1

UNITED STATES DISTRICT COURT

DISTRICT OF NEW JERSEY

HONORABLE NOEL L. HILLMAN

CIVIL ACTION NO. 11-1326

OPINION

APPEARANCES:

LISA J. RODRIGUEZ

Schnader Harrison Segal & Lewis LLP 

Woodland Falls Corporate Park 

220 Lake Drive East 

Suite 200 

Cherry Hill, NJ 08002-1165

SHAUNA BRIE ITRI

SHERRIE R. SAVETT

DANIEL R. MILLER 

Berger & Montague, PC 

1622 Locust Street

Philadelphia, PA 19103

JENNIFER VERKAMP

FREDERICK M. MORGAN, JR.

Morgan Verkamp, LLC

700 Walnut Street

Suite 400

Cincinnati, OH 45202

ROSS B. BROOKS

Sanford Heisler, LLP

1350 Avenue of the Americas

31st Floor

New York, NY 10019

Attorneys for Plaintiffs and Relator

UNITED STATES OF AMERICA ex 

rel. Marc Silver, et al.,

Plaintiffs,

v.

OMNICARE, INC., et al.,

Defendants.

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JUDITH H. GERMANO 

Germano Law LLC 

460 Bloomfield Avenue

Suite 200 

Montclair, NJ 07043

MICHAEL MANTHEI

DAVID M. GLYNN

JEREMY M. STERNBERG

NATHANIEL F. HULME

Holland & Knight LLP

10 St. James Avenue

Boston, MA 02116

Attorneys for Defendant PharMerica Corp.

HILLMAN, United States District Judge:

This is a False Claims Act (“FCA”) suit. As set forth in the

Court’s previous opinion mainly denying Defendant PharMerica’s 

Motion to Dismiss, Relator Marc Silver alleges “that defendants 

engaged in a [‘swapping’] scheme that violated the Anti-Kickback 

Statute by offering nursing homes below market prices for drugs to 

patients insured by Medicare Part A in exchange for referrals of 

prescriptions for nursing home patients insured by Medicare Part D 

or by Medicaid.” United States ex rel. Silver v. Omnicare, Inc., 

2014 U.S. Dist. LEXIS 136800 at *1 (D.N.J. Sept. 29, 2014).1 

Silver alleges that PharMerica defrauded the federal government 

when it submitted Medicare and Medicaid claims for reimbursement 

 

1 As stated in the previous opinion, this Court exercises subject 

matter jurisdiction pursuant to 28 U.S.C. § 1331 and 

§ 1367. U.S. ex rel. Silver, 2014 U.S. Dist. LEXIS 136800 at *4.

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which certified PharMerica’s compliance with the Anti-Kickback 

Statute.

At issue is whether the public disclosure bar, or the 

original source exception to that bar, apply to Silver’s suit. 

Before the Court is PharMerica’s jurisdictional motion to dismiss 

pursuant to Fed. R. Civ. P 12(b)(1), which applies to Silver’s 

claims based on conduct before March 23, 2010; and PharMerica’s 

summary judgment motion, which applies to Silver’s claims based on 

conduct after March 23, 2010.2 For the reasons stated herein, the 

Court holds that, as to all of PharMerica’s conduct, the public 

disclosure bar applies, and the original source exception does not 

apply.3 Accordingly, both motions will be granted. The Court will 

 

2 As will be discussed further infra, in 2010, Congress made 

substantive statutory changes to the FCA which materially alter 

the analysis of the issues presented. See U.S. ex rel. Moore & 

Company, P.A. v. Majestic Blue Fisheries, LLC et al., 812 F.3d 

294, 297 (3d Cir. 2016)(“In 2010, Congress amended the public 

disclosure bar as part of the Patient Protection and Affordable 

Care Act (‘PPACA’). In doing so, it removed the language that 

explicitly stated that a court was deprived of ‘jurisdiction’ over 

the FCA action if the bar applied to that action . . . and 

expanded the definition of ‘original source’ by allowing a relator 

who ‘materially adds’ to the publicly disclosed information to 

qualify.”). These statutory changes account for PharMerica’s two 

different motions addressing the same legal issues.

3 The Motion to Dismiss covers conduct before March 23, 2010, and 

the Motion for Summary Judgment covers conduct after March 23, 

2010. PPACA’s effective date is March 23, 2010; therefore the 

summary judgment motion (rather than the motion to dismiss) 

necessarily includes the alleged conduct occurring on March 23, 

2010.

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also decline to exercise supplemental jurisdiction over the 

remaining state law claims.

I. Background

The allegations concerning the alleged fraudulent scheme have 

been set forth in the Court’s previous opinion and are not 

directly implicated by the instant motions. The following facts 

are most relevant to the issues presently before the Court.

