A Philadelphia Federal Judge Gives Major Part D Case The Green Light

By: Pamela Coyle Brecht , Michael A. Morse , Marc Stephen Raspanti

On December 20, 2012, in the first major decision regarding the massive Medicare Part D program under the Federal False Claims Act (“FCA”), Judge Ronald Buckwalter denied CVS-Caremark’s motion to dismiss in U.S. ex rel. Spay v. CVS-Caremark, Corp., 2:09-cv-04672-RB (E.D. Pa).  The whistleblower lawsuit was filed by an industry insider and licensed pharmacist, Anthony Spay, who alleged that Caremark has engaged in a nationwide scheme to defraud the Medicare Prescription Drug Program.

Background of Case and the Part D Program

Established in 2006, the Medicare Part D Program subsidizes the cost of prescription drugs for eligible Medicare beneficiaries.  The Part D program relies on private contractors, called Part D Sponsors, to provide prescription drugs to Medicare beneficiaries.  The sponsor, either directly or through pharmacy benefit managers (“PBMs”), then submits claims to the Center for Medicare and Medicaid Services (“CMS”) for the cost of these drugs and a bundle of related services.

CVS Caremark participates in Part D, both as a sponsor and a PBM.  CMS pays the Part D Sponsors based on their estimated cost of providing Part D benefits to beneficiaries, and then reconciles the actual cost of providing Part D Services at the end of the year by requiring the Part D Sponsor to submit actual cost information to CMS in the form of Prescription Drug Event (“PDE”) data.

PDE data is electronic data that is submitted to CMS for each prescription that is filled for a Part D Sponsor’s members.  CMS requires the submitting Part D Sponsor or PBM to certify to the accuracy, completeness, and truthfulness of the PDE data it submits.

The Spay case was filed in 2009 under the FCA by Spay, whose company was hired to audit the Part D claims processed by Caremark on behalf of Medical Card System (“MCS”), a Puerto Rican health insurance company.  After a 2007 merger, CVS and Caremark have served as a Part D Sponsor, PBM, and retail pharmacy in the Part D program.  In the course of his company’s audit, Spay alleged that he found that Caremark was improperly adjudicating and submitting PDE claims for prescriptions that were not allowed under the Part D Program.  Specifically, Spay alleged that Caremark improperly dispensed gender-specific drugs to the opposite gender, failed to apply “maximum allowable cost” pricing to prescription drugs, billed for drugs with expired and obsolete National Drug Code identifiers, billed for prescriptions that contained false physician identifiers, dispensed prescription drugs without prior authorization, and billed for quantities of supplies of drugs that exceeded approved limits.  Spay also alleged that these practices were part of the CVS Caremark Defendants’ nationwide practice.

Marc S. Raspanti, Michael A. Morse, and Pamela C. Brecht of Pietragallo Gordon Alfano Bosick & Raspanti are among the attorneys on Spay’s legal team.  The seal was lifted on Relator Spay’s lawsuit in 2012, with the U.S. declining however to join the suit.  Defendants filed their motion to dismiss on April 23, 2012.  The U.S. filed a significant Statement of Interest in support of Spay’s case on September 11, 2012.

Relator’s Allegations Under 31 U.S.C. § 3729(a)(1)

False Certification Allegation

The district Court rejected Defendant’s argument that Relator Spay’s 31 U.S.C. § 3729(a)(1) claim should be dismissed.  First, Judge Buckwalter found that whether a Part D Sponsor submits PDEs to CMS or a PBM, it does it for the Sponsor.  The requirement that PDE data be certified as true, accurate, and complete as a condition of payment applies to PBMs through 42 C.F.R. § 423.505(k)(3).

Next, Judge Buckwalter found the phrase “data related to payment” should be read expansively.  The certification requirement applies to all data in the PDE, rejecting Defendants’ argument that the data related to payment is limited to only 4 of the 37 PDE data elements.

Third, Judge Buckwalter found that Defendants were required to provide the negotiated MAC pricing to beneficiaries, and its failure to do so could mean that Defendant would have submitted a false claim for payment.

With regard to the false provider identifiers, Judge Buckwalter found that Spay had adequately plead that Defendant submitted a false claim, since provider identifier is a PDE field used for payment.  The Court also rejected Defendants assertion that because the physician identifiers were “obviously incorrect” the government had validated them.

Worthless Services Allegation

Next, Judge Buckwalter found that Relator adequately alleged an FCA claim based on the worthless services theory.  Relator alleged that Defendant violated the FCA by submitting, or causing to be submitted, numerous PDE claims where the government wasn’t provided with the bundle of services it paid for as required by federal law, particularly concurrent drug utilization review (DUR) with regard to (1) gender contraindications (2) expired drugs (3) drugs requiring prior authorizations and (4) drugs dispensed above accepted limits.  Defendants claimed that Relator failed to allege a worthless services claim because (1) Relator failed to plead that Defendants billed or caused the billing of services that were allegedly not provided (2) Relator failed to plead that Defendant did not perform the services at all, but merely that Defendants did so imperfectly; and (3) Relator failed to plead that Defendant had any obligation to perform DUR for the four specified areas.

The Court found that Relator had adequately alleged that Defendants billed or caused CMS to be billed for required DUR services which were not provided by submitting PDE data to CMS.

Relator’s Allegations Under 31 U.S.C. § 3729(a)(2)

Judge Buckwalter also rejected Defendants’ assertion that Relator failed to state a claim under 31 U.S.C. § 3729(a)(2) because Relator failed to allege any false records or statements by Defendants “to get” a claim paid.  Judge Buckwalter found that Relator adequately alleged a “claim” because the PDE data supplied to CMS are claims for Part D payments.

Relator’s Allegations Under 31 U.S.C. § 3729(a)(7)

Judge Buckwalter also found that Relator adequately alleged a claim under the reverse false claims provision of 31 U.S.C. § 3729(a)(7) because Defendants failed to report the submission of false PDE data to CMS and failed to return payments received from CMS based on these false submissions during the annual Part D reconciliation prices.

Rule 9(b): Relator’s Nationwide Allegation

Judge Buckwalter also rejected Defendant’s motion to dismiss Relator’s allegation that Defendants fraudulent practices occurred nationwide.  The Court found that given the sheer number of claims identified by Relator in at least three states and Puerto Rico, Defendants fraudulent practices likely occurred throughout the country.

No Public Disclosure Had Occurred

Finally, Judge Buckwalter found that Spay’s claim was not based upon publicly disclosed information.  The Court rejected Defendant’s allegations that (1) an audit report which was part of the discovery in a 2007 case between MCS and Caremark was “publicly disclosed” and (2) that the PDE data submitted by Defendants to CMS was itself a public disclosure as a “report” available under the Freedom of Information Act.


This 98-page decision has major implications for the enforcement of regulatory safeguard against fraud in the Part D program.  By allowing all of Relator’s allegations to proceed, all entities in the Part D program are now on notice that they could be held liable for defrauding the Part D Program requirements.   A copy of Relator’s qui tam complaint and related documents can be found at www.falseclaimsact.com.

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