21 January 2015

Complaint Accuses Business Partner of Improperly Citing Settlement of FCA Claims, Without Admitting Liability, as a Pretext For Terminating Contracts

Posted by Scott Stein and Allison Reimann

A recent case provides an interesting example of one company citing a business partner’s settlement of an FCA case, without admitting liability, as a basis for terminating the parties’ contract for cause. CareMed Pharmaceutical Services (“Caremed”), a specialty pharmacy, filed a complaint against pharmacy benefit managers Express Scripts, Inc. and MedCo Health Services, Inc. (collectively, “Express Scripts”). The complaint alleges that Express Scripts improperly cited CareMed’s recent settlement of a qui tam action as a pretext to cancel CareMed’s participation agreement with Express Scripts for the purpose of diverting CareMed’s business to Express Scripts’s own specialty pharmacy. CareMed asserts claims under federal and state antitrust law, ERISA, and common law, including a breach of contract claim.

According to government press releases, a whistleblower filed a qui tam complaint against CareMed in 2012 under the federal False Claims Act and the New York False Claims Act alleging that CareMed made false statements in securing prior authorization for the coverage of certain drugs and submitted false claims for payment for prescriptions that were not received by patients. In early October 2014, following a government investigation, CareMed entered into a $10 million settlement agreement with the federal government and State of New York. In connection with the settlement, CareMed made limited admissions, including that some CareMed representatives falsely stated that they were calling from physician offices in obtaining prior authorizations for Medicare beneficiaries; that CareMed failed to adequately oversee and train responsible staff; and that CareMed had inadequate procedures and auditing processes in place relating to certain prescription drug claims submitted to Medicare and Medicaid. However, no criminal charges were brought against CareMed, and CareMed made no admissions of fraud or intent to deceive in connection with the settlement.

CareMed claims that soon after it notified Express Scripts of the settlement, Express Scripts notified CareMed that it was terminating the participation agreement. According to CareMed, the claimed bases for the termination were that CareMed’s owner pled guilty to fraud and that CareMed failed to notify Express Scripts of the plea – both of which CareMed claims are untrue. CareMed promptly informed Express Scripts that there had been no guilty plea. However, Express Scripts allegedly issued CareMed a second termination letter based on the new justification that CareMed’s admissions in connection with the settlement established that it had violated Express Scripts’s Network Provider Manual, which, among other things, requires all information submitted to Express Scripts to be accurate and complete, prohibits providers from knowingly making false claims, and obligates providers to comply with the False Claims Act. CareMed claims these grounds are baseless, reflect selective enforcement of the Manual against CareMed, and are a pretext to divert CareMed’s customers to Express Scripts’s own specialty pharmacy. CareMed claims that termination of the agreement will cause CareMed to lose approximately $100 million in annual revenues overnight and force it to close its doors.

Along with the complaint, CareMed also filed a motion for a temporary restraining order, which the court denied. The court reasoned that at this stage of the proceedings, it could not predict which party was likely to prevail, and that CareMed had failed to show that any harm from the termination could not be addressed with an award of money damages. While this suit is in the very early stages and the truth of CareMed’s allegations has yet to be proven, the lawsuit is notable because it highlights the collateral consequences that the terms of an FCA settlement can have even where the settlement disclaims liability.

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