Relator Silver has never worked for, nor done business with, 

PharMerica. (SUF ¶ 5) However, Silver is generally knowledgeable 

about the nursing home business, and the pharmacy business,

because he is a former owner of both a nursing home and a 

pharmacy. (SUF ¶ 4) Thus, Silver knew about the Balanced Budget 

Act of 1997’s effect on the nursing home industry, which set the 

stage for potential swapping transactions. Specifically, Silver 

testified that the law “totally changed the financial picture for 

nursing homes in the United States,” (SUF ¶ 24), because as to 

Medicare Part A patients, the government switched from a 

reimbursement system based on actual costs, to a prospective 

payment per diem fixed cost system. (SUF ¶ 25-26) According to 

Silver, this new arrangement provided the “clear motive” for 

pharmacies and nursing homes to engage in swapping transactions. 

(Silver Dep. p. 61-62)

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A. HHS-OIG documents indicate that illegal swapping transactions 

may be occurring in the nursing home business

As quoted in Silver’s Third Amended Complaint, the Health and 

Human Services - Office of the Inspector General (HHS-OIG), in 

1999, stated in an advisory opinion, that suppliers who offer 

“‘discounts on business for which the purchaser pays the supplier, 

in exchange for the opportunity to service and bill for higher 

paying Federal health care program business reimbursed directly by 

the program to the supplier’” violate the Anti-Kickback Statute. 

(TAC ¶ 61) Although the Advisory Opinion analyzed swapping 

transactions between nursing homes (referred to as “skilled 

nursing facilities” or “SNFs”) and an ambulance company (i.e., not 

nursing homes and pharmacies) the opinion specifically stated that 

the ambulance company’s inquiry

‘comes amidst a considerable number of informal 

inquiries and anecdotal reports regarding discounts to 

SNFs that this Office has received since the enactment 

of the SNF PPS [(prospective payment system)]. These 

inquiries and reports suggest that suppliers of a wide 

range of SNF services are giving SNFs discounts for PPSbusiness that are linked, directly or indirectly to 

referrals of Part B business.’

(TAC ¶ 62)(emphasis added).

The Third Amended Complaint also quotes a March, 2000, HHSOIG “Program Guidance for Nursing Facilities,” which relied upon 

the 1999 Advisory Opinion, and explained, 

‘[s]wapping occurs when a supplier gives a nursing 

facility discounts on Medicare Part A items and services 

in return for the referrals of Medicare Part B business. 

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With swapping, there is a risk that suppliers may offer 

a SNF an excessively low price for items or services 

reimbursed under PPS in return for the ability to service 

and bill nursing facility residents with Part B 

coverage.’

(TAC ¶ 64)

The HHS-OIG, in 2008, stated again that “‘swapping 

arrangements violate the anti-kickback statute’”: 

‘nursing facilities should not engage in swapping 

arrangements by accepting a low price from a supplier or 

provider on an item or service covered by the nursing 

facility’s Part A per diem payment in exchange for the 

nursing facility referring to the supplier or provider 

other Federal health care program business, such as Part 

B business excluded from consolidated billing, that the 

supplier or provider can bill directly to a Federal 

health care program.’

(TAC ¶ 65)(quoting HHS-OIG Supplemental Compliance Program 

Guidance for Nursing Facilities).

B. A Centers for Medicare and Medicaid Services (“CMS”) report 

indicates that long-term care pharmacies provide prescription 

drugs to nursing homes at little to no charge

In December 2004, The Lewin Group prepared a report entitled,

“CMS Review of Current Standards of Practice for Long-Term Care 

Pharmacy Services; Long-Term Care Pharmacy Primer.” (Def’s Ex. F) 

The report indicated that, as to long-term care pharmacies 

(“LTCPs”) in particular, conditions were ripe for swapping 

transactions:

[i]n today’s environment, LTCPs provide many services to 

nursing facilities at little to no charge. When LTCPs 

do charge for services, the pricing for services is 

difficult to determine since services are often bundled 

together. As a result there is a great deal of 

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uncertainty in the market regarding the cost to LTCPs of 

providing services of the potential charge structure that 

would exist in the market if LTCPs were reimbursed 

directly for the services they provide.

. . . .

Medicaid reimbursement rates are important to LTCPs not 

only because Medicaid accounts for the largest portion 

of LTCP revenue, but also because Medicaid rates are 

often used to set a pricing ‘floor’ in the industry, 

effectively setting the lowest price in the market and 

thereby guaranteeing minimum reimbursement rates to 

LTCPs. This practice arises for two reasons. First, 

LTCPs are concerned that offering nursing facilities 

rates lower than Medicaid’s for non-Medicaid residents 

could be viewed as an ‘inducement’ to attract Medicaid 

business and would be in violation of Fraud and Abuse 

statutes. Second, some Medicaid programs include a ‘most 

favored nation’ status clause in their contracts that 

require LTCPs to grant Medicaid the best price in the 

market; effectively, if a LTCP contracts with a nursing 

facility for a reimbursement rate below that of Medicaid, 

it must extend that same price to the Medicaid program.

