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U.S. ex rel Schumann v. Astrazeneca PLC

October 13, 2010


The opinion of the court was delivered by: Ditter, J.


This case involves a whistleblower's claims that two pharmaceutical companies violated federal and state false claims statutes by entering into fraudulent agreements to sell their brand-name drugs. It comes before me on motions to dismiss the fourth amended complaint by defendants E.I. du Pont de Nemours and Company, DuPont Pharmaceuticals Company, and Bristol-Meyers Squibb Company (collectively "BMS") (Doc. 172) and defendants AstraZeneca Pharmaceuticals LP and AstraZeneca LP (collectively "AZ") (Doc. 174).

The relator, Karl Schumann, alleges in this qui tam action that the defendants paid disguised, undisclosed rebates to a purchaser of their products so that the actual price of those products was misrepresented to the government and the government overpaid for them. This memorandum is filed to explain the reasons for my order of September 30, 2010, granting BMS' motion to dismiss the relator's claims with prejudice and denying AZ's motion to dismiss the relator's claims.


The relator makes the following allegations in his fourth amended complaint that are relevant to this opinion:

The relator is a registered pharmacist and was the vice-president of pharmaceutical contracting for Medco from December 1999 to January 2003, during which time he alleges he obtained knowledge of the defendants' false claims and kickbacks. Medco has been one of the largest pharmacy benefit managers and mail-order pharmacies in the country. Medco negotiates with drug manufacturers and retail pharmacies to obtain discounts on prescription drugs for its health plans and has considerable leverage with drug manufacturers in deciding which of their drug products are dispensed in their retail pharmacy networks and mail-order pharmacies. Medco has provided prescription drug services to various federal and state government plans. The defendants, BMS and AZ, manufactured, marketed, and sold drug products in Pennsylvania and throughout the United States. Coumadin is a brand-name drug manufactured by BMS. Prilosec and Nexium are brand-name drugs manufactured by AZ. Under certain federal laws, drug manufacturers who participate in government programs must price their products so that the government will not pay more for a drug than the best price for which the manufacturer sells that drug to other purchasers.

The relator alleges that BMS and AZ violated federal and state false claims statutes in two ways. First, BMS and AZ entered into sham contracts with Medco to induce it to purchase and dispense to government plan patients the defendants' brand-name drugs, rather than the equivalent generic drugs, in violation of anti-kickback laws, causing false claims*fn1 for reimbursement of those drugs to be submitted to government plans. Second, BMS and AZ submitted false best price reports for the defendants' brand-name drugs, causing false claims*fn2 for rebates of Medicaid and 340B expenditures to be submitted to the government. The alleged sham contracts between BMS and Medco included rebates and data fees from 1997 through 2003 related to the drug Coumadin, and the alleged sham contracts between AZ and Medco included rebates, service fees, disease-management fees, and unrestricted educational grants from 1996 through 2003 related to the drugs Prilosec and Nexium.

With respect to the relator's claims against BMS, he alleges that "he regularly discussed with his Medco colleagues the highly confidential dealings with the BMS defendants that had occurred prior to his employment with Medco wherein he learned of the [fraud]." (Fourth Am. Compl. ¶ 54.) He also alleges that he was involved in contract negotiations with BMS on April 24, 2001, and January 25, 2002, to discuss Coumadin rebate agreements. ( Id . ¶¶ 55, 86-87.)

With respect to the relator's claims against AZ, the relator alleges that "[b]ut for the [AZ] Defendants' Fraudulent Kickbacks . . . to Medco . . . to induce the referral of the [AZ] Defendants' Prilosec and Nexium, the Government would not have paid millions of dollars for Prilosec and Nexium prescriptions" through government-health plans and programs. ( Id . ¶ 115; see also id. ¶¶ 109, 113, 114, 120, 134, 239-243.) The relator also alleges that AZ "submitted false quarterly statements to [the government] of its Best Prices on [Prilosec and/or Nexium] . . . to reduce improperly [its] rebate obligations to the States under the Best Price Program." ( Id. ¶ 141; see also id . ¶¶ 151, 163, 171, 184, 187, 193, 204, 214, 221, 229, 237.) He alleges that AZ's "false quarterly statements of the Best Prices on [Prilosec and Nexium] caused the States to submit false and inflated submissions to the Federal Government for reimbursement of Medicaid expenditures." ( Id . ¶ 141.)

