United States Files Statement Of Interest In Major Medicare Part D FCA Case

September 13, 2012

On September 10, 2012, the United States filed a strong Statement of Interest in one of the first and largest suits involving fraud against the Medicare Part D Prescription Drug program (“Part D”), U.S. ex rel. Spay v. CVS-Caremark Corp, 2:09-cv-04672-RB (E.D. Pa) (Doc. No. 73).  This statement, which describes the position of the U.S. with regard to the application of the federal False Claims Act (“FCA”) to the Part D program, will have major implications not only for the outcome of this case and future whistleblower cases, but also for the integrity of the Part D program as a whole.

Background of Case and Part D Program

The Medicare Part D program was established in 2006 to subsidize 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 and then submit claims to the Center for Medicare and Medicaid Services (“CMS”) for the cost of these services.  CMS pays the Part D Sponsors based on their estimated cost of providing Part D benefits to beneficiaries in a particular area and then reconciles the Part D Sponsor’s actual cost of providing Part D Services at the end of the year.  It accomplishes this reconciliation 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 contracting entity to certify to the accuracy, completeness, and truthfulness of the PDE data it submits.

This case arose from a qui tam suit filed under the FCA by Anthony Spay, a former pharmacist 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.  In 2007, CVS merged with Caremark and together, the CVS Caremark Defendants have served as a Part D Sponsor, pharmacy benefit manager (“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 he learned in the course of his audit, that these practices were part of the CVS Caremark Defendants’ nationwide practice.

In 2009, Spay filed a whistleblower suit under seal on behalf of the Government alleging that the CVS Caremark Defendants’ engaged in a nationwide scheme to defraud the Part D program through the submission of false PDE data to CMS, which caused CMS to  make payments under the Part D program.  The seal was lifted on Relator Spay’s lawsuit in 2012, with the U.S. declining to join the suit.  After the CVS Caremark Defendants’ filed their motion to dismiss on April 23, 2012, the U.S. filed its Statement of Interest pursuant to its authority under 28 U.S.C. § 517, to respond to several of Defendant’s arguments and protect the interests of the U.S.

Statement of Interest

Government’s Intervention Decision

First, the U.S. rejected the CVS Caremark Defendants’ assertion that the Government’s decision not to intervene in the case was indicative of the case’s lack of merit. The U.S. stated that its decision not to intervene in an FCA action is based on a number of factors, including questions of resource allocation, and does not necessarily signal its disinterest in the action.  The U.S. also noted that the FCA expressly gives the U.S. the right to reconsider its decision not to intervene at a later time.  For this reason, the U.S. stated that it would be completely “unwarranted” and “inappropriate” to presume that the U.S. chose not to intervene because of the weakness of the case.  Accordingly, the U.S. requested that the Court “disregard and decline to draw any inference from the United States’ non-intervention” in the case.

PDE Data is a Claim for Purposes of the FCA

Next, the U.S. explicitly rejected the CVS Caremark Defendants’ argument that the PDE data submitted to CMS is not a “claim” for purposes of the FCA.  The U.S. first described the function of the PDE data in the context of the Part D program, stating that it serves as both a means of “payment” and “validation” of prescription drug claims and a means of year-end payment reconciliation with Part D Sponsors.  The U.S. also stated that as a condition of receiving its monthly payment from CMS, a Part D Plan Sponsor must certify the accuracy, completeness, and truthfulness of all data related to payment.  The U.S. specifically noted that if the “claims data” is generated by a “related entity, contractor, or subcontractor” such as a PBM, that PBM must “similarly certify” that the claims data it has generated is accurate, complete, and truthful, and will be used to obtain federal reimbursement.  Additionally, the U.S. stated that all subcontracts between Part D Sponsors and downstream entities such as PBMs obligate the downstream entity to comply with all applicable federal laws, regulations, and CMS instructions.  Thus, the U.S. did not support the CVS Caremark Defendants’ position that PBMs and other contractors have no obligation to certify the accuracy, completeness, and truthfulness of the data they generate in order to receive payment.

