United States Ex Rel. Winkelman v. CVS Caremark Corp. ( 2016 )

United States Court of Appeals
For the First Circuit
No. 15-1991
UNITED STATES EX REL.
MYRON WINKELMAN AND STEPHANI MARTINSEN,
Plaintiffs, Appellants,
v.
CVS CAREMARK CORPORATION ET AL.,
Defendants, Appellees.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Denise J. Casper, U.S. District Judge]
Before
Howard, Chief Judge,
Selya and Lynch,
Circuit Judges.
Brian Wojtalewicz, with whom Wojtalewicz Law Firm, Ltd.,
Timothy G. Lynch, Swartz & Lynch LLP, Neil P. Thompson, Robert P.
Christensen, Robert P. Christensen, P.A., James G. Vander Linden,
and Levander & Vander Linden, P.A., were on brief, for appellants.
Ken Paxton, Attorney General of Texas, Jeffrey C. Mateer,
First Assistant Attorney General, James E. Davis, Deputy Attorney
General for Civil Litigation, Raymond C. Winter, Chief, Civil
Medicaid Fraud Division, Cynthia O'Keeffe, Deputy Chief, Civil
Medicaid Fraud Division, and Richard E. Salisbury, Assistant
Attorney General, Civil Medicaid Fraud Division, on brief for
State of Texas, amicus curiae.
Grant A. Geyerman, with whom Enu Mainigi, Craig D. Singer,
Roy S. Awabdeh, and Williams & Connolly LLP were on brief, for
appellees.
June 30, 2016
SELYA, Circuit Judge. The False Claims Act (FCA), 31
U.S.C. §§ 3729-3733, authorizes private parties to bring qui tam
actions on the government's behalf alleging fraud on government
programs. Although such actions can be powerful weapons for
rooting out chicanery shrouded in darkness, the FCA forbids private
suits once the sun has shone on the essential features of the
alleged misconduct. Thus, courts generally must refuse to
entertain FCA suits "if substantially the same allegations or
transactions as alleged in the action . . . were [already] publicly
disclosed" through certain enumerated sources. Id.
§ 3730(e)(4)(A).
Applying this provision, known as the public disclosure
bar, the court below determined that the complaint in this action
rested on allegations that were already in the light of day. See
United States ex rel. Winkelman v. CVS Caremark Corp., 118 F. Supp.
3d 412, 425 (D. Mass. 2015). Consequently, it dismissed the
relators' suit. See id. After careful consideration, we affirm.
I. BACKGROUND
We draw the essential facts from the relators' second
amended complaint and other documents, described infra, that may
be considered at the motion-to-dismiss stage.
The relators, Myron Winkelman and Stephani Martinsen,
brought this qui tam action under the FCA and (in its current form)
the analogous statutes of eleven states. In it, they challenged
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particular billing practices of CVS Caremark Corp. and certain
affiliated companies (collectively, CVS). The main target of their
complaint was CVS's conduct with respect to a program that the
company had instituted in 2008. That program was known as the
Health Savings Pass (HSP). A consumer could join the HSP program
by paying a nominal enrollment fee (originally $10 and later
increased to $15). HSP membership entitled a consumer, among other
things, to purchase a range of generic prescription drugs from CVS
at discounted prices (either $9.99 or $11.99 for a 90-day supply).
The relators assert that the HSP framework was a
carefully constructed artifice that allowed CVS to fraudulently
overbill Medicare Part D and Medicaid. Both of these federal
healthcare programs contain conditions designed to control the
cost to the government of prescription drugs. One such condition
is of particular pertinence here: that condition bases payments
for prescription drugs by Medicaid and Medicare on the lowest of
several potential metrics, one of which is the usual and customary
(U&C) price charged by a pharmacy for a given drug. See 42 C.F.R.
§ 403.806(d)(7) (Medicare Part D); id. § 447.512(b)(2) (Medicaid).
For Medicare Part D, the federal government has promulgated a
single definition of the U&C price: "the price that an out-of-
network pharmacy . . . charges a customer who does not have any
form of prescription drug coverage for a covered Part D drug."
Id. § 423.100. Medicaid is a program that is jointly administered
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by the federal government and the several states, so each state
provides its own definition of the U&C price.1
The relators allege that CVS designed the HSP program to
circumvent the applicable U&C requirements; that the HSP prices
reflect the actual U&C prices charged by CVS under all the relevant
federal and state statutes and regulations; and that CVS defrauds
the government by not reporting the HSP prices as its U&C prices.