(Ex. F, p. 1, 19-20)

C. Two sources report that PharMerica is one of only several 

LTCPs in the “highly concentrated LTCP market”

In June 2007, a Harvard Medical School report, created for 

the Medicare Payment Advisory Commission, stated that “[t]he LTCP 

market is highly concentrated. Three companies, Omnicare, 

PharMerica, and Kindred Pharmacy Services (KPS), account for 

around 60% of the sector’s revenues.” (Def’s Ex. G) The report 

further stated that PharMerica was second only to Omnicare in 

terms of number of “nursing home beds” serviced in the United 

States. (Id.)

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The Medicare Payment Advisory Commission, in turn, reported 

to Congress that “[t]he LTCP market is highly concentrated, with 

the top three firms accounting for two-thirds of nursing home 

beds: Omnicare covers about 850,000 of the nation’s 1.7 million 

beds (50 percent), PharMerica covers 220,000 (13 percent), and 

Kindred Pharmacy Services (KPS) covers 100,000 (6 percent).” 

(Def’s Ex. H)

D. PharMerica’s public financial statements show that PharMerica 

was making a profit

Silver examined PharMerica’s Form 10-Ks, available on the 

Internet. (SUF ¶ 10) He testified that he used the information 

reported -- in particular, PharMerica’s costs, gross profits, and 

its “‘bottom line’”-- and, based on that information, inferred 

that PharMerica must be selling prescription drugs to nursing 

homes at “below cost per diems,” (Silver Dep. p. 72-73), and that 

“PharMerica, they were getting substantially less from their . . . 

Medicare reimbursements than they were from their Medicaid 

reimbursements.” (Id. p. 203) According to Silver, PharMerica’s 

reported profit figures indicated to him that PharMerica must have 

engaged in swapping transactions with the nursing homes it 

serviced. (Id.)

E. Other non-public sources “confirm” what Silver already 

inferred

Silver met and spoke with Andrew Lenick, a consultant for 

certain nursing homes that contracted with PharMerica. (SUF ¶ 47) 

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Lenick generally explained that the competition between Omnicare 

and PharMerica was intense and each were “lowering prices” to gain 

nursing home business. (Silver Dep. p. 85-86) Silver testified, 

“[Lenick] just confirmed everything that I . . . either was able 

to confirm myself or my suspicions.” (Id. p. 83-84) 

Significantly, Lenick did not tell Silver that PharMerica was 

offering below cost per diem pricing; to the contrary, Lenick 

stated that he negotiated ‘fair market prices’ with PharMerica. 

(SUF ¶ 50-52)

Silver also “ma[de] random phone calls to” nursing homes 

during which conversations he “learned that the whole industry was 

using some form of discount pricing,” (Silver Dep. p. 55), but no 

one told him that PharMerica or any other institutional pharmacy 

was offering discounts below cost. (SUF ¶ 42) Silver testified 

these phone calls “confirmed” his suspicions that PharMerica was 

offering below cost per diem pricing. (Silver Dep. p. 56, 83-84)

II. Legal Standards

A. Rule 12(b)(1) motion to dismiss standard

A motion to dismiss pursuant to Federal Rule of Civil 

Procedure 12(b)(1) challenges the existence of a federal court’s 

subject matter jurisdiction. Facial attacks contest the 

sufficiency of the pleadings, and in reviewing such attacks, the 

Court accepts the allegations as true. Common Cause of Pa. v. 

Pennsylvania, 558 F.3d 249, 257 (3d Cir.), cert. denied, 558 U.S. 

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1091, 130 S. Ct. 1015, 175 L. Ed. 2d 618 (2009). Factual attacks, 

on the other hand, require the Court to weigh the evidence at its 

discretion, meaning that the allegations in the complaint have no 

presumptive truthfulness. See Mortensen v. First Fed. Sav. & Loan 

Ass'n, 549 F.2d 884, 891 (3d Cir. 1977).

It is undisputed that PharMerica’s 12(b)(1) motion asserts a 

factual attack.

B. Summary judgment standard

Summary judgment is appropriate where the Court is satisfied 

that “‘the pleadings, depositions, answers to interrogatories, and 

admissions on file, together with the affidavits, if any,’ . . . 

demonstrate the absence of a genuine issue of material fact” and 

that the moving party is entitled to a judgment as a matter of 

law. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986)(citing 

Fed. R. Civ. P. 56). 

An issue is “genuine” if it is supported by evidence such 

that a reasonable jury could return a verdict in the nonmoving 

party’s favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 

(1986). A fact is “material” if, under the governing substantive 

law, a dispute about the fact might affect the outcome of the 

suit. Id. “In considering a motion for summary judgment, a 

district court may not make credibility determinations or engage 

in any weighing of the evidence; instead, the non-moving party’s 

evidence ‘is to be believed and all justifiable inferences are to 

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be drawn in his favor.’” Marino v. Indus. Crating Co., 358 F.3d 

241, 247 (3d Cir. 2004)(citing Anderson, 477 U.S. at 255).

