United States Ex Rel. Quinn v. Omnicare Inc. ( 2004 )

Opinions of the United
2004 Decisions States Court of Appeals
for the Third Circuit
9-1-2004
USA v. Omnicare Inc
Precedential or Non-Precedential: Precedential
Docket No. 03-2187
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PRECEDENTIAL OF OMNICARE, INC.);
UNITED STATES COURT OF WINSLOW'S PHARMACY,
APPEALS (A WHOLLY-OWNED SUBSIDIARY
FOR THE THIRD CIRCUIT OF OMNICARE, INC.);
BACH'S PHARMACY EAST
03-2187
Thomas G. Quinn,
UNITED STATES OF AMERICA, ex Appellant
rel.; _______________
THOMAS G. QUINN, BRINGING
THIS CAUSE OF ACTION ON Appeal from the United States
BEHALF OF District Court
THE UNITED STATES OF AMERICA for the District of New Jersey
(D.C. No. 98-cv-02031)
District Judge: Honorable Dickinson R.
v. Debevoise
OM NICARE INC.; Argued on December 16, 2003
POMPTON NURSING HOME
SUPPLIERS, INC., Before: ROTH, MCKEE and ROSENN,
(A WHOLLY-OWNED SUBSIDIARY Circuit Judges
OF OMNICARE, INC.);
ALAN TRASTER, INDIVIDUALLY
AND IN HIS CAPACITIES (Opinion filed : September 1, 2004)
AS AN OFFICER OF OMNICARE,
INC. AND POMPTON Harvey S. Mars, Esquire (Argued)
NURSING HOME SUPPLIERS AND Leibowitz & Mars
VARIOUS JOHN DOE 322 West 48 th Street
COMPANIES WHO PROCESS New York, NY 10036
MEDICATIONS RETURNED FROM
PATIENTS AT LONG-TERM CARE Counsel for Appellant
FACILITIES LOCATED IN
THE STATE OF NEW JERSEY Harry R. Silver, Esquire (Argued)
PURSUANT TO THEIR Patton Boggs
CONTRACTUAL 2550 M. Street, N.W.
RELATIONS WITH NEW JERSEY Washington, D.C. 20037
MEDICAID/PAAD PROGRAMS;
CHERRY HILL PHARMACY, LTC, James A. Robertson, Esquire
(A WHOLLY-OWNED SUBSIDIARY Kalison, McBride, Jackson & Murphy
645 Martinsville Road bases his allegations on the fact that
P.O. Box 814 Medicaid pays for medications that the
Liberty Corner, NJ 07938 defendant phar mac ies dispense to
Medicaid beneficiaries but, if a medication
Peter S. Pearlman, Esquire is subsequently returned to a defendant
Jessica V. Henry, Esquire pharmacy for resale, the pharmacy credits
Cohn, Lifland, Pearlman, Herrmann & Medicaid with only 50% of what Medicaid
Knopf had paid the pharmacy for the medication.
Park 80 Plaza West - One We find that the lack of legal authority,
Saddle Brook, NJ 07663 requiring Medicaid-provider pharmacies to
credit Medicaid when a medication is
E. John Steren, Esquire returned for resale, is disturbing. We
Ober, Kaler, Grimes and Shriver conclude, however, that there can be no
1401 H. Street, N.W. FCA liability in the absence of such
Suite 500 authority. In addition, Quinn’s failure to
Washington, D.C. 20005 present evidence of the actual submission
of a single false claim to Medicaid is fatal
Counsel for Appellees to this qui tam action.
I. FACTUAL BACKGROUND
O P I N I O N OF THE COURT Pompton is a Medicaid-provider
pharmacy that provides medications to
individuals residing in long-term care
ROTH, Circuit Judge: facilities. Long-term care facilities, which
Omnicare, Inc., a Medicaid- include nursing homes, provide care to
provider pharmacy, and various of its patients who participate in medical
subsidiaries, including Pompton Nursing insurance programs, including Medicaid.
Home Suppliers (Pompton), were charged
by Thomas Quinn with submitting false
Pharmacy are also subsidiaries of
claims in violation of the False Claims Act
Omnicare. The District Court, in
(FCA), 31 U.S.C. § 3729 et seq.1 Quinn
analyzing Quinn’s claims, focused solely
on Pompton’s recycling and crediting
practices because Quinn worked at
1
The complaint also named Alan Pompton and did not advance a theory of
Traster; Bach’s Pharmacy, East; Cherry FCA liability against any other Omnicare
Hill Pharmacy and Winslow’s Pharmacy subsidiary that was not advanced against
as defendants. Pompton and Bach’s Pompton. For the same reason, we too
Pharmacy, East are the same entities. will focus solely on Pompton’s recycling
Cherry Hill Pharmacy and W inslow’s and crediting practices.
2
Approximately sixty percent of the of the net amount payable
medications that Pompton dispenses are under this claim has been
paid for by New Jersey Medicaid.2 The paid; and that payment of
remainder are paid for by the patients such a m ou n t w ill be
themselves or by private insurers. After a accepted as payment in full
Medicaid-provider pharmacy has supplied without additional charge to
a medication to a Medicaid patient, the the patient or to others on
pharmacy submits a claim to Medicaid. his behalf . . .. I understand
Medicaid then pays the pharmacy for the that . . . any false claims,
medication. Instructions for filing statements or documents, or
Medicaid claims are set forth in New concealment of a material
Jersey Medicaid’s Pharmacy Services fact, may be prosecuted
Fiscal Agent Billing Supplement (FABS). under applicable federal or
FABS instructs provider pharmacies to State law, or both.
submit Medicaid pharmacy claims on the On some o c c a sions, th e
MC-6 form. The MC-6 claim form medications, for which Pompton has
contains a “Provider Certification” which submitted a claim and received full
the provider must sign: reimbursement from Medicaid, are
I certify that the services returned.4 New Jersey pharmacy
covered by this claim were regulations allow Medicaid provider
personally rendered by me pharmacies to recycle returned unit dose
o r u n d e r m y d i r e ct packaged medications if they have been
supervision . . . and that the stored properly and the seal and control
services covered by this number remain intact. See N.J.A.C. §
claim and the amount 13:39-9.15.5 When Pompton receives
charged thereof are in returned medications for recycling, it is
accordance with the Pompton’s practice to send Medicaid a
regulations of the New
Jersey Health Services
Program3 ; and that no part A NN. § 30:4D-3.
