Judge Rebuffs Medco's Effort to Dismiss Case (9.23.04)

Kreindler & Associates, along with Boies, Schiller & Flexner, represents relator Joseph Piacentile in the qui tam litigation that is pending in the Eastern District of Pennsylvania.

In a resounding victory for the relators and government, a federal judge has denied Medco Health Solutions' effort to get the False Claims Act case against it dismissed. In a well-reasoned and thoughtful 45-page ruling, Judge Clarence Newcomer of the Eastern District of Pennsylvania denied Medco's motion in all but relatively insignificant respects.

Medco argued that the government and relators had failed to describe its fraud with particularity as required by the Federal Rules of Civil Procedure, but the Court disagreed, noting "as evidenced by its 55-page Motion to Dismiss, Medco has clearly received notice sufficient to allow it to scour its own history of conduct and muster a defense."

The Court also rejected Medco's claim that the government and relators failed to legally state a claim under the False Claims Act. The Court found that the Complaint against Medco was sufficient to allege that fraud was committed against the government, rejecting Medco's assertion that "even if Plaintiffs&Mac226; allegations are true, their allegations would not rise to the level of actionable fraud." The Court refused to dismiss the False Claims Act allegations against Medco for failing to meet turnaround times in government contracts, switching patient prescriptions without physician authorization, shorting drugs to patients, inadequately performing its Drug Utilization Review obligations, failing to comply with state laws prescription fulfillment, and making false representations to customers to cover up for problems in filling patient prescriptions. The Court found that the Complaint properly includes "allegations that Medco&Mac226;s allegedly false statements did and would have caused the Government financial harm."

The Court upheld claims against Medco for violating the federal Anti-Kickback Statute, rejecting Medco's position that its alleged $87.4 million payment to a health plan that had entered into a managed care contract with Medicare cannot be a violation. The Court also denied Medco's efforts to dismiss allegations that "Medco solicited and received kickbacks from drug manufacturers in exchange for changing patients&Mac226; prescriptions" and agreed that claims for 'unjust enrichment' could proceed.

Handing Medco its only slim victory, the Court held that the government's cause of action for 'active or constructive fraud' should be dismissed, in part because there was no "heightened legal duty" between the parties, as required to support the cause of action. The dismissal of that cause of action is not expected to reduce in any way the damages sought by the relators and government from Medco.

Finally, the Court found that the relators' allegations that Medco illicitly switched patient prescriptions were 'publicly disclosed' under the provisions of the False Claims Act. Such a finding does not impact Medco's liability for the conduct alleged, but does require the relator's to demonstrate that they are "original sources" as defined in the False Claims Act. The Court ordered further briefing on this issue.

Not certified by the Texas Board of Legal Specialization.

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