Initially, the moving party bears the burden of demonstrating 

the absence of a genuine issue of material fact. Celotex, 477 U.S. 

at 323 (“[A] party seeking summary judgment always bears the 

initial responsibility of informing the district court of the 

basis for its motion, and identifying those portions of ‘the 

pleadings, depositions, answers to interrogatories, and admissions 

on file, together with the affidavits, if any,’ which it believes 

demonstrate the absence of a genuine issue of material fact.”); 

see also Singletary v. Pa. Dept. of Corr., 266 F.3d 186, 192 n.2 

(3d Cir. 2001) (“Although the initial burden is on the summary 

judgment movant to show the absence of a genuine issue of material 

fact, ‘the burden on the moving party may be discharged by 

‘showing’ -- that is, pointing out to the district court -- that 

there is an absence of evidence to support the nonmoving party’s 

case’ when the nonmoving party bears the ultimate burden of 

proof.”)(citing Celotex, 477 U.S. at 325).

Once the moving party has met this burden, the nonmoving 

party must identify, by affidavits or otherwise, specific facts 

showing that there is a genuine issue for trial. Celotex, 477 U.S. 

at 324. A “party opposing summary judgment ‘may not rest upon the 

mere allegations or denials of the . . . pleading[s.]’” Saldana v. 

Kmart Corp., 260 F.3d 228, 232 (3d Cir. 2001). For “the nonCase 1:11-cv-01326-NLH-JS Document 388 Filed 11/28/16 Page 11 of 28 PageID: 13123
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moving party[ ] to prevail, [that party] must ‘make a showing 

sufficient to establish the existence of [every] element essential 

to that party’s case, and on which that party will bear the burden 

of proof at trial.’” Cooper v. Sniezek, 418 F. App’x 56, 58 (3d 

Cir. 2011)(citing Celotex, 477 U.S. at 322). Thus, to withstand a 

properly supported motion for summary judgment, the nonmoving 

party must identify specific facts and affirmative evidence that 

contradict those offered by the moving party. Anderson, 477 U.S. 

at 257. 

III. Analysis

A. FCA claim based on conduct before March 23, 2010

1. The public disclosure bar

“The FCA’s public disclosure bar ‘deprives courts of 

jurisdiction over qui tam suits when the relevant information has 

already entered the public domain through certain channels.’”

United States ex rel. Judd v. Quest Diagnostics Inc., 638 F. App’x 

162, 165 (3d Cir. 2015)(quoting Graham Cnty Soil & Water 

Conservation Dist. v. United States ex rel. Wilson, 559 U.S. 280, 

285 (2010)). The public disclosure bar applies if there was a 

public disclosure via a source enumerated in the False Claims Act, 

31 U.S.C. § 3730(e)(4)(A); the information disclosed “constituted 

allegations or transactions of fraud”; and “the relator’s 

complaint is based upon those public disclosures.” United States 

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ex rel. Zizic v. Q2Administrators, LLC et al., 728 F.3d 228, 235-

37 (3d Cir. 2013)(internal citation and quotation omitted).

PharMerica contests only the second and third prongs of the 

analysis.4

a. “Transactions of fraud” 

“A transaction warranting an inference of fraud is one that 

is composed of a misrepresented state of facts plus the actual 

state of facts.” Zizic, 728 F.3d at 236. The Third Circuit has 

“adopted a formula to represent when information publicly 

disclosed in a specified source qualifies as [a] . . . transaction 

of fraud: If X + Y = Z, Z represents the allegation of fraud and X 

and Y represent its essential elements. In order to disclose the 

fraudulent transaction publicly, the combination of X and Y must 

be revealed, from which readers or listeners may infer Z, i.e., 

the conclusion that fraud has been committed.” Id. “[T]he public 

disclosure bar applies if either Z (fraud)[,] or both X 

(misrepresented facts) and Y (true facts)[,] are publicly

disclosed by way of a listed source.” Id.

The parties agree that in this case, the alleged 

misrepresented state of facts (X) is that PharMerica was in 

compliance with the Anti-Kickback Statute. The alleged true state 

 

4 Relevant to the instant suit, the enumerated sources include 

“congressional, administrative, or Government Accounting Office 

report[s], hearing[s], audit[s], or investigation[s],” as well as 

“news media” reports. 31 U.S.C. § 3730(e)(4)(A)(2005).

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of facts (Y) is that PharMerica had engaged in swapping 

transactions with nursing homes which violated the Anti-Kickback 

Statute.

