United States ex rel. Buth v. Walmart Inc., Case No. 18-CV-840

UNITED STATES OF AMERICA, ex rel. JENNIFER BUTH, et al. Plaintiffs, v. WALMART INC. Defendant.

Case No. 18-CV-840

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF WISCONSIN

August 13, 2019

DECISION AND ORDER ON DEFENDANT'S MOTION TO DISMISS

Jennifer Buth brought this qui tam action¹ against Walmart Inc. on behalf of the United States, thirty-one individual states, the District of Columbia, and the City of Chicago.² (Docket # 1, Docket # 17.) Buth alleges that Walmart violated the False Claims Act ("FCA"), 31 U.S.C. § 3729, and similar state statutes through various pharmacy practices. (Docket # 1, Docket # 17.) Walmart has moved for dismissal for failure to state a claim on which relief can be granted. (Docket # 38.) For the reasons below, Walmart's motion to dismiss will be granted in part and denied in part.

LEGAL STANDARD

To survive a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), a plaintiff must satisfy Rule 8(a) by providing a "short and plain statement of the claimshowing that the pleader is entitled to relief . . . in order to give the defendant fair notice of what the . . . claim is and the grounds upon which it rests." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 545 (2007) (quoting Conley vs. Gibson, 355 U.S. 41, 47 (1957)). Additionally, the allegations must suggest that the plaintiff is entitled to relief beyond the speculative level. E.E.O.C. v. Concentra Health Services, Inc., 496 F.3d 773, 777 (7th Cir. 2007). I must construe the complaint "in the light most favorable to the plaintiff, taking as true all well-pleaded factual allegations and making all possible inferences from those allegations in his or her favor." Lee v. City of Chicago, 330 F.3d 456, 459 (7th Cir. 2003). However, in deciding a motion to dismiss, I am not bound to accept as true legal conclusions couched as facts. Bonte v. U.S. Bank, N.A., 624 F.3d 461, 465 (7th Cir. 2010).

FCA claims are subject to the heightened pleading requirements of Rule 9(b). United States ex rel. Presser v. Acacia Mental Health Clinic, LLC, 836 F.3d 770, 775 (7th Cir. 2016) (citing United States ex rel. Gross v. AIDS Research All.-Chi., 415 F.3d 601, 604 (7th Cir. 2005)). Under Rule 9(b), a plaintiff alleging fraud must state with particularity the circumstances constituting fraud—the "who, what, when, where, and how." Presser, 836 F.3d at 776 (quoting United States ex rel. Lusby v. Rolls-Royce Corp., 570 F.3d 849, 853 (7th Cir. 2009)) (internal quotation marks omitted). The precise details that must be included may vary depending on the facts of the case, and courts must "remain sensitive to information asymmetries that may prevent a plaintiff from offering more detail." Pirelli Armstrong Tire Corp. Retiree Med. Benefits Tr. v. Walgreen Co., 631 F.3d 436, 443 (7th Cir. 2011) (citing In re Rockefeller Center Props., Inc. Sec. Litig., 311 F.3d 198, 216 (3d Cir. 2002)). Nevertheless,plaintiffs must "use some . . . means of injecting precision and some measure of substantiation into their allegations of fraud." Presser, 836 F.3d at 776 (quoting 2 James Wm. Moore et al., Moore's Federal Practice § 9.03[1][b], at 9-22 (3d ed. 2015)); see also Pirelli, 631 F.3d at 442.

BACKGROUND

Buth is a licensed pharmacist who worked as a pharmacy manager at Walmart's New Berlin, Wisconsin pharmacy from July 2017 to May 2018. (Docket # 17 ¶¶ 27-28.) Walmart is a publicly traded Delaware corporation with its principal place of business in Arkansas, but doing business throughout all of the party states, the District of Columbia, and the City of Chicago. (Id. ¶ 63.)

Medicare is a government healthcare program that pays for reasonable and necessary healthcare for beneficiaries. (Id. ¶ 69.) Under Medicare Part D, the government pays a percentage of the cost of covered drugs dispensed with valid prescriptions. (Id. ¶¶ 78, 84.) The U.S. Department of Health and Human Services oversees the Medicare program and makes payments through the Center for Medicare and Medicaid Services ("CMS"). (Id. ¶ 72.) CMS does not pay pharmacies directly; it pays Medicare Part D "Plan Sponsors," typically private insurance companies, who pay pharmacies directly or through intermediaries known as Pharmacy Benefit Managers ("PBMs"). (Id. ¶¶ 78-79.) When a pharmacy dispenses a drug to a Medicare beneficiary, it submits an electronic claim to the Plan Sponsor and receives payment for the price minus any portion that must be paid by the beneficiary. (Id. ¶ 80.)

