Judge dismisses qui tam action against AstraZeneca

A federal judge in the Eastern District of Pennsylvania has dismissed a whistleblower suit against AstraZeneca Pharmaceuticals that alleged the drug manufacturer entered into fraudulent agreements to sell its brand-name drugs.

Pharmacist Karl Schumann, who was vice president of pharmaceutical contracting for Medco from December 1999 to January 2003, had alleged that AstraZeneca entered into sham contracts with Medco to induce it to purchase and dispense to government plan patients its brand-name drugs, rather than their generic equivalents, in violation of anti-kickback laws, causing false reports and false claims for reimbursement of those drugs to be submitted to government plans.

Medco is one of the country’s largest pharmacy-benefit managers and mail-order pharmacies, and essentially acts as a middleman between governmental entities that pay for prescription drugs.

In the complaint, the plaintiff contended that AstraZeneca paid disguised, undisclosed rebates, fees and grants to Medco, which was a purchaser of AstraZeneca’s Prilosec and Nexium brand-name drugs.

Under federal law, drug makers who participate in government programs, such as Medicaid or 340B, must pay rebates to the government so the government doesn’t pay more for drug purchases than the best price for which the manufacturer sells the drug to other purchasers, court papers state.

In this action, Schumann asserted that the sham contracts between AstraZeneca and Medco caused the filing of false reports and false claims for reimbursement of those drugs to be submitted to government plans.

Schumann claimed that AstraZeneca submitted false best price reports for the defendants’ brand-name drugs, causing false claims for rebates of Medicaid and 340B expenditures to be submitted to the government, the record shows.

The alleged sham contracts between the two entities included rebates, service fees, disease-management fees and unrestricted educational grants from 1996 to 2003 related to Prilosec and Nexium.

Schumann had alleged that the scheme allowed AstraZeneca to hide the lower, actual cost of the two drugs from the government, resulting in government overpayment.

In its motion to dismiss, AstraZeneca argued that Schumann’s allegations were already publicly disclosed in other complaints handled by U.S. District Judge John William Ditter, Jr., and that Schumann doesn’t qualify as an original source.

Schumann, however, countered that the schemes revealed in the complaint against AstraZeneca were different than any publicly disclosed claims because of the added influence of two managed care plans.

Schumann, who filed his qui tam action under federal and state statutes that allow people with knowledge of past or present fraud against the government to bring claims on its behalf, argued that his complaint described schemes that are not limited to AstraZeneca and Medco, but also include Highmark and United Healthcare, and are therefore “fundamentally different from any purported public disclosure the AstraZeneca Defendants claim would have set the Government on the trail of their fraud,” the judge’s memorandum states, citing a court filing by Schumann.

AstraZeneca had argued that Schumann’s allegations were disclosed in publicly filed complaints, government investigations and media reports, and therefore Schumann is not an original source.

As such, the drug company argued that Schumann’s complaint should be dismissed.

The judge agreed with the defendant.

“I conclude that his allegations against AZ are based upon previously disclosed allegations and transactions because they are supported by and substantially similar to allegations already publicly disclosed when he filed his complaint,” Ditter wrote.

The judge further wrote that the public disclosures were sufficient to put the government on the trail of this fraud and any investigation would lead to Highmark and United, or any other Medco clients who participated in the scheme.

As such, Schumann had to establish that he had direct and independent knowledge of the fraud to pursue his claim.

However, Ditter wrote, Schumann has not alleged “how, when, where or from whom he obtained the knowledge that the discounts given to Medco were somehow linked to the evasion of [AZ’s] best reporting obligations.”

“[Schumann] does not describe how he obtained direct knowledge of the ultimate fraudulent conduct, but instead generally recounts contract negotiations and other meetings in which he participated,” Ditter wrote.

In conclusion, Ditter determined that the claims against AstraZeneca are substantially similar to allegations already disclosed and that Schumann has failed to establish that he is an original source since he has not alleged direct and independent knowledge of the alleged fraud.

In the end, Ditter dismissed the suit for lack of jurisdiction.

The judge dismissed the claims with prejudice since, as he wrote, “Schumann has had “sufficient opportunity to cure these deficiencies and I find that any further amendment would be futile.”

Ditter also declined to exercise supplemental jurisdiction over Schumann’s state law claims.