They offer examples of drugs for which the U&C price reported by
CVS was higher than the price charged to participants in the HSP
program, allegedly leading to overpayments by Medicaid and
Medicare Part D.
But the filing of the relators' action did not mark the
first occasion that CVS's HSP pricing came under scrutiny. In
February of 2010, a coalition of labor unions under the banner
"Change to Win" issued a report comparing the HSP drug prices
charged by CVS with prices charged by CVS for the same drugs to
1 California, for example, defines the U&C price as the lower
of "[t]he lowest price reimbursed . . . by other third-party payers
in California" (with some exclusions) or "[t]he lowest price
routinely offered to any segment of the general public." Cal.
Welf. & Inst. Code § 14105.455(b). Massachusetts employs a
slightly different definition, defining the U&C price as "the
lowest price that a pharmacy charges or accepts from any payer for
the same quantity of a drug on the same date of service, in
Massachusetts, including but not limited to the shelf price, sale
price, or advertised price of an over-the-counter drug." 130 Mass.
Code Regs. 406.402. Other states offer variations on these themes.
For purposes of this case, the exact parameters of these varying
definitions are unimportant.
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federal employees enrolled in the Federal Employee Health Benefits
Program (FEHBP). The report concluded that in its role as the
FEHBP's pharmacy benefits manager, CVS overcharged by "hundreds of
millions of dollars." This conclusion rested primarily on the
report's finding that the prices charged by CVS to the FEHBP were
higher than the counterpart HSP prices for 85% of generic drugs
available in both programs. News outlets pounced upon the Change
to Win report and reported its findings extensively.
The allegations attracted attention in Washington as
well: a Change to Win representative testified before Congress in
late February of 2010 and advocated revising the FEHBP prescription
drug program. In November of 2010, a Congressional Research
Service (CRS) report rehearsed some of Change to Win's allegations.
Meanwhile — after the issuance of the Change to Win
report but before the issuance of the CRS report — Connecticut
altered its statutes to explicitly require CVS to take its HSP
prices into account in its dealings with the state's Medicaid
program. CVS responded by threatening to end the HSP program in
Connecticut. Battling back, the Attorney General of Connecticut
announced that he had subpoenaed CVS to obtain details related to
the administration of the HSP program. In a press release, issued
in June of 2010, the Attorney General vouchsafed that:
CVS Caremark's actions are at odds with other pharmacies
that have extended their discount program drug pricing
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to the state Medicaid program and may be inconsistent
with CVS Caremark's actions in other states.
Under the Health Savings Pass program, consumers pay $10
a year to fill a 90-day prescription of one of 400
generic drugs for $9.99 and receive other benefits.
State law requires pharmacies to charge Medicaid the
lowest drug price they offer consumers, which the state
says obligates CVS to provide the Health Savings Pass
discount, potentially saving taxpayers millions of
dollars.
CVS disagreed, prompting the General Assembly to approve
a law in the last session clarifying the requirement.
CVS responded by threatening to end its Health Savings
Pass program in Connecticut.
The press release highlighted the fact that CVS was continuing to
offer the HSP program to consumers in other states. It declared
that CVS "has an obligation to charge the state of Connecticut the
same discounted price for drugs for Connecticut Medicaid
recipients that CVS Caremark charges to customers enrolled in the
[HSP] pharmacy discount program." The ensuing subpoena sought
information about how HSP prices "compared to those billed
Connecticut's Medicaid program," CVS's costs for those
medications, the details of HSP enrollment in Connecticut, and
information about states in which the program operated.
The Attorney General's activities attracted appreciable
media attention, and all of the significant information contained
in the press release was replicated in the ensuing media coverage.
The media also reported CVS's response, including the company's
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assertion that Connecticut's Medicaid regulations did not require
CVS to pass on HSP prices to the state Medicaid program.
It was not until August of 2011 — over a year after the
outpouring of publicity regarding CVS's refusal to give
Connecticut the benefit of its HSP pricing — that the relators
brought this suit. The relators filed an amended complaint in
March of 2013, and a second amended complaint in June of 2014.
These various iterations of the complaint were kept under seal
while the federal government and the designated states considered
whether to intervene. See 31 U.S.C. § 3730(b)(2).
