Usual and Customary Price Prescription Billing Fraud

False Claims Act actions based upon the reporting of inflated U&C prescription prices to Government Healthcare Programs have been validated by a number of courts in denying motions to dismiss.1 Of these cases, the leading False Claims Act case to be considered by a Circuit Court of Appeals is United States ex rel. Garbe v. Kmart Corp., 824 F.3d 632 (7th Cir. 2016), cert. denied sub nom. Kmart Corp. v. United States ex rel. Garbe, 137 S. Ct. 627, 196 L. Ed. 2d 517 (2017).

In Garbe, the Seventh Circuit found that Kmart’s pharmacies violated the False Claims Act when they “offered low prices to discount-program cash customers, while submitting higher ‘usual and customary’ prices for prescriptions reimbursed by third-party insurers and some non- program cash customers.”2 Kmart pharmacists routinely overrode the official reported program U&C pricing to match competitor prices.3

The Seventh Circuit addressed False Claims Act liability under the CMS–Plan Sponsor–PBM–pharmacy payment structure, stating that the language of the FERA amendments to the False Claims Act “underscores Congress’s intent that FCA liability attach to any false claim made to an entity implementing a program with government funds, regardless of whether that entity was public or private.”4

Further, although decided before the Supreme Court’s Escobar decision,5 the Seventh Circuit found the submission of inflated U&C prices to be material to payment under 31 U.S.C. § 3729(b)(4) of the False Claims Act, noting that materiality “requires only that the false record or statement influence the ‘payment or receipt of money or property’ — no government decision is required. 31 U.S.C. § 3729(b)(4) (emphasis added).”6 Accordingly, the relator was “required to show only that Kmart’s allegedly false claims were material to Kmart’s receipt of more money that it should have gotten.”7 Even post-Escobar, the submission of falsely inflated U&C prices is material for purposes of False Claims Act liability.8

Finally, the Seventh Circuit rejected Kmart’s argument that the U&C definition of a cash price offered to the “general public” excludes persons participating in its “discount programs” finding that there was no “meaningful selectivity for the people who joined Kmart’s programs” to distinguish them from the “general public.”9 Noting that the Kmart discount programs were offered to the general public and that membership entailed “nothing more than the customer’s assent, demographic data the pharmacy already needed to fill the prescription, and a nominal fee” the Seventh Circuit concluded that cash customers “do not cease to be members of the general public the minute they are offered — or pushed into — ‘membership’ in Kmart’s ‘discount program.’”10

In reaching its conclusion, Garbe observed that U&C price regulations “should be read to ensure that where the pharmacy regularly offers a price to its cash purchasers of a particular drug, Medicare Part D receives the benefit of that deal.”11 Accordingly, because Kmart “offered the terms of its ‘discount programs’ to the general public and made them the lowest prices for which its drugs were widely and consistently available, the Kmart ‘discount’ prices at issue represented the ‘usual and customary’ charges for the drugs.”12

Garbe has been followed in a False Claims Act case against SuperValu pharmacies with the District Court granting summary judgment upon similar facts, finding that “Defendants’ lower matched prices, offered to the general public and widely and consistently available, are the usual and customary prices for their drugs.”13 Upon these findings the District Court concluded that “Medicare Part D and Medicaid were entitled to those actual usual and customary prices.”14

In addition to traditional False Claims Act actions under 31 U.S.C. §§ 3729(a)(1)(A) and (B), the reporting of inflated U&C prices may also give rise to section 3729(a)(1)(G) reverse false claims15 under the Social Security Act, which imposes an affirmative duty on pharmacies to report and return any Medicare or Medicaid overpayments within sixty days of discovery.16 The Social Security Act expressly states that the duty to return the overpayments is an “obligation” as that term is used in section 3729(b)(3) the False Claims Act.17 Pursuant to section (a)(1)(G) the only elements necessary for a violation after its 2010 amendment are that a defendant knowingly failed in an obligation to pay money to the Government. As fraud is not an element for such a reverse false claim the pleading requirements of Federal Rules of Civil Procedure 9(b) should not be applicable.

