Judge Buckwalter Denies CVS Motion To Dismiss In Major Medicare Part D False Claims Act Case

December 21st, 2012 by Qui Tam

On December 20, 2012, in one of the first major decisions regarding the Medicare Part D program under the False Claims Act, Judge Ronald Buckwalter denied CVS-Caremark’s motion to dismiss in U.S. ex rel. Spay v. CVS-Caremark, Corp., 2:09-cv-04672-RB (E.D. Pa) allowing all of Relator’s claims to proceed.


This case arose from a qui tam suit filed under the FCA by Anthony Spay, a former pharmacist whose company was hired to audit the Part D claims processed by Caremark on behalf of Medical Card System (“MCS”), a Puerto Rican health insurance company.  In 2007, CVS merged with Caremark and together, the CVS Caremark Defendants (“Defendants”) have served as a Part D Sponsor, pharmacy benefit manager (“PBM”), and retail pharmacy in the Part D program.  In the course of his company’s audit, Spay alleged that he found that Caremark was improperly adjudicating and submitting PDE claims for prescriptions that were not allowed under the Part D Program.  Specifically, Spay alleged that Caremark improperly dispensed gender-specific drugs to the opposite gender, failed to apply “maximum allowable cost” pricing to prescription drugs, billed for drugs with expired and obsolete National Drug Code identifiers, billed for prescriptions that contained false physician identifiers, dispensed prescription drugs without prior authorization, and billed for quantities of supplies of drugs that exceeded approved limits.  Spay also alleged that he learned in the course of his audit, that these practices were part of the CVS Caremark Defendants’ nationwide practice.

In 2009, Spay filed a whistleblower suit under seal on behalf of the Government alleging that the CVS Caremark Defendants’ engaged in a nationwide scheme to defraud the Part D program through the submission of false PDE data to CMS, which caused CMS to make payments under the Part D program.  Marc Raspanti, Michael Morse, and Pamela Brecht of Pietragallo Gordon Alfano Bosick & Raspanti are among the attorneys on Spay’s legal team.  The seal was lifted on Relator Spay’s lawsuit in 2012, with the U.S. declining to join the suit.  Defendants filed their motion to dismiss on April 23, 2012.  The U.S. filed a Statement of Interest on September 11, 2012.

Relator’s Allegations Under 31 U.S.C. § 3729(a)(1) 

False Certification 

The Court rejected Defendant’s argument that Relator’s 3729(a)(1) claim should be dismissed.  Specifically, Defendants argued that Relator failed to state a false claim under the false certification theory because (1) the requirement that PDEs be certified as true, accurate, and complete, doesn’t apply to PBMs as a condition of payment (2) none of the violations at issue in the complaint involved data related to payment and (3) Relator did not plead that Defendants submitted any false, inaccurate, or incomplete data.  Judge Buckwalter rejected all three of these arguments. 

 First, Judge Buckwalter found that the requirement that PDE data be certified as true, accurate, and complete as a condition of payment applies to PBMs through 423.505(k)(3).  Although the “condition of payment” language only appears in the section applicable to Part D Sponsors, 423.505(k)(1), Judge Buckwalter held that the text of the statute must be read in the larger context and structure of the statute in which it was found.   Specifically, subsection 423.505(k)(3), which states that a PBM must “similarly certify” to the accuracy, completeness, and truthfulness of the PDE data, appears in the larger Subsection(k) entitled “Certification of data that determines payments”.  When read in context, Judge Buckwalter found that 423.505(k)(3) was in fact designed to make a PBM’s certification of the truthfulness, accuracy, and completeness of the data a condition of payment. 

Next, Judge Buckwalter found the phrase “data related to payment” should be read expansively in light of the context of the Part D regulations and the relevant CMS Instructions.  Thus, Judge Buckwalter rejected Defendants’ argument that the data related to payment is limited to only 4 of the 37 PDE data elements.

Finally, Judge Buckwalter rejected Defendants’ claim that Relator failed to plead falsity for his Maximum Allowable Cost (“MAC”) pricing and provider identifier claims.  First, with regard to the MAC pricing claim, Judge Buckwalter found that since Defendants failed to provide the negotiated MAC pricing to beneficiaries, its reported pricing information listed in the PDE data would be inaccurate.  Thus, by certifying that the pricing listed in the PDE was accurate, complete, and truthful Defendants would have submitted a false claim for payment.  With regard to the false provider identifiers, Judge Buckwalter found that at the motion to dismiss stage, Relator had adequately plead that Defendant submitted a false claim, since provider identifier is a PDE field used for payment.  The Court also rejected Defendants assertion that because the physician identifiers were “obviously incorrect” the government must have validated them.  Judge Buckwalter noted that there was no indication that the government had any prior knowledge of the improper physician identifier numbers and condoned this practice.  Thus, the Court found that Relator had adequately alleged false certification claims with regard to his MAC pricing and false prescriber identifier allegations.

Overall, the Court found that Relator had adequately alleged a false certification claim because Relator (1) adequately identified a condition of  payment—that a PBM certify the accuracy of data related to payment; (2) established that the PDE elements are data related to payment; and (3) alleged falsity with regard to the MAC pricing and false prescriber identifier allegations. 

