United States District Court, E.D. Michigan, Southern Division
UNITED STATES OF AMERICA, et al., Plaintiffs, ex rel. AZAM RAHIMI, Plaintiff/Relator,
RITE AID CORPORATION, Defendant.
OPINION AND ORDER DENYING WITHOUT PREJUDICE
DEFENDANT'S MOTION TO DISMISS  AND PERMITTING RELATOR
TO FILE AMENDED COMPLAINT
STEPHEN J. MURPHY, III UNITED STATES DISTRICT JUDGE.
2011, Relator Azam Rahimi filed his qui tam complaint against
Defendant Rite Aid Corporation alleging violations of the
False Claims Act (FCA) and analogous state laws. In June of
2011, the United States sought an extension to consider
whether to intervene. ECF 3 (under seal). The Court granted
the motion and administratively closed the case. In April
2013, the Court reopened the case only to allow Rahimi to
file an amended complaint. ECF 13. Finally, in August 2016
and after more than five years of extensions requested by the
Government, Rahimi filed a motion to reopen the case and set
a deadline for government intervention. ECF 29. The Court
conducted a sealed hearing on the motion and permitted
Relator to file a second amended complaint.
November 18, 2016, Rahimi filed his second amended complaint.
ECF 44. The Court reopened the case and set a deadline for
the Government to notify the Court of its intention to
intervene. ECF 45 (under seal). The United States declined to
intervene. ECF 46. Rahimi served Defendant Rite Aid. Rite Aid
responded to the Second Amended Complaint with a motion to
dismiss. ECF 55. The Court reviewed the motion and finds that
a hearing is unnecessary. E.D. Mich. L.R. 7.1(f). For the
reasons below, the Court will deny without prejudice
Defendant's motion to dismiss.
claim here arose after Rahimi, a pharmacist, became
suspicious of Rite Aid's billing practices in regard to
Medicare and Medicaid beneficiaries. Through a scheme
described further below, Rahimi alleges that Rite Aid
violated the FCA by submitting false claims to the Government
and by failing to reimburse overpayments.
Second Amended Complaint (SAC), ECF 44, contains twenty-one
counts: one count for alleged violations of the FCA and
twenty counts for alleged violations of various state court
false claims statutes. In particular, the FCA count alleges
violations of 31 U.S.C. §§ 3729(a)(1)(A),
(a)(1)(B), and (a)(1)(G). Those statutes impose liability on
any person who:
(A): "knowingly presents, or causes to be presented, a
false or fraudulent claim for payment or approval;"
(B): "knowingly makes, uses, or causes to be made or
used, a false record or statement material to a false or
(G): "knowingly makes, uses, or causes to be made or
used, a false record or statement material to an obligation
to pay or transmit money . . . to the Government, or
knowingly conceals or knowingly and improperly avoids or
decreases an obligation to pay or transmit money . . . to the
31 U.S.C. §§ 3729(a)(1)(A), (B), and (G).
The Parts of the Scheme
alleged fraudulent scheme involved several parts, but there
are three principal components: (1) Rite Aid's Rx Savings
Program ("Rx Program"), (2) Medicare Part D, and
(3) the Medicaid and Medicare Part D requirement that
pharmacies charge government insurance programs the
"usual and customary charge to the general public,
" see 42 C.F.R. § 447.512(b). To help
understand the scheme, the Court will briefly explain each
many major pharmacies, Rite Aid offers hundreds of generic
prescriptions at reduced prices through a prescription
discount program. ECF 44-1, PgID 473. The Rx Program provides
prescriptions at heavily reduced prices: a 30-day supply of
certain generic drugs cost $8.99 and a 90-day supply of those
drugs cost $15.99. Id. Enrollment in the Rx Program
is free, and any person can join it-with one exception. The
Rx Program's reduced prices do not extend to
"[p]rescriptions paid for in whole or in part by
publicly funded health care programs[.]" Id.
Medicare Part D
Part D is a federal, voluntary prescription drug benefit
program available to citizens eligible for Medicare. The
Centers for Medicare and Medicaid Services ("CMS")
oversees Medicare Part D. ECF 44, at PgID 426. CMS contracts
with private insurance companies ("Part D
Sponsors") that "compete for the opportunity to
manage Part D beneficiaries' claim submissions and
payment processes." United States ex rel.
Garbe v. Kmart Corp., 824 F.3d 632, 635 (7th Cir. 2016),
cert. denied, 137 S.Ct. 627 (2017). Part D Sponsors
and their subcontractors then "work directly with retail
pharmacies to provide prescriptions to Part D
beneficiaries." Id. Part D Sponsors negotiate
with the pharmacies to determine how much the pharmacy will
be paid for the drugs they dispense to Medicare enrollees.
ECF 44 at 447.
Usual and Customary Charge
pharmacy dispenses prescription drugs to Medicare enrollees,
it submits a claim for payment from the federal government,
through Part D sponsors and intermediaries with which it has
contracted. CMC's payments for drugs must not exceed a
provider's "usual and customary charges to the
general public, " or, "U&C." 42 C.F.R.
§ 447.512(b). To comply with the limitation, "state
Medicaid programs have enacted rules that require pharmacies
to bill Medicaid no more than their [U&C]." ECF 44,
PgID 429. States' Medicaid programs define U&C
differently, but with the exception of California, all of the
Relevant States' programs specifically require pharmacies
to disclose the U&C in a designated field when billing
the state Medicaid program. See Id. at 431-45.
The Alleged Fraudulent Scheme
alleged scheme, Rite Aid charged Medicare Part D and state
Medicaid programs prices that "significantly exceed[ed]
the prices that Rite Aid has routinely offered customers
through its 'Rx Savings' discount program." ECF
44, PgID 424. Because the misrepresentations would tend to
cause CMS to issue inflated reimbursements, Relator ...