Once the United States and all the states named in the
second amended complaint had declined to intervene, the district
court unsealed the action on August 11, 2014. See id. CVS then
moved to dismiss. See Fed. R. Civ. P. 12(b)(1), (6). Its flagship
claim was that the publicity surrounding the Change to Win
initiative and the actions of the Connecticut Attorney General
triggered the FCA's public disclosure bar. The relators opposed
the motion. After briefing and argument, the district court found
the public disclosure bar dispositive and dismissed the action.
See Winkelman, 118 F. Supp. 3d at 425. This timely appeal
followed.
II. ANALYSIS
On appeal, the relators insist that the disclosures
surrounding the Change to Win report and the Connecticut
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controversy do not suffice to trigger the public disclosure bar.
We divide our treatment of their asseverational array into three
segments. First, we clear some procedural underbrush affecting
the scope of the relevant record. Second, we determine whether a
public disclosure occurred and, if so, whether that disclosure
limned a fraud substantially similar to the one alleged in the
complaint. Finally — having concluded that the public disclosure
bar is in place — we analyze whether the relators qualify for an
exception to that bar as original sources.
A. The Scope of the Record.
Our standard of review is clear: we engage in a de novo
canvass, accepting as true the well-pleaded facts and drawing all
reasonable inferences in the non-movant's favor. See McCloskey v.
Mueller, 446 F.3d 262, 266 (1st Cir. 2006). What is less clear,
however, is the scope of the relevant record. We briefly explain
this quandary and craft a solution.
The FCA contains qui tam provisions that allow private
persons, called relators, to bring civil suits on behalf of the
United States against those alleged to have knowingly submitted
false claims to the federal government. See 31 U.S.C.
§ 3730(b)(1). If such a suit succeeds, the relator earns a share
of the proceeds. See id. § 3730(d). Though this statutory
paradigm has the salutary purpose of encouraging the disclosure of
fraudulent schemes, it also creates perverse incentives for
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opportunists to seek compensation based on fraud already apparent
from information in the public domain. Although not every
application of the public disclosure bar involves this sort of
opportunistic behavior, the bar is an especially apt means of
"foreclos[ing] qui tam actions in which a relator, instead of
plowing new ground, attempts to free-ride by merely repastinating
previously disclosed badges of fraud." United States ex rel. Ondis
v. City of Woonsocket, 587 F.3d 49, 53 (1st Cir. 2009).
The contours of the public disclosure bar underwent some
alterations during the period covered by this action. Prior to
2010, the pertinent provision stated that "[n]o court shall have
jurisdiction over an action under this section based upon the
public disclosure of allegations or transactions" from any one of
several enumerated sources. 31 U.S.C. § 3730(e)(4)(A) (2009).
This explicit jurisdiction-stripping language spoke directly to
the subject matter jurisdiction of the court. See Rockwell Int'l
Corp. v. United States, 549 U.S. 457, 467-68 (2007). Consequently,
motions to dismiss premised on the public disclosure bar were
adjudicated under Rule 12(b)(1). See United States ex rel. Poteet
v. Bahler Med., Inc., 619 F.3d 104, 109 (1st Cir. 2010); Ondis,
587 F.3d at 53, 54.
This approach was made questionable by the Patient
Protection and Affordable Care Act (PPACA), Pub. L. No. 111-148,
§ 10104(j)(2), 124 Stat. 119 (2010), which reshaped the contours
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of the public disclosure bar to provide in pertinent part that
"[t]he court shall dismiss an action or claim under this section,
unless opposed by the Government, if substantially the same
allegations or transactions as alleged in the action or claim were
publicly disclosed."2 31 U.S.C. § 3730(e)(4)(A).
Here, the parties dispute whether the reconfigured
public disclosure bar is jurisdictional. The district court,
citing decisions from several of our sister circuits, concluded
that it is not. See Winkelman, 118 F. Supp. 3d at 420 (citing,
inter alia, United States ex rel. Osheroff v. Humana, Inc., 776
F.3d 805, 810-11 (11th Cir. 2015); United States ex rel. May v.
