Court Dismisses DOJ Complaint Alleging Improper Auto-Refill and Co-Payment Waiver for Lack of Particularity

On September 30, 2019, a judge in the United States District Court for the Northern District of Illinois granted a motion to dismiss in an intervened FCA qui tam suit, finding that the relators, the United States, and the state of Illinois failed to satisfy Federal Rule of Civil Procedure 9(b)’s heightened pleading requirements for fraud claims. The suit targeted an entity referred to as C&M Specialty Pharmacy (“C&M”), which provides specialized medication for complex medical conditions.

The government alleged that C&M was auto-refilling patients’ prescriptions without authorization in violation of an Illinois Medicaid requirement that prescription refills “be initiated by a request from the prescriber, participant, or other person acting as an agent of the participant, e.g., a family member.” The relators separately alleged that C&M was waiving required co-payments for certain groups of patients to induce providers to refer patients to C&M and to induce patients to fill prescriptions at C&M in violation of the Anti-Kickback Statute.

Applying Rule 9(b), the district court found that both the government and the relators failed to “state with particularity the circumstances constituting the fraud or mistake.” The court faulted the government for basing its auto-refill theory on only a single refill claim for payment when it had access to detailed spreadsheets of “each C&M refill submitted to Illinois Medicaid.” The court also found that the government failed to rule out a number of plausible innocent explanations for the lack of prescriber or patient authorization for the refill. For instance, the court noted that the Illinois Handbook for Providers of Pharmacy Services allows auto-refilling for residents of certain facilities, including Long Term Care facilities, and the refill could have been for a resident of one of those facilities.

In addition to its Rule 9(b) concerns, the court also took issue with the substance of the government’s auto-refill theory. The court held that the government failed to identify a specific representation that rendered C&M’s claims for payment misleading. While C&M certified in its Illinois Medicaid enrollment paperwork that it would “follow all applicable laws and regulations,” that paperwork did not constitute a claim for payment. Moreover, though C&M would indicate when its claims were for refills, that indication provided no basis to infer whether C&M had sought and received prescriber or patient authorization for the refill.

The court faulted the relators’ co-payment waiver theory for similar reasons. As evidence that C&M was waiving patients’ co-payments, the relators pointed to accounting statements that listed the party responsible for certain write-offs as “Patient.” But the relators never clarified whether write-offs attributed to patients were always associated with co-payments. Further, the relators failed to rule out a number of “entirely innocent explanations” as to why C&M might have waived patients’ co-payments, including the possibility that C&M was only waiving co-payments for prescriptions that were co-payment exempt under the State of Illinois Cash, SNAP, and Medical Manual.

The district court’s decision illustrates the exacting nature of Rule 9(b)’s particularity requirement in FCA suits. According to the court, Rule 9(b) requires the government and relators not only to allege the “who, what, when, where, and how” of alleged fraud, but also to properly contextualize suspicious data by ruling out plausible innocent explanations. And, when the government and relators have significant access to facts and data necessary to support their claim, Rule 9(b) will be applied even more rigorously.

A copy of the Northern District of Illinois’ order can be found here.