Silver argues Y, the true state of facts, was not disclosed 

by the enumerated sources upon which he relied. He argues that to 

reveal the alleged true state of facts, PharMerica’s publicly 

filed financial statements “would need to break out, on a nursing

home by nursing home basis, the net income it received from the 

nursing home for drugs only for its Medicare Part A patients and 

the net income it received for drugs from servicing that same 

nursing home’s Medicare Part D and Medicaid patients.” (Opposition 

Brief, p. 15-16)

Elaborating on this reasoning at oral argument, Silver’s 

counsel explained that the publicly disclosed information did not 

reveal “the revenue side” of PharMerica’s alleged swapping 

transactions. Counsel argued that Silver provides the revenue 

side of the equation in the form of a small number of contracts 

that PharMerica negotiated with specific nursing homes that stated 

particular per diem prices.

This argument fails for two reasons. First, Silver cannot 

explain how the specific per diem prices he obtained support any

conclusion regarding PharMerica’s net income for Medicare Part A 

patients on one hand, and Medicare Part D and Medicaid patients on 

the other. In this respect, his own argument is internally 

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inconsistent: he asserts that to disclose the fraudulent 

transaction, the public documents would have to disclose 

PharMerica’s net income, yet even the non-public documents Silver 

obtained do not contain such information.

Second, Silver clearly testified at his deposition that he 

did not need to know such specifics to conclude that PharMerica 

had engaged in illegal swapping; the aggregate numbers were 

sufficient. (Silver Dep. p. 376-77) Silver testified that the 

cost of dispensing medications, reported in PharMerica’s 10K, was 

an indication that PharMerica had engaged in swapping: “I mean, 

come on, $10 a day for medication for the sickest and frailest of 

the elderly on Medicare? You know, it is not-- these are the sick 

patients, and PharMerica is selling their medications at $8 a day? 

$10 a day? Come on.” (Id. p. 72-73); see also (id. p. 203)(“the 

profit PharMerica was making certainly couldn’t be – they couldn’t 

be making anything from Medicare based on $8 a day, $10 a day . . 

. . So you don’t have to be Price Waterhouse to understand that. 

You could make that analysis pretty easy.”), (id. p. 273-

74)(“there’s a lot of data out there on the Internet . . . on 

transition to . . . PPS as to what the costs are. And when you 

read them, it doesn’t seem possible that PharMerica when they add 

in all their costs could be making a profit.”); cf. Third Amended 

Complaint ¶ 153 (“Relator owned an institutional pharmacy . . . . 

In 2006, his acquisition costs averaged $29.41 per patient per 

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day, and his operational costs averaged $10.88 per patient, per 

day. Thus, just to break even, he needed to get paid $40.29 per 

patient, per day. Thus viewed, it is virtually certain that 

PharMerica offered prices to nursing homes which fell below its 

own acquisition costs, and even further below its own total costs. 

The reason is simple-- PharMerica recaptured those losses, and 

handsomely profited, by billing Medicaid and Medicare Part D at 

substantially higher prices.”)(emphasis in original), Third 

Amended Complaint ¶ 180 (“Given the amount of drugs being taken by 

each [nursing home] patient, and the rising cost of drugs overall, 

how can a pharmacy make money by providing drugs to nursing home 

patients for $14/day? The answer is, it can’t.”).

The Court concludes that the information cumulatively 

disclosed in the publicly available documents was sufficient to 

support an inference that PharMerica allegedly engaged in swapping 

transactions with nursing homes, and therefore the true state of 

facts (Y) was publicly disclosed.

As set forth above, the HHS-OIG documents stated that 

swapping transactions may be taking place between nursing homes 

and their various service providers. Then, the CMS report stated 

that conditions were ripe for swapping transactions specifically 

between nursing homes and long-term care pharmacies. As to longterm care pharmacies, it was publicly reported that the market was 

highly concentrated, with PharMerica being one of the top three 

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pharmacies accounting for two-thirds of all nursing home beds in 

the United States. Thus, all of this information taken together 

strongly suggested that PharMerica, being one of three top longterm care pharmacies contracting with nursing homes, was likely 

engaging in illegal swapping.

According to Silver himself, the last piece of information he 

needed to conclude that PharMerica was, indeed, engaging in 

swapping was provided by PharMerica’s own publicly disclosed 

financial statements.

This information, considered cumulatively, was sufficient to 

“put the government on the trail” of the fraud, United States ex 

rel. Schumann v. Astrazeneca Pharms. LP, 2013 U.S. Dist. LEXIS 

10582 at *26 (E.D. Pa. Jan. 25, 2013), aff’d by United States ex 

rel. Schumann v. AstraZeneca Pharms. L.P., 769 F.3d 837 (3d Cir. 

2014), therefore the public disclosure bar applies. See United 

States ex rel. Doe v. Staples, Inc., 773 F.3d 83, 87 (D.C. Cir. 

