United States ex rel. Kester v. Novartis Pharm. Corp.

43 F.Supp.3d 332

UNITED STATES of America ex rel. David M. KESTER, State of California ex rel. David M. Kester, State of Colorado ex rel. David M. Kester, State of Connecticut ex rel. David M. Kester, State of Delaware ex rel. David M. Kester, District of Columbia ex rel. David M. Kester, State of Florida ex rel. David M. Kester, State of Georgia ex rel. David M. Kester, State of Hawaii ex rel. David M. Kester, State of Illinois ex rel. David M. Kester, State of Indiana ex rel. David M. Kester, State of Louisiana ex rel. David M. Kester, State of Maryland ex rel. David M. Kester, State of Massachusetts ex rel. David M. Kester, State of Michigan ex rel. David M. Kester, State of Minnesota ex rel. David M. Kester, State of Montana ex rel. David M. Kester, State of Nevada ex rel. David M. Kester, State of New Jersey ex rel. David M. Kester, State of New Mexico ex rel. David M. Kester, State of New York ex rel. David M. Kester, State of North Carolina ex rel. David M. Kester, State of Oklahoma ex rel. David M. Kester, State of Rhode Island ex rel. David M. Kester, State of Tennessee ex rel. David M. Kester, State of Texas ex rel. David M. Kester, State of Virginia ex rel. David M. Kester, and State of Wisconsin ex rel. David M. Kester, Plaintiffs and Relator

v.NOVARTIS PHARMACEUTICALS CORPORATION, Accredo Health Group, Inc., Bioscrip Corporation, Curascript, Inc., CVS Caremark Corporation, Defendants.

No. 11 Civ. 8196CM.

United States District Court, S.D. New York.

Signed Sept. 3, 2014.

David B. Zlotnick, Nicholas N. Paul, Steven U. Ross, California Attorney General's Office, San Diego, CA, Rachel Coles, Office of the Attorney General, Sacramento, CA, Elizabeth White, Georgia Attorney General's Office, Atlanta, GA, Clemon D. Ashley, Assistant Attorney General, Elisa Cervantes Hamilton, Office of the Illinois Attorney General, Chicago, IL, Lawrence Joseph Carcare, II, Office of in Attorney General, Indianapolis, IN, Jeremy Dykes, Maryland Attorney General, Baltimore, MD, Deborah J. Harper Assistant Attorney General, State of Michigan/Attorney General/Health Care Fraud Division, East Lansing, MI, Diana Elkind, Christopher Yates Miller, Office of the New York State Attorney General, Arun Srinivas Subramanian, Steven M. Shepard, William Christopher Carmody, Susman Godfrey LLP, New York, NY, Niki Suzanne Batt, Oklahoma Office of the Attorney General, Christopher P. Robinson, Assistant Attorney General, Niki S. Batt, Assistant Attorney General, Oklahoma City, OK, Katie M. Wilson, Assistant Attorney General, Madison, WI, Robert Lawrence Vogel, Janet Lyn Goldstein, Shelley R. Slade, Vogel, Slade & Goldstein LLP, Washington, DC, Jonathan Bridges, Susman Godfrey LLP, Dallas, TX, Kristin Malone, Susman Godfrey LLP, Seattle, WA, Shawn Raymond, Susman Godfrey LLP, Houston, TX, for Plaintiffs and Relator.

State of Minnesota, pro se.

State of New Jersey, pro se.

Evan R. Chesler, Benjamin Gruenstein, Rachel G. Skaistis, Cravath, Swaine & Moore LLP, Manvin Singh Mayell, Michael A. Rogoff, United States Attorney's Office, Faith E. Gay, Manisha M. Sheth, Quinn Emanuel Urquhart & Sullivan LLP, New York, NY, Nina M. Dillon, Cravath, Swaine & Moore LLP, Brooklyn, NY, for Defendants.

MEMORANDUM DECISION AND ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTIONS TO DISMISS

McMAHON, District Judge:

Plaintiff-relator David M. Kester (“Relator”) filed a sealed qui tam action asserting claims arising under the False Claims Act (“FCA”), 31 U.S.C. § 3729 et seq., and related state laws. The Defendants named in the complaint include Novartis Pharmaceuticals Corporation (“Novartis”) and certain specialty pharmacies, including CVS Caremark Corporation (“Caremark”), Accredo Health Group, Inc. (“Accredo”), and Curascript, Inc. (“Curascript”) (collectively, the “Pharmacy Defendants”). The Relator alleges that Novartis and these pharmacies violated the FCA and the Anti–Kickback Statute (“AKS”), 42 U.S.C. § 1320a–7b(b), in connection with a kickback scheme.

Pending before the Court are the Defendants' motions to dismiss the Relator's Second Amended Complaint pursuant to Rules 12(b)(1), 12(b)(6), and 9(b) of the Federal Rules of Civil Procedure. For the reasons discussed below, those motions are granted in part and denied in part.¹

BACKGROUND ²

A. The Plaintiffs

Pursuant to the False Claims Act (“FCA”), private persons known as “relators” may file qui tam actions and recover damages on behalf of the United States. See 31 U.S.C. § 3730(b). Plaintiff Kester (“Relator”) originally filed this FCA action in November 2011 on behalf of the United States, 27 states, and the District of Columbia.

