United States ex rel. Banigan v. Organon USA Inc.

883 F.Supp.2d 277

UNITED STATES of America ex rel. James BANIGAN and Richard Templin et al.

v.ORGANON USA INC., et al.

Civil Action No. 07–12153–RWZ.

United States District Court, D. Massachusetts.

June 1, 2012.

C. William Barrett, III, Catherine A. Ryan, Michael E. Mone, Jr., Patricia L. Kelly, Esdaile, Barrett & Esdaile, Zachary A. Cunha, United States Attorney's Office, Boston, MA, Joel M. Androphy, Rachel L. Grier, Berg & Androphy, Sarah M. Frazier, Michelle Zingaro, Houston, TX, for United States of America ex rel. James Banigan and Richard Templin et al.

Alexander M. Kayne, Omnicare, Inc., Covington, KY, Michael Manthei, Holland & Knight, Brien T. O'Connor, Ropes & Gray, Justin J. Wolosz, Benjamin M. McGovern, Elizabeth M. Mitchell, James D. Smeallie, Boston, MA, John A. Freedman, David D. Fauvre, James W. Cooper, Jeffrey L. Handwerker, John A. Freedman, Washington, DC, C. Scott Jones, Erik A. Marshall, John P. McDonald, C. Scott Jones, David D. Fauvre, Erik A. Marshall, Dallas, TX, Eric Laufgraben, Harvey Kurzweil, Suzanne Jaffe Bloom, New York, NY, for Organon USA Inc., et al.

Memorandum of Decision

ZOBEL, District Judge.

Relators, James Banigan and Richard Templin, brought this qui tam action on behalf of the United States of America, twenty-seven states,¹ the District of Columbia, and the City of Chicago under the federal False Claims Act (“FCA”), 31 U.S.C. §§ 3729–33, and various state and local false claims statutes, against defendants Akzo Nobel N.V.,² Organon Biosciences N.V., Organon USA, Inc., Organon Pharmaceuticals USA, Inc., Organon International, Inc., Schering Plough Corp., Merck & Co., Inc. (collectively, “Organon” or “the Organon defendants”),³ Omnicare, Inc., and PharMerica, Inc.

Organon, Omnicare, and PharMerica ⁴ each move to dismiss pursuant to Federal Rules of Civil Procedure 12(b)(6), 9(b), and 12(b)(1) ( Docket 123, 125, 128). They also raise various other challenges to the state and local claims.

I. BackgroundA. Procedural History

Under the FCA's qui tam provisions a private individual, called a relator, may bring a civil action for violation of the Act on behalf of the United States. 31 U.S.C. § 3730(b). The United States can intervene and assume primary responsibility for the action, but the relator may proceed if the government declines to do so. Id. §§ 3730(c)(1), (b)(4)(B). Either way, the relator may share in any award—15%–25% if the government intervenes; 25%–30% if it does not—and may be compensated for reasonable expenses, fees, and costs. Id. §§ 3730(d)(1)-(2).

Relators filed their Original Complaint under seal in the Southern District of Texas on September 13, 2007; the case was transferred to this court and the Original Complaint filed in camera and under seal on November 19, 2007 (Docket # 8). Relators filed an Amended Complaint (Docket # 23) and a Second Amended Complaint (Docket # 33) in camera and under seal on November 10, 2008, and March 23, 2010, respectively. The United States notified the court on April 23, 2010, of its decision not to intervene as to certain claims (Docket # 36), and on September 7, 2010, as to all remaining claims (Docket # 39). Fifteen plaintiff states ⁵ and the Commonwealth of Virginia notified the court of their decisions not to intervene on October 5, 2010 (Docket # 41) and October 28, 2010 (Docket # 49), respectively.⁶ The court unsealed the case on October 29, 2010. Relators filed the operative Third Amended Complaint (“TAC”) (Docket # 105) under seal on April 11, 2011. Defendants' motions to dismiss followed.

B. Statutory Background

Counts I–V of the TAC are under the FCA.⁷ Counts I, II, and III are against Organon, PharMerica, and Omnicare and respectively allege violations of 31 U.S.C. §§ 3729(a)(1), (a)(2), and (a)(3)⁸ as the statute appeared before it was amended in 2009.⁹ Count IV alleges a violation of 31 U.S.C. § 3729(a)(7) against Organon only. In Count V, Relators—who are former employees of Organon and Schering Plough—allege that both companies retaliated against them in response to their investigation and initiation of their claims, in violation of 31 U.S.C. § 3730(h). Organon does not raise this count in its motion; thus, the court will not address it further.

FCA subsections (a)(1)-(3) and (7) provide civil penalties for:

(a) Any person who:

(1) knowingly presents, or causes to be presented, to an officer or employee of the United States Government or a member of the Armed Forces of the United States a false or fraudulent claim for payment or approval;

(2) knowingly makes, uses, or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the Government;

(3) conspires to defraud the Government by getting a false or fraudulent claim allowed or paid;

...