Purdue Pharma L.P., 737 F.3d 908, 916 (4th Cir. 2013), cert.
denied, 135 S. Ct. 2376 (2015)). The court noted that the Supreme
Court has cautioned against reading statutes as jurisdictional in
the absence of a clear legislative statement to that effect, see
Sebelius v. Auburn Reg'l Med. Ctr., 133 S. Ct. 817, 824 (2013);
that Congress deliberately removed jurisdiction-stripping language
from the reconfigured public disclosure bar; and that the amended
provision permits the government, for the first time, to block a
dismissal despite earlier public disclosures (a circumstance that
2 The PPACA amendments likewise altered the list of enumerated
sources for disclosure. Those alterations make no difference here:
under both versions of the statute, reports in the "news media,"
as well as disclosures in congressional hearings and federal
reports, are within the statutory sweep. Compare 31 U.S.C.
§ 3730(e)(4)(A)(ii), (iii), with id. § 3730(e)(4)(A) (2009).
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— if the public disclosure bar remained jurisdictional — would
contravene the cardinal principle that "parties cannot confer
subject-matter jurisdiction on a district court by
. . . acquiescence," Trenkler v. United States, 536 F.3d 85, 96
(1st Cir. 2008)).
Although we find the district court's analysis
impressive, we recognize that appellate courts should not rush to
resolve questions of statutory interpretation when it is not
necessary to do so. That maxim is especially appropriate where,
as here, the statutory change straddles the relevant events and,
thus, presents potential retroactivity concerns. See May, 737
F.3d at 915-16. At any rate, we need not resolve this
jurisdictional question. The parties note only two aspects of the
case that might turn on whether or not the public disclosure bar
is jurisdictional.
The first aspect hawked by the relators is a red herring.
They suggest that if the public disclosure bar is no longer
jurisdictional, then it must be viewed as an affirmative defense.
Building on this foundation, they argue that an affirmative defense
cannot be resolved at the motion-to-dismiss stage. But even
accepting the premise of the relators' suggestion, their
conclusion is wrong: an affirmative defense may serve as a basis
for dismissal under Rule 12(b)(6). See Banco Santander de P.R. v.
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Lopez-Stubbe (In re Colonial Mortg. Bankers Corp.), 324 F.3d 12,
16 (1st Cir. 2003).
Second, CVS contends that a determination as to whether
the public disclosure bar is jurisdictional may affect the scope
of the relevant record. This concern affects two declarations
submitted by the relators as part of their opposition to the motion
to dismiss, which could be considered in evaluating the existence
of jurisdiction under Rule 12(b)(1). See Aguilar v. ICE, 510 F.3d
1, 8 (1st Cir. 2007). However, the relators' decision to attach
these declarations to their opposition to a motion to dismiss
leaves them outside the scope of the pleadings — and, thus, outside
the compass of the record under Rule 12(b)(6). See Rodi v. S. New
England Sch. of Law, 389 F.3d 5, 12 (1st Cir. 2004). But there is
no need to let the tail wag the dog: rather than deciding the
jurisdictional question in order to determine whether these two
documents are part of the relevant record, we assume (favorably to
the relators) that these declarations are properly before us.
Indulging this assumption permits us to bypass the jurisdictional
question3 — and the assumption is practicable because, in the end,
3 Even though we do not pass upon the question of whether
Congress has stripped the public disclosure bar of its
jurisdictional character, the arguments for that proposition are
strong. Forewarned is forearmed, and future litigants would be
well-advised to ensure that facts upon which they rely in
connection with the adjudication of a motion to dismiss that
implicates the public disclosure bar come within the scope of the
record cognizable under Rule 12(b)(6).
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the declarations make no difference to the result that we must
reach.
We add a coda. The press release, news articles, CRS
report, and record of congressional testimony are properly before
us regardless of whether the public disclosure bar is
jurisdictional. After all, even within the Rule 12(b)(6)
framework, a court may consider matters of public record and facts
susceptible to judicial notice. See In re Colonial Mortg. Bankers,
324 F.3d at 15-16. Here, the district court, at CVS's request and
without objection, took judicial notice of the proffered press
release, news articles, CRS report, and record of congressional
testimony. See Winkelman, 118 F. Supp. 3d at 417 n.2, 421 n.6,
422. This praxis is fully consistent with the approach of our
sister circuits, which routinely have considered undisputed
documents provided by the parties in connection with Rule 12(b)(6)
motions based on the public disclosure bar. See United States ex
rel. Moore & Co. v. Majestic Blue Fisheries, LLC, 812 F.3d 294,
301 & n.7 (3d Cir. 2016); Osheroff, 776 F.3d at 811-12, 811 n.4;
United States ex rel. Kraxberger v. Kan. City Power & Light Co.,
756 F.3d 1075, 1083 (8th Cir. 2014).
B. The Public Disclosure Bar.
As we already have noted, the public disclosure bar
forecloses a qui tam action "if substantially the same allegations
or transactions as alleged in the action . . . were publicly
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disclosed" in a list of enumerated sources. 31 U.S.C.