The Relator filed a Second Amended Complaint (“the Relator's Complaint”) on January 30, 2014. He brings claims against Novartis and the Pharmacy Defendants on behalf of the United States, 26 states, and the District of Columbia. The Relator asserts claims (Counts 1a, 1b, 1c, and 1d)³ under four subsections of the FCA—31 U.S.C. §§ 3729(a)(1)(A), (a)(1)(B), (a)(1)(C), and (a)(1)(G). He also asserts claims (Counts 2–28) under 27 different state law analogues of the FCA, including the parallel false claim statutes in California, Colorado, Connecticut, Delaware, the District of Columbia, Florida, Georgia, Hawaii, Illinois, Indiana, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Montana, Nevada, New Jersey, New Mexico, New York, North Carolina, Oklahoma, Rhode Island, Tennessee, Texas, Virginia, and Wisconsin.

The United States government (“the Government”) elected to intervene as a co-plaintiff in this case. On January 8, 2014, the Government filed an Amended Complaint–in–Intervention (“the Government's Complaint”) asserting claims against Novartis (but not the Pharmacy Defendants) under the FCA and related state laws.

Eleven states have since intervened as co-plaintiffs against Novartis alone, asserting claims under state law analogues of the FCA.

Generally, the FCA outlaws the submission of a false or fraudulent “claim” for payment (i.e., a request for reimbursement) to the government. See 31 U.S.C. § 3729(a)(1). Such claims may be rendered “false” in a variety of ways. In this case, the Relator's FCA claims are predicated on underlying violations of the Anti–Kickback Statute (“AKS”). Under the AKS, it is illegal to offer a person “remuneration” (i.e., kickbacks) in order to “induce” that person to “recommend” the purchase of a drug covered by a federal health care program. 42 U.S.C. § 1320a–7b(b)(2). It is likewise illegal to receive remuneration “in return for ... recommending purchasing” such drugs. Id. at § 1320a–7b(b)(1).

The reader is presumed to be familiar with this Court's previous orders in this case: denying Novartis's motion to dismiss the Government's Complaint pursuant to Rule 9(b), see U.S. ex rel. Kester v. Novartis Pharmaceuticals Corp., No. 11 Civ. 8196(CM), 23 F.Supp.3d 242, 2014 WL 2324465 (S.D.N.Y. May 29, 2014) (“Novartis I ” ); granting in part and denying in part Defendants' motions to dismiss the Relator's Second Amended Complaint pursuant to Rule 9(b), see U.S. ex rel. Kester v. Novartis Pharm. Corp., 11 Civ. 8196(CM), 2014 WL 2619014 (S.D.N.Y. June 10, 2014) (“Novartis II ” ); denying Defendants' motion for reconsideration of this Court's order in Novartis II (“Novartis III ” ), see Docket No. 216; and granting in part and denying in part Novartis's motion to dismiss the Government's Complaint pursuant to Rules 12(b)(6) and 9(b) (“Novartis IV ” ), see Docket No. 227.

B. The Alleged Kickback Schemes

Defendant Novartis is a pharmaceutical company that develops, manufactures, and markets prescription drugs. It sells these drugs through various avenues, one of which is “specialty” pharmacies which sell drugs that are not available at normal retail pharmacies. See Compl.⁴ at ¶ 1. The Relator alleges that Novartis conducted five illegal kickback schemes involving drugs covered by federal health care programs, and that the Pharmacy Defendants participated in those schemes.

The Relator, David M. Kester, is a former sales employee of Novartis who discovered that Novartis was engaging in practices that allegedly violated the AKS and the FCA. See id. at ¶¶ 15–16. According to the Relator, Novartis realized that certain pharmacies had influence over doctors or patients. So beginning in January 2007 it decided to “leverage” these pharmacies' influence—it offered them kickbacks in the form of rebates, discounts, and patient referrals to induce them to “recommend” its drugs to doctors or patients.Id. at ¶ 2.

The Relator's Complaint contains a detailed description of the mechanics of the kickback schemes. It alleges that Novartis gave the pharmacies several types of remuneration: “first category rebates,” which were volume-based rebates of about 1–3% of all sales of Novartis drugs; “second category rebates,” which were performance-based payments depending on quantity sold or market share; and patient referrals, which Novartis controlled through its exclusive distribution networks. See id. at ¶¶ 63–65.

When a new patient received a prescription for a specialty medication manufactured by Novartis, the patient would contact a Novartis call center (or “reimbursement hub”). Id. at ¶ 57. The reimbursement hub would then steer the patient to one of the specialty pharmacies in its exclusive drug distribution networks. See id. at ¶¶ 58, 65. One of these reimbursement hubs was operated by a Caremark subsidiary, Theracom, LLC. See id. at ¶ 59.

In return for rebates and patient referrals, the pharmacies (including Caremark, Accredo, and Curascript) allegedly agreed to promote Novartis drugs. Generally, the pharmacies would recommend to doctors and patients that patients switch to Novartis drugs, remain on Novartis drugs (as opposed to discontinuing treatment), or order more refills. The pharmacies implemented “high touch” programs in which pharmacy staff at call centers would proactively “intervene”—they called patients or doctors under the guise of providing counseling...