4
A change in the patient’s
2
Medicaid services are financed by medication, the death of a patient, or the
the state governments and the federal transfer of a patient out of a long-term
government. In New Jersey, the Division care facility are common reasons why
of Medical Assistance and Health medications are returned.
Services (DMAHS) administers the
5
program. Recycling involves restocking and
redispensing the returned medications.
3
The New Jersey Health Services Unit dose packaging means single tablets
Program is Medicaid. See N.J. S TAT. contained in sealed blister packs.
3
check for 50% of the cost of the returned concerns in a memo to Traster. Quinn was
medications.6 Pompton justifies retaining dismissed by Pompton a few days later on
the other 50% to cover the expense of August 22, 1997.
r e sto c k i n g an d r e d i sp e n sing th e
medications. II. PROCEDURAL HISTORY
The qui tam plaintiff, Thomas
Q u i n n , was P o m p t o n ’ s r e g io n a l Quinn filed a complaint under seal
comptroller. Quinn alleges that it was against Pompton in the United States
Pompton’s practice, when medications District Court for the District of New
were returned, to push out the individual Jersey. Quinn brought the action under the
tablets and capsules from their sealed qui tam provisions of the False Claims
packages and place them in separate Act, 31 U.S.C. § 3729 et seq.,7 under New
containers for subsequent use. Quinn Je r se y’ s Co nscien tiou s E m pl oye e
claims that he observed workers in the Protection Act (CEPA), N.J.S.A. § 34:19-
return department removing pills from 3, and under New Jersey common law.
their original sealed containers by pushing Quinn claimed that Pompton violated §§
them through their packaging and that he 3729(a)(1), (2), and (7) of the FCA
saw the workers create new packages for because it (1) failed “to submit
the pills by re-sealing the packages with adjustments in order to partially void
irons. Quinn asserts that Pompton claims (submitted on required MC-6 claim
eventually redispensed the returned forms) where the medications supplied
medications. pursuant to those claims were ultimately
After Quinn learned that another returned,” (2) sold “Medicaid the same
recently acquired Omnicare subsidiary in medication twice,” (3) sub mitted
Illinois had settled FCA claims because it “Medicaid claims for pharmaceuticals that
had represented to Medicaid that
medications were destroyed when they in
fact had been returned and redispensed, he 7
The FCA allows a private citizen,
became concerned about Pompton’s
called a relator, to bring an action in the
Medicaid recycling and crediting practices.
name of the United States, and the
He expressed his concern to Alan Traster,
government may intervene if it so
the president of Pompton, who told Quinn
chooses. See 31 U.S.C. §§ 3730(b)(1),
that Pompton was not required to credit
(2). In this case, the government did not
New Jersey Medicaid for returned
intervene. The FCA permits the relator
medications. Quinn memorialized his
to bring the action in the absence of the
government’s intervention. Quinn is
entitled to collect at least 25 percent but
6
Pompton “inadvertently” credited not more than 30 percent of the proceeds
New Jersey Medicaid only 25% between of the action or settlement. See id. §§
November 1996 and September 1997. 3730(b)(4)(B), (d)(2).
4
were removed from unit dose packaging in 2003). A district court may grant summary
the recycling process, in violation of New judgment when there is no genuine issue
Jersey Board of Pharmacy Regulations”, of material fact and the moving party is
and (4) returned “credits to Medicaid for entitled to judgment as a matter of law.
less than 100% of the amount initially Fed. R. Civ. P. 56(c). The moving party
claimed for returned medications.” United bears the burden to show an absence of
States ex rel. Quinn v. Omnicare, Inc., No. any genuine issues of material fact.
98-2031 (DRD), slip op. at 9-10 (D.N.J. “[I]nferences to be drawn from the
filed March 28, 2003). Quinn claimed that underlying facts contained in the evidential
his dismissal violated the anti-retaliation sources . . . must be viewed in the light
provisions of the FCA and CEPA. Quinn most favorable” to the non-moving party.
also brought a claim for unjust enrichment. Hollinger v. Wagner Mining Equipment
On cross-motions for summary Co., 667 F.2d 402, 405 (3d Cir. 1981).
judgment, the District Court granted “[I]f a disputed fact exists which might
summary judgment to Pompton on Quinn’s affect the outcome of the suit under the
FCA claims and his unjust enrichment controlling substantive law,” summary
claim. The court declined to exercise judgment is not appropriate. Belitskus,
supplemental jurisdiction over Quinn’s 343 F.3d at 639 (citation omitted). Any
CEPA claim and dismissed it for lack of doubt a court has about the existence of a
subject matter jurisdiction. genuine issue of material fact should be
Quinn appeals the adverse resolved in the non-moving party’s favor.
disposition of his FCA claims.8 Continental Ins. Co. v. Bodie, 682 F.2d
436, 438 (3d Cir. 1982). Summary
III. JURISDICTION AND judgment is appropriate when there is no
STANDARD OF REVIEW genuine issue of material fact to be
resolved at trial. Gruenke v. Seip, 225
The District Court had jurisdiction F.3d 290, 298 (3d Cir. 2000).
pursuant to 28 U.S.C. § 1331 and 31
U.S.C. § 3732(a). We have appellate IV. DISCUSSION
jurisdiction pursuant to 28 U.S.C. § 1291. A. The Submission of the Initial
We exercise plenary review over Medicaid Claim
the District Court’s decision granting
summary judgment and will use the same The FCA imposes liability on any
test applied below. Belitskus v. person who
Pizzingrilli, 343 F.3d 632, 639 (3d Cir.