The relator filed this qui tam action under federal and state statutes that allow private persons with knowledge of past or present fraud against the government to bring claims on its behalf. 31 U.S.C. § 3730. In his fourth amended complaint, the relator brought four counts each against BMS and AZ for making or causing false claims or false statements and conspiracy to commit acts in violation of the federal False Claims Act ("FCA"), 31 U.S.C. § 3729.*fn3 The relator also brought thirteen similar counts against BMS and AZ under various state false claim statutes.*fn4 Both BMS and AZ filed motions to dismiss and oral argument on the motion was held before me.


BMS contends that the fourth amended complaint must be dismissed because the relator's allegations are based on prior publicly disclosed allegations or information and that the relator is not an "original source" as defined by the FCA. In the alternative, BMS contends that the complaint must be dismissed pursuant to Rule 12(b)(6) for the relator's failure to satisfy the pleading requirements of Rule 9(b) and Rule 8(a). AZ likewise contends that the complaint must be dismissed under Rule 12(b)(6) for relator's failure to satisfy the pleading requirements of Rule 9(b) and Rule 8(a). AZ argues that the relator has failed to plead the details of any individually submitted false claim, and/or false claims submitted by the states, or any facts demonstrating that any state's submissions or AZ's best price reports were false. BMS and AZ also contend that some claims are barred by the statute of limitations and that dismissal should be with prejudice because any amendments to the complaint would be futile.*fn5


A. Relator's Claims Against BMS

BMS asks for dismissal of the relator's claims against it for lack of subject matter jurisdiction under Rule 12(b)(1) because they are barred by the FCA's existing information limitation, 31 U.S.C. § 3730(e)(4)(A). BMS argues that the claims are based upon allegations or transactions that were publicly disclosed before the relator asserted them in this action and that the relator is not an original source because he fails to allege the necessary "direct and independent" knowledge. I agree. The relator's claims against BMS are substantially similar to numerous prior public disclosures, and based on his limited allegations in the fourth amended complaint, the relator cannot be deemed an original source.

1. Standard of Review for Jurisdictional Challenges

Before addressing the merits of a case, a court must resolve any jurisdictional challenge. Steel Co. v. Citizens for a Better Environment , 523 U.S. 83, 94 (1998). Here, BMS asserts a factual challenge to subject matter jurisdiction under Rule 12(b)(1).*fn6 (BMS Mot. 6-30; Oral Argument 46.) In a factual attack, a court may consider matters outside of the pleadings. United States ex rel. Atkinson v. Pa Shipbuilding Co. , 473 F.3d 506, 514 (3d Cir. 2007). When a defendant does not challenge the facts alleged in the pleadings relating to jurisdiction, the court may accept those allegations as true. Gould Elecs., Inc. v. United States , 220 F.3d 169, 176 (3d Cir. 2000). "A relator bears the burden of alleging facts essential to show jurisdiction under the False Claims Act as well as supporting those allegations with competent proof." United States ex rel. Pritsker v. Sodexho, Inc. , No. 03-6003, 2009 U.S. Dist. LEXIS 51469, *18 (E.D. Pa. Mar. 6, 2009) (internal quotations omitted).

2. Relator's Claims Against BMS Are Substantially Similar to Prior Public Disclosures

The FCA's public disclosure bar, 31 U.S.C. ยง 3730 (e)(4)(A), is intended "to strike a balance between encouraging private persons to root out fraud and stifling parasitic lawsuits" based on information already known to the government. Graham County Soil & Water Conservation Dist. v. United States ex rel. Wilson , 130 S.Ct. 1396, 1407 ...

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