United States ex rel. Kroening v. Forest Pharm., Inc.

155 F.Supp.3d 882

United States ex rel. Kurt Kroening, Plaintiffs / Relator,

v.Forest Pharmaceuticals, Inc., et al., Defendants.

Case No. 12-CV-366

United States District Court, E.D. Wisconsin.

Signed January 6, 2016

Stacy C. Gerber Ward, United States Department of Justice, Milwaukee, WI, for United States.

Kristin D. Kiehn, Mark P. Goodman, Cari A. Wint, John H. Hall, Debevoise & Plimpton LLP, New York, NY, for Defendants.

Nola J. Hitchcock Cross, Mary C. Flanner, Cross Law Firm SC, Milwaukee, WI, for Relator.

DECISION AND ORDER

WILLIAM E. DUFFIN, United States Magistrate Judge

I. Procedural History

On April 18, 2012, relator Kurt Kroening filed the present action on behalf of the United States, 30 states, and the District of Columbia under the False Claims Act and similar state statutes. After a lengthy period for investigation, the United States filed notice on January 31, 2014, that it was not intervening. (ECF No. 23.) The case was unsealed (ECF No. 24), and on June 13, 2014, Kroening filed an amended complaint on behalf of the United States, the District of Columbia, and twenty-eight states (ECF No. 34). After the court approved several stipulations to extend the deadline for defendants Forest Pharmaceuticals, Inc. and Forest Laboratories, Inc. (herein collectively “Forest”) to respond to the amended complaint (ECF Nos. 39, 40, 43, 44, 45, 47), on March 16, 2015, Forest filed a motion to dismiss (ECF No. 50). Briefing on the motion was completed on May 11, 2015. All parties have consented to have this court enter final judgment in this matter. (ECF Nos. 38, 41, 42.)

II. Allegations in the Amended Complaint

In June of 2007, Kroening began working for Forest Pharmaceuticals, Inc. as a pharmaceutical sales representative. (ECF No. 34, ¶¶ 3, 19.) For several years prior to Kroening's employment and continuing until at least the filing of the amended complaint (ECF No. 34, ¶ 19), Forest maintained a “Speakers Bureau” program whereby it would pay prescribers of Forest drugs for speaking at presentations. Speakers received not only direct compensation of between $1,000 and $1,750 per presentation (ECF No. 34, ¶ 48) but also lavish meals, drinks (ECF No. 34, ¶¶ 43, 49), and travel expenses (ECF No. 34, ¶¶ 29, 58). The purpose of the Speakers Bureau was not education but to incentivize prescribers to write prescriptions for Forest drugs. (ECF No. 34, ¶ 30.) Educational content and even actual attendance were not relevant to Forest. (ECF No. 34, ¶¶ 38, 46, 50.) Sometimes prescribers were paid a speaker's fee even though they did not present a speech or make a presentation. (ECF No. 34, ¶¶ 53, 59.) When a presentation did occur, it was generally only about 5 to 10 minutes in length and not necessarily related to any Forest drug. (ECF No. 34, ¶ 59.) After Forest changed its policies in 2010 to require two providers at a presentation, attendance records were often falsified in an effort to provide evidence that the attendance requirement was met. (ECF No. 34, ¶¶ 28, 50, 54, 55, 56, 58.)

Physicians were chosen to give presentations “based on their actual and potential prescription writing volume.” (ECF No. 34, ¶ 31.) Also relevant was whether the physician had a high number of Medicare and/or Medicaid patients. (ECF No. 34, ¶ 41.) Sales representatives actively tracked the prescriptions of speakers to ensure an adequate “return on investment.” (ECF No. 34, ¶¶ 32, 34, 60.) If a provider in the Speakers Bureau did not increase or maintain his prescription volume for Forest drugs, he was dropped from the program. (ECF No. 34, ¶¶ 28, 35, 45.)

Kroening contends that the speaking fees and related compensation constituted unlawful kickbacks. As a result of the “kickbacks, misrepresentations and submissions of non-reimbursable claims” described in the amended complaint (ECF No. 34, ¶¶ 64, 69, 74), Forest “knowingly presented or caused to be presented false or fraudulent claims for the improper payment or approval of prescriptions of Forest drugs” (ECF No. 34, ¶ 64 (citing 31 U.S.C. § 3729(a)(1)(A) )), “knowingly made, used, or caused to be made or used false records or statements material to a false or fraudulent claim for the improper payment or approval of prescriptions of Forest drugs” (ECF No. 34, ¶ 69 (citing 31 U.S.C. § 3729(a)(1)(B) )), and “knowingly conspired to commit violations of the False Claims Act for the improper payment or approval of prescriptions of all of its drugs for which it included providers in its Speakers Bureau” (ECF No. 34, ¶ 74 (citing 31 U.S.C. § 3729(a)(1)(C) )).