(1) knowingly presents, or
causes to be presented, to an
8 officer or employee of the
Quinn does not appeal the District
United States Government .
Court’s entry of summary judgment on
. . a false or fraudulent claim
his FCA retaliation claim.
5
for payment or approval; payment by a private insurance company
after Medicaid has paid for the medication,
(2) knowingly makes, uses, a billing error, or a computer error in
or causes to be made or processing the claim. A claim is “paid in
used, a false record or error” when it is paid and it should not
statement to get a false or have been paid. See N.J.A.C. § 10:49-
fraudulent claim paid or 8.3(b). In addition, N.J.A.C. §10:51-
approved by the 1.25(j)(2) requires “[p]harmacies . . . to
Government . . .. initiate claim reversal for those services in
which a claim was generated and
31 U.S.C. §§ 3729(a)(1), (2). A person adjudicated to payment . . . and the service
acts “knowingly” when he “(1) has actual was not subsequently provided to a . . .
knowledge of the information; (2) acts in beneficiary.”
deliberate ignorance of the truth or falsity FABS instructs the pharmacy to fill
of the information; or (3) acts in reckless out an “Adjustment Request” form when a
disregard of the truth or falsity of the claim is underpaid, overpaid, or paid in
information, and no proof of specific error. In the case of a claim that is paid in
intent to defraud is required.” 31 U.S.C. § error, the pharmacy voids the entire claim
3729(b). and Medicaid deducts the voided amount
Each time Pompton submits a claim from the next payment. The provider
for payment on the MC-6 form, it certifies indicates on the “Adjustment Request”
that “the services covered by this claim form the reason for the adjustment or void.
were . . . rendered . . . and . . . the services One of the reasons listed is “service not
covered by this claim and the amount provided.” None of these regulations,
charged thereof are in accordance with . . however, instruct pharmacies on how to
. [Medicaid] regulations . . ..” Quinn credit or adjust a claim for medications
alleges that Pompton’s initial claims are after those medications have been returned
false due to its failure to adjust them when for recycling.
medications are returned for recycling. Nevertheless, Quinn contends that
There are several regulatory Pompton violates §§ 3729(a)(1) and (2) of
provisions which do require the voiding or the FCA by failing to void or adjust claims
adjustment of claims under certain for medications after these medications
circumstances. Section 10:49-8.3 of the have been returned for redispensing.
New Jersey Administrative Code requires Quinn argues that the initial claims
“[a]djustments following payment of become false when medications have been
claims” when “a claim is incorrectly paid returned because the claims then become
and the provider receives an overpayment claims for services that were not provided
or underpayment” or when a claim is “paid to the intended beneficiaries. Quinn
in error.” Situations that may cause asserts that, after the return of the
underpayment or overpayment include a medications, unless Pompton reverses the
6
claims as required by N.J.A.C. § 10:51- under the FCA.9 The only question is
1.25, the certification on the initial MC-6 whether a claim, which is not “false” or
form is a false one. “fraudulent” when initially submitted, can
The District Court rejected Quinn’s later be rendered so if the medication is
argument because there is no language in returned.
the MC-6 form, its instructions, or There is FCA liability when a
Medicaid regulations that states that “provider knowingly asks the Government
medications cannot be returned. Quinn, to pay amounts it does not owe.” United
slip op. at 11. The court noted that, even States ex rel. Clausen v. Lab. Corp. of
though N.J.A.C. § 10:51-1.25(j)(2) America, 290 F.3d 1301, 1311 (11 th Cir.
requires reversal when “services are not 2002). The FCA reaches “all fraudulent
provided,” the regulation does not further attempts to cause the Government to pay
state that “services are not provided” when out sums of money.” Harrison v.
m e d i c a t i o n s a r e d i sp e n s e d a n d Westinghouse Savannah River, 176 F.3d
subsequently returned. Id. at 11-12. 776, 788 (4 th Cir. 1999). The terms “false”
We agree that there is no regulatory and “fraudulent” are not defined in the
requirement of the reversal of a claim once FCA. The terms, however, do have
a medication has been returned. As the independent meanings:
District Court held, if there is no A common definition of
requirement to adjust the claim, there is no “fraud” is an intentional
liability for a failure to do so.
However, even more
fundamentally, Quinn’s allegation is that 9
“Claim” is defined as:
the initial claim is rendered false by the
[A]ny request or demand,
return. The fallacy of this argument lies in
whether under contract or
the fact that the return of a medication,
otherwise, for money or
which at the outset has been dispensed to
property which is made to a
the Medicaid beneficiary, does not render
contractor, grantee, or
the initial claim false or fraudulent. In
other recipient if the
order to prove FCA liability under §§
United States Government
3729(a)(1) and (2), Quinn must prove that
provides any portion of the
“(1) the defendant presented or caused to
money or property which is
be presented to an agent of the United
requested or demanded, or
States a claim for payment; (2) the claim
if the Government will
was false or fraudulent; and (3) the
reimburse such contractor,
defendant knew the claim was false or
grantee, or other recipient
fraudulent.” Hutchins v. Wilentz, Goldman
for any portion of the
& Spitzer, 253 F.3 176, 182 (3d Cir. 2001).
money or property which is
There is no question that the MC-6 forms
requested or demanded.
