United States v. Teva Pharmaceuticals USA, Inc.

560 F.Supp.3d 412

UNITED STATES of America, Plaintiff,

v.TEVA PHARMACEUTICALS USA, INC., and Teva Neuroscience, Inc., Defendants.

Civil Action No. 20-11548-NMG

United States District Court, D. Massachusetts.

Signed September 9, 2021

Abraham R. George, Evan D. Panich, Gregg D. Shapiro, United States Attorney's Office, Boston, MA, Douglas J. Rosenthal, Department of Correction, Bridgewater, MA, Nelson Wagner, United States Department of Justice, Washington, DC, for Plaintiff.

Alison Tanchyk, Pro Hac Vice, Morgan, Lewis & Bockius LLP, Miami, FL, Emily E. Renshaw, Morgan, Lewis & Bockius LLP, Boston, MA, Eric W. Sitarchuk, Pro Hac Vice, Rebecca J. Hillyer, Pro Hac Vice, William T. McEnroe, Pro Hac Vice, Morgan Lewis & Bockius LLP, Philadelphia, PA, for Defendants.

MEMORANDUM & ORDER

GORTON, United States District Judge This case arises out of purported violations of the Anti-Kickback Statute, 42 U.S.C. § 1320a-7b ("AKS"), and the False Claims Act, 31 U.S.C. §§ 3729 et seq. ("FCA"), by a pharmaceutical company. The government alleges that Teva Pharmaceuticals USA, Inc. ("Teva USA") and Teva Neuroscience, Inc. ("Teva Neuroscience") (collectively, "Teva" or "defendants") improperly paid millions of dollars to charitable foundations with the intent and understanding that the money would be used to subsidize patients’ out-of-pocket expenses for a drug manufactured by Teva, violating the AKS and causing the submission of false claims for payment to Medicare.

Pending before the court is Teva's motion to dismiss the complaint for failure to state a claim pursuant to Fed. R. Civ. P. 12(b)(6). For the reasons that follow, that motion will be allowed, in part, and denied, in part.

I. Background

The following facts are as alleged in the complaint.

A. The Parties & Medicare Part D's Cost-Sharing Structure

Plaintiff, the government, administers the Health Insurance Program for the Aged and Disabled established by Title XVIII of the Social Security Act, 42 U.S.C. §§ 1395, et seq. ("Medicare"). Teva is a pharmaceutical company which manufactures Copaxone, an injectable drug used to treat multiple sclerosis ("MS"), a disease of the central nervous system. The annual per patient cost of Copaxone has increased from approximately $17,000 in 2006 to more than $73,000 by 2015.

Medicare Part D, which provides prescription drug coverage for Medicare beneficiaries, became effective in 2006. That coverage is not comprehensive, however, and Medicare patients may need to pay for part of the cost of the prescription drugs provided under Part D. Those partial payments ("copays") are intended to encourage physicians and beneficiaries to be efficient consumers of federally-reimbursed health care products and to encourage drug manufacturers to price their products based upon market forces.

After paying an annual deductible, Medicare Part D beneficiaries are responsible for a 25% copay up to an "initial coverage limit." Once that limit is reached, there is a "coverage gap" in which patients must pay a high percentage of brand name prescription drugs until they reach an "annual out-of-pocket threshold" for the coverage year. For brand name drugs like Copaxone, the copay during the coverage gap was 100% through 2010, 50% in 2011 and 2012, 47.5% in 2013 and 2014 and 45% in 2015 and 2016. Once that annual threshold is met, Medicare's "catastrophic coverage" begins and the patient's copay is only 5% of the cost of the drug.

In 2015, Medicare spent over $1.1 billion on catastrophic coverage for Copaxone.

B. Teva's Charitable Donations & Alleged Misconduct

Teva administers a program known as "Shared Solutions" which provides Copaxone patients with services including educational resources, injection training and financial assistance. Beginning in 2006, Shared Solutions referred Medicare and Medicare-eligible Copaxone patients to specialty pharmacy Advanced Care Scripts, Inc. ("ACS") to help them obtain Medicare Part D coverage and copay assistance.

The Chronic Disease Fund ("CDF") and The Assistance Fund ("TAF") are charitable foundations. During the period of time relevant to the instant action, each operated a fund for MS patients to cover the copays for a number of available MS medications ("MS funds"). Once the MS funds at CDF and TAF allocated all of their funds to existing patients, they would temporarily close to new patients. They did not create wait lists for those who applied for coverage while the funds were closed. When the funds received new donations, they would open on a "first come, first served" basis, meaning that only the most recent applicants would receive grants.

