The district court mostly denied the defendants’ motion to dismiss a qui tam complaint alleging a failure to report accurate prescription drug prices under Medicare Part D. The court reasoned that a dispute over what prices are required to be reported to CMS was too complicated to resolve at the motion to dismiss stage. However, the relator’s allegation that the defendants had failed to report accurate pricing was sufficient to allow the case to proceed. The court also found the relator demonstrated scienter, as she alleged the defendants openly admitted in meetings that they had negotiated lower prices with pharmacies that they later failed to report to CMS. However, the court dismissed counts of reverse false claims, explaining that the failure to repay a false claim is not the same as an obligation to make a payment to the government. The court also dismissed counts against a Caremark subsidiary, finding the relator’s allegations amounted to guilt by association, rather than direct allegations against the subsidiary.
Relator Sarah Behnke filed a qui tam action alleging that CVS Caremark Corporation and its affiliates engaged in a scheme to defraud the government by falsely reporting certain price information for prescription drugs subsidized by the government under Medicare Part D.
Under Medicare Part D, costs are shared between the government and private health insurers who offer plans, provided those plans meet the requirements and regulations. When sponsors bid to provide services during a calendar year, they include a per member per month (PMPM) cost estimate for providing Part D benefits to an average Medicare beneficiary in a particular geographic area. CMS uses the bids to calculate a nationwide benchmark, and beneficiaries pay the difference between the benchmark and the sponsor’s PMPM bid. CMS then provides each plan sponsor with advance monthly payments equal to the Part D plan sponsor’s standardized bid, risk adjusted for health status, minus the monthly beneficiary premium, estimated reinsurance subsidies for catastrophic coverage, and estimated low-income subsidies.
CMS uses pharmacy purchase documents at the end of the payment year to reconcile its advance payments to the sponsor with actual costs the plan sponsor incurred. If a sponsor’s actual costs exceed the estimated costs, the plan sponsor may be able to recoup some of its losses through a risk sharing agreement with CMS. If a sponsor’s estimated costs exceed its actual costs by a specified amount, payments to the sponsor for the year are reduced and the sponsor will have to pay back some its estimated payments.
As a condition for receiving its monthly payment from CMS, a plan sponsor must certify the accuracy, completeness and truthfulness of all data related to the payment, which may include enrollment information, claims data, bid submission data, and any other data specified by CMS. Sponsors also must report any fees, payments, or adjustments made after the point of sale that change the cost of Part D covered drugs, such as manufacturer rebates or pharmacy concessions.
While employed as an actuary for Medicare Part D for Aetna Life Insurance, the relator discovered the alleged fraud. In 2010, Aetna contracted with the defendants to provide prescription drugs for Part D beneficiaries in an Aetna plan. The contract provided that Caremark would set the Maximum Allowable Costs prices to be paid by Aetna for multi-source generic drugs dispensed by these pharmacies. The MAC is the price Aetna pays and the price communicated to the beneficiary. Caremark had the ability under the contract to change the MAC prices.
Behnke alleged that Caremark adjusted the MAC prices they set for Aetna’s Part D business so that the drug prices for beneficiaries precisely met, but did not exceed, the retail discount guarantees in the contract between Aetna and Caremark. In other words, Caremark set its MAC prices at the maximum allowable under the contract. Based on her investigation, the relator discovered that the MAC prices being charged to Aetna were significantly higher than prices being charged by other Part D sponsors to their beneficiaries for the same drugs.
When Aetna inquired with Caremark, the defendants stated that they had negotiated pricing with its pharmacy providers but would not disclose those prices. The relator took this as an admission that the prices reported by Caremark were not the prices Caremark negotiated with its pharmacies. According to the relator, the Caremark defendants argued that if they passed better pricing onto Medicare, it would require a concession from Caremark, rather than a concession from the retail pharmacies. They asserted that improving discounts to Aetna would adversely impact their earnings. Nonetheless, when Aetna began a market check of prices, Caremark offered additional discounts. Eventually, the parties began negotiating a new contract.
The relator filed her qui tam case in 2014. In 2018, the government stated it would not intervene, but reserved the right to step in later. The defendants moved to dismiss.