2014)(“our inquiry focuses not on the additional incriminating 

information a relator supplies, but instead on whether the quantum 

of information already in the public sphere was sufficient to set 

government investigators on the trail of fraud.”)(internal 

citation and quotation omitted); Natural Gas Royalties Qui Tam 

Litig. v. Pac. Gas & Elec. Co., 562 F.3d 1032, 1043 (10th Cir. 

2009)(“We therefore conclude that the allegations of industrywide 

gas mismeasurement disclosed in the 1995 complaint and the Senate 

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Committee documents were sufficient to set the government on the 

trail of the fraud as to all Defendants and thus that the 

allegations in Relator’s 1997 complaints were publicly 

disclosed.”); Dingle v. Bioport Corp., 388 F.3d 209, 214 (6th Cir. 

2004)(“The fact that the information comes from different 

disclosures is irrelevant. All that is required is that public 

disclosures put the government on notice to the possibility of 

fraud. These two sources, in combination, certainly achieve that 

requirement.”).

b. “Based upon” the public disclosures

“To be based on . . . transactions of fraud, claims need not 

be actually derived from public disclosures. Rather, claims need 

only be supported by or substantially similar to public 

disclosures.” Zizic, 728 F.3d at 237 (internal citations and 

quotations omitted). “The public disclosure bar covers . . . 

actions even partly based upon such . . . transactions.” Id. at 

238.

Silver makes two arguments in support of his position that 

his allegations are not “based upon” the publicly disclosed 

transactions of fraud.

First, he argues that the transactions were not publicly 

disclosed. (Opposition Brief, p. 24) As set forth above, the 

Court disagrees.

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Second, Silver states, “PharMerica completely ignores nonpublic information relator relied upon.” (Opposition Brief, p. 26) 

That Silver relied upon non-public disclosures in addition to the 

substantial public disclosures, however, is irrelevant to this 

portion of the legal analysis because the Third Circuit has 

clearly stated that the public disclosure bar applies to “actions 

even partly based upon” public disclosures. Zizic, 728 F.3d at 

238.

Silver’s Third Amended Complaint extensively relies upon, and 

quotes, the HHS-OIG documents. (Third Amended Complaint ¶¶ 156-

163) Therefore Silver’s allegations are “supported by,” Zizic, 

728 F.3d at 237, and based upon, those public disclosures.

The Court thus concludes that the public disclosure bar 

applies to Silver’s FCA claim based on conduct before March 23, 

2010. Accordingly, the Court must next consider whether the 

original source exception applies.

2. The original source exception

“Even if the public disclosure bar would otherwise apply to a 

claim, it does not when ‘the person bringing the action is an 

original source of the information.’ The term ‘original source’ 

means an individual who has direct and independent knowledge of 

the information on which the allegations are based and has 

voluntarily provided the information to the Government before 

filing an action . . . which is based on the information.” Zizic, 

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728 F.3d at 239 (quoting the pre-PPACA version of the FCA); see 

also Schumann, 769 F.3d at 841 (“Congress defined an ‘original 

source’ as ‘an individual who has direct and independent knowledge 

of the information on which the allegations are based and has 

voluntarily provided the information to the Government before 

filing an action under this section which is based on the 

information.’”)(quoting the pre-PPACA version of the FCA).

a. “Direct” knowledge

“Direct knowledge is knowledge obtained without any 

intervening agency, instrumentality, or influence: immediate.

Such knowledge has also been described as first-hand, seen with 

the relator’s own eyes, unmediated by anything but the relator’s 

own labor, and by the relator’s own efforts, and not by the labors 

of others, and not derivative of the information of others.” 

Schumann, 769 F.3d at 845 (internal citations and quotations 

omitted).

Silver points to no evidence that would support a conclusion 

that he had immediate knowledge of any of the specific factual 

allegations which his FCA claim relies upon. It is undisputed 

that Silver never worked for, nor did business with, PharMerica. 

(SUF ¶ 5) All of Silver’s alleged facts are derivative of the 

information he gathered from other, mostly public, sources. While 

his own experience as a CPA, nursing home owner and pharmacy owner 

gave him the knowledge to understand the significance of the 

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facts, it still remains undisputed that the facts themselves did 

not come from Silver, they came from enumerated sources, Mr. 

Lenick, and nursing homes. The undisputed record shows that 

Silver had no first-hand information about PharMerica’s 

transactions with nursing homes.

b. “Independent knowledge”

“The independent knowledge requirement means that knowledge 

of the fraud cannot be merely dependent on a public disclosure.” 

Schumann, 769 F.3d at 845 (internal citation and quotation 

omitted); see also Zizic, 728 F.3d at 240 (“A relator’s knowledge 

is independent if it does not depend on public disclosures.”).