§ 3730(e)(4)(A). In applying this provision, we examine whether
the allegations or transactions identified in the relators'
complaint have already been publicly disclosed. See Ondis, 587
F.3d at 53. If so, we then examine whether that disclosure
occurred through one of the statutorily prescribed methods. See
id. And if these two queries yield affirmative answers, we proceed
to examine whether the allegations or transactions on which the
relators' suit rests are substantially the same as the publicly
disclosed allegations or transactions.4 See id.
The relators do not contest that the materials cited by
CVS appeared in statutorily enumerated sources. They argue,
however, that there was no public disclosure of the relevant
allegations or transactions and that the disclosures upon which
CVS relies did not reveal allegations or transactions that were
substantially the same as those that anchored their complaint.
Their fallback position is that, in all events, their action evades
4
This formulation mirrors the revised language contained in
the post-PPACA version of the FCA. But this changed formulation
has no substantive effect in this case. After all, we had
interpreted the earlier version of the provision (which referred
to allegations "based upon" earlier public disclosures) to require
public disclosures that were "substantially similar" to the
allegations or transactions contained in the complaint. See
Poteet, 619 F.3d at 114; Ondis, 587 F.3d at 58. The revised
statutory language — "substantially the same" — merely confirms
our earlier understanding.
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the public disclosure bar because they meet the statutory
definition of "original source." 31 U.S.C. § 3730(e)(4)(B).
As a general matter, a "public disclosure occurs when
the essential elements exposing the particular transaction as
fraudulent find their way into the public domain." Ondis, 587
F.3d at 54. This type of disclosure can occur in one of two ways:
either through "a direct allegation of fraud" or through the
revelation of "both a misrepresented state of facts and a true
state of facts so that the listener or reader may infer fraud."
Poteet, 619 F.3d at 110. These sets of facts may originate in
different sources, as long as they "lead to a plausible inference
of fraud" when combined. Ondis, 587 F.3d at 54. The ultimate
inquiry, of course, is whether the government has received fair
notice, prior to the suit, about the potential existence of the
fraud. See Dingle v. BioPort Corp., 388 F.3d 209, 214 (6th Cir.
2004).
In the relators' words, the true state of affairs was
that "CVS was illegally refusing to charge the Medicaid and
Medicare programs its true U&C lower prices, in multiple states,
and was hiding that fact." The misrepresented state of affairs,
they allege, grew out of CVS's false assertion that it "was giving
its U&C prices to the Medicaid and Medicare programs." They add
that, prior to the institution of their suit, no public disclosure
of either set of facts occurred.
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This disclaimer rings hollow when the Connecticut
publicity is factored into the mix.5 The Attorney General's press
release, parroted in the subsequent news articles, made manifest
the state's belief that its then-existing regulations mandated
that CVS provide Medicaid with "the lowest drug price" that CVS
was offering to consumers, which the state contended was the HSP
price. This cutting of corners, the Attorney General contended,
meant that taxpayers missed out on savings potentially amounting
to "millions of dollars." Nor was CVS's stubborn refusal to treat
HSP prices as U&C prices in doubt. The press release and resulting
media coverage dwelt, with conspicuous clarity, upon CVS's
persistent practice of not giving Medicaid the HSP price. Indeed,
once the Connecticut legislature amended its Medicaid statutes to
mandate that CVS provide the HSP prices to the state's Medicaid
program, CVS threatened to end the HSP program entirely.
On this record, it requires hardly an inferential step
to connect the allegedly true and allegedly misrepresented facts.
The publicly disclosed materials revealed, quite plainly, that CVS
was not providing its HSP price as its U&C price to Connecticut's
Medicaid program. That is precisely why the Connecticut
5 For ease in exposition, we limit our ensuing analysis to the
publicity surrounding the Connecticut dispute. While the Change
to Win publicity strengthens the case for applying the public
disclosure bar, the Connecticut publicity alone suffices to prove
the point.
