United States v. CSL Behring, L.L.C.

855 F.3d 935

UNITED STATES of America, Plaintiff

Shane Lager, Plaintiff–Appellant

v.CSL BEHRING, L.L.C.; CSL Limited; Accredo Health, Incorporated; Coram LLC, Defendants–Appellees

No. 16-1452

United States Court of Appeals, Eighth Circuit.

Submitted: December 15, 2016

Filed: May 5, 2017

Counsel who presented argument on behalf of the appellant was Charles S Kramer, of Saint Louis, MO. The following attorney(s) also appeared on the appellant brief; Paul Grote, of Saint Louis, MO. and Bruce C. Howard, of Chicago, IL.

Counsel who presented argument on behalf of Appellees CSL Behring and CSL Limited was Jessica Lynn Ellsworth, of Washington, DC. Also appearing on this brief were Mitchell Lazris, Michele Sartori, and Sean Marotta, of Washington, DC, and Claire M. Schenk, of Saint Louis, MO.

Counsel who presented argument on behalf of Appellee Coram LLC was Grant A. Geyerman, of Washington, DC. Also appearing on this brief were Enu Mainigi, Craig D. Singer, and Colleen McNamara, of Washington, DC., and Gabriel E. Gore, of Saint Louis, MO.

Counsel who represented Appellee Accredo Health were Daniel Meron, Allen M. Gardner, and Benjamin W. Snyder, of Washington, DC.

Before WOLLMAN and SMITH,¹ Circuit Judges, and WRIGHT,² District Judge.

SMITH, Circuit Judge.

Relator Shane Lager brought this qui tam action pursuant to the False Claims Act (FCA), 31 U.S.C. §§ 3729 et seq. , alleging that drug manufacturer CSL Behring, LLC, and its parent corporation CSL Behring Limited (collectively, "CSL Behring") conspired with pharmacies Accredo Health, Inc., ("Accredo") and Coram LLC ("Coram") to submit false claims to the United States for reimbursement for prescription drugs. The government declined to intervene. CSL Behring, Accredo, and Coram (collectively, "defendants") moved to dismiss the complaint based on, among other things, the FCA's public disclosure bar, 31 U.S.C. § 3730(e)(4)(A). The district court³ granted the motion. Lager appeals this dismissal, and we affirm.

I. Background

"We accept as true the material allegations in the complaint and present the facts in the light most favorable to [Lager]." Kulkay v. Roy , 847 F.3d 637, 640 (8th Cir. 2017). Lager worked for CSL Behring for 14 years in sales and sales management. CSL Behring manufactures and distributes protein-based therapies, including Vivaglobin and Hizentra. These drugs are self-administered by patients through a pump. This pump qualifies as "Durable Medical Equipment" (DME) under the Medicare statutes. CSL Behring began marketing and distributing Vivaglobin in 2006 but discontinued Vivaglobin in 2011. CSL Behring introduced Hizentra in 2010 and continues to manufacture it. Seventy percent of CSL Behring's sales of Vivaglobin and Hizentra are made to Coram and Accredo.

Pharmacies that dispense drugs to beneficiaries of government health care programs (such as Medicare) submit claims for reimbursement to the federal government. Since Congress's enactment in 2003 of the Medicare Prescription Drug, Improvement, and Modernization Act (MMA), 42 U.S.C. §§ 1395w-21 –1395w-28, most drugs that Medicare and other government health programs cover are reimbursed based on the average sales price (ASP). See 42 U.S.C. §§ 1395u(o), 1395w-3, 1395w-3a, 1395w-3b. However, the MMA excluded DME infusion drugs, such as Vivaglobin and Hizentra; instead, reimbursements for these drugs are based on 95 percent of the average wholesale price (AWP). While the ASP is based on actual sales data, the AWP is based on figures that the drug manufacturer reports to third-party publishers, such as Red Book. Office of Inspector Gen., U.S. Dep't of Health & Human Servs., OEI-12-12-00310, Part B Payments for Drugs Infused Through Durable Medical Equipment at 2–3 (2013) ("2013 OIG Report"). And, while the ASP is defined by law, the AWP is not. See Office of Inspector Gen., U.S. Dep't of Health & Human Servs., OEI-03-05-00200, Medicaid Drug Price Comparison: Average Sales Price to Average Wholesale Price (2005) ("2005 OIG Report"). The ASP is "substantially lower" than the AWP. Id . at 8. For example, in 2004, "[f]or 2,077 national drug codes with ASP and AWP data, ASP [was] 49 percent lower than AWP at the median." Id .

