United States ex rel. Rahimi v. Rite Aid Corp.

3 F.4th 813

UNITED STATES of America EX REL. Azam RAHIMI, Relator-Appellant,

v.RITE AID CORPORATION, Defendant-Appellee.

No. 20-1063

United States Court of Appeals, Sixth Circuit.

Argued: January 26, 2021

Decided and Filed: June 29, 2021

ARGUED: Peter A. Patterson, COOPER & KIRK, PLLC, Washington, D.C., for Appellant. William R. Peterson, MORGAN, LEWIS & BOCKIUS LLP, Houston, Texas, for Appellee. ON BRIEF: Peter A. Patterson, Charles J. Cooper, Vincent J. Colatriano, COOPER & KIRK, PLLC, Washington, D.C., Arun Subramanian, William D. O'Connell, SUSMAN GODFREY LLP, New York, New York, for Appellant. William R. Peterson, MORGAN, LEWIS & BOCKIUS LLP, Houston, Texas, Kevin J. Biron, Michael J. Ableson, MORGAN, LEWIS & BOCKIUS LLP, New York, New York, for Appellee. Frederick M. Morgan, Jr., MORGAN VERKAMP, LLC, CINCINNATI, Ohio, for Amicus Curiae.

Before: BATCHELDER, GRIFFIN, and STRANCH, Circuit Judges.

GRIFFIN, Circuit Judge.

Azam Rahimi believes Rite Aid Corporation defrauded the federal government of hundreds of millions of dollars by overcharging it for generic prescription drugs, so he filed suit under the False Claims Act (FCA) and several state-law analogues. The district court dismissed Rahimi's FCA claim under the Act's public-disclosure bar and declined to exercise supplemental jurisdiction over his remaining claims. We agree and affirm.

I.

A.

Defendant Rite Aid Corporation operates a nationwide chain of pharmacies. Like many of its competitors, Rite Aid offers a discount program—which it calls the "Rx Savings Program"—that provides its members hundreds of generic prescription drugs at reduced prices. The program is free and widely available but excludes customers whose prescriptions are paid in full or in part by publicly funded healthcare programs like Medicare Part D, state-administered Medicaid programs, or TRICARE.

Federal regulations require pharmacies such as Rite Aid to dispense prescriptions for beneficiaries of these healthcare programs at their "usual and customary charge to the general public"—which is often referred to as the "U&C" rate. See 42 C.F.R. § 447.512(b)(2). In general terms, this means that pharmacies cannot charge the government more than the "cash price" offered to the public to fill such prescriptions. See United States ex rel. Garbe v. Kmart Corp. , 824 F.3d 632, 636 (7th Cir. 2016).

Relator Azam Rahimi alleges that Rite Aid routinely overbilled these government programs because the amounts it charged did not "take into account either the lower Rx Savings Program prices or any lower prices that Rite Aid makes available to other payers." In other words, while everyone agrees that Rite Aid was not required to allow beneficiaries of publicly funded healthcare plans to participate in the Rx Savings Program, Rahimi's theory is that Rite Aid was required to offer the government programs an equivalent-or-better discount because of its obligation to provide the U&C rate.

Rahimi, who is a pharmacist, says he first suspected Rite Aid of overbilling the government when he saw Rite Aid's advertisements for the Rx Savings Program that announced publicly funded healthcare programs were specifically excluded from participating. He then called a former classmate and current Rite Aid pharmacist in New York, John Doe, to discuss his suspicions. Doe told Rahimi that at his pharmacy, ninety to ninety-five percent of Rite Aid's non-insured customers were enrolled in the Rx Savings Program and that Rite Aid's billing software "will only generate the ‘Rx Savings price’ for a customer if the pharmacy has enrolled a customer in the program," and would not generate the price for beneficiaries of government-funded healthcare plans. But when Rite Aid generated bills for those covered by publicly funded health insurance, it still represented the price to be the U&C rate, even though it "did not include the discounts offered to cash-paying customers through the Rx Savings Program."

Doe also obtained specific examples of the alleged fraud from his cousin, a Rite Aid customer whom he knew to be a New York Medicaid beneficiary. By reviewing his cousin's receipts, Doe confirmed that Rite Aid had charged his cousin more for prescriptions than it would members of the Rx Savings Program. Doe relayed this information to Rahimi, who further investigated by calling Rite Aid pharmacies in eight other states, inquiring as to the prices Medicaid beneficiaries would pay for certain generic medications. "In every single instance, [he] learned that the Rite Aid pharmacy was charging Medicaid significantly higher prices for the generic medications than the prices made available to their Rx Savings Program members." Rahimi also obtained examples involving Medicare Part D and TRICARE.

