United States ex rel. Schnupp v. Blair Pharm.

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UNITED STATES ex rel. TIMOTHY SCHNUPP, Relator v. BLAIR PHARMACY, INC., et al., Defendants.

Civil Action No. ELH-17-2335

United States District Court, D. Maryland

May 23, 2023

MEMORANDUM OPINION

Ellen L. Hollander, United States District Judge

In this qui tam action, Timothy Schnupp, the Relator, has sued his former employer, Blair Pharmacy, Inc. (“Blair Pharmacy” or “Pharmacy”), and its director and principal, Matthew Blair (“Blair”), pursuant to the False Claims Act (“FCA” or “Act”), 31 U.S.C. §§ 3728 et seq. See ECF 30 (First Amended Complaint). The suit contains two counts. Count I asserts false claims under 31 U.S.C. § 3729(a)(1)(A) and Count II asserts false claims under 31 U.S.C. § 3729(a)(1)(B).

Schnupp alleges, inter alia, that defendants knowingly submitted false claims to the Medicare Program, 42 U.S.C § 1395 et seq. (“Medicare”), a federally funded health insurance program for people ages 65 and older and for certain people with disabilities (id. ¶ 11), and to the Department of Defense TRICARE health insurance program. Id. ¶ 20.^[1] In particular, the Relator asserts that defendants knowingly submitted false claims to Medicare and TRICARE for certain compound drugs, by substituting a less expensive drug for a more expensive drug; by billing for medication that was not provided; by overcharging for certain medications; and by committing violations of the Anti-Kickback Statute (“AKS”), 42 U.S.C. § 13209-7b(b). See id. ¶¶ 28-43.

As discussed, infra, the civil claims lodged by the Relator were the subject of a federal criminal prosecution of Blair. See United States v. Matthew Blair ELH-19-410 (D. Md.). The prosecution culminated in defendant's conviction under the AKS, 42 U.S.C. § 1320a-7b(b)(2)(A).

Relator has moved for partial summary judgment, prior to discovery with respect to Blair's payment of illegal kickbacks for claims submitted to TRICARE, in violation of 42 U.S.C. § 1320a-7b(b)(2)(A). See ECF 57 (the “Motion”). According to plaintiff, as a result of Blair's criminal conviction, he is “estopped” from disputing a violation of the FCA. Id. at 4. Relator argues: “The United States is entitled to partial summary judgment in the total amount of $22,259,824.98, minus an offset under 18 U.S.C. § 3664(j)(2)(A) for restitution previously collected by the United States during Matthew Blair's criminal case.” Id. at 11.

Defendants oppose the Motion (ECF 86, the “Opposition”) supported by thirteen exhibits. ECF 86-1 to ECF 86-13.^[2] Relator replied. ECF 75.

No hearing is necessary to resolve the Motion. See Local Rule 105.6. For the reasons that follow, I shall deny the Motion, without prejudice.

I. The False Claims Act and the Anti-Kickback Statute

As noted, the suit is premised on the False Claims Act, 31 U.S.C. §§ 3729(a)(1)(A) and (a)(1)(B). The Act provides, in part, that “any person who-(A) knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval; [or] (B) knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim . . . is liable to the United States Government for a civil penalty of not less than $5,000 and not more than $10,000, as adjusted by the Federal Civil Penalties Inflation Adjustment Act of 1990 . . . plus 3 times the amount of damages which the Government sustains because of the act of that person.”

The FCA protects the government fisc by “impos[ing] civil liability on persons who knowingly submit false claims for goods and services to the United States.” United States ex rel. Beauchamp v. Academi Training Center, 816 F.3d 37, 39 (4th Cir. 2016); see, e.g., United States ex rel. Citynet, LLC v. Gianato, 962 F.3d 154, 157 (4th Cir. 2020) (complaint alleged that defendant billed the federal government for “material and labor it did not provide, and for [projects] that were not constructed”); Affinity Living Grp., LLC v. StarStone Specialty Ins. Co., 959 F.3d 634, 636 (4th Cir. 2020) (complaint alleged that defendant “submitted reimbursement claims for resident services that were never provided”); see also United States ex rel. Rostholder v. Omnicare, Inc., 745 F.3d 694, 700 (4th Cir. 2014), cert. denied, 574 U.S. 819 (2014). Under the FCA, a whistleblower, known as a relator, may sue for himself and on behalf of the government to recover damages against a defendant who has caused the submission of fraudulent claims for payment injuring the public fisc. 31 U.S.C. § 3730(b)(1). As an incentive to bring such suits, a successful relator is entitled to share in the government's recovery from the defendants. See United States ex rel. Bunk & Ammons v. Gov't Logistics N.V., 842 F.3d 261, 265 n.3 (4th Cir. 2016); see also Schindler Elevator Corp. v. United States ex rel. Kirk, 563 U.S. 401, 404 (2011); ACLU v. Holder, 673 F.3d 245, 246-51 (4th Cir. 2011) (describing history and current provisions of FCA).

This case also implicates the AKS, 42 U.S.C. § 13209-7b(b). I turn to review the relevant portions of the statute.

