United States ex rel. Hart v. McKesson Corp.

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UNITED STATES OF AMERICA et al., ex rel. ADAM HART, Plaintiff, v. MCKESSON CORPORATION, et al., Defendants.

No. 15-CV-0903 (RA)

United States District Court, S.D. New York

March 28, 2023

OPINION & ORDER

RONNIE ABRAMS, United States District Judge

Plaintiff-Relator Adam Hart brought this qui tam action against McKesson Corporation, McKesson Specialty Distribution LLC and McKesson Specialty Care Distribution Corporation (collectively “McKesson”) on behalf of the United States of America and twenty-eight states. In the main, Hart alleges that McKesson offered “something of value” to oncology practices that joined programs requiring them to purchase a substantial proportion of their drugs from McKesson-namely, two business-management tools the Margin Analyzer and the Regimen Profiler, which allowed the practices to increase their profit margins for prescribed medications- and that doing so violated the federal Anti-Kickback Statute, 42 U.S.C. § 1320a-7b(b), et seq. (“AKS”). Claims for reimbursement submitted by these practices, Hart asserts, were tainted by the kickback scheme and thus in violation of the False Claims Act, 31 U.S.C. § 3729, et seq. (“FCA”), and its state analogues.

The Court previously dismissed the First Amended Complaint filed in this action, finding that, although Hart had plausibly alleged that the business-management tools at issue constituted remuneration under the AKS, he failed to plausibly allege that McKesson acted with the requisite scienter and failed to plead the fraudulent scheme with particularity as required by Federal Rule of Civil Procedure 9(b). See United States ex rel. Hart v. McKesson Corp., 602 F.Supp.3d 575 (S.D.N.Y. 2022) (the “Prior Opinion”). The Court granted leave to amend, and Hart has since filed a Second Amended Complaint (the “Complaint”), adding new allegations which he claims, plausibly allege that McKesson had knowledge of the unlawfulness of the scheme. McKesson has again moved to dismiss. For the reasons that follow, the motion is granted, albeit again without prejudice.^[1]

BACKGROUND

The facts giving rise to this action, most of which were also detailed in the Court's Prior Opinion, are by now familiar to counsel and the parties. New allegations, as relevant here, are described in Section VI, see infra at 11-12. All facts are taken from the Complaint and are assumed to be true for purposes of the present motion. See Stadnick v. Vivint Solar, Inc., 861 F.3d 31, 35 (2d Cir. 2017).

I. The Parties

McKesson Corporation is a Delaware corporation headquartered in Irving, Texas. Compl. ¶¶ 16, 17. McKesson sells pharmaceuticals, medical supplies, and related services to health care providers. Id. ¶¶ 2, 42. McKesson Corporation is the parent company of the other McKesson Defendants, “which are all wholly-owned direct or indirect subsidiaries of McKesson Corporation.” Id. ¶ 16. McKesson Specialty Distribution LLC is a Delaware limited liability company and a wholly owned subsidiary of McKesson Corporation. Id. ¶ 17. McKesson Specialty Care Distribution Corporation is a Delaware corporation and also a wholly owned subsidiary of McKesson Corporation. Id.^[2] Hart alleges, upon information and belief, that during the relevant time period, McKesson Specialty Health (“MSH”) was a business unit of McKesson Corporation, McKesson Specialty Care Distribution Corporation, and McKesson Specialty Distribution LLC. Id. Through MSH, McKesson operated as a wholesale distributor, buying specialty drugs and reselling them to customers across the country. Id. ¶¶ 2, 17-18, 42.

Plaintiff-Relator Hart was employed by McKesson from August 2011 until September 2014 as a Business Development Executive (“BDE”) in its Specialty Health business unit. Id. ¶ 15. His responsibilities included generating new business opportunities among communitybased oncology practices in the southeastern United States. Id. Once a customer was recruited, Hart would provide services for the first year, after which a “McKesson Account Executive” was assigned. Id. The McKesson Account Executive was responsible for maintaining and increasing sales, but Hart remained in touch with practices through “sales meetings, sales calls, requests for assistance from other personnel, and communications with coworkers.” Id.

II. McKesson's Oncology Business

As relevant here, MSH provided “specialty pharmaceuticals and services to community oncology practices.” Id. ¶ 49.^[3] The specialty drugs used in cancer treatment are complex to manufacture, require special handling, and, as a result, are more expensive than other drugs. Id. ¶ 41. Some oncology practices obtain the drugs from a specialty pharmacy, which then bills patients' insurers. Id. ¶ 43. Others opt to purchase drugs from wholesalers like McKesson, provide those drugs to their patients, and then bill the patients' insurers themselves. Id.

