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Media Alerts - Spay v. CVS Caremark Corporation - Third Circuit
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November 17, 2017
  Spay v. CVS Caremark Corporation - Third Circuit
Headline: Use of Dummy Prescriber IDs Found Immaterial in Claim against CVS Caremark Corporation for Violation of False Claims Act

Area of Law: Civil

Issue(s) Presented: (1) Did the District Court erroneously grant Defendant CVS Caremark Corporation's motion for summary judgment where the District Court relied on the government knowledge inference doctrine in dismissing Plaintiff's claim?

Brief Summary: From 2006 to 2007, Defendant CVS Caremark Corporation submitted approximately 4,500 Prescription Drug Event records to Centers for Medicare and Medicaid Services ("CMS") using dummy Prescriber IDs. Spay filed suit against Caremark, claiming that Caremark violated the False Claims Act ("FCA") by submitting false information to CMS. The District Court granted Caremark's motion for summary judgment, primarily relying on the "government knowledge inference" doctrine. The District Court found that CMS knew about the dummy IDs but paid them anyway. On appeal, the Third Circuit adopted the government knowledge inference doctrine that had been developed in other Circuits and applied a two-part test to determine whether the government knowledge inference doctrine was appropriate. The Third Circuit determined that under this test the government knowledge inference did not apply, but it affirmed the District Court's decision on other grounds. In reaching its decision, the Court addressed whether materiality was a required element for Spay's claim under the False Claims Act. Ultimately, the Court concluded that it was, and that Caremark's submission of dummy Prescriber IDs was not material to the government's decision to pay the claims substantiated by the PDE records. Therefore, despite the fact that the government knowledge inference doctrine did not apply, summary judgment in the Defendant's favor was proper.


Extended Summary:

Processing payment for claims made under Medicare Part D involves two steps: (1) the pharmacy claim, which the pharmacy submits to its Pharmacy Benefit Manager ("PBM"); and (2) the Prescription Drug Event ("PDE") record, which the Sponsor submits to Centers for Medicare and Medicaid Services ("CMS"), a governmental entity. Each year, Sponsors submit PDE records to CMS during a reconciliation process, seeking to recover the difference between the Sponsor's actual costs during the year and any amount it already received from CMS. Defendant CVS Caremark Corporation ("Caremark") was one of the largest PBMs in the United States from 2006 to 2007. During that time, Caremark submitted approximately 4,500 Prescription Drug Event records to CMS on behalf of its Sponsors. Spay filed suit against Caremark, claiming that Caremark violated the False Claims Act ("FCA") by submitting false information to CMS, which resulted in CMS paying the Sponsors more than they were actually entitled to receive.

Spay's main argument involved the submission of "dummy" Prescriber ID numbers. A Prescriber ID is a number issued to each individual with prescribing authority. If a PDE record was submitted without a Prescriber ID number, the electronic system CMS used to process payment would automatically reject the PDE, preventing payment to the dispensing pharmacy for the corresponding prescription. In an effort to reduce the number of legitimate claims that were bounced out due to the lack of a Prescriber ID, Caremark created a dummy Prescriber ID which it used to submit PDE records to CMS for payment. In total, Caremark generated about 4,500 PDE records using 56 different dummy Prescriber IDs. Spay filed his lawsuit against Caremark based on six issues, including the use of dummy Prescriber IDs. Spay claimed that Caremark used dummy IDs on a large number of its PDE record submissions, while falsely certifying the accuracy of the records.

The District Court granted Caremark's motion for summary judgment, primarily relying on the "government knowledge inference" doctrine. The "government knowledge inference" doctrine states, "when the government knows and approves of facts underlying an allegedly false claim prior to presentment, an inference arises that the claim was not knowingly submitted, regardless of whether the claim itself is actually false." The District Court found that (1) CMS knew about the dummy IDs; (2) paid all of the claims using dummy IDs anyway; and (3) never sought repayment from Caremark.

On appeal, the Third Circuit addressed the applicability of the government knowledge inference doctrine. Initially it held that the doctrine, which had been developed in other Circuits, should be followed in the Third Circuit as well. The Third Circuit stated that the doctrine is used to distinguish between the submission of false claims, and the knowing submission of false claims. In order to achieve that purpose, the Third Circuit applied a two-part test to determine whether the government knowledge inference doctrine was appropriate. The test requires that: "(1) the government agency knew about the alleged false statement(s); and (2) the defendant knew the government knew." Applying the test to the issue before it, the Third Circuit determined that the government knowledge inference did not apply on the record before it. Although there was sufficient evidence to suggest that CMS knew Caremark had submitted PDE records with dummy Prescriber IDs, there was insufficient evidence to suggest that Caremark knew that CMS was aware of the issue. "Our review of the record shows that there is no evidence of the kind of cooperation and collaborative problem-solving that exists in the easy case where the government knowledge inference is invoked."

The Court, however, went on to address whether materiality is a required element of the False Claims Act. While this case was on appeal, the Supreme Court decided Universal Health Services Inc. v. Escobar, which made materiality an element of a FCA violation. Spay argued that the holding applied only to the post-2009 version of the FCA, and that Caremark's conduct took place prior to the enactment of the 2009 amendments under consideration in Universal Health. The Third Circuit concluded that the pre-2009 version of the FCA contained a materiality requirement and applied it to the present case. Ultimately, the Court concluded that the submission of dummy Prescriber IDs was not material to the government's decision to pay the claims substantiated by the PDE records. According to the Third Circuit, the evidence suggested that CMS knew about the use of dummy IDs, but paid the PBMs anyway. "CMS was concerned with making sure that the medications were dispensed to Medicare recipients and that pharmacies were paid for those prescriptions. Had the payments stopped, the prescriptions would not have been dispensed, and the pharmaceutical needs of Medicare recipients would not have been addressed." The Court held that the dummy IDs were thus immaterial to the government's decision to pay, as they were merely "minor or insubstantial" misstatements used to prevent legitimate claims from being rejected by the CMS electronic processing system. Therefore, although the government knowledge inference doctrine did not apply to the facts of this case, summary judgment was proper.

The full opinion can be found at http://www2.ca3.uscourts.gov/opinarch/153548p.pdf

Panel: Smith, Chief Judge, McKee, and Restrepo, Circuit Judges

Argument Date: November 10, 2016

Date of Issued Opinion: November 16, 2017

Docket Number: No. 15-3548

Decided: Affirmed.

Case Alert Author: Stephen P. Dodd

Counsel: Ian P. Samson, Esquire, Marc S. Raspanti, Esquire, Counsel for Appellant; Enu Mainigi, Esquire, Joy P. Clairmont, Esquire, Jeffrey F. Keller, Esquire, Gordon Schnell, Esquire, Claire M. Sylvia, Esquire, Counsel for Appellee.

Author of Opinion:
Circuit Judge McKee

Circuit: Third Circuit

Case Alert Circuit Supervisor:
Prof. Mark Rahdert

    Posted By: Susan DeJarnatt @ 11/17/2017 05:39 PM     3rd Circuit  

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