Opinion ID: 4508603
Heading Depth: 3
Heading Rank: 1

Heading: Facts Alleged by Relators3

Text: PharMerica is one of the largest long-term care pharmacy companies in the United States, providing pharmacy supplies and services to nursing homes and other facilities. Most nursing homes contract with long-term care pharmacy companies like PharMerica which, in turn, contract with pharmaceutical companies4 to purchase the medications that will be dispensed to nursing home residents. 3 We draw these facts from the relators' third amended complaint and the exhibits that accompany it. See Rockwell Int'l Corp. v. United States, 549 U.S. 457, 473 (2007) (holding that the term allegations as used in § 3730(e)(4) is not limited to the allegations in the original complaint and includes (at a minimum) the allegations in the original complaint as amended (emphasis in original)); see also United States ex rel. Cunningham v. Millennium Labs. of Cal., Inc., 713 F.3d 662, 670-71 (1st Cir. 2013) (comparing allegations in the original complaint and retained in the amended complaint to prior public disclosure). 4 The long-term care pharmacy companies also contract with larger long-term care buying groups or group purchasing organizations, which negotiate contracts on behalf of pharmaceutical companies. - 6 - Nursing homes also often have a dedicated physician who works closely with the in-house nurses and pharmacy staff to provide medical care to residents. This structure means that long-term care pharmacy companies and their pharmacists exert considerable influence over the choice of medications used in nursing homes. The relators are both former employees of the pharmaceutical company Organon, which manufactures antidepressants called Remeron Tablet and Remeron SolTab. Remeron Tablet was patented, developed, and put on the market first. The patent for Remeron Tablet expired in 1998, and generic manufacturers were expected to enter the market in 2001. To stymie generic competition, Organon developed Remeron SolTab -- a disintegrating tablet that is a variant form of Remeron Tablet -- and launched it in 2001. Because Remeron SolTab was not considered equivalent to Remeron Tablet, generic competitors were unable to manufacture and market a similar product to Remeron SolTab. For years, Organon offered only modest discounts of about 2% on its medications as incentives when contracting with long-term care pharmacy companies. The relators acknowledge that those incentives arguably fall within a limited exception to the AKS for fixed discounts given to group purchasing organizations. See 42 U.S.C. § 1320a-7b(b)(3)(C). Between 1999 and 2000, however, Organon began offering contract terms that included greater, nonexempt discounts on Remeron Tablet in an effort to increase its - 7 - market share. Those contracts included an 8% to 14.8% ramp-up discount for the first five months of the contract term, followed by a discount of anywhere between 8% and 15% that depended upon the market share held by Remeron Tablet (referred to as a marketshare discount). Those deals incentivized long-term care pharmacy companies to switch prescriptions from other drugs to Remeron Tablet, thereby boosting its market share and the discount awarded by Organon to the companies. Making that switch on the basis of profit potential rather than the medical propriety of a given drug, the relators allege, violates the AKS. The switch from a medication prescribed by the patient's doctor to a medication preferred by the pharmacy is referred to as therapeutic interchange, and it can be accomplished in several ways. The pharmacy can try to persuade physicians to write new prescriptions to move a patient to the preferred drug by touting its supposed advantages. Or the pharmacy can use a device called an NDC lock, which sets up the pharmacy's computer system so that only the preferred drug may be dispensed by the pharmacist. When an NDC lock blocks a drug from being dispensed, the pharmacist must quickly obtain from the physician a new prescription for that patient for a preferred drug that is not blocked. Or the pharmacy can ask physicians to sign broader agreements that cede to the pharmacist their authority to choose what drug will be prescribed within a particular class. - 8 - PharMerica entered into a series of contracts with Organon, beginning in 1999 and lasting until 2005, that included incentives for PharMerica to purchase Remeron Tablet and Remeron SolTab and to engage in therapeutic interchange. The first iteration of the contract included only a ramp-up discount followed by a market-share discount. Then, in 2000, PharMerica agreed to implement a therapeutic interchange program. Its contract with Organon provided for a ramp-up discount, a market share discount, a therapeutic interchange bonus for switching prescriptions for other companies' antidepressants to Remeron Tablet or Remeron SolTab, and a conversion rebate for changing Remeron Tablet prescriptions to Remeron SolTab. Eventually, all of the discounts were changed to rebates.5 Through several 5In 1999, many states determined the Medicaid reimbursement rate for medications based on the drug's Average Wholesale Price (AWP). See Grant Bagley et al., Accurate Drug Price Reporting: A Modest Proposal, 19 No. 11 Andrews Pharmaceutical Litig. Rep. 13 (Jan. 2004). AWPs are published by private reporting services and are commonly understood as a 'sticker price' with little connection to market prices. Id. Thus, the AWP did not match the actual acquisition cost, i.e., the amount a company actually paid, to purchase a medication from a drug manufacturer. Around 2001, states began changing their Medicaid reimbursement systems to calculate reimbursement based upon the actual