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United States v. Rite Aid Corporation

United States District Court, E.D. Michigan, Southern Division

March 30, 2019

UNITED STATES OF AMERICA, et al., Plaintiffs, ex rel. AZAM RAHIMI, Plaintiff/Relator,



         In May 2011, Relator Azam Rahimi ("Rahimi" or "Relator") filed his qui tam complaint against Defendant Rite Aid Corporation ("Rite Aid") 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-after more than five years of extensions sought 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 ("SAC").

         On 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 and the several states declined to intervene. ECF 46, 47. Rahimi served Rite Aid. ECF 50. Rite Aid requested that discovery be stayed, ECF 54, and responded to the SAC with a motion to dismiss, ECF 55. The Court granted Rite Aid's motion to stay, ECF 68, and denied without prejudice Rite Aid's motion to dismiss, ECF 70.

         On May 11, 2018, Relator filed his third amended complaint ("TAC"). ECF 71. Rite Aid again filed a motion to dismiss. ECF 73. The Court reviewed the briefs and finds that a hearing is unnecessary. E.D. Mich. LR 7.1(f). For the reasons below, the Court will deny Rite Aid's motion to dismiss.


         As the Court identified in its opinion on Rite Aid's first motion to dismiss, the allegations can be understood simply. Rahimi, a pharmacist, became suspicious of how Rite Aid billed certain government programs. Rahimi alleges that Rite Aid violated the FCA by submitting false claims to the Government and by failing to reimburse overpayments. The Court previously detailed the scheme, but, because Relator filed an amended complaint, the Court will repeat the general allegations here.

         I. The Claims

         Relator's TAC contains nineteen counts. ECF 71. One count is for alleged violations of the FCA and eighteen counts allege violations of various state false claims statutes.[1] In particular, the FCA count alleges violations of 31 U.S.C. §§ 3729(a)(1)(A), (a)(1)(B), and (a)(1)(G), which provide that liability attaches to 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 fraudulent claim;
(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 Government[.]

31 U.S.C. § 3729(a)(1)(A), (B), and (G).

         II. The Parts of the Scheme

         The alleged fraudulent scheme involves several parts, but the three principal components include: (1) Rite Aid's Rx Savings Program ("Rx Program"), (2) Medicare Part D, and (3) the Medicaid and Medicare Part D[2] requirement that pharmacies charge government-insurance programs the "usual and customary charge to the general public" ("U&C"), see 42 C.F.R. § 447.332(b). The Court will briefly explain each component.

         A. The Rx Program.

         Like many major pharmacies, Rite Aid offers hundreds of generic prescriptions at reduced prices through its Rx Program. ECF 71-2, PgID 1398. The Rx Program provided 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.

         B. Medicare Part D.

         Medicare 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 71, PgID 1332. 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 71, PgID 1353.

         C. Usual and Customary Charge.

         When a pharmacy dispenses prescription drugs to Medicare enrollees, it submits a claim for payment to the federal government, through Part D Sponsors and intermediaries with which it has contracted. CMS'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 71, PgID 1335. States' Medicaid programs define U&C differently, but nearly all of the Relevant States' programs specifically require pharmacies to disclose the U&C in a designated field when billing the state Medicaid program.[3] See Id. at 1336.

         III. The Alleged Fraudulent Scheme

         In the 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 71, PgID 1330. Because the misrepresentations would tend to cause CMS to issue inflated reimbursements, Relator alleges the practice violated the False Claims Act, 31 U.S.C. §§ 3729-33.

         IV. The Third Amended Complaint

         Relator's TAC adds to these general allegations in three broad ways. The Court describes the material amendments made in the TAC.

         A. TRICARE.

         First, Relator adds allegations that Rite Aid's billing practices violated TRICARE, "a comprehensive health and prescriptions benefits plan for active duty and retired service members and their eligible beneficiaries" overseen by the Department of Defense. ECF 71, PgID 1333. TRICARE beneficiaries are not eligible for Rite Aid's Rx Program. Id. at 1360. But TRICARE requires participating pharmacies to charge their U&C. Id. at 1358-60. Relator therefore alleges that Rite Aid overcharged TRICARE-just as he alleges that it overcharged Medicare Part D and state Medicaid programs. Id. at 1362.

         B. John Doe's Knowledge.

         Second, Relator added allegations related to his friend, John Doe, who was a pharmacist at a Rite Aid in New York and upon whose knowledge Relator relies. Particularly, Relator alleges that "[t]hrough his direct experience billing customers and third-party payers, including Medicaid and Medicare Part D, for prescription drugs, John Doe learned that [Rite Aid's billing] software" does not generate an "Rx Savings price" for individuals not enrolled in the program-such as Medicaid and Medicare participants. ECF 71, PgID 1362. When utilized, the software "charged government health programs, including Medicare Part D and Medicaid, a price that Rite Aid represented was its 'U&C' but that" did not account for the prices given to the Rx Program's members. Id. at 1362-63. In this way, and absent "any intermediary . . . like a corporate billing department," "Rite Aid's pharmacists . . . are responsible for billing any liable third-party payers." Id. at 1363.

         John Doe reviewed the "Details" screen after "he had charged medications on the Rx Savings Program list to a Medicare Part D or Medicaid plan," and thus "confirmed . . . that Rite Aid was charging Medicare Part D sponsors and Medicaid plans amounts that exceeded the Rx Savings Price." Id. at 1364.

         John Doe then obtained specific examples of alleged false claims by recovering a customer's receipt, which he referenced with his knowledge from reviewing the "Details" screen. Id. at 1364-65.

         C. ...

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