Worthless Services

Next, Judge Buckwalter found that Relator adequately alleged an FCA claim based on the worthless services theory, which premises liability on a Defendants’ provision of services which are either not provided or so substandard that they are tantamount to no services at all.  Relator alleged that Defendant violated the FCA by submitting or causing to be submitted numerous PDE claims where the government wasn’t provided with the bundle of services it paid for as required by federal law.  Specifically, Relator alleged that Defendant was obligated to provide concurrent drug utilization review (“DUR”) for all the medications they dispensed under Part D but failed to do so with regard to (1) gender contraindications (2) expired drugs (3) drugs requiring prior authorizations and (4) drugs dispensed above accepted limits.  Defendants claimed that Relator failed to allege a worthless services claim because (1) Relator failed to plead that Defendants billed or caused the billing of services that were allegedly not provided (2) Relator failed to plead that Defendant did not perform the services at all, but merely that Defendants did so imperfectly; and (3) Relator failed to plead that Defendant had any obligation to perform DUR for the four specified areas.

Judge Buckwalter rejected Defendants motion to dismiss Relator’s worthless services claim. First, Judge Buckwalter found that Relator had adequately alleged that Defendants billed or caused CMS to be billed for DUR services which were not provided by submitting PDE data to CMS.  Part D regulations require PBMs to agree to perform all services in compliance with all Federal laws, regulations, and CMS instructions, and Defendants contracted in their agreement with MCS to comply with MCS’ obligations as a Part D Sponsor, including the provision of DUR services.  Thus, by submitting PDE data to CMS, Defendants were representing that they had performed the required DUR and were complying with federal regulations. 

Next, Judge Buckwalter found that Relator had adequately pleaded that Defendant performed worthless services.  Specifically, Relator had adequately alleged a worthless services claim because unlike cases in which defendants billed for merely substandard services, Relator alleged Defendant failed to provide required DUR services at all despite its contractual obligations and federal/state laws.

Finally, Judge Buckwalter found that Relator had adequately alleged that Defendant had an obligation to perform the DUR services alleged in the Complaint.  As part of their contract with MCS, Defendants were required to perform concurrent DUR services in accordance with federal and state laws.  Furthermore, all four of the DUR services which Relator alleged were not provided are mandated by either federal or state law. Thus, because Relator alleged that DUR requirements include DURs for gender contraindications, expired drugs, drugs requiring prior authorizations, and drugs dispensed above accepted limits, and because Relator alleged that on numerous instances Defendants failed to perform such DURs, Defendants’ motion to dismiss was denied.

Relator’s Allegations Under 31 U.S.C. § 3729(a)(2)

Judge Buckwalter also rejected Defendants’ assertion that Relator failed to state a claim under 3729(a)(2) because Relator failed to allege any false record or statement by Defendants “to get” a claim paid..  First Judge Buckwalter found that Relator adequately alleged a “claim” since the PDE data supplied to CMS are claims for payment, as they allow CMS to make payment under the Part D program.  Next, Relator properly alleged that Defendants made statements “to get” claims paid by CMS as Relator alleged that Defendants made claims and submitted PDE data in order to cause the government to pay funds to MCS which would ultimately flow to Defendants as PBM.  Thus, Relator adequately alleged a claim under 3729(a)(2)

Relator’s Allegations Under31 U.S.C. § 3729(a)(7)

Judge Buckwalter also found that Relator adequately alleged a claim under the reverse false claims provision of 31 U.S.C. § 3729(a)(7).  Relator alleged that Defendants failed to report the submission of false PDE data to CMS and failed to return payments received from CMS based on these false submissions.  According to Relator, because Defendants did not make accurate Part D annual reconciliations, Defendants submitted false claims to avoid returning overpayments to CMS.  Thus, the Court found that Relator adequately alleged a reverse false claim under 3729(a)(7).

Rule 9(b): Relator’s Nationwide Allegation

Judge Buckwalter also denied Defendant’s motion to dismiss Relator’s allegation that Defendants fraudulent practices occurred nationwide.  The Court found that given the sheer number of claims identified by Relator in at least three states and Puerto Rico, Defendants fraudulent practices likely occurred throughout the country. Judge Buckwalter also held that at the motion to dismiss stage, Relator is not required to plead with particularity every claim nationwide without the benefit of discovery. 

Public Disclosure 

Finally, Judge Buckwalter denied Defendant’s motion to dismiss based on the public disclosure bar.  First, Judge Buckwalter found that there was no publicly disclosed information upon which Relator’s claim was based.  The Court rejected Defendant’s allegations that (1) an audit report which was part of the discovery in a 2007 case between MCS and Caremark was “publicly disclosed” and (2) that the PDE data submitted by Defendants to CMS was itself a public disclosure as a “report” available under the Freedom of Information Act.  Judge Buckwalter found that the audit report was not publicly disclosed since it was never “used” in a court proceeding.  The audit report was not only was never filed with the Court, but was also under a confidentiality agreement and was thus not potentially available to the public. Thus, the Court found it was not publicly disclosed.  Additionally, the Court rejected Defendant’s argument that the submission of the PDE data itself was a public disclosure as a “report”.  The Court noted that there are no cases which have held that an entity’s submission of a report to the government is a “report” within meaning of the FCA.  To hold otherwise, the Court noted, would allow Defendant to shield themselves from liability by the very act of submitting their false claim.  Because the Court found that there was no public disclosure within meaning of the FCA, it did not have to analyze whether Relator’s claim was “based upon” a public disclosure and whether Relator was an original source.  However, the Court noted in a footnote that it would be inclined to find that Relator was an original source since he used his experience and skill as a pharmacist and auditor to review non-public PDE data and determine that Defendants fraudulently billed the Part D program.


This decision will have major implications both for this current case as well as the future of the Part D program.  By allowing all of Relator’s allegations to proceed, all entities in the Part D program are now on notice that they can be held liable for defrauding the Part D Program.

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