Pompton submits to Medicaid are claims
31 U.S.C. § 3729(c).
7
misrepresentation, order to impose FCA liability, it is not
concealment, or necessary that the claim have been false
n o ndisclosure f or th e when it was originally submitted. We
purpose of inducing another reject this argument. The FCA aims to
in reliance upon it to part impose liability for a broad range of
with some valuable thing conduct, including “each and every claim
belonging to him or to submitted . . . which was originally
surrender a legal right.” obtained by means of false statements or
“False” can mean “not true,” other corrupt or fraudulent conduct.”
“deceitful,” or “tending to S.Rep.No. 99-345 at 9 (1986), reprinted in
mislead.” The juxtaposition 1986 U.S.C.C.A.N. 5266, 5274 (emphasis
of the word “false” with the added). Pompton’s claims were not
word “fraudulent,” plus the originally false – they did not misrepresent
meanings of the words the dispensing of the medication or the
comprising the phrase “false cost of what was dispensed.
claim,” suggest an improper We conclude that we would be
claim is aimed at extracting exceeding the intent of Congress in
money the government defining false claims if we were to permit
otherwise would not have the transforming of a valid claim into a
paid. false claim by the occurrence of a
subsequent fortuitous event which is not
Mikes v. Straus, 274 F.3d 687, 695 (2 nd itself the basis of any required adjustment.
Cir. 2001) (citations omitted). For the above reasons, we hold that
Under these standards, it is clear Pompton is not liable under the FCA for
that, when Pompton submits the initial the submission of the initial Medicaid
claim form, it is not intentionally making claims or for the failure to adjust an initial
any misrepresentation. To the contrary, it claim when a medication is returned.
is merely asking for reimbursement for
medication which it has dispensed and for B.The Successive Claim for a Recycled
which it is entitled to payment. When Medication
Pompton submits the initial claim for
payment, it has no way of knowing if a In Quinn’s second allegation, he
medication will be returned. Pompton has contends that, when a returned medication
not then “knowingly” presented a “false or is resold, Pompton is making a claim for
fraudulent claim” at the time of the an amount that has, at least in part, already
original claim submission. Nor can the been paid. The MC-6 form requires
changed circumstances, caused by the later Pompton to certify that “no part of the net
return of the medication, render the initial amount payable under this claim has been
claim false or fraudulent. paid.” Quinn asserts that Pompton submits
Quinn contends, however, that, in a false claim to Medicaid when Pompton
8
sells a medication to a Medicaid patient for The District Court held that, without
the second time. Quinn alleges that by evidence of the actual submission of a
only partially crediting Medicaid for a false claim, there was no genuine issue of
returned medication and then submitting a material fact.
new claim for the full cost of the same Quinn argues that there is a material
medication, Pompton violates §§ question of fact whether Pompton
3739(a)(1) and (2) of the FCA because submitted duplicate Medicaid claims for
Pompton has claimed more than the actual the same medication, given that Pompton
cost of the medication and has falsely recycles returned medications and
represented on the second claim form that approximately 60% of Pompton’s sales are
there has been no previous payment for the to Medicaid. Pompton responds that, at
medication. the summary judgment stage, Quinn has
The District Court rejected this the “burden to establish, in at least one
argument. The court refused to find FCA instance, that a given pharmaceutical had
liability under Quinn’s theory that been paid for by Medicaid, returned to the
Pompton must have resold returned pharmacy, and then redispensed and
medications to Medicaid by virtue of the rebilled to Medicaid.” We agree and
large volume of Medicaid business it conclude that Quinn has not met this
conducts. Quinn, slip op. at 12. The burden.
court, relying on Clausen, 290 F.2d 1311, In Clausen, the court held that a
to support the theory that the actual False Claims Act plaintiff cannot “merely
submission of a false claim must be . . . describe a private scheme in detail but
proved, noted that Quinn did not point to a then . . . allege simply and without any
single instance when the same medication stated reason for his belief that claims
was in fact the subject of two claims.10 requesting illegal payments must have
submitted, were likely submitted or should
have been submitted to the Government.”
10 290 F.3d at 1311. Clausen alleged that
Quinn asserts that the District Court
the defendant medical testing company
erred by relying on Clausen. Whereas
was overbilling the government by
the dismissal in Clausen was pursuant to
performing unauthorized, unnecessary, and
Federal Rule of Civil Procedure 9(b) for
excessive testing. The court affirmed the
failure to plead fraud with particularity,
dismissal of Clausen’s claim because he
Quinn points out that the District Court
never provided a single false claim was
held that his complaint satisfied Rule
actually submitted. Id. at 1312.
9(b)’s requirements. The present case
differs from Clausen, however, because
Clausen was dismissed on the pleadings
for failure to satisfy the pleading step, he then succumbed at the summary
requirements of Fed. R. Civ. P. Rule judgment stage for failure to establish a
9(b). While Quinn survived this first necessary element of FCA liability.
