Part D qui tam against Humana dismissed, whistleblower granted leave to amend

by Ben Vernia | April 29th, 2011

On April 8, Arizona District Judge Russel Holland, in U.S. ex rel. Peretz v. Humana Inc., granted the defendants’ motion to dismiss False Claims Act allegations that the company charged an unjustified $1 “dispensing fee,” signed up Part D beneficiaries who rejected the company’s telephone solicitations and then, to address these unwilling members’ complaints, offered to waive copayments without a justified financial need, and refilled prescriptions without proper pharmacist authorization. The relator, a former operations manager for Humana’s mail-order pharmacy subsidiary (also named as a defendant) had alleged that the company made nine certifications of compliance, and alleged that these were false and that the company created false records.

Judge Holland concluded that the relator’s complaint only alleged express false certification claims, and that by arguing that only two of the alleged certifications were expressly false, he conceded the others. As to the two allegedly expressly false certifications – that the company had policies and procedures in place to prevent overutilization and ignores these safeguards, and that the company would implement a Part D compliance program – Judge Holland reasoned that he had failed to allege that these claims were false when they were made, and so had to be dismissed.

Judge Holland likewise dismissed the relator’s false records counts after noting that he had inadequately alleged that the $1 fee was unlawful:

Relator has failed to allege that the $1 charge violated any specific rule, regulation, or statute. Relator must do more than allege that the $1 charge was not legitimate or not part of a negotiated rate. Relator must allege why the $1 charge was not legitimate and why failing to include it in a negotiated rate would make defendants’ cost bills false.

The court rejected, however, the defendants’ argument that the complaint was insufficiently particular under Fed. R. Civ. P. 9(b). The whistleblower had “adequately pleaded fraud because he alleged when defendants started charging the fee, who told RightSource to start charging it, what the fee was supposedly for, how this fee was reported to CMS (through PDEs), and that there was no justification for this fee.”

After reviewing the parties’ legal arguments concerning the propriety of dispensing fees under Medicare Part D, Judge Holland concluded that the relator might be able to plead a viable cause of action because of the possibility that the $1 charge violated Part D rules, and so he granted the relator leave to amend.

The court similarly dismissed, but granted leave to re-plead the counts relating to the company’s mis-selling of prescription services, waived copayments, and refilled prescriptions without authorization. In each, the relator had failed to allege the violation of a specific rule in his initial complaint.

With respect to an inter-corporate conspiracy he alleged between the mail-order pharmacy and its parent company, Humana, Judge Holland dismissed under the parent/subsidiary conspiracy rule of Cooperwood Corp. v. Independence Tube Corp., 467 U.S. 751 (1984), and denied leave to amend because attempting to replead would be futile.

Judge Holland found the relator’s allegation of unlawful retaliation under the False Claims Act sufficiently pleaded, rejecting the defendants’ contention that his complaints on the job were about compliance and not about fraud. The relator had sufficiently alleged that the company retaliated against him, pleading that Humana placed him on a corrective action plan that forbade him from communicating with regulatory agencies and required him to destroy evidence.

Finally, Judge Holland rejected the defendants’ request that the court decline to exercise supplemental jurisdiction over the relator’s state-law retaliation claims, an argument which was premised on the dismissal of all of the relator’s federal claims. Since Judge Holland had left intact the whistleblower’s FCA antiretaliation claim, he denied this part of the motion.

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