Pharma Giant Avoids Liability in Fraud Case

CHICAGO (CN) - A pharmaceutical giant will not be held liable for millions of dollars in possible fraud, including Medicare overpayments, stretching back a decade, a federal judge ruled.

OmniCare Inc. is the nation's largest provider of pharmaceuticals and related ancillary services to long-term health care institutions, such as assisted living facilities, retirement centers, and hospices.

In 2008, according to the opinion by U.S. District Judge James Zagel, it "generated roughly 100 million dollars in revenue from these ancillary services, sixty percent - or 60 million dollars - of which came from Medicare and Medicaid."

In his capacity as OmniCare's Vice President for Internal Audit, Relator John Stone conducted two audits of the company's Medicare and Medicaid claims, one for claims submitted 2000-2005 ("Wave I") and one for claims submitted from 2008 onward ("Wave II").

Stone claims that Wave I informed OmniCare that "systemic problems" existed with respect to these claims, and that the company should investigate various overpayments it had received. Instead, OmniCare allegedly "provided a limited repayment to Medicare that did not reflect the full extent of overpayments."

Similarly, the Wave II audit "made OmniCare aware of claims and payments made to pharmacies for which there was no substantiation, but OmniCare took no corrective action."

The company then "submitted false claims for Medicaid reimbursements with respect to the pediatric drug Synagis" by stockpiling the drug in contravention of FDA instructions.

When Stone informed OmniCare's Internal Audit committee of this host of problems, the company's CEO allegedly told him to "begin looking for other employment."

Shortly thereafter, Stone brought suit over OmniCare's failure to report the overpayments under the federal False Claims Act (FCA), as well a claim of retaliatory discharge.

In its opinion, the court noted that before the FCA was amended in 2009 as part of the Fraud Enforcement and Recovery Act (FERA), "there was no liability for 'retention of an overpayment'" under the FCA.

The question presented by OmniCare's motion to dismiss was whether the statute was intended to apply retroactively, such that the company could be held liable for any fraudulent conduct prior to 2009. All of the facts Stone alleged took place before 2009.

Fortunately for OmniCare, Judge Zagel found that Stone's theory "would create impermissible retroactive effect" and dismissed most of his claims against the healthcare giant.

Stone had claimed that because OmniCare's retention of the overpayments it received "constitute[d] a continuing violation of the False Claims Act," its violations continued to take place even after the FERA amendment.

The court rejected this argument, saying that it "would mean that any claim Defendant has ever made on the United States government would be subject to liability under the FCA, so long as some money from that claim is somewhere in their coffers."

"Prospectivity is the default in the absence of clear Congressional intent to the contrary," explained Judge Zagel. Neither FERA nor the Patient Protection and Affordable Care Act of 2010 (PPACA), another statute under which Stone brought suit, clearly speak to the issue of retroactivity.

Moreover, the court rejected Stone's "attempts to allege fraud by stating that the error rates in the claims was so high that OmniCare 'knew or should have known that false or fraudulent claims were being made.'"

As opposed to Stone's general allegations, "a complaint must 'identify specific false claims for payment,'" said the court.

"Submitting a claim without all the required documentation does not make it false or fraudulent, let alone knowingly so," said Judge Zagel.

However, the court did not grant OmniCare's motion to dismiss Stone's contention that it illegally stockpiled Synagis, ruling that the motion cannot properly be considered under Federal Rule 12.

Instead, the parties will be allowed to submit further information so that the motion may be considered under the standard for summary judgment. Finally, Stone may proceed on his retaliatory discharge claim, although he is a "fraud alert" employee subject to heightened pleading requirements for fraud, because his audit clearly described OmniCare's conduct as "illegal," "improper," and "fraudulent."

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