27 October 2014

Sidley Obtains Third Circuit Victory on Original Source Ruling

Posted by Scott D. Stein and Jessica Rothenberg

On October 20, the Third Circuit affirmed the dismissal of a qui tam suit on the ground that a relator whose knowledge was based on review of documents and discussions with other company employees did not have “direct and independent knowledge” such that he satisfied the original source exception to the pre-PPACA public disclosure bar. The relator, a former employee of Medco (a pharmacy benefit management company), alleged that two pharmaceutical manufacturers violated the FCA by (1) misreporting their average and best prices for drugs sold to government health programs, and (2) improperly inducing health plans managed by Medco to favor their drugs. The relator claimed to have learned of defendants’ alleged fraud while a senior executive at Medco, during which time he met with representatives of the defendant manufacturers to negotiate agreements, and reviewed and discussed with colleagues agreements with defendants and other internal Medco documents.

The Third Circuit agreed with the district court that to qualify as an original source, “a relator must have direct and independent knowledge of either . . . the alleged fraud, or both . . . the false and true set of facts.” The court determined that relator’s knowledge, which allegedly “came from reviewing documents and discussing them with colleagues who participated in the underlying events,” was not “direct and independent,” and did not satisfy the original source exception. And although relator had direct and independent knowledge of defendants’ business strategies and certain payments to Medco and government health plans, he did not have knowledge of kickbacks, inaccurate best-price reports, or any false claims submitted by defendants. The court determined that the relator “substitutes experience-based belief that misconduct was occurring for the requisite direct and independent knowledge,” which “is plainly insufficient to qualify as an original source under the FCA.” Mark Haddad of Sidley Austin argued the appeal in the Third Circuit for AstraZeneca. A copy of the Third Circuit’s precedential opinion in United States ex rel. Schumann v. AstraZeneca Pharmaceuticals L.P., et al., No. 13-1489 (3d Cir. Oct. 20, 2014) can be found here.

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