Helmer Martins Rice & Popham, Co., LPA, routinely represents whistleblowers in complex healthcare False Claims Act actions. Presently, we are counsel for relators in two national False Claims Act cases involving the fraudulent submission of inflated U&C prices to Medicare, Medicaid, and other Government Healthcare Programs: United States ex rel. Schutte v. SuperValu, Inc., et al., No. 11-cv-03290 (C.D. Ill.); and, United States ex rel. Proctor v. Safeway, Inc., No. 11-cv-03406 (C.D. Ill.). For more information, or to discuss a potential case with us, please contact us.

References

  1. United States ex rel. Rahimi v. Rite Aid Corp., No. 2:11-cv-11940, 2019 U.S. Dist. LEXIS 54854, 2018 WL 1426333 (E.D. Mich. Mar. 30, 2019); United States ex rel. Strauser v. LaFrance Holdings, Inc., No. 18-CV-673, 2019 U.S. Dist. LEXIS 36385, 2019 WL 1086363 (N.D. Okla. Mar. 7, 2019); United States ex rel. Proctor v. Safeway, Inc., No. 11-3406, 2016 U.S. Dist. LEXIS 165567, 2016 WL 7017231 (C.D. Ill. Dec. 1, 2016); United States ex rel. Schutte v. SuperValu, Inc., 218 F. Supp. 3d 767, 770 (C.D. Ill. 2016); Doe v. Houchens Indus., Inc., No. 1:13-CV-00196-RLY, 2015 U.S. Dist. LEXIS 2403, 2015 WL 133706 (S.D. Ind. Jan. 9, 2015); United States ex rel. Garbe v. Kmart Corp., 968 F. Supp. 2d 978, 981 (S.D. Ill. 2013).
  2. United States ex rel. Garbe v. Kmart Corp., 824 F.3d 632, 636 (7th Cir. 2016).
  3. Id.
  4. Id. at 638.
  5. Universal Health Servs., Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989, 2002, 195 L. Ed.2d 348 (2016).
  6. Garbe, 824 F.3d at 639.
  7. Id.; United States ex rel. Strauser v. LaFrance Holdings, Inc., No. 18-CV-673, 2019 U.S. Dist. LEXIS 36385, *41-42, 2019 WL 1086363 (N.D. Okla. Mar. 7, 2019).
  8. United States ex rel. Rahimi v. Rite Aid Corp., No. 2:11-cv-11940, 2019 U.S. Dist. LEXIS 54854, *16-22, 2018 WL 1426333 (E.D. Mich. Mar. 30, 2019).
  9. Garbe, 824 F.3d at 643.
  10. Id.
  11. Id. at 644.
  12. Id. at 645.
  13. United States ex rel. Schutte v. SuperValu, Inc., No. 11-3290, 2019 U.S. Dist. LEXIS 130016, *26, 1029 WL 3558483 (C.D. Ill. Aug. 5, 2019).
  14. Id.
  15. 31 U.S.C. § 3729(a)(1)(G) (imposing liability on any person “who knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government.”). In this context, the False Claim Act defines the term “obligation” as “an established duty, whether or not fixed, arising from an express or implied contractual, grantor-grantee, or licensor-licencee relationship, from a fee-based or similar relationship, from statute or regulation, or from the retention of any overpayment . . . .” 31 U.S.C. § 3729(b)(3).
  16. 42 U.S.C. § 1320a-7k(d); United States ex rel. Rahimi v. Rite Aid Corp., No. 2:11-cv-11940, *15-16, 2019 U.S. Dist. LEXIS 54854, 2018 WL 1426333 (E.D. Mich. Mar. 30, 2019) United States ex rel. Strauser v. LaFrance Holdings, Inc., No. 18-CV-673, 2019 U.S. Dist. LEXIS 36385, *48, 2019 WL 1086363 (N.D. Okla. Mar. 7, 2019).
  17. 42 U.S.C. § 1320-7k(d)(3).