Walmart generates "Prescription Drug Event" ("PDE") records to support its claims for government payment, which it sends to CMS via PBMs and the Plan Sponsor. (Id. ¶ 87.)A PDE record must include accurate data including the drug dispensed, the prescription number, the dispensing fee paid to the pharmacy, the cost of the drug, the quantity dispensed, and the provider who ordered the medication. (Id. ¶ 88.) That such data be "true, accurate, and complete" is a condition of payment under the Medicare Part D program. (Id. ¶ 89.)

Buth's first amended complaint alleges that Walmart pharmacies nationwide defrauded the government through four "schemes": 1) dispensing less medication than prescribed but billing for the full amount ("short-filling"); 2) dispensing and billing for more medication than necessary for a particular period ("days' supply"); 3) dispensing and billing for 90-day supplies instead of 30-day supplies without consent or clinical need ("conversion"); and 4) billing for medications dispensed with inaccurate expiration dates. (Id. ¶¶ 143-283.) Buth asserts that these alleged schemes resulted in the submission of false claims and materially false PDE data to CMS and improper retention of money owed to the government. (Id. ¶¶ 284-93.)

ANALYSIS

The FCA is the primary vehicle used by the government for recouping losses suffered through fraud. United States v. Sanford-Brown, Ltd., 788 F.3d 696, 700 (7th Cir. 2015), reinstated in part, superseded in part by United States v. Sanford-Brown, Ltd., 840 F.3d 445 (7th Cir. 2016). The FCA imposes liability on one who:

(A) knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval;

(B) knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim; [. . .](G) knowingly makes, uses, or causes to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the Government, or knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government.

31 U.S.C. § 3729(a)(1). "Knowingly" means that a person has actual knowledge of the falsity of the information or acts with purposeful ignorance or reckless disregard of its falsity, but not necessarily specific intent to defraud. Sanford-Brown, 788 F.3d at 700 (citing 31 U.S.C. § 3729(b)(1); United States ex rel. Sheet Metal Workers Int'l Ass'n v. Horning Invs., LLC, 828 F.3d 587, 593 (7th Cir. 2016)); see also United States ex rel. Berkowitz v. Automation Aids, Inc., 896 F.3d 834, 842 (7th Cir. 2018) (mistake or negligence does not give rise to FCA claim). Falsity includes express misrepresentations and misrepresentation by omission. See United States ex rel. Lisitza v. Par Pharm. Cos., 276 F. Supp. 3d 779, 789 (N.D. Ill. 2017). A "claim" under the statute "includes direct requests to the Government for payment as well as reimbursement requests made to the recipients of federal funds under federal benefits programs." Universal Health Servs., Inc. v. U.S. ex rel. Escobar, 136 S. Ct. 1989, 1996 ((citing 21 U.S.C. § 3729(b)(2)(a)).

To establish civil liability under the FCA, a relator generally must prove (1) that the defendant made a statement in order to receive money from the government; (2) that the statement was false; and (3) that the defendant knew the statement was false. Id. (citing United States ex rel. Gross v. AIDS Research Alliance-Chicago, 415 F.3d 601, 604 (7th Cir. 2005)). The FCA also imposes a rigorous materiality requirement. United States ex re. Thornton v. Pfizer Inc., No. 16-cv-7142, 2019 WL 1200753, at *5 (N.D. Ill. Mar. 14, 2019) (citing Escobar, 136 S. Ct. at 2002). "Material" means "having a natural tendency toinfluence, or be capable of influencing, the payment or receipt of money or property." Id. (citing 31 U.S.C. § 3729(b)(4)).

Walmart argues that Buth's amended complaint should be dismissed because it fails to plead a violation of the FCA under Rule 8(a), to plead the particularized facts required by Rule 9(b), or to plead the required scienter and materiality. (Docket # 40.) Walmart also argues that Buth's state law claims should be dismissed, either because their pleading requirements are parallel to the FCA claims or because Buth has failed to plead a nationwide scheme with particularity. (Id. at 28-29.)

1. Count One: Alleged Medication "Short-Filling" Scheme

Buth's Count One alleges that Walmart violated 31 U.S.C. § 3729(a)(1)(A) by dispensing less medication than prescribed but billing the government for the full amount. (Docket # 17 ¶¶ 181-98, 260-65.) Buth alleges that "chronically untrained and time-pressured staff" often "short-fill" medication, and Walmart's standard operating procedures do not require pharmacy managers to re-count the medication to correct such errors. (Id. ¶¶ 144, 181-85.) Buth provides six examples of claims for short-filled medications submitted by Walmart's New Berlin, Wisconsin pharmacy, including dates, beneficiary initials, and prescription numbers, and avers that even after beneficiaries confirmed that their medications were short-filled, Walmart did not correct the claims. (Id. ¶ 196.) Buth alleges that she found several thousand dollars weekly in overages caused by such short-filling at the New Berlin, Wisconsin pharmacy. (Id. ¶¶ 191-92.) Buth asserts that both pharmacy managers and beneficiaries brought these issues to Walmart's attention, and Walmart's corporate...