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A district court dismissed a qui tam complaint alleging that McKesson used various market analysis tools to induce oncology practices to buy its products. The court found that the tools provided value to McKesson’s customers and that McKesson knew claims would be submitted to Medicare. However, the court concluded the relator hadn’t adequately shown that McKesson knew that its database analytics implicated the AKS.

U.S. District Court for the Southern District of New York No. 15-CV-0903 (RA); United States ex rel. Adam Hart v. McKesson Corporation, et al.

In Brief

A New York district court dismissed a qui tam complaint alleging that McKesson used unlawful remuneration to induce oncology practices to purchase its pharmaceuticals. The court found the relator adequately alleged that various market analysis and management tools provided independent value to the practices, which used them to determine which drugs would garner the highest reimbursement rates from which insurers. Because the reimbursement calculator included Medicare rates, the court inferred that the defendants knew that claims would be submitted to the government. However, the court found no allegation that McKesson knew that providing this tool implicated the Anti-Kickback Statute. Without an allegation of scienter, the court could not allow the complaint to proceed as-is.

Background

Plaintiff-Relator Adam Hart filed a qui tam action against McKesson Corporation, McKesson Specialty Distribution LLC, and McKesson Specialty Care Distribution Corporation, alleging that McKesson offered business-management tools to specialty oncology practices that joined programs requiring them to purchase a substantial proportion of their drugs from McKesson, and that doing so violated the Anti-Kickback Statute.

At issue is McKesson’s business selling pharmaceuticals, medical supplies, and related services to health care providers, which included the wholesaling of specialty drugs. Hart was employed by McKesson as a business development executive in its specialty health business unit, where he generated new business among community-based oncology practices.

Hart’s claims were based primarily on McKesson’s usage of two business-management tools—the Margin Analyzer and the Regimen Profiler—which were offered almost exclusively to practices that committed to purchasing a significant portion of their drugs from McKesson. The Margin Analyzer allowed practices to compare the reimbursement rates of therapeutically interchangeable drugs and analyze their relative profitability. It also allowed users to identify the reimbursement rate for various drugs by potential payors, and would recommend that physicians prescribe specific drugs based on the patient’s insurance provider.

The Regimen Profiler calculated costs for an entire treatment regimen, including non-drug related costs, such as preparing or administering treatments. Because insurers also reimburse these costs, the tool calculated the profitability of each treatment regimen by insurer.

The relator alleged that McKesson provided these tools for free to practices that committed to purchasing a significant majority of their branded and generic drugs from McKesson. The tools were not offered to practices that declined to join one of McKesson’s sales programs. The relator identified 12 practices who were used these tools, which he alleged were offered as an inducement to make a purchase commitment from McKesson.

Hart also asserted that the nationwide scheme was central to McKesson’s sales plans. Sales training materials emphasized the importance of the tools to retaining customers, and suggested that the tools encouraged customers to stay with McKesson rather than move to a lower-cost wholesaler. According to Hart, McKesson executives made it clear that the tools should be central to any sales pitches, and at least one business development executive was fired for failing to sufficiently highlight the tools.

The complaint alleged that McKesson violated the AKS by providing the tools for free to various oncology practices, in order to induce them into conducting business with McKesson. The defendants moved to dismiss.

The Motion to Dismiss

In its motion to dismiss, McKesson argued that the complaint: 1) failed to plausibly allege that the business-management tools constituted remuneration; (2) failed to plausibly allege that the defendants acted with the required scienter; and (3) failed to plead the fraudulent scheme with particularity.

Were the Profiling Tools Improper Remuneration?

Citing to OIG guidance and advisory opinions, McKesson argued that Hart must show that the tools had substantial and independent value in order to allege that they constituted remuneration under the AKS. In response, Hart argued that he had done so.

The court sided with Hart, noting that the tools were central to McKesson’s sales presentations to new clients. He also asserted that at least a dozen oncology practices that signed purchase agreements with McKesson cited the tools as key to their decisions.

McKesson argued that the tools lacked substantial value because the underlying data was freely available; because they provided only potential cost savings; and because they were not independent of McKesson’s product offerings. Therefore, the defendant argued that the tools had no value to non-McKesson customers.

The court found these arguments unavailing, first noting that the tools integrated data from multiple sources and synthesized it into a form useful to its customers. McKesson also maintained the data in the tools, saving significant time for the practices, and used its employees to help customers use the tools and identify the most profitable prescriptions. The court found this amounted to valuable consulting work, which added to the value of the data.

Hart also alleged that the tools were packaged with other business management tools sold by McKesson outside the purchase agreements. The court found it plausible to infer that the tools had value because they were provided free to practices that signed sales agreements. While the monetary value of the tools would be difficult to measure, the court found the complaint adequately alleged that the tools themselves had inherent value.

The court also rejected McKesson’s argument that the tools were to tied to its products that they had no independent value. While drug manufacturers may serve as an information clearinghouse for insurance and coverage information for their products, the court concluded the services went beyond the simple provision of information. The court also concluded that the tools would be useful to non-McKesson customers, as the complaint alleged that at least one former customer requested continued access after ending its purchase commitment. And again, the court found that the consultations with McKesson’s sales people went beyond the type of services that could be considered merely informational.

Did the Relator Adequately Allege Scienter?

As a pleading standard, the court concluded that Hart must give rise to a plausible inference that McKesson knew its conduct was unlawful, but need not allege actual knowledge of the AKS or specific intent to violate it. Hart argued for a lower standard—that demonstrating “willfulness” should require only that he allege the conduct was not negligent or accidental. However, the court declined to adopt this view.

In his complaint, Hart alleged that McKesson’s contracts, code of conduct, and SEC filings suggested it was aware of the AKS requirements and general unlawfulness of improper remuneration. For example, McKesson’s internal policies prohibited employees from providing of “things of value” to induce purchases of items that would ultimately be reimbursed by government sponsored health care providers.

However, while McKesson may have known about the illegality of improper remuneration in general, this did not mean the defendant understood that its management tools qualified as such. The court found no allegation that McKesson knew providing these tools to commitment program customers was unlawful. For example, Hart did not allege any facts showing McKesson tried to conceal the scheme or received any notice from counsel that the program could be unlawful. Rather, the program appeared to be openly advertised and widely discussed.

Because Hart failed to allege scienter, the court agreed the complaint should be dismissed.

Did the Relator Adequately Allege Claims Were Submitted?

McKesson argued that Hart identified no claims nor allege facts that would allow the court to infer that claims were submitted. The court disagreed. While Hart did not have access to individual claims by oncology practices, his allegations regarding the Margin Analyzer tool showed that McKesson was aware that its customers regularly submitted claims to Medicare and other federal healthcare programs. Further, McKesson regularly updated the tool with the newest CMS schedules. In fact, the primary use of the tools were to compare costs and reimbursement rates of various insurers, including Medicare. The court found these allegations created a strong inference that claims were eventually submitted to the government for payment.

While the court dismissed the complaint based on the scienter element, it granted Hart leave to amend to address the deficiencies identified here.