The district court denied the defendant’s motion to dismiss a complaint alleging it had failed to disclose its best pricing to the government, resulting in overpayments for healthcare claims. The court held the complaint was not barred by either the first-to-file or public disclosure rule, finding that earlier complaints alleging the defendant’s sales practices amounted to unlawful physician kickbacks were not identical to the relator’s price inflation claims. Further, to the extent the claims did overlap, the court found the relator had direct independent knowledge of the scheme from his former role as a sales manager for the defendant, and that he provided significantly more detail of the who, what, when, where, and how of the scheme than earlier complaints.
Allegan Inc. moved to dismiss a False Claims Act complaint alleging the company misrepresented the pricing of one of its drug products to the United States. Relator Terrance Barrett filed a qui tam complaint alleging Allergan Inc. failed to report accurate prices for its prescription drug Botox, which caused the government to overpay when physicians sought reimbursement for its use.
Providers purchase Botox from Allergan and then bill the patient, insurers, or the government once the drug is used. The government pays for the drug based on the average sales price, a statutorily defined calculation, which Barrett argued is required to include both commercial and cosmetic sales. Manufacturers are also required to report the drug’s average manufacturers price and “Best Price” to the government on a quarterly basis.
In his complaint, Barrett, a former sales manager for Allergan, alleged the firm provided physicians with free products and cash rebate programs which effectively reduced the drug price for private providers, while Allergan failed to report the value of the programs in its price reporting obligations, thereby elevating the price of Botox reported and paid by the government. Barrett also alleges that providing reduced-price Botox and other products constituted unlawful kickbacks to induce prescriptions.
Allergan moved to dismiss, arguing that Barrett’s claims were barred by the first-to-file rule and public disclosure rule, and that his allegations failed to state a claim on the merits.
First, Allergan argued that a similar complaint that pre-dated Barrett’s claim was already pending in U.S. district court. In that case, the relator argued that Allergan engaged in a kickback scheme to promote Botox by providing physicians with free goods and services. Allergan alleged this other action was similar to Barrett’s action because both alleged that Allergan provided Botox samples, thereby reducing the price physicians paid for Botox, in order to promote loyalty to the Botox product. The defendant further noted that both complaints alleged a direct relationship between product samples and federal reimbursement rates and that they share the same material elements of fraud.
In response, Barrett argued the earlier case was materially different, because it alleged a different form of fraud and because the facts upon which the allegations are based are different. Specifically, Barrett argued the earlier case alleged only a kickback scheme, while his complaint alleged a price inflation scheme. Barrett also argued the underlying facts differed. The earlier action focused on allegations that Allergan used illegal kickbacks in the form of free products and equipment and a “Temporary Price Allowance Program” to induce physicians to purchase more Botox as part of their therapeutic treatments. In contrast, Barrett’s claims pertain to whether discounts and cosmetic programs were included in the average sales price, and whether Allergan intentionally excluded them to increase Medicare reimbursement rates.
Finally, Barrett argued that the evidence required to prove the alleged fraud also differs, as the earlier case could prove its kickback allegations without addressing the complaints in Barrett’s claim.
The court agreed that the allegations in the earlier complaint were significantly narrower than those in Barrett’s case, and that the materials facts underlying the allegations also were different. As a result, the damages resulting from each scheme were different, and therefore Barrett’s complaint was not subject to the first to file bar.
Next, the court considered Allergan’s argument that Barrett’s action was barred by the public disclosure rule. The defendant argued that the relevant information in Barrett’s complaint had entered the public domain through a similar action filed in the United States District Court for the District of Nevada. In response, Barrett argued that the allegations spanned different time periods and addressed a distinct scheme. Barrett also argued he provide new key details about the means used to effectuate the fraud. In turn, Allergan argued that Barrett’s complaint merely alleged a continuation of the scheme outlined in the earlier case.
The court denied the motion to dismiss. First, the court explained that a similar violation alleged in a prior action that occurred during a different time period may not constitute sufficient public disclosure. The public disclosure bar will apply to all claims at issue, including those made after the relevant disclosures, when the relator alleges ongoing conduct, rather than specific and distinct time periods. In these cases, Barrett’s complaint did not cite discrete time periods, though it seemed to indicate some overlap with the earlier case.
However, regardless of this potential overlap, the court held the public disclosure bar was immaterial because even if the disclosure were public, Barrett’s allegations were not based on them. The court found the allegations distinct, as they alleged a different form and degree of fraud than the earlier complaint. The previous case alleged Allergan engaged in a kickback scheme whereby physicians were provided free samples and encouraged to seek federal reimbursement, and were encouraged to administer Botox to multiple patients from a single vial while billing the government for a full vial for each patient. The court found those allegations differed from those brought by Barrett, who alleged the free samples and cash rebate programs reduced the price of Botox for private providers, which was not reported to the government. The court also found Barrett offered a higher level of detail such as descriptions of the programs by which Allergan allegedly provided free Botox to providers, as well as descriptions of specific conversations and actions.
Next, the court considered whether Barrett was an original source of the allegations. Allergan argued that the earlier allegations were already sufficient to give rise to an inference that Allergan was engaging in alleged wrongdoing. However, the court noted that Barrett had direct and independent knowledge of his allegations and that he had voluntarily provided his information to the government before filing his action.
Although Allergan argued that Barrett had not “materially added” to the public information, the court already concluded otherwise, and found Barrett’s claims were not barred by the public disclosure rule.
Finally, Allergan argued Barrett failed to state a claim, but the court disagreed, finding Barrett provided supporting detail and a strong factual basis for his claims. Allergan argued that Barrett had not alleged with sufficient particularity the prices that Allergan should have submitted to the government, but Barrett argued the company could not have accounted for the free samples because they did not keep track of what was distributed to physicians. The court agreed it would have been impossible for Barrett to calculate an accurate price.
Allergan also argued that Barrett failed to specify instances where free samples of Botox were provided to physicians contingent on purchase requirements. However, the court found multiple instances throughout the complaint where Barrett alleged a direct relationship between physicians receiving free Botox samples and their threats, implied or explicit, that they would cease using Botox products if they did not receive free samples. Similarly, the court found the relator satisfied Rule 9(b) by alleging the who, what, when, where, and how of the alleged fraud.
