06 July 2016

FCA Charges Dismissed Against Wal-Mart, Kmart, and Rite Aid Pharmacies for Relator’s Failure to Plead Specific Allegations

The U.S. District Court for the District of Massachusetts recently dismissed a False Claims Act (“FCA”) lawsuit against Wal-Mart, Kmart, and Rite Aid pharmacies (collectively, “the defendants”), alleging, among other things, that the companies dispensed expired prescription drugs that were reimbursed by Medicare and Medicaid.  In short, the court granted, in part, defendants’ motion to dismiss in U.S. ex. rel. Verrinder v. Wal-Mart Corp., Case No. 13-11147-PBS [here], holding that the relator’s allegations were not sufficiently connected to specific false claims for payment.

The underlying case was filed in 2013 by relator William Verrinder, who worked at all three of the defendants’ pharmacies at various times.  In particular, Verrinder alleged that the defendants submitted various false claims to Medicare or Medicaid, including: (1) claims for prescriptions that expired before the dates printed on the prescription vial label and before the patient could consume the medication as directed by her doctor, (2) claims for dispensing fees that inflated the number of unexpired doses dispensed, and (3) claims (by Kmart only) for the reimbursement of generic drugs using a false national drug code (“NDC”) number for more expensive drugs.  The Government declined to intervene in March 2014, and the defendants moved to dismiss the allegations in October 2015 for failure to satisfy Federal Rules of Civil Procedure 9(b) and 12(b)(6).

Consistent with the Federal Rules of Civil Procedure, courts generally require relators to connect their allegations to specific false claims for payment, or at least allege facts leading to a strong inference that false claims were submitted under a “relaxed standard” for FCA pleading requirements.  In Verrinder, the court found that the “relator d[id] not identify a single false claim submitted by any of the three defendants.”  In particular, the court noted that “[w]hile the relator [] allege[d] that the prescription vials were mislabeled or misbranded because they contained a false expiration date, he d[id] not plead one claim submitted to the Government which billed for expired drugs or contained a false date in the claim itself.”  Finally, the court noted that because the relator was a pharmacist at each of the pharmacies, “this knowledge was not peculiarly within the alleged perpetrators’ [i.e., pharmacists] knowledge.”

Accordingly, the court dismissed the expiration date and dispensing fee claims with prejudice.  Notably, however, the court explained that Verrinder’s generic drug pricing allegations against Kmart did contain some specific facts, giving the relator 30 days to refile only this claim, along with facts regarding a specific false claim made to Medicare or Medicaid.

This decision in favor of the defendants comes in the wake of the Supreme Court’s recent ruling in Universal Health Servs., Inc. v. Escobar, 2016 BL 192168, U.S., No 15-7, and may indicate an increasing unwillingness among courts to allow false claim allegations to proceed without relators’ sufficient satisfaction of various pleading and materiality standards.

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