"Initially, AWP was the average price charged by wholesalers to providers, like doctors and pharmacies." In re Pharm. Indus. Average Wholesale Price Litig ., 491 F.Supp.2d 20, 33 (D. Mass. 2007), aff'd , 582 F.3d 156 (1st Cir. 2009). The AWP was "derived from the markup charged by wholesalers over their actual acquisition cost, sometimes called the 'Wholesale Acquisition Cost' or 'WAC.' " Id . Historically, providers added a 20 to 25 percent markup to the price that they paid to manufacturers. Id ."At some point, though, because of consolidation and competition among wholesalers, these standard markups on branded drugs no longer reflected actual wholesaler margins, which were reduced to 2 to 3 percent." Id . As a result, the actual AWP that wholesalers charged "to providers was much lower than the 20 or 25 percent markup over WAC." Id .

Lager brought this qui tam action pursuant to the FCA against CSL Behring, Accredo, and Coram, alleging that they agreed to and engaged in a joint action to defraud the government over the course of several years. Specifically, Lager alleges that CSL Behring reported inflated AWPs for Vivaglobin and Hizentra to third-party publishers when, in actuality, the "true selling price" at which CSL sold the drugs was "substantially less than their falsely reported amounts." Lager alleges that CSL Behring used the "spread" between the actual cost and the reported AWPs to induce their customers, including Accredo and Coram, to buy its products. Lager alleges that Accredo and Coram then sought out patients covered by government health programs to take advantage of the spread. As a result of the defendants' conduct, Lager claims that the federal government has overpaid in excess of $100 million for Vivaglobin and in excess of $180 million for Hizentra.

After the United States declined to intervene in Lager's suit, the defendants moved to dismiss the complaint (1) under the FCA's public disclosure bar, 31 U.S.C. § 3730(e)(4)(A) ; (2) for failure to plead fraud with particularity under Federal Rule of Civil Procedure 9(b) ; and (3) for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6).⁴ The district court dismissed Lager's complaint pursuant to the FCA's public disclosure bar, which bars an action or claim "if substantially the same allegations or transactions as alleged in the action or claim were publicly disclosed" in qualifying sources. 31 U.S.C. § 3730(e)(4)(A). First, the court discussed the "public disclosures regarding DME infusion drugs, generally." United States ex rel. Lager v. CSL Behring, LLC , 158 F.Supp.3d 782, 789 (E.D. Mo. 2016). The court recognized that "[m]ultiple government sources have long disclosed that AWP does not represent the actual prices of drugs." Id. at 788. The district court also cited several media sources as previously reporting that AWPs do not reflect actual drug prices. Id . And the court found that "multiple disclosures" showed that "manufacturers used the difference between actual costs and AWPs to influence sales." Id . The court cited Wholesale Price Litigation (a 2007 decision) as explaining the negative effect of AWP-based reimbursements. Id . at 789 (citing Wholesale Price Litig. , 491 F.Supp.2d at 30–31 ).

Second, the district court discussed "public disclosures regarding the AWP and ASP for Vivaglobin and Hizentra." Id . at 789. According to the court, "[t]he third-party publications publish AWPs, while the Centers for Medicare & Medicaid Services (CMS) publishes ASPs for drugs on a quarterly basis." Id . Based on publicly available figures derived from CMS and Red Book, Coram had provided the following table to the district court:

Quarter     Vivaglobin AWP     Vivaglobin ASP     Hizentra AWP     Hizentra ASP
2007Q4      $127.57            $66.75             N/A              N/A
2008Q4      $119.82            $66.06             N/A              N/A
2009Q4      $119.96            $67.85             N/A              N/A
2010Q4      $119.95            $68.42             N/A              $68.72
2011Q4      N/A                N/A                $151.07          $68.74
2012Q4      N/A                N/A                $150.66          $68.74
2013Q4      N/A                N/A                $150.96          $72.44

Id . at 790. The court characterized this table as "showing the significant spread between ASPs and AWPs for Vivaglobin and Hizentra for the years 2007 through 2013." Id. at 789.

Third, in response to Lager's argument that his allegations of fraud are based on the difference between the "actual AWPs" and the "reported AWPs" and not based on the "simple, irrelevant disparity between the ASPs and the reported AWPs" for the drugs, the district court found that "the term 'actual AWP' is meaningless in the absence of any statutory or regulatory definitions." Id . at 791. The court also found that the "target of relator's allegations is the difference between the AWPs and what he calls the drugs' 'true selling prices' "; according to the court, "true selling prices" are the same as the ASPs for the drugs. Id .

Having reviewed all the sources that the defendants put forth, the district court concluded that "[a]ll the essential elements of relator's claims were publicly disclosed before he filed suit." Id .

The district "[c]ourt decline[d] to address defendants' remaining arguments in any detail," but it did note that Lager's complaint lacked a "single, specific instance of fraud, much less any representative examples" and therefore failed to satisfy Rule 9(b). Id . at 793 (quoting United States ex rel. Joshi v. St. Luke's Hosp., Inc ., 441 F.3d 552, 557 (8th Cir. 2006) ). The court denied Lager's request to amend his complaint and granted the defendants' motion to dismiss.

II. Discussion

On appeal, Lager argues...