III. Motion to Dismiss Standard

“To survive a motion to dismiss under Rule 12(b)(6), a complaint must provide enough factual information to ‘state a claim to relief that is plausible on its face’ and ‘raise a right to relief above the speculative level.’ ” Thulin v. Shopko Stores Operating Co., LLC , 771 F.3d 994, 997 (7th Cir.2014) (quoting Bell Atl. Corp. v. Twombly , 550 U.S. 544, 555, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). The court not only considers the context of the case but also may draw upon its own judicial experience and common sense when assessing whether a complaint states a claim upon which relief may be granted. Id. (quoting Ashcroft v. Iqbal , 556 U.S. 662, 679, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) ). Well-pleaded facts are accepted as true and construed in the light most favorable to the plaintiff. Id. (citing Camasta v. Jos. A. Bank Clothiers, Inc. , 761 F.3d 732, 736 (7th Cir.2014) ). Because this action arises under the False Claims Act, 31 U.S.C. § 3729 et seq. , the amended complaint must satisfy the heightened pleading requirements of Fed. R. Civ. P. 9(b). Id. at 998 (citing United States ex rel. Gross v. AIDS Research Alliance – Chicago , 415 F.3d 601, 604 (7th Cir.2005) ).

IV. Analysis

The False Claims Act (FCA) is “the primary vehicle by the Government for recouping losses suffered through fraud.” 31 U.S.C. § 3729 et seq . The Attorney General may bring actions under the FCA directly in the name of the United States. 31 U.S.C. § 3730(a). Alternatively, a private person known as a “relator” may bring a qui tam action “in the name of the Government.” 31 U.S.C. § 3730(b). If the qui tam action results in the recovery of money for the government, the relator shares in the award. See 31 U.S.C. § 3730(d).

The FCA imposes civil liability on any person who “knowingly presents, or causes to be presented” to the United States or its representatives “a false or fraudulent claim for payment or approval,” 31 U.S.C. § 3729(a)(1)(A), or “knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim,” 31 U.S.C. § 3729(a)(1)(B). To establish liability under the FCA, the defendant must have acted with “actual knowledge” or with “deliberate ignorance” or “reckless disregard” to the possibility that the submitted claim was false. 31 U.S.C. § 3729(b)(1)(A). The FCA does not require proof of specific intent to defraud. 31 U.S.C. § 3729(b)(1)(B).

The Anti-Kickback Statute, in relevant part, makes it unlawful to

knowingly and willfully offer[ ] or pay[ ] any remuneration (including any kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or in kind to any person to induce such person—

... (B) to purchase, lease, order, or arrange for or recommend purchasing, leasing, or ordering any good, facility, service, or item for which payment may be made in whole or in part under a Federal health care program.

42 U.S.C. § 1320a–7b(b)(2). Congress amended the Anti-Kickback Statute in 2010 to explicitly state that “a claim that includes items or services resulting from a violation of this section constitutes a false or fraudulent claim for purposes of” the FCA. 42 U.S.C. § 1320a–7b(g).

A. Allegation of any Fraudulent Claim

Kroening's amended complaint does not allege that Forest made any false claim to any plaintiff. Rather, Kroening alleges that Forest violated 31 U.S.C. § 3729(a)(1)(A) and (B) when it caused false claims to be submitted to the plaintiffs by being the first step in a four-step causal chain. This causal chain began with the defendants, who provided physicians with lavish meals and other perks as well as money for sham presentations. In return, the physicians prescribed the defendants' drugs to their patients. The patients then filled the prescriptions at pharmacies. Lastly, the pharmacies sought payment from the patients' insurers, some of which are funded by the plaintiffs. Kroening contends that the prescription claims submitted through the speaker physicians were false because they were tainted by the illegal kickbacks in violation of the Anti-Kickback Statute.

The defendants' motion to dismiss presents two questions. First, does the scheme alleged by Kroening plausibly state a claim under the FCA? Second, if the legal theory is sufficient to state a claim under the FCA, has Kroening provided sufficient particularity as required by Rule 9(b) ?

1. Alleged Scheme as a Violation of the FCA

“The Supreme Court has long held that a person may be liable under the FCA for causing an innocent third party to submit a false claim to the government without knowing it is false.” United States ex rel. Rost v. Pfizer, Inc. , 736 F.Supp.2d 367, 376 (D.Mass.2010) (citing, in part, United States v. Bornstein , 423 U.S. 303, 313, 96 S.Ct. 523, 46 L.Ed.2d 514 (1976) ); United States ex rel. Marcus v. Hess , 317 U.S. 537, 539–43, 63 S.Ct. 379, 87 L.Ed. 443 (1943) ); see also Mason v. Medline Indus ., 731 F.Supp.2d 730, 738 (N.D.Ill.2010) (“The wealth of case law supports the proposition that the FCA reaches claims that are rendered false by one party, but submitted to the government by another.”). Thus, the fact that the claim was submitted by a pharmacy without knowledge of the alleged kickbacks to the speaker physicians does not bar Kroening's action.

Kroening argues that the claims the pharmacies submitted were false because they were “not legally reimbursable” (...