Growing Chorus of Courts Hold Otherwise Accurate PDE Data May Support FCA Liability; Part D Participants Should Validate Audit Processes and Internal Controls
A district judge in New Jersey recently permitted the relator in United States ex rel. Silver v. Omnicare Inc., No. 11-cv-01326 (D.N.J. Apr. 13, 2021), to file an amended complaint alleging that a pharmacy’s submission of dispensing data to a Part D plan sponsor or pharmacy benefit manager (PBM), and the inclusion of that data in a subsequent Prescription Drug Event (PDE) submission to the Centers for Medicare and Medicaid Services (CMS), may support False Claims Act (FCA) liability where the underlying prescriptions were “tainted” by a kickback scheme. With his decision on reconsideration, Judge Hillman joined a growing chorus of courts in the Second and Third Circuits to hold that facially accurate PDE submissions constitute a certification that the underlying transactions did not violate federal or state statutes, regulations or program rules.[i] It remains to be seen how courts will apply materiality standards to various PDE data elements, but certain Part D plan sponsors, PBMs and pharmacies should prepare for an increase in qui tam lawsuits premised on this broad theory of liability.
Because the PDE record is a summary of individual drug claim transactions, the theories of liability asserted against each Part D participant will differ. Sponsors are obligated, pursuant to 42 C.F.R. § 423.322, to submit information necessary for CMS to carry out Part D payment provisions and program integrity activities. For every prescription filled, the Part D sponsor or its administrator prepares and submits a PDE record to CMS. Certain of the information included in the PDE is completed by the pharmacy responsible for filling the prescriptions. Nonetheless, as a condition of payment, the sponsor and any of its subcontractors are required to certify, pursuant to 42 C.F.R. § 423.505(k), to the accuracy, completeness, and truthfulness of the claims data.
Hence, Part D participants would be well-served to validate their existing audit processes and internal controls vis-à-vis the PDE data elements. Those participants already subject to Part D audits by CMS will find these requirements familiar, as PDE data is required to be replicated in the Formulary and Benefit Administration (FA) data universe for sampling purposes, and certain edits and use edits that ensure compliance to regulatory requirements are tested in Coverage Determinations, Appeals and Grievances (CDAG) audits. Suffice it to say, however, that the underlying regulations are complex and change often. For example, with respect to controlled substances, regulations vary materially from those that apply to other pharmaceutical drugs, including refills and quantity limits for different populations, e.g., nursing facilities, terminally ill and opioid naïve patients. Moreover, unlike sponsors and PBMs, pharmacies have less experience in auditing the accuracy of PDE data submissions, and often mistakenly rely on claims processors to identify discrepancies in the first instance. In short, this burgeoning and yet-to-be-defined scepter of FCA liability warrants monitoring and proactive attention.
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* Mr. Mahajan currently serves as Chair of Frier Levitt’s White Collar Defense & Government Investigations practice. He previously was employed as the Chief Compliance & Ethics Officer for UnitedHealth Group, a diversified Fortune 5 healthcare company. Anthony also was employed as Chief Counsel for McKesson Corp., where he provided legal advice to businesses concerning controlled substance obligations. Finally, he formerly served as an Assistant U.S. Attorney for the U.S. Department of Justice, where he investigated and prosecuted federal healthcare offenses against corporate entities and health care professionals.
[i] See also United States ex rel. Bassan v. Omnicare, Inc., No. 15-4179, 2021 U.S. Dist. LEXIS 52323, at *9 (S.D.N.Y. Mar. 19, 2021); United States ex rel. Mohajer, No. 17-4176, 2021 U.S. Dist. LEXIS 46672, *10 (S.D.N.Y. Mar. 12, 2021); United States ex rel. Buth v. Pharmerica Corp., No. 09-720, 2014 U.S. Dist. LEXIS 122719, *17-18 (E.D. Wis. Sept. 3, 2014); United States ex rel. Spay v. CVS Caremark Corp., 913 F. Supp. 2d 125, 168 (E.D. Pa. 2002).