First, the defendants argued the allegations lacked the required specificity. They argued the relator failed to allege facts regarding Caremark’s specific pharmacy contracts, including the particular pharmacies involved, the specific prices for specific drugs negotiated, and the specific Caremark employees involved in negotiating these prices. The defendants explained that, while the complaint does allege that the inflated MAC prices charged to Aetna were reported to CMS, rather than the prices actually negotiated with pharmacies, the relator did not identify a negotiated price paid to the pharmacy for a drug that was different from what was reported to CMS.
However, the court disagreed, noting that an FCA claimant is not required to show the exact content of the false claims in question to survive a motion to dismiss. The court held that Behnke had pled the alleged theory of fraud with sufficient particularity. The relator claimed that MAC prices set by Caremark, charged to Aetna and reported to CMS, were higher than the prices actually paid to pharmacies by Caremark, and that these lower prices were never reported to CMS. This resulted in the submission of false claims to CMS and overpayment to Aetna. In fact, the relator specifically alleged that Caremark admitted to negotiating lower prices that it did not report to Aetna or CMS, and that the defendants knew what pricing Aetna reported to CMS. The court found this sufficient to survive a motion to dismiss.
Alternatively, the defendants argued that even if the alleged scheme is pled with enough particularity: (1) the allegations do not support a plausible inference of falsity and (2) the allegations do not support a plausible inference of knowing falsity.
First, the defendants argued that the actual cost of a prescription reported to CMS is the negotiated price, which is the price the pharmacy agrees to accept and is the point of sale price reflected in the sales documentation. Accordingly, they argued that an aggregate guarantee is not the same thing as an actual point of sale cost. Even accepting the relator’s allegations as true, the defendants argued the court could not reasonably infer that Caremark’s sales disclosures were inaccurate.
The court noted some discrepancies on the issue. CMS asserts that post-point-of-sale claim adjustments violate its current guidance on negotiated prices. Negotiated prices must be the amounts ultimately paid to the pharmacy. However, CMS also acknowledged that the definition of negotiated prices could be interpreted as permitting these arrangements with pharmacies, despite its intent that negotiated prices transparently reflect all price concessions that a pharmacy has agreed to up-front on a per-drug-claim basis. CMS stated that it would not consider sponsors non-compliant with its negotiated prices rules as long as all such fees are fully reported as price concessions.
The court concluded that further discovery was needed to determine whether the type of price concessions at issue in the complaint must be reported to CMS. However, it was clear that the relator alleged that Caremark failed to report the lower prices it received from pharmacies on a transactional basis. Therefore, the court concluded that the allegation of Caremark’s failure to report alleged price concessions received from pharmacies created a plausible inference of falsity enough to survive dismissal.
Next, the defendants argued that, even if their interpretation of CMS regulations is incorrect, the price reporting rules are unclear, and their meaning is fairly debatable. Accordingly, they argued that Caremark lacked the scienter to knowingly submit a false claim.
The court disagreed, noting the relator alleged that Caremark itself acknowledged during meetings with Aetna that it had obtained prices from pharmacies lower than the MAC prices charged to Aetna and subsequently reported to CMS. The relator also claimed that, in response to Aetna’s intended “market check” for lower drug prices, Caremark offered to lower Aetna’s drug prices. The court found this sufficient.
Next, the defendants moved to dismiss claims against defendant SilverScript, a Caremark subsidiary. The relator claimed that the negotiated prices with pharmacies on behalf of SilverScript were essentially the same or slightly higher than the prices reported for Aetna, and that the discounts negotiated with pharmacy chains for SilverScript Part D beneficiaries did not vary at all by geographic region or pharmacy chain, suggesting that those prices are not the actual prices that Caremark defendants have negotiated with the pharmacies.
The court agreed the relator failed to allege sufficient facts to support these claims. Instead, the court reasoned it was being asked to assume that, because SilverScript is part of the CVS conglomerate, it would have had at least the same visibility into the competitively unreasonable (and thus suspicious) level of its prices as Aetna discovered. The court did not make this assumption, and dismissed the claims without prejudice to the relator.
The court also dismissed allegations of reverse false claims against the government. The relator argued that CMS used data submitted by Caremark on behalf of Aetna to reconcile payments made or due to Aetna for drugs dispensed to Medicare Part D beneficiaries that did not include, as required, the price concessions that Caremark received from pharmacies. The relator alleged Caremark failed to refund the false claims to the government, but the court explained that a failure to refund it not the same as an affirmative obligation to pay the government. The court dismissed this count without prejudice.