acquisition cost rather than AWP. Under that system, companies must often submit their purchase invoices to receive reimbursement. Because discounts are reflected in purchase invoices, long-term care pharmacy companies could not hide those financial incentives when seeking Medicaid reimbursement. The change, therefore, prompted Organon to start offering rebates -- which are not reflected in purchase invoices because they are calculated only after the fact -- instead of discounts. - 9 - contract amendments, Organon continued to provide ramp-up rebates, market-share rebates, conversion rebates, and therapeutic interchange bonuses to PharMerica in various forms until the end of 2005. Two executives at Organon, Carroll McKenna and John Maddox, were primarily responsible for coordinating Organon's contracts with long-term care pharmacy companies. Together they devised the business plan that included the discounts and rebates described above. The relators' complaint refers to McKenna and Maddox's plan to influence long-term care pharmacy companies to obtain prescriptions for Remeron Tablet and Remeron SolTab based on those financial incentives, rather than medical necessity, as the Medicaid scheme. Between 1999 and 2005, Banigan was a member of the leadership team within the same department as McKenna and Maddox, but he was not involved with sales or contract negotiations with long-term care pharmacy companies. Nevertheless, word of the Medicaid scheme made its way to Banigan. In the middle of 2000, Banigan was among the recipients of an email from Maddox with the subject line Cost of Antidepressants in Nursing Homes, in which Maddox first proposed marketing Organon's antidepressants to long-term care pharmacy companies by highlighting the potential for those companies to profit if they switched patients to Organon's medications. At that time, Medicaid reimbursement was based on AWP, which could be - 10 - higher than the amount the company actually paid. The discounted prices that Organon offered to long-term care pharmacies lowered their acquisition cost. If the AWP was higher than that acquisition cost, the companies would profit from the Medicaid reimbursement. In his email, Maddox explained that this spread between the AWP and the discounted price long-term care pharmacy companies paid for Organon's antidepressants was an advantage for Organon that many pharmacists are not looking at. A year and a half later, in late 2001, Maddox emailed Banigan and another Organon employee asking for their input about a proposal to develop two contracts -- one version that provided only an upfront discount and the other a minimal upfront discount followed by rebates -- to use in different states depending upon how they calculated Medicaid reimbursement. This proposal appears to mark the beginning of the transition from discounts to rebates in Organon's contracts, as described above. See supra note 5. Organon underwent some changes in management in 2003, and concern about job stability percolated through the leadership ranks. Against that backdrop, both McKenna and Maddox approached Banigan in late 2003 and talked with him about the Medicaid scheme. Banigan first spoke with McKenna, who told him about marketing materials and other communications that were used to inform customers how to maximize their profits by influencing providers - 11 - to prescribe Remeron. McKenna also explained that the Marketing Department conspired with [the] sales team to market Remeron almost purely based on profit potential. He told Banigan that he considered this information to be his insurance policy that he could use against Organon if the company tried to force him out. The following day, Banigan had a similar conversation with Maddox, who also told Banigan about the marketing materials. Several years went by before Banigan heard anything else about the Medicaid scheme. In 2006, Banigan transferred to a different position in a different department within Organon, and Templin was hired for a job in Banigan's former department. Like Banigan, Templin soon heard about the existence of the scheme from one of its creators. Maddox divulged to Templin the existence of a 'non-compliant' program that provided him with a 'get-outof-jail-free card with Organon.' After his conversation with Maddox, Templin decided to investigate on his own what Maddox told him. Over the next few months, Templin learned that the program [developed by Maddox and McKenna] centered on marketing the 'opportunity to profit' in the long-term care market, a fact which McKenna later confirmed in a conversation with Templin. With this information in hand, Templin sought Banigan out in April 2007 to see if he knew about the scheme. Banigan confirmed that he did and, after speaking with Templin, decided to conduct his own investigation to see if he could turn up copies of - 12 - the marketing materials that McKenna and Maddox had described to him. Banigan eventually obtained original copies of the marketing materials from a former Remeron brand director who had kept the materials at his home. The materials confirmed how blatantly Organon had promoted the 'opportunity to profit' with incentives and kickbacks. Seeking further confirmation, Templin and Banigan then located the contracts between Organon and its largest longterm care pharmacy customers, and found that the contracts' terms evidenced the same types of incentives reflected in the promotional materials. The relators' complaint alleges that, despite this pervasive Medicaid scheme, PharMerica falsely certified its compliance with state and federal laws applicable to the Medicaid program, including the AKS, each time it submitted a claim for reimbursement for Remeron Tablet and Remeron SolTab.