In 2014, the oncology business was MSH's largest line of business by revenue, generating $7 billion of MSH's $9 billion in annual revenue. Id. ¶ 49. There were two divisions of the oncology business, and Hart worked in the “open market” division, which operated as a traditional drug wholesaler and distributor. Id. ¶¶ 49-50. The allegations in the complaint are limited to the practices of the open market division. Id. ¶¶ 50-51.

III. The Business-Management Tools

Hart's claims are based on McKesson's usage of two business-management tools-the Margin Analyzer and the Regimen Profiler-which were offered almost exclusively to practices that committed to purchasing a significant portion of their drugs from McKesson. Id. ¶ 75.

A. The Margin Analyzer

Beginning in approximately 2011, McKesson offered its customers “complimentary access” to the Margin Analyzer. Id. ¶ 54. With the benefit of further amendment, the Complaint now specifies a “non-exhaustive” list of 113 practices from locations throughout the country which were provided the Margin Analyzer free of charge. Id. ¶ 55. Among other things, the tool allowed oncology practices like these to compare the reimbursement rates of interchangeable drugs. Id. ¶¶ 58-59. McKesson had identified “therapeutically interchangeable” choices for ten categories of drugs commonly used by oncology practices. Id. ¶ 64. For any given category, the Margin Analyzer relied on pricing and reimbursement data to determine which of the similar drugs would yield the highest profit for the practice. Id. ¶¶ 65, 67. McKesson employees input reimbursement data from Medicare and private insurers, allowing the tool to analyze the profitability of different drugs based on a patient's insurer. Id. ¶¶ 61-63, 65-67.

By way of illustration, the Complaint includes the following illustration of the tool's utility. The Margin Analyzer listed five “therapeutically interchangeable” options for parenteral irons. Id. ¶ 86. In Q1 2012, McKesson's data showed that, for Medicare-insured patients, the difference between acquisition cost and reimbursement price was significantly greater for one brand of parenteral irons, Feraheme, than other brands. Id. ¶¶ 86-87. For Summit Cancer Care in Savannah, Georgia, specifically, a switch from prescribing only Infed parenteral irons (margin of $15.19 per dose), to a mix of 80% Feraheme (margin of $88.52 per dose) and 20% Infed would increase annualized net profits by $10,560. Id. The Margin Analyzer excerpt below shows the type of data comparisons available to McKesson representatives and the practices with whom they shared them:

Drug

Dose (mg's)

Dose Cost

Dose ASP+6

Dose AWP

INFED 50MG/

1000

$

246.75

$

241.94

$

377.00

DEXFERRUM |

1000

$

235.62

$

241.94

$

377.00

NULECIT 12.5

1000

$

351.89

$

309.28

$

610.56

FERAHEME

1020

$

559.18

$

647.70

$

948.60

VENOFER 20

1000

$

320.00

$

290.00

$

430.00

(Image Omitted Table)

Compl., Ex. 4 at 7 (Q2 2012 SCC Margin Analyzer).

The Margin Analyzer was used not only to compare the cost and profit margin on a per drug, per insurer basis, but also to give forward-looking recommendations based on that data. BDEs or Account Executives were thus able to forecast various scenarios by inputting different drug mixes or potential payors, and then used those findings to aid the practices in choosing a drug distribution that was most profitable for the practice. See Compl. ¶¶ 82-87. Because the Margin Analyzer allowed practices to instantly compare the profit margin of one drug versus others in the same category, a BDE or Account Executive could identify areas with large profit opportunities. See id. McKesson personnel met with their customers at “Quarterly Business Reviews” to review the Margin Analyzer and to provide “a detailed analysis of the practice's finances and business operation.” Id. ¶ 71.

In order to generate these results, the Margin Analyzer required data, including: the fee schedules published quarterly by the Centers for Medicare and Medicaid Services (“CMS”); the customer's quarterly purchase records; the prices at which McKesson sold its drugs; and the fee schedules of relevant private insurers. Id. ¶¶ 60-62. McKesson employees would gather and input this data into spreadsheets for each practice, and update them on a quarterly basis as the data changed. Id.

Because different insurers reimbursed different drugs at different rates, a drug most profitable for a Medicare patient may not be as profitable for a patient with a given private insurer. The Margin Analyzer not only accounted for the different reimbursement amounts offered by different insurers, but synthesized the data into a “cheat sheet” page that recommended the most profitable drug in each category by payor. See id. ¶¶ 90-91; Id., Ex 3, Q4 2012 SCC Margin Analyzer. The “cheat sheet” generated for the Summit Cancer Care in Q4 of 20...