On August 5, 2019, the United States District Court for the Central District of Illinois issued a rare ruling granting partial summary judgment for plaintiff-relators in a False Claims Act case. United States ex rel. Schutte v. SuperValu, Inc. et al., No. 11-3290, 2019 WL 3558483 (C.D.Ill. Aug. 5, 2019). Relying heavily on the Seventh Circuit’s decision in U.S. ex rel. Garbe v. Kmart, 824 F.3d 632 (7th Cir. 2016), the court granted the relators’ motion for partial summary judgment and held that Medicare Part D and Medicaid are entitled to the benefit of “price match guarantees” offered to cash-paying customers.
Relators are two pharmacists, one of whom worked briefly at a pharmacy owned by one of the defendants and the other who had never been employed by any defendant. They allege that the large pharmacy chain submitted false or fraudulent claims to obtain federal funds from Government Healthcare Programs (“GHPs”). Relators allege this occurred because defendants failed to report their cash price matches as their “usual and customary” prices, commonly referred to as “U&C” prices. As a result, the government paid inflated prices that did not reflect the prices charged to the general public.
Federal Medicaid regulations limit pharmacy reimbursement to the “lower of … (1) AAC [Actual Acquisition Cost] plus a professional dispensing fee established by the agency; or (2) Providers’ usual and customary charges to the general public.” 42 C.F.R. § 447.512(b). Although employing different terminology, the federal Medicare Part D program covering prescription drugs similarly requires the reporting of discounted “Negotiated Prices.” United States ex rel. Schutte v. SuperValu, Inc. et al., 2019 WL 3558483 at *7. Notably, the fact that prescription drug plan sponsors—rather than the defendants—submitted the inaccurate pricing information to CMS is irrelevant since liability attaches to any person who “causes to be presented” a false claim. 31 U.S.C. § 3729(a)(1).
The Allegedly Fraudulent Scheme
Relators allege that starting around 2007, defendants launched a “Price Matching” program to match competitors’ prices for generic drugs. Those matched competitor prices were deliberately not included in defendants’ “usual and customary” calculations that were submitted to the government for reimbursement purposes. Relators contend the exclusion of the price match prices was company policy, implemented throughout all regions of the country. U.S. v. Supervalu, Inc., 218 F. Supp. 3d 767, 770 (C.D. Ill. 2016) (denying defendants’ motion to dismiss). Relators’ evidence includes computer printouts of customer transactions from the defendants’ centralized claims processing system, allegedly showing low prices charged to the general public and inflated prices charged to the government health programs for the same drugs. Id.
The Court’s Ruling on Summary Judgment
With respect to Relators’ motion for summary judgment as to the falsity of the claims, the court found that defendants’ offer to price match was an offer to the “general public,” meaning that the defendants were required to report and charge government health programs the same low prices. 2019 WL 3558483 at *7-8. Relators also allege that defendants’ established policy to match their competitors’ discount prices was a knowing profit-motivated effort to evade the reporting of their discount prices as their U&C prices. Id. at *2, 3. The court had found those allegations sufficient to withstand defendants’ initial motion to dismiss the complaint. U.S. v. Supervalu, Inc., 218 F. Supp. 3d 767 (C.D. Ill. 2016). Since relators did not move for summary judgement as to the materiality or scienter prongs of the False Claims Act, however, the court did not address those issues in the summary judgment opinion.
Defendants tried to explain away the price match program as not being a “usual and customary charge” because customers had to request those lower prices and had to show the competitors’ price. However, discovery did not support those contentions and instead showed that the price match prices were “charges to the general public,” consistent with federal Medicaid reimbursement standards. 2019 WL 3558483 at *3, 5-6, citing 42 CFR §447.512.
Defendants also argued that the primary Pharmacy Benefit Managers that processed more than 90% of the scripts did not consider the individualized price matching to have altered the U&C prices they submitted, a contention that relators challenged on the facts and that the district court deemed largely irrelevant in construing the meaning of the applicable statutes and regulations. Id. at *3. The court also rejected defendants’ repeated contention that price matching only impacted a small percentage of overall sales, deeming those arguments irrelevant to the inquiry of whether the prices were offered to the general public. Id. at *7-8.
Further, the court “is not persuaded that Garbe is limited to only legally enforceable ‘offers,’ and that advertisements about defendants’ willingness to price match local competitors’ prices were not legal offers because they did not include set pricing terms.” Id. at *7. Noting that the appellate court in Garbe did not discuss the elements of an offer but focused instead on meeting the purpose of the regulations—that state agencies not pay more for prescriptions than the prevailing retail market rate – the court rejected defendants’ arguments. Id.
As noted above, the relators were pharmacists, one of whom had never worked for the defendants. This is a good reminder that relators do not all have to come from the same mold – as an employee or former employee of the defendant. If you observe fraudulent conduct from the vantage point of a patient or consumer, competitor, independent consultant or otherwise, you may be able to assist the government in prosecuting the suspected fraud by filing a whistleblower complaint under the False Claims Act. Similarly, the fact that suspicious conduct is deployed in a brazen and widespread manner does not mean that the conduct is lawful. Contact an experienced False Claims Act lawyer for help navigating the complicated procedural rules and requirements.
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