The government alleges that Teva worked with ACS to ensure that its donations to CDF and TAF were used solely for Copaxone copay assistance. ACS would purportedly provide periodic reports to Teva regarding the number of new Copaxone patients waiting for Medicare copay coverage. When ACS possessed a substantial number of Copaxone patient grant applications, Teva would multiply that number of patients by the foundation's average grant for Copaxone patients, add the foundation's administrative fee and send a corresponding donation to the foundation. After receiving notice from Teva that the donation had been made, ACS would send a "batch file" of Copaxone patient applications to the relevant foundation for coverage as soon as the MS fund reopened, ensuring that most, if not all, of Teva's donations covered Copaxone patients specifically.

Between December, 2006 and December, 2015, Teva donated to CDF and TAF more than $328 million in 66 payments. The complaint alleges that those contributions were intended to increase sales of and generate Medicare claims for Copaxone. Although Teva avoided conducting a formal return on investment ("ROI") analysis of its foundation support, handwritten notes from a meeting held in January, 2010, purportedly indicate that the company informally calculated that its donations to CDF and TAF generated substantial ROI.

The government alleges that Teva knew that CDF and TAF used its donations almost exclusively for Copaxone patients rather than for MS patients in general. As a result, the government contends that Teva effectively used those contributions to subsidize its own drug at the expense of Medicare.

C. Procedural History

The government filed suit in this Court in August, 2020. In the complaint, it claims that Teva 1) made materially false or fraudulent claims for payment or approval to Medicare in violation of the FCA (Count I); 2) used false or fraudulent records or statements in connection with the purportedly false claims (Count II); 3) conspired with ACS, CDF and TAF to violate the FCA (Count III); and 4) was unjustly enriched as a result of sales made to Medicare patients who received copay assistance from CDF or TAF (Count IV).

Defendants filed a motion to dismiss the complaint pursuant to Fed. R. Civ. P. 12(b)(6) in October, 2020, which the government timely opposed.

II. Motion to Dismiss

A. Legal Standard

To survive a motion to dismiss, a claim must contain sufficient factual matter, accepted as true, to "state a claim to relief that is plausible on its face."

Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). In considering the merits of a motion to dismiss, the Court may only look to the facts alleged in the pleadings, documents attached as exhibits or incorporated by reference and matters of which judicial notice can be taken. Nollet v. Justices of Trial Court of Mass., 83 F. Supp. 2d 204, 208 (D. Mass. 2000), aff'd, 248 F.3d 1127 (1st Cir. 2000).

Furthermore, the Court must accept all factual allegations in the claim as true and draw all reasonable inferences in the claimant's favor. Langadinos v. Am. Airlines, Inc., 199 F.3d 68, 69 (1st Cir. 2000). If the facts in the claim are sufficient to state a cause of action, a motion to dismiss must be denied. See Nollet, 83 F. Supp. 2d at 208.

Although a court must accept as true all the factual allegations in a claim, that doctrine is not applicable to legal conclusions. Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). Threadbare recitals of legal elements which are supported by mere conclusory statements do not suffice to state a cause of action. Id.

Under Rule 9(b), allegations of fraud are held to a higher pleading standard. To survive a motion to dismiss, a complaint alleging fraud must "state with particularity the circumstances constituting fraud." Fed. R. Civ. P. 9(b).

B. Regulatory Framework

The FCA imposes civil liability for anyone who

knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval [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)(A), (a)(1)(B). A "claim" is "any request or demand ... for money or property" presented to an officer, employee or agent of the United States. 31 U.S.C. § 3729(b)(2).

The AKS imposes criminal liability on anyone who

knowingly and willfully offers or pays 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 ... to purchase ... or arrange for or recommend purchasing ... any good ... 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). A violation of the AKS which results in a federal health care payment is a "per se false claim under the FCA." United States v. Regeneron Pharms., Inc., 2020 WL 7130004, at *14, 2020 U.S. Dist. LEXIS 227643, at *43 (D. Mass. Dec. 4, 2020) (quoting Guilfoile v. Shields, 913 F.3d 178, 190 (1st Cir. 2019) ).

Under that regulatory framework, the government alleges that Teva violated the AKS through its payments to CDF and TAF and that the resulting claims submitted to Medicare were per se false in violation of the FCA. Teva urges dismissal of the complaint because the...