“‘[T]he relator must possess substantive information about the 

particular fraud, rather than merely background information which 

enables a putative relator to understand the significance of a 

publicly disclosed transaction or allegation. If the latter were 

enough to qualify the relator as an original source, then a 

cryptographer who translated a ciphered document in a public court 

record would be an original source, an unlikely interpretation of 

the phrase.’” Schumann, 769 F.3d at 845 (quoting U.S. ex rel. 

Stinson, Lyons, Gerlin, & Bustamonte, P.A. v. The Prudential Ins. 

Co., 944 F.2d 1149, 1160 (3d Cir. 1991)); see also Zizic, 728 F.3d 

at 240 (“we have repeatedly rejected the argument that a relator’s 

knowledge is independent when it is gained through the application 

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of expertise to information publicly disclosed under § 

3730(e)(4)(A).”).

In opposition to PharMerica’s argument that Silver’s 

knowledge is not independent, Silver argues that “the Complaint

contains allegations related to the per diem revenue PharMerica 

obtained from nursing homes for their Medicare Part A patients,” 

and “[t]he Complaint also describes the costs of providing drugs 

to nursing homes for Part A patients.” (Opposition Brief, p. 

29)(emphasis added). This argument fails.

The independent knowledge inquiry focuses not on the 

allegations of the complaint, but rather the source of a relator’s 

knowledge. That the complaint alleges certain facts does not tell 

the Court where those facts came from. Silver’s brief leaves the 

critical question-- how does Silver know what he alleges?--

unanswered. Particularly when the ultimate inquiry is 

jurisdictional in nature (i.e., Silver bears the burden of 

establishing jurisdiction), this deficiency matters.

Moreover, as already discussed, Silver’s argument that he 

independently supplied the specific dollar figures for 

PharMerica’s per diem cost of providing certain drugs is directly 

contradicted by Silver’s own deposition testimony. Silver

testified that he did not know what PharMerica’s individual costs 

and prices were (Silver Dep. p. 59-60, 67, 86, 138, 155, 202-05, 

209, 379, 393-94), and further, that he did not need to know such 

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information to determine that PharMerica was allegedly engaging in 

swapping transactions. (Silver Dep. p. 376-77) The uncontradicted 

fact that Silver himself did not need such information precludes 

the Court from holding that such information was “substantive.” 

Schumann, 769 F.3d at 845.

Based on the record before the Court, Silver appears to be 

the paradigmatic “cryptographer.” Schumann, 769 F.3d at 845. 

Silver “appli[ed] [his] expertise,” Zizic, 728 F.3d at 240, as a 

CPA, pharmacy owner, and nursing home owner to determine the 

significance of the publicly disclosed facts. He clearly stated 

so in his deposition: 

I can only rely upon what’s out there on the basis of 

disclosure, public disclosure, but I also have the 

ability to look at my expertise running an institutional 

pharmacy, running a nursing home and then take that and 

say, hey, I suspect there’s a problem. What do you 

think, attorneys? And then let the attorneys advise me. 

(Silver Dep. p. 394-95); see also (id. at p. 58-59)(“I’m a CPA, I 

ran an institutional pharmacy, I operated a health care complex 

for many years. . . . I have the expertise to ascertain and report 

what I believe the [per diem prices] would be.”), (id. at p. 

351)(“owning a pharmacy, running a pharmacy, having decades in –

as a nursing home manager and provider of services would certainly 

make me suspicious that $11 a day could easily be construed as 

commercially unreasonable based on my knowledge of medication 

costs and based on my knowledge of what it would cost to operate 

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an institutional pharmacy which I did. And which I was able to 

compare my costs with looking at the $11 per diem.”).

The record evidence, as a matter of law, fails to support the 

conclusion that Silver is an original source. Accordingly, this 

Court lacks jurisdiction over Silver’s FCA claim based on conduct 

before March 23, 2010, and PharMerica’s Rule 12(b)(1) motion will 

be granted.

B. FCA claim based on conduct on and after March 23, 2010

1. The public disclosure bar

While the PPACA altered the public disclosure bar analysis 

regarding enumerated sources, Majestic Blue Fisheries, 812 F.3d at 

297, the change does not affect the legal analysis in this case 

because Silver does not rely on any pre-PPACA enumerated sources. 

Thus, the Court relies on the analysis set forth above at III., 

A., 1., and holds that the public disclosure bar applies to 

Silver’s FCA claim based on conduct after March 23, 2010.

2. The original source exception

The original source exception, as amended by the PPACA, 

provides, “‘original source’ means an individual . . . (2) who has 

knowledge that is independent of and materially adds to the 

publicly disclosed allegations or transactions, and who has 

voluntarily provided the information to the Government before 

filing an action under this section.” 31 U.S.C. § 3730(e)(4)(B). 