The AKS is “designed to prevent” fraud and abuse in connection with federal health care programs, including Medicare and Medicaid. United States v. Patel, 778 F.3d 607, 612 (7th Cir. 2015).

It “was enacted to ‘protect the Medicare and Medicaid programs from increased costs and abusive practices resulting from provider decisions that are based on self-interest rather than cost, quality of care, or necessity of services.'” Id. (citation omitted). In addition, the AKS seeks “‘to protect patients from doctors whose medical judgments might be clouded by improper financial consideration.'” Id. (citation omitted).

Section 1320a-7b(b) of 42 U.S.C. was enacted in 1977, when Congress amended the Social Security Act by adding the Medicare-Medicaid Anti-Fraud and Abuse Amendments. See United States v. Shoemaker, 746 F.3d 614, 626 (5th Cir. 2014) (citing H.R. Rep. No. 95-393, pt. 2, at 44 (1977)); United States v. Shaw, 106 F.Supp.2d 103, 110 (D. Mass. 2000). The amendment sought to address the “disturbing degree [of] fraudulent and abusive practices associated with the provision of health services financed by the Medicare and Medicaid programs.” Shaw, 106 F.Supp.2d at 110 (citing H.R. Rep. No. 95-393, pt. 2, at 44 (1977), reprinted in 1977 U.S.C.C.A.N. 3039, 3047). The primary effect of these amendments was to turn fraudulent acts previously classified as misdemeanors into felonies. Id.; see United States v. Neufield, 908 F.Supp. 491, 493 (S.D. Ohio 1995).

Section 1320a-7b(g) of 42 U.S.C. states that “a claim that includes items or services resulting from a violation of this section [the Anti-Kickback Statute] constitutes a false or fraudulent claim for purposes of” the FCA. Therefore, “[a] violation of the Anti-Kickback Statute . . . automatically constitutes a false claim under the False Claims Act.” United States v. Mallory, 988 F.3d 730, 741 (4th Cir. 2021) (citing United States ex rel. Lutz v. United States, 853 F.3d 131, 135 (4th Cir. 2017) (“An [Anti-Kickback Statute] violation that results in a federal health care payment is a per se false claim under the [False Claims Act].”); see United States ex rel. Nicholson v. Medcom Carolinas, Inc., 42 F.4th 185, 193-94 (4th Cir. 2022).

II. Factual and Procedural Background^[3]

Schnupp, the Relator, is a Doctor of Pharmacy, a Maryland Licensed Pharmacist, and a former employee of Blair Pharmacy. ECF 30, ¶ 1. Blair was the founder of Blair Pharmacy, as well as a director and a principal, and he served as the Pharmacy's resident agent. Id. ¶ 3. At the relevant time, the Pharmacy was a Maryland corporation that operated as a compounding pharmacy. Id. ¶ 2. “Compounding” is a practice in which pharmacists combine, mix, or alter ingredients to create a customized medication for an individual patient in response to a licensed practitioner's prescription. Id. ¶ 24.

The Relator filed his initial Complaint (ECF 1), with exhibits, on August 15, 2017. Pursuant to the FCA, the suit was filed under seal to afford the United States an opportunity to decide whether to intervene. See 31 U.S.C. § 3730(b)(2). About two years later, on August 27, 2019, while the government was still considering whether to intervene, a federal grand jury returned a ten-count Indictment against Blair, alleging wire fraud and aggravated identity theft. ECF 38-4; see United States v. Matthew Blair, ELH-19-410, ECF 1. Then, on March 3, 2020, Blair was charged in a thirty-six count Superseding Indictment, which added charges of payment of illegal remunerations and money laundering. ELH-17-2335, ECF 38-5; ELH-19-410, ECF 20.

On December 3, 2021, Blair entered a plea of guilty to Count Thirty-One of the Superseding Indictment (ELH-17-2335, ECF 38-5; ELH-19-410, ECF 178), which charged him with payment of illegal remunerations, in violation of 42 U.S.C. § 1320a-7b(b)(2)(A), commonly known as the Anti-Kickback statute (“AKS”). The plea was tendered pursuant to a Plea Agreement under Fed. R. Crim. P. 11(c)(1)(C) (“C Plea”). ELH-19-410, ECF 181, ¶ 9; see also ELH-17-2335, ECF 38-6, ¶ 9. In accordance with the C Plea, Blair was sentenced on February 10, 2022 (ELH-19-410, ECF 188) to a term of twelve months and one day of incarceration, and he was ordered to pay restitution of $3,176,470.83. See ELH-17-2335, ECF 38-7; ELH-19-410, ECF 189 (Judgment). The government dismissed the remaining charges at sentencing. ECF 17-2335, ECF 38-6, ¶ 11.

The Plea Agreement included as Attachment A a lengthy Stipulation of Facts. Id. at 1521. Relevant here, the Stipulation of Facts provided: “The amount of $6,352,941.66 (as described in detail in Attachment B incorporated herein) was the total reimbursement amount TRICARE paid to Blair Pharmacy from November 2014 - May 2015, based...