The U.S. then noted that “Defendants are wrong” in their assertion that PDE data is not a claim under the FCA, given the expansive definition of “claim” and the purpose and function of the PDE data.  Echoing Relator’s First Amended Complaint and his Opposition to Defendants’ Motion to Dismiss, the U.S. recognized that CMS expressly refers to PDE submissions as “claims data” in its Part D regulations, and also states in its instructions that PDE is a claim in the context of the Part D program.  The U.S. then argued that the “purpose and function of PDE data” puts it “squarely” within the definition of “claim” under the FCA, since it is used for payment and validation of claims as well as for year-end reconciliation.  The U.S. then referred the Court to the Relator’s Opposition to Defendant’s Motion to Dismiss, noting that it “correctly lists” the numerous ways in which PDE data causes the Government to make and determine the amount of payments under Part D.  As a final note, the U.S. submitted that if the Court were to adopt the CVS Caremark Defendants’ “unduly narrow” interpretation of “claim,” the Government’s ability to use the FCA to recover funds improperly paid under the Part D program could be limited in the future.

The Submission of PDE Data is Not “Public Disclosure” Under FCA

The U.S. also rejected the CVS Caremark Defendants’ notion that the PDE data submitted by the CVS Caremark Defendants to CMS were “public disclosures” for purposes of the FCA.  According to Defendant, because the PDE data was available for “research, analysis, reporting, and public health functions” beginning in 2008, this PDE data was “publicly available” and thus its submission would constitute a “public disclosure.”  The U.S. flatly rejected this, noting that Defendants’ argument was a “mischaracterization” of the term “public” and was tantamount to a claim that “everything the Government has in its files is public information.”  Instead, the U.S. noted that PDE data was only provided to researchers outside the Government on a “minimum data necessary policy” with specific legal restrictions to protect that data from being improperly disclosed.  Thus, the U.S. agreed with Relator that the very limited circumstances in which the Government releases PDE data to entities outside the Government for research purposes do not make the submission of PDE data for Part D payment a public disclosure under the FCA.

Relator Plead Falsity and Materiality Under the FCA

Finally, the U.S. argued that Relator had adequately pled both falsity and materiality under the FCA.  Citing U.S. ex rel. Wilkins v. United Health Group, Inc., 659 F.3d 295 (3rd Cir. 2011), the U.S. noted that to show falsity under either an express or implied false certification theory, a Relator must allege “not only a receipt of federal funds and a failure to comply with applicable regulations, but also that payment of federal funds was in some way conditioned on compliance with the regulations.”  The U.S. then contrasted the present case from Wilkins, in which the defendant Part D Sponsor merely violated Part D marketing rules which were not directly related to the payments made by CMS.  By contrast, the CVS Caremark Defendants’ alleged violations in the Spay case pertained to the accuracy of the PDE data, which the CVS Caremark Defendants certified compliance with and which is used by CMS to calculate payment.  The U.S. also found that this “falsity” was “material” to the Government’s decision to pay since compliance with Part D regulations regarding the accuracy of PDE data would have a “natural tendency” to influence the Government’s decision to pay.  Thus, the U.S. reasoned that Relator had pled falsity and materiality.

Defendants’ Rule 12 Motion Should Not Be Granted
Finally, the U.S. urged the Court to reject Defendants’ Rule 12 motion to dismiss.  The U.S. emphasized that “Relator has described in great detail in the Amended Complaint the manner in which Caremark’s submissions to the Government were allegedly false and material to the payments made under the Part D program.”  Thus, the U.S. asserted that it “believes that at this stage, [R]elator has stated a claim upon which relief may be granted and a Rule 12 dismissal would not be appropriate.”
Overall, this Statement of Interest demonstrates that the U.S. has a strong interest in protecting the Part D program from potential fraud and abuse and intends to utilize the federal False Claims Act as a means of doing so.   While the outcome of this decision is still pending, the U.S. has put Part D Sponsors, PBMs, and contractors on notice that it will not tolerate fraud in the Part D Program.

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