CAMDEN, N.J. (CN) — A whistleblower complaint against Omnicare, one of the nation’s largest nursing home pharmacies, was dismissed without prejudice by a federal judge, who found the kickback and fraud allegations were based on public information.
Former nursing home owner Marc Silver kicked off the case in 2011, suing on behalf of the federal government, 27 states and the District of Columbia.
He claimed that PharMerica — the second-largest nursing home pharmacy chain in the United States — crafted an illegal swapping arrangement, in which the pharmacies gave nursing homes Medicare Part A drug discounts in exchange for Medicare Part D prescription referrals for nursing home patients.
PharMerica and other defendants have settled related cases with the Department of Justice for tens of millions of dollars, and Silver’s lawsuit has been amended several times.
But U.S. District Judge Noel Hillman ruled on Monday that Silver’s case could not proceed because he had no business relationship with the pharmacies nor did he glean information from anything other than public documents.
“All of Silver’s alleged facts are derivative of the information he gathered from other, mostly public, sources,” Hillman wrote in 28-page ruling. “The undisputed record shows that Silver had no first-hand information about PharMerica’s transactions with nursing homes.”
Hillman credited Silver as a “paradigmatic cryptographer” for his ability to pore over public financial statements and find the pharmacies’ illegal swapping arrangements.
Silver has acknowledged that he did not need to see evidence of the swapping arrangements because as a former nursing home manager, he knew PharMerica’s prescription drug deals were not feasible.
Before filing his complaint in 2011, Silver randomly called nursing homes and talked with consultants to learn about discount pricing, according to court documents. He also relied on the companies’ annual financial statements, which showed drug dispensing costs as low as $8 a day for sick patients — clear evidence of swapping arrangements, Silver argued, since those companies would need to charge at least $40 a patient to break even.
In his complaint, Silver said the Balanced Budget Act of 1997 changed Medicare Part A reimbursement from reimbursement-based to a fixed-cost system. He testified that these changes “totally changed the financial picture for nursing homes in the United States” and encouraged swapping arrangements between nursing homes and pharmacies.
However, Silver acknowledged he could not pinpoint PharMerica’s swapping transactions because the company’s financial statements did not break down PharMerica’s net income based on each nursing home, or Medicare Part A reimbursement versus Medicare Part D and Medicaid reimbursement.
Hillman found Silver’s arguments inconsistent.
“(H)e asserts that to disclose the fraudulent transaction, the public documents would have to disclose PharMerica’s net income, yet even the non-public documents Silver obtained do not contain such information,” the judge wrote.
He dismissed without prejudice, to allow Silver to refile his claims in state court.
Silver’s original lawsuit named Omnicare and NCS Healthcare as defendants. Claims against those companies were dismissed in 2014.
Omnicare and PharMerica are the two largest nursing home pharmacy chains in the United States, accounting for 50 percent and 13 percent of the nation’s 1.7 million nursing home beds, according to a Medicare advisory commission’s 2007 report.
The Department of Justice has settled most of its claims against the companies. In 2015 PharMerica paid nearly $32 million to settle claims it violated the False Claims Act through illegal swapping arrangements. Omnicare paid roughly $125 million in 2014.
In October this year the Justice Department fined Omnicare $28 million to settle claims it had solicited kickbacks from pharmaceutical manufacturer Abbott Laboratories.
PharMerica has faced other whistleblower lawsuits, including a 2010 claim from one of its pharmacists, who said the company overbilled Medicare and Medicaid for nonvalid prescriptions.
In 2015, another PharMerica pharmacist collected $4.3 million after she was fired for telling federal authorities the company had illegally billed for OxyContin and fentanyl prescriptions.
PharMerica has denied the kickback allegations.