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legislature essayed a statutory fix. See Conn. Gen. Stat. § 17b-
226a. So, too, those materials revealed Connecticut's belief that
the HSP prices should have been provided to the state's Medicaid
program even before the statutory change. The allegations and
transactions that comprised the essential elements of the claimed
fraud were in plain sight after these disclosures.
In an effort to resist this conclusion, the relators
submit that the Connecticut disclosures showed only a price gouging
scheme, not a scheme to defraud Medicaid and Medicare Part D. This
quibbling is unavailing: the public disclosure bar contains no
requirement that a public disclosure use magic words or
specifically label disclosed conduct as fraudulent. See United
States ex rel. Advocates for Basic Legal Equal., Inc. (ABLE) v.
U.S. Bank, 816 F.3d 428, 432 (6th Cir. 2016). "A relator's ability
to recognize the legal consequences of a publicly disclosed
fraudulent transaction does not alter the fact that the material
elements of the violation already have been publicly disclosed."
United States ex rel. Findley v. FPC-Boron Emps.' Club, 105 F.3d
675, 688 (D.C. Cir. 1997); accord A-1 Ambul. Serv., Inc. v.
California, 202 F.3d 1238, 1245 (9th Cir. 2000). Enough was
revealed in the Connecticut disclosures to put the government on
notice of the potential fraud without the aid of these relators.
The relators next asseverate that the earlier
disclosures do not unmask "substantially the same allegations or
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transactions" as the scheme identified in their complaint. This
asseveration, too, lacks force.
In evaluating substantial similarity, an inquiring court
should bear in mind the core purpose of the FCA: to encourage suits
by individuals with valuable knowledge of fraud unknown to the
government. See Ondis, 587 F.3d at 58. The public disclosure bar
safeguards this interest because "[w]hen the material elements of
a fraud are already in the public domain, the government has no
need for a relator to bring the matter to its attention." Id. It
follows logically, we think, that a complaint that targets a scheme
previously revealed through public disclosures is barred even if
it offers greater detail about the underlying conduct. See Poteet,
619 F.3d at 115.
These principles control here. The relators describe
their complaint as "focus[ing] on the CVS retail pharmacies and
alleg[ing] that when CVS submitted claims to Medicaid and Medicare
Part D it illegally and knowingly did not give the HSP discount
prices to the governments and did not report the HSP prices as the
U&C [prices]." But this was not new ground: the anatomy of this
scheme was comprehensively revealed in the Connecticut
disclosures. Those disclosures openly discussed the HSP program,
its inexpensive pricing arrangement, CVS's unwillingness to
provide the HSP prices in its dealings with Connecticut Medicaid,
and the state's belief that CVS was required to do so.
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The relators labor to distinguish their complaint from
the public disclosures by emphasizing its breadth: the Medicare
Part D program was never mentioned in the Connecticut disclosures,
nor did those disclosures aver that CVS was allegedly playing fast
and loose with the Medicaid program in other states. This argument
elevates form over substance. When it is already clear from the
public disclosures that a given requirement common to multiple
programs is being violated and that the same potentially fraudulent
arrangement operates in other states where the defendant does
business, memorializing those easily inferable deductions in a
complaint does not suffice to distinguish the relators' action
from the public disclosures.
So it is here. The public disclosures spelled out the
workings of the alleged scheme in the context of the Connecticut
Medicaid program. The relators' complaint described the same
alleged scheme — and the scheme worked in essentially the same way
under both Medicare Part D and the range of other state Medicaid
programs. Because the complaint targets the same fraudulent scheme
that was laid bare in the Connecticut disclosures, the
identification of additional government programs does nothing more
than add a level of detail to knowledge that was already in the
public domain. See United States ex rel. Bogina v. Medline Indus.,
Inc., 809 F.3d 365, 370 (7th Cir. 2016). That is not enough to
duck the public disclosure bar.
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The relators' attempt to gain traction from our decision
in United States ex rel. Estate of Cunningham v. Millenium
Laboratories of California, Inc., 713 F.3d 662, 672-76 (1st Cir.
2013), does not get them very far. Cunningham turned on the
entirely unremarkable proposition that allegations of fraud
distinct from previous disclosures are not blocked by the public
disclosure bar. That proposition is inapposite where, as here,
the fraud alleged is substantially the same as the one previously
disclosed.