(7) knowingly makes, uses, or causes to be made or used, a false record or statement to conceal, avoid, or decrease an obligation to pay or transmit money or property to the Government[.]

31 U.S.C. §§ 3729(a)(1)-(3), (7). Relators' allegations in support of Counts I–IV fall into three categories: kickback claims against all defendants, and pricing and off-label marketing claims against the Organon defendants. The kickback claims allege violations of the Anti–Kickback Statute, 42 U.S.C. §§ 1320a–7b(b)(1)(B), (b)(2)(B), which makes it a crime to knowingly and willfully solicit, receive, offer, or pay “any remuneration” to induce business that is reimbursed under a federal health care program.¹⁰ Compliance with the Anti–Kickback Statute is a condition of payment for any claim submitted to a federal health care program, including Medicaid,¹¹ so that liability under the FCA can be predicated on a violation of the Anti–Kickback Statute. U.S. ex rel. Westmoreland v. Amgen, 812 F.Supp.2d 39, 54–55 (D.Mass.2011) (collecting cases).

Defendants Omnicare and PharMerica are long-term care pharmacy providers (“LTCPs”). LTCPs provide pharmacy services to nursing homes and other long-term care facilities, whose resident population consists, in large part, of Medicaid patients.¹² According to the TAC, LTCPs enter into provider agreements with each state's Medicaid program to which they have submitted prescription drug reimbursement claims. These provider agreements require the LTCPs to comply with all state and federal laws, including the Anti–Kickback Statute.

C. Kickback Claims Against Organon, Omnicare, and PharMerica

According to the TAC, from 1999–2006 Organon, a pharmaceutical company, violated the federal Anti–Kickback Statute by engaging in a scheme to offer unlawful remuneration to LTCPs—Omnicare and PharMerica, among others ¹³—in exchange for the pharmacies prescribing its antidepressants, Remeron Tablet and Remeron SolTab (collectively “Remeron”), to patients. This scheme allegedly resulted in the LTCPs filing hundreds of millions of dollars in fraudulent claims for Medicaid prescription drug reimbursements.

Organon participated in this scheme primarily in two ways. First, it aimed to prevent Remeron Tablet's 1998 patent expiration from affecting the drug's total sales by converting long-term care patients' prescriptions from Remeron Tablet to the patent-protected Remeron SolTab. Second, it tried to increase Remeron's market share by switching as many long-term care patient prescriptions as possible from competitor antidepressants to Remeron. These two processes are respectively described in the TAC as “conversion” and “therapeutic interchange.”

Relators allege that Organon provided LTCPs, including PharMerica and Omnicare, with unlawful kickbacks to induce the LTCPs to participate in the conversion and therapeutic interchange scheme. It offered direct kickbacks, allegedly disguised as market-share discounts and rebates, as well as a “conversion rebate” for switching prescriptions from Remeron Tablet to Remeron SolTab, and a “therapeutic interchange bonus” for making Remeron a “preferred” drug and instituting a therapeutic interchange program that encouraged prescription of Remeron over competitor antidepressants. TAC ¶ 77. Organon also gave LTCPs other kickbacks to entice them to purchase and recommend Remeron, including “data sharing agreements, research and educational grants, sponsorship of annual meetings and continuing education programs, payments for advertising initiatives, offers of nominally priced Remeron product, entertainment, gifts and other inducements.” TAC ¶ 81. Relators allege that Organon, through its “Remeron SolTab Therapeutic Interchange Toolkit,” marketed the drug to LTCPs by touting the LTCPs' “opportunity to profit” at Medicaid's expense based on the “spread” (difference between the average wholesale price of the drug, and the discounted price paid by the LTCPs), rebates, and discounts offered. TAC ¶¶ 88–91.

PharMerica and Omnicare not only received but also allegedly solicited such kickbacks from Organon in exchange for prescribing Remeron. For example, the TAC alleges that Organon budgeted for, and PharMerica provided Organon with, data sharing agreements under which Organon would pay PharMerica for data on Remeron and its competitor drugs. PharMerica's National Director of Clinical Programs and Development pitched its “Vendor in Partnership” (“VIP”) program to Organon, which the TAC alleges was “little more than a conduit to funnel money to PharMerica in exchange for prescriptions,” TAC ¶ 109 and Ex. 46–47; after Organon agreed to participate, PharMerica made Remeron a “preferred” product. TAC ¶ 114. PharMerica also solicited, and Organon provided, sponsorship of PharMerica's annual meeting in 2001.

Likewise, Omnicare is alleged to have actively solicited discounted pricing for Organon pharmaceutical products. Omnicare placed Remeron on “unrestricted access,” which meant it was available on Omnicare's formulary of drugs without restrictions such as prior physician authorization for use, and was not targeted for therapeutic interchange to competitors' products. TAC ¶ 126. Purchasing...