9
Similarly, in United States ex rel. for summary judgment, and Quinn did not
Alfatooni v. Kitsap Physicians Service, the ask the District Court for extended
Ninth Circuit Court of Appeals held that discovery pursuant to Federal Rule of Civil
the plaintiff’s failure to present an actual Procedure 56(f). Quinn failed to link
false claim submitted to the government Pompton’s recycling and crediting
was fatal to the action. 314 F.3d 995 (9th practices to the actual submission of a
Cir. 2002). Alfatooni, relying on the false claim. Without proof of an actual
volume of bills submitted to the claim, there is no issue of material fact to
Government each year, made the same be decided by a jury. Quinn’s theory that
argument Quinn makes here – that false the claims “must have been” submitted
claims must have been submitted. The cannot survive a motion for summary
court held that an FCA plaintiff must come judgment.
to court with a “claim in hand” and Furthermore, we agree with the
“generalized, speculative suppositions” District Court that, even assuming that
will not suffice. Id. at 1002-03. The court Pompton is submitting successive claims
contrasted United States v. Krizek, 192 for the same medications, there can be no
F.3d 1024 (D.C.Cir. 1999), in which the FCA liability because New Jersey
court “presumed that the defendants would regulations entitle Pompton to recycle and
be liable under the False Claims Act for redispense returned medications. Section
submitting psychiatric bills that totaled 13:39-9.15(a)(2) of the New Jersey
more than twenty four hours for a given Administrative Code, entitled “Disposal of
day.” Alfatooni, 314 F.3d at 1003 (citing unused medications,” allows unused unit
Krizek, 192 F.3d at 1026-27). The court in dose packaged medication, that “has been
Alfatooni noted that in Krizek, “[t]he stored in a medication room or secure area
government had the Medicare/Medicaid in the institution . . . [with the] seal and
claims in hand,” id. (citing Krizek, 192 control number . . . intact” to be “recycled
F.3d at 1027-28), even though it could not and redispensed.” The regulation does
prove exactly which of the “claims in not, however, require pharmacies to credit
hand” actually was fraudulent. M edica id for th e “recycled and
The same reasoning applies here. redispensed” medications. Because
Pompton admits that approximately 60 Pompton can legally recycle returned
percent of its business is Medicaid and that medications, the initial sale and the
it accepts returned medications for subsequent sale of a returned medication
recycling. However, as Alfatooni failed to are properly viewed as separate
do, Quinn also did not come forward with transactions. As the District Court held,
a single claim that Pompton actually these transactions are “not duplicative in
submitted to Medicaid which covered a any sense that would make them
medication for which Pompton had inconsistent with the fu ll-payment
previously submitted a claim. Discovery representation on the MC-6.” Quinn, slip
was complete at the time Pompton moved op. at 13. Under this separate transaction
10
theory, Pompton does not make a false of compliance with a contract term,
representation on the second claim form statute, or regulation – when payment is
even though it does not state that Medicaid conditioned on compliance with that
has already paid, at least in part, for a requirement. See, e.g., United States ex
redispensed medication. rel. Siewick v. Jamieson Sci & Eng’g, Inc.,
In so concluding, we recognize that 214 F.3d 1372, 1376 (D.C. Cir. 2000). 11
the second claim would be submitted to We have not yet adopted this theory of
Medicaid for payment for the same FCA liability. However, other Courts of
medication. When Pompton submits the Appeals have. The Second Circuit noted
second claim, it knows that the medication, in Mikes that it was joining the “Fourth,
which is the subject of that claim, was Fifth, Ninth, and District of Columbia
already dispensed once and returned. Circuits in ruling that a claim under the
Pompton also knows that Medicaid has Act is legally false only where a party
already paid 50% of the cost of the certifies compliance with a statute or
medication. However, because New regulation as a condition to governmental
Jersey regulations allow Pompton to payment.” 274 F.3d at 697 (citations
recycle returned medications and because omitted).
no regulation requires Pompton and other In Mikes, the court limited the
Medicaid pharmacies to credit Medicaid applicability of the implied false
for the returns, we conclude that we cannot certification theory to cases where “the
impose FCA liability based on the underlying statute or regulation upon
submission of the second claim. which the plaintiff relies expressly states
the provider must comply in order to be
C.The Recyc ling of Repackaged paid.” 274 F.3d at 699. The court limited
Medications FCA liability, premised on a legally false
certification, to those situations where a
The MC-6 form requires Pompton party certifies compliance with an
to certify that the “services covered by this underlying statute or regulation as a
claim and the amount charged thereof are condition of payment because the FCA
in accordance with . . . [Medicaid] aims to impose liability only where a
regulations . . ..” Quinn argues that certification of compliance influences the
Pompton violated §§ 3729(a)(1) and (2) of
the New Jersey Administrative Code when
it submitted claims to Medicaid because 11
Legally false certification is
the certification on the claim constituted
different than factually false certification,
an implied false certification that the
“which involves an incorrect description
returned medication was recycled in
of goods or services provided or a
accordance with “regulations.”
request for reimbursement for goods or
The “certification theory” of FCA
services never provided.” Mikes, 274
liability is based on a false representation
F.3d at 697.
11
government’s decision to pay. Id. at 697 70 (Bankr. D. Del. 2002)13 ; United States
(noting that the FCA “does not encompass ex rel. Cooper v. Gentiva Health Servs,
t h o s e i n s t a n c e s o f r e g u l a t o ry Inc., No. 01-508, slip op. at 2-3, 2003 WL
noncompliance that are irrelevant to the 22495607, (W.D.Pa. Nov. 4, 2003); United
government’s disbursement decisions”). 12 States ex rel. Watson v. Connecticut Gen’l
Under this approach, when an underlying Life Ins. Co., No. 98-6698, 2003 WL
regulation expressly prohibits payment 303142, at * 10 (E.D.Pa. Feb. 11, 2003).
upon non-compliance with its terms, the In support of imposing liability
submission of a claim implicitly certifies under this theory, Quinn relies on § 13:39-
compliance with that regulation. 9 . 1 5 ( a )( 2 ) o f t h e N e w J e r s e y
District courts in the Third Circuit, Administrative Code, Board of Pharmacy
including the court in this case, have cited Regulations, which provides: “If a unit
Mikes in support of the concept of false dose packaged medication has been stored
certification liability. See In re Genesis in a medication room or secure area in the
Health Ventures, Inc., 272 B.R. 558, 569- institution and the medication seal and
control number are intact, the medication
may be recycled and redispensed.”