To say more on this point would be supererogatory. We
hold that the essential elements of the transactions and events
underlying the relators' allegations were publicly disclosed in
the course of the earlier Connecticut dispute and that the scheme
depicted in those earlier disclosures was substantially the same
as the scheme depicted in the relators' complaint. Thus, unless
an exception applies — a question to which we next turn — the
public disclosure bar pretermits the relators' action.
C. The Original Source Exception.
The relators claim that their action nevertheless
survives under the original source exception to the public
disclosure bar. See 31 U.S.C. § 3730(e)(4)(A)-(B). Congress
altered the definition of "original source" as part of the PPACA
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amendments in 2010.6 For the first time, the statute provides
alternative original source definitions based on the timing of the
public disclosure. First, a relator who "prior to a public
disclosure . . . has voluntarily disclosed to the Government the
information on which allegations or transactions in a claim are
based" is considered an original source. Id. § 3730(e)(4)(B)(i).
The relators do not contend that they meet this definition.
Instead, they seek refuge in a narrower second category of original
sources: individuals who, despite not having provided their
information to the government prior to a public disclosure,
nonetheless possess "knowledge that is independent of and
materially adds to the publicly disclosed allegations or
transactions" and have "voluntarily provided the information to
the Government before filing an action under this section." Id.
§ 3730(e)(4)(B)(2).
It follows that relators who do not come forward until
after a public disclosure has occurred face additional hurdles to
original source status. In this instance, the relators' attempt
to assume the mantle of original source status cannot clear the
6 The parties have agreed, both before the district court and
on appeal, that the current version of the original source
exception applies to this case, and they have pitched their
arguments accordingly. We therefore do not address the pre-
amendment version of the provision.
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"materially adds" hurdle (and, thus, we do not address the
"independent knowledge" hurdle).
The meaning of the "materially adds" language in the
original source exception is a matter of first impression for this
court. At its most abecedarian level, an addition is material if
it is "[o]f such a nature that knowledge of the item would affect
a person's decision-making," or if it is "significant," or if it
is "essential." Black's Law Dictionary, 1124 (10th ed. 2014); see
ABLE, 816 F.3d at 431. This dictionary definition comports with
the common law understanding of "material," which focuses the
relevant inquiry on whether a piece of information is sufficiently
important to influence the behavior of the recipient. See
Universal Health Servs., Inc. v. United States ex rel. Escobar,
___ S. Ct. ___, ___ (2016) [No. 15-7, slip op. at 14-15]. As such,
our task is to ascertain whether the relators' allegedly new
information is sufficiently significant or essential so as to fall
into the narrow category of information that materially adds to
what has already been revealed through public disclosures. As the
level of detail in public disclosures increases, the universe of
potentially material additions shrinks.
The question of whether a relator's information
"materially adds" to public disclosures often overlaps with the
questions of whether public disclosure has occurred and, if so,
whether the relator's allegations are substantially the same as
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those prior revelations. See Cause of Action v. Chi. Transit
Auth., 815 F.3d 267, 283 (7th Cir. 2016); Osheroff, 776 F.3d at
815-16. Despite this potential for overlap, though, the
"materially adds" inquiry must remain conceptually distinct;
otherwise, the original source exception would be rendered
nugatory. See Moore, 812 F.3d at 306; cf. United States ex rel.
Duxbury v. Ortho Biotech Prods., L.P., 579 F.3d 13, 25 (1st Cir.
2009) (explaining, under pre-amendment version of the original
source exception, that a relator may sometimes provide "different
information of the publicly disclosed fraud . . . of great
significance," especially when the public disclosures themselves
rely on uncertain or unavailable information).
In the case at hand, the relators muster a host of
arguments in support of their claim to original source status.
These arguments draw on both their complaint and the declarations
submitted as part of their opposition to CVS's motion to dismiss.
We slice these arguments into four quadrants and engage them
separately.
The first slice need not detain us. The relators recycle
their arguments about the presence of the fraud in other states
and under Medicare Part D as a basis for claiming that they have
materially added to the public disclosures. We rejected those
self-same arguments in determining that the complaint alleges a
scheme substantially the same as that revealed by the public
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disclosures, and the relators' arguments are no more persuasive in
the original source context. The public disclosures revealed that
CVS operated its HSP program in multiple states and was fiercely
resistant to the idea that HSP prices had to be provided to
government healthcare programs. The relators cannot plausibly
claim to have materially added to that knowledge.
