(CN) - The 3rd Circuit dismissed a qui tam action against three major pharmaceutical companies accused of paying kickbacks to a pharmacy benefits manager to avoid Medicaid reporting obligations.
Karl Schumann, the plaintiff in the lawsuit filed the federal court in Philadelphia, is a former vice president of pharmaceutical contracting for Medco Health Solutions, a national pharmacy benefit manager.
He claimed in his qui tam action that Bristol-Meyers Squib Company (BMS), E.I. du Pont de Nemours, and AstraZeneca Pharmaceuticals effectively paid kickbacks to Medco so that it would offer their drugs in mail-order pharmacies and health plans it managed.
In carrying out the scheme, Schumann said, Medco inaccurately reported it was paying the best price for available drugs, and thereby overcharged the government when requesting Medicaid reimbursements.
As an example, Schumann alleged that defendant Bristol-Meyers paid Medco rebates up to 63 percent off the wholesale price of its drug Coumadin so that the company would make it the exclusive anticoagulant in its mail-order pharmacies. Schumann said his former employer would then omit these rebates when calculating its cost for Coumadin in order to avoid setting a new best price for the drug.
Schumann says he learned about the alleged improper activities by reviewing Medco's contracts with each company, and through his participation in the negotiation of health plans.
However, the 3rd Circuit ruled Monday that Schumann lacks direct knowledge of defendants' alleged wrongdoing, which is necessary to support a qui tam suit.
"Knowledge of a scheme is not direct when it is gained by reviewing files and discussing the documents therein with individuals who actually participated in the memorialized events," U.S. Circuit Judge Jane Roth said, writing for the three-judge panel.
Schumann personally participated in Medco's negotiations with Bristol-Meyers, but his "conclusions that BMC intended to pay kickbacks to Medco and to submit false claims to the government, based on his experience in and understanding of the PBM [pharmacy benefits management] industry, do not qualify as independent knowledge under the FCA [False Claims Act]," Roth said.
Similarly, Schumann's knowledge that AstraZeneca discussed the implication of its contract with Medco on its best-price reports with Medco officers, does not show that the company intended to evade its obligations to the government, the panel found.
"Schumann substitutes experience-based belief that misconduct was occurring for the requisite direct and independent knowledge. This is plainly insufficient to qualify as an original source under the FCA," Roth concluded.
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