12 Medicaid regulations require pharmacies
The Second Circuit declined to
to comply with Board of Pharmacy
follow the broader approach taken in Ab-
Regulations in order to participate in the
Tech Construction, Inc. v. United States,
Medicaid program. See N.J.A.C. § 10:51-
31 Fed. Cl. 429 (Fed. Cl. 1994), aff’d
1.2(d) (expressly incorporating the
without opinion, 57 F.3d 1084 (Fed. Cir.
requirements of N.J.A.C. § 13:39).
1995), where “the Court of Federal
The District Court held that failure
Claims held that the defendants’
to comply with the Board of Pharmacy
submission of payment vouchers,
regulations may disqualify a provider from
although containing no express
particip ation in the program, but
representation, implicitly certified their
compliance with the regulations is not a
continued adherence to the eligibility
condition to payment by Medicaid. Quinn,
requirements of a federal small business
slip op. at 14-15. Quinn contends,
statutory program.” Mikes, 274 F.3d at
however, that a finding of FCA liability,
699 (citing Ab-Tech, 31 Fed. Cl. at 434).
based on implied false certification theory,
The Mikes court reasoned that “[t]he Ab-
should not be limited to situations where
Tech rationale . . . does not fit
comfortably into the health care context
because the False Claims Act was not
13
designed for use as a blunt instrument to The decision of the Bankruptcy
enforce compliance with all medical Court in Genesis Health Ventures was
regulations – but rather only those affirmed by the District Court, .
regulations that are a precondition to This case is currently on appeal to this
payment . . ..” 274 F.3d at 699. Court.
12
the underlying regulation or statute comply with Medicaid regulations. The
expressly states that compliance is a Medicaid regulations expressly incorporate
condition of payment. Quinn argues that compliance with the Board of Pharmacy
there should be FCA liability when non- Regulations, including N.J.A.C. § 13:39-
c o m p l i a n ce wit h the u nder lying 9.15, as a condition to participation in the
regulations would disqualify the provider program. If a provider does not comply
from participation and that there should be with the Medicaid regulations, by reason
FCA liability here because the improper of not complying with the incorporated
recycling of medications would disqualify Board of Pharmacy regulations, not only
Pompton from participation in the will the provider be ineligible to
Medicaid program.14 participate in the Medicaid program, but
Here, the MC-6 form requires Medicaid may seek to recover the money
providers to certify that the pharmaceutical it paid to the provider for services covered
services by the claims. See N.J.A.C. § 10:49-
9.8(c).
Quinn’s arguments are compelling.
14 Even though § 13:39-9.15 does not
The United States filed a brief as
expr essly c o ndition payme nt o n
amicus curiae in the appeal of the
compliance with its terms, it hardly can be
Bankruptcy Court’s decision in Genesis
said that non-compliance with its terms is
Health Ventures, 272 B.R. 558. The
“ ir r ele va nt to the g over nm ent’ s
government refers to the 1986 Senate
disbursement decisions.” Mikes, 274 F.3d
Report, which states that “claims may be
at 697. However, even if Pompton does
false even though the services are
not qualify for Medicaid reimbursement if
provided as claimed if, for example, the
it dispenses an improperly recycled
claimant is ineligible to participate in the
medication to a Medicaid patient, we
program.” S.Rep.No. 99-345 at 9,
cannot say that, in this case, Pompton has
reprinted in 1986 U.S.C.C.A.N. 5266,
made any false certifications in connection
5274 (emphasis added). The report also
with a Medicaid claim. The reason we
states that a false claim “may take many
come to this conclusion is because of the
forms, the most common being a claim
impossibility of proving from the numbers
for goods or services not provided, or
alone that a claim was made by Pompton
provided in violation of contract terms,
to Medicaid for an improperly recycled
specifications, statute or regulation.” Id.medication.
The government argues that Congress
If 100% of the medications that
intended eligibility for program
Pompton dispensed were paid for by
participation and compliance with
Medicaid, then a fortiori, any claim for an
contract terms, specifications, statutes or
improperly recycled medication would be
regulations to be conditions which must
paid for by Medicaid. If that claim was
be met in order for claims to be true
made on Form MC-6, it would be
under the FCA.
13
inevitable that Pompton had violated the District Court with a single instance
N.J.A.C. § 3729(a)(1) and (2), and where Pompton submitted a claim for
Medicaid would be paying Pompton on the payment for medications recycled in
basis of a false certification. Such a violation of § 13:39-9.15. 16 For that
situation would be similar to the one in reason, Quinn’s false certification claim
Krizek, 192 F.3d 1024, where we know fails.
that a false claim had to have been made D. The Failure to Give Medicaid 100%
when 25 or more hours were being Credit for Returned Medications
charged to M edicaid for a 24 hour day.