The relators' second argument focuses on the temporal
scope of the alleged fraud. They say that they have supplied
original information indicating that CVS's fraud continued after
the company's 2010 dispute with Connecticut.7 This claim is
meritless: the public disclosures left no doubt about CVS's
insistence that its HSP prices should not be considered when
calculating U&C prices. Given this publicly disclosed fact, there
was every reason to think that CVS's scheme would remain velivolent
elsewhere past the date of the Connecticut cut-off. Under these
circumstances, simply asserting a longer duration for the same
allegedly fraudulent practice does not materially add to the
information already publicly disclosed. See Cause of Action, 815
F.3d at 281-82.
7 One relator, Winkelman, suggests that he qualifies as an
original source because he has provided information about CVS's
failure to offer U&C prices to the government prior to the
inception of the HSP program. Even if true, this is beside the
point: the scheme articulated in the complaints focuses entirely
on CVS's actions with respect to HSP prices.
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Third, the relators trumpet their personal knowledge of
specific instances of alleged overbilling. For example, Winkelman
says that, while conducting claim audits, he "observed that CVS's
reported U&C prices were higher than its discount plan HSP prices."
Similarly, Martinsen says that she has provided specific examples
of overpaid claims at the retail level and that she personally
contacted Medicaid and Medicare Part D payors to confirm that they
were paying more than the HSP prices for drugs included in their
programs. But the public disclosures made it crystal clear that
CVS was not providing its HSP prices to Medicaid and, by extension,
to Medicare Part D. Offering specific examples of that conduct
does not provide any significant new information where the
underlying conduct already has been publicly disclosed.
The relators' last argument involves Martinsen's
importuning that she has provided critical evidence of CVS's intent
to defraud the government — evidence gleaned from her experience
as a pharmacist at a CVS store in Minnesota. This evidence, she
says, demonstrates that the HSP program was really a cover for an
open-ended offer of discounts to the general public. To
substantiate this claim, she asserts that CVS never tried to
enforce the program requirements; that CVS did not train employees
in the workings of the program; that it had no system for filing
HSP enrollment forms; that its computer programming was tailored
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to facilitate the scheme; and that HSP customers made up the
largest share of CVS's prescription drug purchasers.
We do not rule out the possibility that furnishing
information that a particular defendant is acting "knowingly" (as
opposed to negligently) sometimes may suffice as a material
addition to information already publicly disclosed. See 31 U.S.C.
§ 3729(b)(1). Here, however, the public disclosures made it
pellucid that CVS was acting deliberately, and that its course of
conduct was studied (not merely careless). Accordingly, the
allegations gleaned from Martinsen's experience add nothing
significant about CVS's knowledge: every indication from the
public disclosures was that CVS was fully aware that it was
refusing to provide its HSP prices to the Connecticut Medicaid
program prior to the legislative change — and, indeed, adopted
this firm position in spite of known doubts about whether this
conduct was legal.
Martinsen's additional information merely confirms this
state of affairs. At most, her allegations add detail about the
precise manner in which CVS operated the HSP program, and a relator
who merely adds detail or color to previously disclosed elements
of an alleged scheme is not materially adding to the public
disclosures. See ABLE, 816 F.3d at 432.
That ends this aspect of the matter. Because the
relators offer no new information that materially adds to what
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previously appeared in public disclosures, they do not qualify as
original sources.
III. CONCLUSION
The short of it is that the relators' suit depicts a
scheme that was publicly disclosed before the filing of their
complaint. That scheme is substantially the same as the scheme
delineated in publicly disclosed materials. And because the
relators have proffered nothing that materially adds to the
publicly disclosed information, they are not "original sources" as
that term is used in the jurisprudence of the FCA.8
We need go no further.9 For the reasons elucidated
above, we find that the sun has set on the relators' claims: the
public disclosure bar forbids their suit.
Affirmed.
8
Even though our analysis has been confined to the FCA, the
state statutes identified in the relators' complaint, without
exception, contain provisions similar to the FCA's public
disclosure bar. The relators do not argue that any of these state
versions of the public disclosure bar operate differently than the
FCA's public disclosure bar. Thus, our reasoning requires us to
affirm the dismissal of the relators' action in toto.
9
In an abundance of caution, CVS has identified other grounds
that, in its view, would support dismissal of the complaint.
Because we find the public disclosure bar dispositive, we take no
view of the efficacy of any of these alternative grounds.
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