In United States ex rel. Silver v. Omnicare, Inc., et al. (D.N.J. No. 11-cv-01326), a whistleblower relator consistently alleged that certain pharmaceutical service providers have engaged in an illegal kickback arrangement and defrauded the government by offering unreasonably low prices to nursing homes for Medicare Part A patients’ prescription drugs in exchange for the opportunity to provide the same drugs at much higher costs to the nursing homes’ Medicaid and Medicare Part D patients for reimbursement. In a recent Order, the federal district court in New Jersey revived previously dismissed claims and permitted the relator to file a new, and fourth, amended complaint that asserts a new theory of liability to buttress the core kickback scheme allegations. The new complaint asserts that prescription drug event (PDE) data and enrollee encounter data are “claims for payment” under the False Claims Act (FCA)—and that even accurate PDE data can be a “false claim” under the FCA in cases where a pharmacy is alleged to pay kickbacks to its customers.

Each time a beneficiary fills a prescription under Medicare Part D, a prescription drug plan sponsor must submit a summary record (i.e., PDE data) to the Centers for Medicare & Medicaid Services (CMS). The PDE data are not the same as individual drug claim transactions, but are extracts using CMS-defined standard fields. The PDE record contains prescription drug cost and payment data that CMS utilizes to make payments to plans and to otherwise administer the Part D benefit.

In this latest complaint, the relator alleges that when the defendants dispensed prescription drugs to Medicare Part D beneficiaries, they submitted claims to the Part D Plan Sponsors and certified that (i) they knew their claims would support a request for reimbursement from CMS, and (ii) they were in compliance with all applicable state and federal laws. The Part D Plan Sponsors then used defendants’ claims to submit PDEs, which CMS relied upon to reimburse the Part D Plan Sponsors, who in turn reimbursed the defendants. The Department of Justice (DOJ) filed a Statement of Interest in support of the amended complaint and argued that the theory is viable as either an implied or express certification. CMS requires plan sponsors to include in their contracts with downstream entities (like pharmacies) that these entities comply with all applicable federal laws; that contractual obligation could support an express certification of compliance.

The defendants argued that relator’s latest effort to amend the complaint was futile because (1) PDE data are not “claims” under the FCA because PDE records are transaction summaries that do not include any request for demand for payment, (2) PDEs may not be rendered false by the payment of kickbacks from a pharmacy to its customers in violation of the Anti-Kickback Statute (AKS), and (3) the relator’s and the government’s reliance on cases that stand for a broad proposition that PDE are claims is in tension with other precedent that accurate PDE data allegedly “tainted” by kickbacks cannot ground a claim under the FCA. But the relator and the DOJ persuaded the court that there is a direct causal chain between the defendant pharmacy submitting false electronic claims to the Part D Sponsor and the Part D Sponsor submitting PDE records to CMS, which satisfies the definition of a “claim” under the FCA. The court noted in its April 13, 2021 Order that the relator has “sufficiently pled [defendants] knew and intended that the PDE data and enrollee encounter data would cause CMS to reimburse the states and Part D Sponsors for those claims and that the states and Part D Sponsors would, in turn, reimburse [defendants],” thus establishing the causal predicate for an FCA claim. The court cited numerous other cases holding that PDEs are claims for payment on which FCA liability may be based, highlighting that “PDE data is the only record submitted from PDMs or Part D Sponsors that triggers CMS’s payment obligation to the Part D Sponsor.”

In its statement of interest, the DOJ also argued that paying kickbacks in connection with prescriptions to Part D beneficiaries automatically renders the claims for such prescriptions false under the FCA. The court generally agreed, concluding (at least at this pleading stage) that ample Third Circuit case law supported the proposition that “PDEs and enrollee encounter data tainted by kickbacks may constitute false claims under the FCA.”

The court rejected defendants’ arguments that a PDE or enrollee encounter data submission may constitute a “false claim” only where they are either factually false or the payment requests and attendant certifications are false, ruling that “a claim may be false for FCA purposes when tainted by a kickback scheme.” Interestingly, the court did not explain precisely how pharmacy claims data submitted to plan sponsors—even if “tainted” by some underlying violation of the AKS—could, in turn, render accurate summary data submitted by those plan sponsors to CMS legally “false.” Applying this reasoning further, arguably any statutory or regulatory violation relating to the drugs a pharmacy dispenses could “taint” a plan sponsor’s PDE data and thus give rise to potential liability under the FCA. This case underscores the necessity for pharmacies and plan sponsors to exercise proper due diligence over their supply chains and to ensure that any submission to CMS is in full compliance with laws and regulations.