In United States, et al., ex rel. Grenadyor v. Ukranian Village Pharmacy, the Seventh Circuit recently confirmed the dismissal with prejudice of a False Claims Act (FCA) action based on the relator’s failure to plead with particularity the circumstances constituting three alleged types of fraud, as required by the Federal Rules of Civil Procedure.1 However, the court remanded the case to the district court to proceed on the relator’s retaliation claim that did not require the same level of detail.
A person violates the FCA if he “knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval” by the government.2 The relator, a former pharmacist employee, claimed that the pharmacy defrauded the government by making gifts to customers (e.g., tins of caviar) and forgiving copays (even if not entitled under the law to such forgiveness) to induce the customers to have their prescriptions filled by that pharmacy . The court explained that such inducements could be considered “kickbacks” or “bribes.” The relator further alleged that the pharmacy sought government reimbursement for drugs that were not delivered to buyers.
In support of his first basis for an FCA claim, the relator contended that the pharmacy made a false promise when it signed a Medicare program enrollment form stating the pharmacy was agreeing to abide by Medicare laws and understood that the payment of a Medicare claim was conditioned upon the underlying transaction complying with such laws, including the federal anti-kickback statute. The Seventh Circuit agreed that signing the document – if the pharmacy was not indeed agreeing to the statement – would be considered a false claim actionable under the FCA. However, the relator failed to plead that the pharmacy had decided to pay kickbacks at the time it signed the agreement, and therefore, there was no allegation that the signature on the agreement was a false statement at the time it was made. The Seventh Circuit explained that pleading fraud requires pleading the identity of the person making the misrepresentation, the time, place and content of the misrepresentation, and the method by which the misrepresentation was communicated to the plaintiff. The relator failed to satisfy this pleading requirement.
The relator also pled an alternative false-claim theory, “implied certification,” which requires a showing that the government, had it known the pharmacy was billing Medicare for drugs on which the pharmacy had given kickbacks, would not have reimbursed the pharmacy for the cost of those sales. The court found that the relator also failed to provide enough detailed allegations to set forth a claim under the “implied certification” theory, as he failed to provide specifics regarding unauthorized copay waivers or the pharmacy’s advertisement of these waivers. Furthermore, although the relator alleged he observed customers receiving gifts with the delivery of prescriptions, he failed to identify any specific customer for whom the pharmacy had filled a prescription, given a gift, and submitted a claim to Medicare. The court noted that violating a regulation is not synonymous with filing a false claim.
The third type of fraud pled was based on the pharmacy allegedly charging for medication never delivered. Although the complaint asserted this practice occurred in a number of states, the court observed the relator only worked at one pharmacy in one state and would have no knowledge of the practice in the other states. Because the relator failed to specify with sufficient detail how he had knowledge of this practice or based his allegations “upon information and belief,” the court concluded he failed to meet the level of specificity required in a fraud case.
Noting that the district court had previously allowed the relator four opportunities to plead his claims, the court agreed that the FCA kickback claims should be dismissed with prejudice. Nonetheless, under a retaliation case, a plaintiff must merely plead facts establishing that he was wrongfully discharged because of lawful acts done by him in furtherance of a FCA action, including filing an internal complaint with his employer. Finding the relator had sufficiently pled these facts, the court reversed the district court’s dismissal of the retaliation claim and remanded that claim.
The Seventh Circuit’s holding is a reminder that employers must be mindful of the low pleading standard required for a retaliation claim. Therefore, even when an employee makes a seemingly frivolous FCA complaint, employers should proceed with caution, investigate the complaint thoroughly and ensure that the employee cannot allege he suffered any adverse employment action as a result of the complaint.