On April 30, 2018, the U.S. District Court for the District of Massachusetts dismissed the last remaining state False Claims Act (FCA) claims against long-term care pharmacy provider PharMerica, Inc. on the grounds that neither relator qualified as an "original source" under the applicable pre-2010 version of the FCA, thereby precluding their claims under the public disclosure bar. Critically, neither relator had firsthand, "direct" knowledge of the alleged fraud scheme.
In 2007, two relators (employees of a pharmaceutical company) filed suit alleging that their employer had offered financial incentives to two long-term care pharmacy providers (LTCPs) in exchange for the pharmacy providers' promotion of prescriptions of a specific antidepressant. Specifically, the relators alleged that their employer offered significant discounts and rebates to LTCP customers in exchange for increased promotion of the antidepressant, and that market-tier discounts were offered in exchange for the performance level of each LTCP. The relators alleged that further kickbacks in the form of research and educational grants, gifts, and payment for advertising initiatives were offered to the LTCPs in exchange for purchase and recommendation of the antidepressant. Relators' knowledge, however, was sourced from two other co-workers; neither relator was directly involved in the alleged scheme.
In 2010, the United States declined to intervene and the case was unsealed. Two years later, in 2012, the Court dismissed all federal claims and 18 state law based claims. Subsequently the other defendants (including the relators' former employer) entered into settlement agreements, leaving PharMerica facing state FCA claims under Louisiana, Michigan, and Texas law.
On September 29, 2017, PharMerica moved to dismiss the remaining three claims on several grounds, including that each claim was precluded by each applicable state's public disclosure bar. This argument was based, in part, on the fact that it was undisputed that the fraud allegations at issue had been publicly disclosed in a 2002 case before the Eastern District of Louisiana. Therefore, to avoid dismissal, relators needed to establish that they met the standards of the pre-2010 original source exception to the public disclosure bar in order for their claims to survive. This exception required, in relevant part, that the relator have direct and independent knowledge of the publicly-disclosed information.
The Court rejected the relators' arguments that they qualified for the original source exception. First, the Court noted that Louisiana, Michigan and Texas each have public disclosure bars and original source exceptions that are substantively identical to the corresponding provisions of the federal FCA. The Court further noted that the "first-to-file" bar did not block relator's claims, as the 2002 lawsuit that publicly disclosed the alleged fraud scheme was dismissed in 2006, a year before the relators filed their complaint. It was further found to be undisputed that relators' knowledge of the alleged scheme was independent of the 2002 lawsuit, thereby establishing that the relators had "independent" knowledge of the scheme.
The fatal flaw in relators' argument was that neither had direct knowledge of the information on which the allegations are based," as required by the pre-2010 FCA. Neither relator had a direct role in the alleged scheme, and both had learned of the scheme in a second-hand fashion from colleagues with direct knowledge. Furthermore, neither relator saw any corroborating documents until over a year after the alleged scheme had concluded, and those documents were viewed as part of "collateral research and investigation," not in the regular course of their job duties. In dismissing the remaining claims, the Court cited precedent requiring that, under the pre-2010 FCA, an individual must be a "close observer" of the alleged fraud in order to qualify as having "direct" knowledge for the original source exception.
This ruling highlights the long reach of changes to statutory language. Revisions to the FCA's statutory language in 2010 removed the requirement of "direct" knowledge of the information for the original source exception, thereby broadening the pool of potential relators. While this revision occurred roughly eight years ago, legacy cases subject to the pre-2010 statutory language are still working their way through the Courts. Had the relators in this case been subject to the current version of the FCA, it appears unlikely that the Court would have dismissed their claims on the basis of the public disclosure bar.
The case is United States ex rel. Banigan and Templin v. PharMerica, Case No. 07-cv-12153, before the U.S. District Court for the District of Massachusetts.
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