In the present case, however, Quinn
cannot demonstrate either that an 16
We do find, however, that there
improperly recycled medication was paid
would be enough evidence in the record
for by Medicaid or that it was paid for by
to create a genuine issue of material fact
one of the other sources of payment for the
as to whether Pompton was recycling
medications that Pompton dispensed.
unit dose packaged medications in
Although we might hypothesize that 60 %
violation of N.J.A.C. § 13:39-9.15.
of the improperly recycled medications
Quinn witnessed Pompton’s employees
were paid for by Medicaid, it is impossible
recycling medications by removing pills
to rule out the chance that they were paid
from their sealed packaging, placing the
for by non-Medicaid sources.15 For this
pills in large containers, and then
reason, we agree with the District Court
resealing the pills in new packages using
that “even assuming that the MC-6
an iron. The attorney for Pompton
certified compliance with Board of
admitted to the District Court at the
Pharmacy regulations as a condition of
summary judgment hearing that returned
payment, Plaintiff has not pointed to sales
medications were repackaged. See
inconsistent with the certification.” Quinn,
Transcript of Proceedings dated
slip op. at 14. As with our discussion on
November 25, 2002 at A7. This alone,
successive claims, Quinn did not provide
however, is insufficient to withstand
Pompton’s motion for summary
judgment. Quinn submits that every sale
15
We could even hypothesize that if has a proportion of recycled inventory
improperly recycled medications because recycled medications are
comprised more that 40% of the returned to inventory. Since at least 60%
medications that Pompton dispensed, it of Pompton’s sales are to Medicaid
would be inevitable that a falsely patients, Quinn argues that at least 60%
certified claim had been made to of the improperly recycled medications
Medicaid, the source of 60% of must have been paid for by Medicaid.
Pompton’s receipts. There are, however, As we discuss supra, however, this
insufficient facts in the record to support “must have been” theory of liability
even this more generous hypothesis. cannot serve as a basis for FCA liability.
14
The reverse false claim provision of pharm acist and a facility
the FCA imposes liability on any person representative.
who “knowingly makes, uses, or causes to
be made or used, a false record or Pompton maintains that § 8:39-
statement to conceal, avoid, or decrease an 29.4(j) does not impose an obligation to
obligation to pay or transmit money or credit Medicaid because Pompton is not a
property to the Government.” 31 U.S.C. § “facility.” Quinn responds that § 8:39-
3729(a)(7). To make a prima facie case of 29.4(j) does require Pompton to credit
liability under § 3729(a)(7), the plaintiff Medicaid for returned medications because
must prove that the defendant did not pay the definition of “facility” includes
back to the government money or property pharmacies. Quinn argues that this section
that it was obligated to return. The District requires Pompton to credit Medicaid 100%
Court held that Pompton was not liable because “credit” means “full credit,” and
under the reverse false claim provision “[i]f something less than full credit was
because it found that Pompton is under no acceptable to the State, then the regulation
legal obligation to credit Medicaid for would have said so.”
returned medications. A prerequisite for As the District Court noted, “[i]t is
liability under this theory is a legal debatable whether . . . [N.J.A.C. § 8:39-
obligation to credit Medicaid 100% for 29-4(j)] even governs the conduct of
returned medications. The District Court Medicaid pharmacies.” Section 8:39-29-
noted that there is no federal or New 4(j) is a regulation promulgated by the
Jersey Medicaid statute or regulation Department of Health and Senior Services,
which specifically requires that Pompton not Medicaid. The regulation appears
do so. Id., at 15-16. under Chapter 39, which is titled
Quinn asserts that Pompton’s “Standards for Licensure of Long-Term
failure to give 100 % credit to Medicaid Care Facilities.” This alone suggests that
violated § 3729(a)(7) of the FCA. Quinn nursing homes, as opposed to pharmacies,
argues that § 8:39-29.4(j) of the New are required to create a “crediting
Jersey Administrative Code imposes a mechanism.”
legal obligation on Pompton to credit The term “facility” is defined as “a
Medicaid for returned pharmaceuticals. facility or distinct part of a facility licensed
That section provides: by the New Jersey State Department of
Where allowable by law, the Health and Senior Services as a long-term
facility shall generate a crediting care facility.” N.J.A.C. § 8:39-1.2.
m e c h a n ism for medications Pompton is not a “facility” within this
dispensed in a unit-of-use drug definition because it is not licensed as a
distribution system, or other system long-term care facility. Furthermore, it
that allows for the re-use of does not make sense for Pompton, a
medications. The crediting system pharmacy, to be considered a “facility”
shall be monitored by the provider within the regulation’s definition when, if
15
it were considered a “facility,” it would, in consumers and the State Medicaid
addition, have to maintain a pharmacy. program will benefit from this
See id. § 8:39-29.1 (facilities “shall have a proposed rule.
consultant pharmacist and either a provider
pharmacist, or if the facility has an in- 26 N.J.R. 1776 (Monday, May 2, 1994).
h o u s e p h a r m a c y, a d ir e ctor of The other passage states:
pharmaceutical services”). The economic impact of this
Although Pompton is not a amendment should result in savings
“facility,” the second sentence of the to residents and families and third
regulation requires Pompton, because it is party payors such as Medicaid.
a provider pharmacist, to monitor the These savings will occur as a result
facility’s crediting system. See id. § 8:39- of drugs which will be returned to
29.4(j). Therefore, Pompton, acting as a the pharmacy for credit. Drugs
long-term care facility’s mandatory which have been . . . returned to the
pharmacy provider, does have an pharmacy will be credited to that
obligation under this regulation to resident . . . The overall savings to
“observe, watch, or check” the crediting residents, families and Medicaid
mechanism put in place by the long-term may exceed $200,000.
care facility. See id. § 8:39-1.2. This
obligation to monitor, however, does not 29 N.J.R. 4415(a) (Monday, October 20,
expressly include an obligation to credit 1997). These two passages do lend
Medicaid for returned medications. support for Quinn’s argument that state
Quinn cites two passages in the officials expected N.J.A.C. § 8:38-29.4(j)
New Jersey Register in support of his to result in savings for Medicaid as a result
argument that Pompton has an obligation of crediting. It nevertheless is not clear
to credit Medicaid for returned who has an obligation to credit and how
medications. The first passage states: much credit is required to be given.
