11 March 2019

Court Dismisses DOJ’s Complaint against Pharmacy and Private Equity Fund, But Permits Re-Pleading

As we previously reported here and here, DOJ is pursuing a compounding pharmacy and its private equity fund owner alleging the pharmacy filed claims with Tricare that were rendered false by alleged kickbacks.

In November, the Magistrate Judge filed an opinion recommending the FCA claims be dismissed for DOJ’s failure adequately to plead its claims on either an implied or express certification theory of liability.  However, the Magistrate went on to hold that the allegations that the private equity fund and its principals knew of some of the alleged misconduct and caused the submission of false claims by the portfolio company were otherwise sufficient to state a claim against those defendants under the False Claims Act.

Both the defendants and the government filed objections to the Magistrate’s recommendation.  This week the district court adopted the recommendation and dismissed the suit for a failure adequately to allege an implied or express certification theory of liability.  In particular, the court held that it is insufficient to state a claim under the False Claims Act simply to allege the facts relevant to a violation of the Anti-Kickback Statute.  Rather, the government must establish that it “conditioned payment of a claim upon the claimant’s certification in compliance with the antikickback provision.”  U.S. ex rel. Medrano v. Diabetic Care Rx, LLC, Case No. 15-62617-CIV-BLOOM, S.D.Fl. (Mar. 5, 2018) (citing U.S. ex rel. Franklin v. Parke-Davis, 147 F. Supp. 2d 39, 54 (D. Mass. 2001).  Having failed to allege any facts related to express certifications by the defendants “in connection with any of the representative claims provided,” the court held the express certification theory was not adequately pled.  As to the implied certification theory of liability, the government alleged the Tricare claims were misleading in light of defendant’s failure to disclose the alleged kickbacks.  The court, however, found the government failed to plead any specific representations in those claims – i.e., dates of service, patient names, prescribers, or the ingredients of the drugs.  “While the Court . . . views the allegations in the Complaint in the light most favorable to the Government . . . the court cannot construe allegations that are absent.  Nor is the Court tasked with connecting the dots or filling the blanks.”  Thus, the claims similarly failed on an implied certification theory.

Having so held, the court found it unnecessary to reach the other holdings of the Magistrate, including with respect to the private equity defendants’ knowledge and causation.  The court is affording the government another bite at the apple, and has ordered an amended complaint to be filed plead by March 18.

We will continue to monitor this case and report updates.  The court’s order is accessible here.

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