B.

Rahimi contends this practice violates the False Claims Act, 31 U.S.C. § 3729(a), and other state-law analogues because Rite Aid knowingly caused claims to be submitted for reimbursement by the government "that are materially false because they misrepresented Defendant's ‘usual and customary charge’ to the general public." ¹

This is because, Rahimi says, "Rite Aid consistently charged government health programs higher amounts for the generic medications on the Rx Savings Program list than the amounts Rite Aid charged its cash-paying customers for the same medications." So, he commenced this litigation on May 3, 2011.

A few more pre-litigation facts are in order. First, as required by the FCA, Rahimi disclosed the alleged fraud to the government on May 2, 2011. He explained that he learned in September 2010 that Rite Aid advertised a savings program, and that "it was possible that Rite Aid was not passing on these discounts to Medicaid, as required by many states’ ‘usual and customary charge’ billing rules." But he was uncertain of his theory because he did not know "i) the percentage of Rite Aid's non-insured customers enrolling in the program; or ii) whether Rite Aid might be charging Medicaid a similar or even lower charge compared to the Rx Savings Program charge." Rahimi thus recounted the steps he took to investigate his theory, including his interactions with John Doe.

But his disclosure about the program was far from the only one.

First, from the beginning of Rite Aid's Rx Savings Program (and before Rahimi's disclosures), Rite Aid had clearly stated in its advertisements and announcements that "[p]rescriptions paid for in whole or in part by publicly funded health care programs [were] ineligible" for the discounted drug prices.

Second, the State of Connecticut learned in 2010 (again before Rahimi's disclosures) that several pharmacies were charging Connecticut Medicaid recipients more than their membership discount prices, which authorities believed to violate existing law. Nevertheless, Connecticut then amended its law to require that pharmacies account for any membership discount program when establishing its U&C price for government billing. But rather than reduce the rate it charged the government to match the Rx Savings price, Rite Aid raised the prices charged under the Rx Savings Program, in Connecticut only. Other major pharmacies threatened to discontinue their membership discount plans in Connecticut entirely. The Connecticut Attorney General issued a press release concerning Rite Aid on August 25, 2010 to declare that it was subpoenaing Rite Aid for information about changes to its discount drug pricing, which it "falsely blamed on a new state law." The press release summarized the events surrounding the newly enacted law as follows:

The law requires pharmacies to provide Medicaid and other state programs the same prescription drug discounts they offer consumers. Apparently in response, Rite Aid increased prices and made other changes to its Rx Savings discount drug program in Connecticut. The drug store chain posted signs that falsely blamed the higher prices and program changes on the new law. ... All ... benefits remain unchanged for consumers outside Connecticut.

This development was widely reported in the United States by national and local media.

Third, the Inspector General of the U.S. Department of Health and Human Services announced in October 2009 and October 2010 (yet again before Rahimi's disclosures) that it would be "review[ing] Medicaid claims for generic drugs to determine the extent to which large chain pharmacies are billing Medicaid the usual and customary charges for drugs provided under their retail discount generic programs."

Fourth, a qui tam action was unsealed by the United States District Court for the Central District of California the month prior to Rahimi's complaint being filed, which alleged that Kmart Pharmacies were engaging in an identical scheme to overcharge the government for prescriptions dispensed to beneficiaries of Medicaid and Medicare Part D by failing to apply a discount equal to their membership discount program rate when calculating the U&C charge.

With this in mind, we turn back to Rahimi's lawsuit. After he filed his complaint, the district court administratively closed the action while the federal government investigated his allegations and determined whether to intervene in the suit. More than five years later, the government formally declined to intervene in the suit, and the district court lifted the seal and authorized Rahimi to serve Rite Aid with the complaint. Rite Aid then moved for judgment on the pleadings under Federal Rule of Civil Procedure 12(c), contending the pre-filing facts set forth above, "[t]aken together," demonstrated Rahimi could not overcome the Act's prohibition on complaints based on publicly disclosed information, known as the "public disclosure bar." The district court agreed, granted Rite Aid's motion for judgment on the pleadings on Rahimi's federal claim and declined supplemental jurisdiction over Rahimi's eighteen state-law claims. Rahimi then sought reconsideration, which the court denied. Rahimi timely appealed.

II.

The False Claims Act "prohibits...