T h e D epartment anticip ate s Even if the regulation imposed
significant cost savings will accrue upon Pompton an obligation to credit
as a result of N.J.A.C. § 8:39- Medicaid, as the District Court noted, “it
29.4(j) . . . The rule discontinues does not impose upon them a requirement
the current requirement to destroy that they credit Medicaid any specific
all unused medications . . . [T]he amount for returned medications.” Quinn,
product is returnable and can be slip op. at 16. Quinn argues that credit
dispensed again by the retail means 100%. We conclude, however, that,
pharmacy. Although no statewide in light of the absence of a clear obligation
dollar impact is available, literally to credit Medicaid and the absence of any
thousands of dollars of medications Medicaid or other regulation requiring
are destroyed by many facilities provider pharmacies to credit at a specific
monthly. Both private pay rate, we can not impose FCA liability on
16
Pompton.17 NJ KidCare programs capitate the
Quinn also argues that Pompton, by dispensing fee for each prescription
deducting 50% to cover the costs of for beneficiaries in Medicaid-
recycling, violates N.J.A.C. § 10:49-14.5. approved nursing facilities . . .
This Medicaid regulation provides: “A Additional dispensing fees (add-
provider shall not pay nor require payment ons) per prescription shall be given
of an administrative charge or service fee to pharmacy providers who provide
. . . for services for which reimbursement the following levels of services:
is included as part of the Medicaid . . .
fee.” The District Court rejected Quinn’s 1. Twenty-Four Hour Unit Dose
argument, noting that it “assumes that such Service: Pharmacies . . . dispensing
a restocking fee pays for a service ‘for medication in a dispensing system
which reimbursement is included’ in other in which a 24-hour supply of unit
Medicaid payments . . ..” Id. dose oral medication . . . is
Quinn argues that the capitation delivered for each beneficiary
payment Medicaid pays to Pompton for daily, shall be reimbursed the cost
medications dispensed to Medicaid of all reimbursable medication plus
beneficiaries is understood to include the a fee of $0.656 per beneficiary day.
costs associated with returns. N.J.A.C . §
10:51-2.7, titled “Prescription dispensing Edward Vaccaro, Assistant Director
fee (capitation)” provides, in relevant part: of the Office of Health Service
(a) The New Jersey Medicaid and Administration within DMAHS, explained
in his depositions that “[t]he capitation . .
. attempts to compensate the pharmacy for
17 different costs associated with delivery
Edward Vaccaro, a New Jersey
systems, which is why the 24-hour unit
Medicaid representative, stated during
dose is the higher capitation . . ..” He also
his deposition that the regulations at
stated that “[c]apitation is intended to
issue in this case require pharmacies to
reimburse providers of long-term care
provide credit for returned medications at
pharmacy services for the costs associated
100%. Quinn asks us to accord this
with the dispensing of drugs . . . [and] [i]n
statement deference as an agency
the case of long-term care, I would
interpretation. However, the statement,
consider recycling to be part of
offered in a litigation setting, was not the
dispensing.” Because only unit dose drugs
product of a rulemaking or an official
may be recycled, it may be fairly
agency interpretation. Thus, regardless
understood by Vaccaro that the capitation
of any deference that may be due a state
fee covers the costs of redispensing the
agency’s interpretation of its own
returned drugs. However, as Vaccaro
regulations, we are not persuaded that the
admitted, there is no regulation that
statement represents an official agency
explicitly bars the collection of a
position on this matter.
17
restocking and redispensing f e e. liability. 18
Furthermore, § 10:51-2.7 does not indicate
that the cost of restocking and V. CONCLUSION
redispensing returned medications is
included in the capitation payment. For the foregoing reasons, we will
Therefore, Pompton is not charging “an affirm the District Court’s grant of
administrative charge or service fee . . . for summary judgment against Thomas Quinn.
services for which reimbursement is In doing so, we are constrained by the lack
included as part of the Medicaid . . . fee.” of a regulation requiring that credit be
N.J.A.C. § 10:49-14.5. given for recycled medications. We
Finally, Quinn argues that Pompton believe that Congress and/or the New
acknowledges an obligation to fully credit Jersey legislature might serve Medicaid
Medicaid by submitting reimbursement well if this lack of regulation were
checks to Medicaid. Nevertheless, in corrected.
order for there to be liability under §
3729(a)(7) of the F CA , a
misrepresentation must be made to
“conceal, avoid, or decrease an obligation
to pay or transmit money or property to the
Government.” 31 U.S.C. § 3729(a)(7).
Even if Pompton’s payments are implicit
representations that they are giving full
credit, without a clear obligation to credit
Medicaid, these representations are not
made to avoid or decrease a legal
obligation. As the District Court noted,
“[e]ven if the relevant regulations could be
construed to contain such an obligation,
the lack of clear legal authority might
preclude any finding that Defendants
breached the obligation with the requisite
level of knowledge.” Quinn, slip op. at 19,
n.16.
We conclude, therefore, that the
failure to credit 100% of the cost of the
medication is not a basis for FCA 18
Quinn also appears to make a
worthless services claim in his reply
brief. He did not pursue, and the District
Court did not rule on, this claim below.
Therefore, we will not address it.
18