowledge falls between those parameters. Banigan was a corporate insider at Organon who learned of the fraudulent scheme in which his own company and department participated while he was employed there. He gained knowledge of the fraud from emails and conversations with the two architects and primary perpetrators of the fraudulent scheme, and from documents generated as part of the fraudulent scheme that he obtained through his own investigative efforts. There is no intervening agency, instrumentality, or influence between these sources and the former employee’s knowledge of the Medicaid scheme. The former Organon employee’s knowledge satisfies the court’s definition of "direct" as "immediate." The allegations of fraud in the complaint are based upon the former employee’s direct knowledge, including emails personally sent to him from one of the architects of the fraudulent scheme.
Therefore, the First Circuit reversed the district court’s dismissal of the FCA action and remanded the case for further proceedings in the district court.
The case is No. 18-1487.
Attorneys: Joel M. Androphy (Berg & Androphy) for the United States. Pamela Jo Bondi, Office of Attorney General, for State of Florida. Lisa Madigan, Office of Attorney General, for State of Illinois. Curtis Theophilus Hill, Jr., Office of the Indiana Attorney General, for State of Indiana. Stephen P. Hall (Holland & Knight LLP) for PharMerica Corp. Suzanne Jaffe Bloom (Winston & Strawn LLP) for Omnicare, Inc. James W. Cooper (Arnold & Porter Kaye Scholer LLP) for Organon International, Inc.
Companies: State of Florida; State of Illinois; State of Indiana; PharMerica Corp.; Omnicare, Inc.; Organon International, Inc.
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