As the Third Circuit has explained, after the PPACA, “[t]he focus 

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now is on what independent knowledge the relator has added to what 

was publicly disclosed.” Majestic Blue Fisheries, 812 F.3d at 300.

a. “Independent of” the publicly disclosed transactions

To determine whether Silver’s knowledge is independent under 

the post-PPACA FCA, the Court must “compare [Silver’s] knowledge 

with the information that was disclosed through the public 

disclosure sources enumerated in § 3730(e)(4)(A).” Majestic Blue 

Fisheries, 812 F.3d at 305.

Here, Silver’s knowledge is essentially coterminous with the 

information in the enumerated sources. Silver himself was clear 

that the non-public information he obtained from Mr. Lenick and 

his calls to nursing homes only “confirmed” what he already knew,

inferred or suspected.

Silver has not raised a triable issue of material fact as to 

whether his knowledge was independent; the Court holds as a matter 

of law that Silver’s knowledge was not independent, rather it was 

almost entirely dependent on the public disclosures in the

enumerated sources.

b. “Materially adds to” the publicly disclosed transactions

“[A] relator materially adds to the publicly disclosed . . . 

transaction of fraud when [he] contributes information-- distinct 

from what was publicly disclosed-- that adds in a significant way 

to the essential factual background: the who, what, when, where 

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and how of the events at issue.” Majestic Blue Fisheries, 812 F.3d 

at 307.

The record is clear that Silver added no significant 

information or details concerning the essential facts of 

PharMerica’s alleged swapping transactions. The who -- nursing 

homes and long-term care pharmacies (specifically PharMerica, 

Omnicare, and KPS)-- were identified in the HHS-OIG documents, the 

CMS report, and the Medicare Payment Advisory Commission’s report 

to Congress. The mechanics of the swapping transactions, and why 

they were illegal-- i.e., the what, where, and how-- were also 

disclosed in the HHS-OIG documents. Lastly, the “when” could also 

be determined from the 1997 change in the Medicare law in 

conjunction with PharMerica’s financial documents and the HHS-OIG 

documents.

Here, again, Silver’s reliance on a handful of non-public 

contracts containing specific per diem prices is a red herring. 

Those specific prices are insufficient to support any conclusion 

as to PharMerica’s revenue streams, and whether such contracts 

were profitable. Therefore, the contract price details, as a 

matter of law, do not materially add to the public disclosures.

Silver points to no record evidence raising a triable issue 

of fact as to whether he contributed non-public information that 

materially added to PharMerica’s alleged illegal swapping scheme. 

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Accordingly, PharMerica’s Motion for Summary Judgment will be 

granted.

C. Supplemental state law claims

The Third Circuit has repeatedly stated, “‘where the claim 

over which the district court has original jurisdiction is 

dismissed before trial, the district court must decline to decide 

the pendent state law claims unless considerations of judicial 

economy, convenience, and fairness to the parties provide an 

affirmative justification for doing so.’” Hedges v. Musco, 204 

F.3d 109, 123 (3d Cir. 2000)(citing 28 U.S.C. § 1367(c)(3), and 

quoting Borough of West Mifflin v. Lancaster, 45 F.3d 780, 788 (3d 

Cir. 1995))(emphasis added); cf. Sarpolis v. Tereshko, 625 F. 

App’x 594, 600 (3d Cir. 2016)(affirming district court’s retention 

and exercise of supplemental jurisdiction under § 1367(c)(3) 

because the district court had “an affirmative justification for 

exercising supplemental jurisdiction.”)(quoting Hedges).

Here, PharMerica has specifically asked the Court to decline 

supplemental jurisdiction over the many claims Silver asserts 

pursuant to 28 individual states’ false claims statutes. In 

opposition, Silver asserts that “forcing the parties to litigate 

in 28 different forums would decrease judicial economy and 

efficiency” and “substantially increase legal fees and court 

costs.” (Opposition to 12(b)(1) Motion, p. 32).

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The Court questions whether dismissal without prejudice of 

the supplemental state law claims will necessarily result in 28 

individual suits in 28 different fora. Moreover, even if this is 

the result, as PharMerica observes, judicial economy may be 

enhanced insofar as it would give each local forum the opportunity 

to apply its own statutory law.

Conversely, retention of supplemental jurisdiction will 

necessarily require this Court to apply 28 individual state 

statutes in a single suit-- an unwieldy task.

Thus, the Court finds no sufficient affirmative justification 

for retaining supplemental jurisdiction of the remaining state law 

claims. Those claims will be dismissed without prejudice to 

Silver’s right to refile in the appropriate state forum (or fora).

IV. Conclusion

For the reasons set forth above, PharMerica’s Motion to 

Dismiss and Motion for Summary Judgment will be granted in their 

entirety, and the Court will decline to retain supplemental 

jurisdiction over the remaining state law claims. An appropriate 

Order accompanies this Opinion.

Dated: November 28, 2016 

At Camden, New Jersey ___s/ Noel L. Hillman____

 Noel L. Hillman, U.S.D.J.

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