Judge Denies $500M Medicaid Fraud Claim

(CN) - A federal judge shot down an "opportunistic" whistle-blower who used publicly available information to accuse drugmakers of misrepresenting Medicaid eligibility.

Constance Conrad had sued Abbott Laboratories, Teva Pharmaceuticals and 22 other makers, distributors and labelers of medication under the False Claims Act.

She claimed that companies had fraudulently misrepresented a number of their products as eligible for Medicaid reimbursement, causing the U.S. government to pay state Medicaid programs more than $500 million for these drugs.

To be eligible for Medicaid reimbursement, a drug manufacturer must file with the government a list of its covered drugs as well as the outcome of their Drug Efficacy Study Implementation (DESI), which the Food and Drug Administration uses to label drugs with codes 2 through 6 based on their safety and efficacy. Codes 5 and 6 are not eligible for Medicaid reimbursement.

Conrad says the defendants bumped up DESI codes for a number of their products - from 5 to 3, for example - and also listed unapproved drugs as FDA-approved covered outpatient drugs, and non-drug products as covered drugs.

After the government declined to intervene in the case, U.S. District Judge Rya Zobel found that Conrad improperly brought claims based on publicly disclosed information.

Conrad's claims are based on drug product data released by the FDA in various publications, as well as state utilization data files, both of which are available for download online. These data files contain thousands of lines of unadorned data, organized in columns, with a brief explanation of what each column represents.

Conrad "concedes that these sources were publicly available, but argues that they do not raise any inference of fraud," Zobel wrote.

"Of course, a person studying all of these sources would likely need substantial expertise in the field in order to find the alleged discrepancy," he added. "But the only question is whether the material facts exposing the alleged fraud are already in the public domain, not whether they are difficult to recognize. A relator cannot bring a qui tam suit based on publicly disclosed facts, even if her expertise makes her the first to understand the alleged fraud."

Conrad also failed to distinguish these data files from Freedom of Information Act responses.

"Relator's argument ignores the definition of 'report' that the Supreme Court established," Zobel wrote, citing Schindler Elevator Corp. v United States ex rel. Kirk.

"The CMS data files fall clearly within that definition," Zobel added. "Each data file is obviously 'something that gives information,' a 'notification,' and an 'official or formal statement of facts.'"

Zobel also rejected Conrad's "clever, but not persuasive," argument that an omission is not a disclosure, and that the "public disclosure bar would only apply here if the FDA published a book listing everything that is not an approved drug, and defendants' products were affirmatively listed in that book."

"Interpreting 'disclosure' to mean only 'affirmative and explicit disclosure' would add new words to the statute Congress enacted," she wrote. "Moreover, it would conflict with the 'broad ordinary meaning' of the term, and the 'generally broad scope of the FCA's public disclosure bar.' Applying the most natural meaning of the term 'disclosure,' it includes disclosures by omission."

Conrad also failed to show that, without her expert knowledge and ability to interpret complicated lists of data, the government could not bring the alleged fraud to light. "Here, as in Schindler Elevator, anyone with time and the relevant expertise could have combed through the public sources identified above, discovered drug manufacturers who were out of compliance, and then filed the same suit," Zobel wrote. "If Schindler Elevator was 'the 'opportunistic' litigation that the public disclosure bar is designed to discourage,' then so, too, is this suit."

Conrad describes herself as having over 30 years experience in the federal health care field, and previously brought a whistle-blower action against Forest Labs and Schwartz Pharma that reportedly led to multimillion dollar settlements with the Department of Justice.

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