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 DEFENDANT'S MOTION TO
STEPHEN J. MURPHY, III UNITED STATES DISTRICT JUDGE.
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").
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.
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
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
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. 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
(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).
The Parts of the Scheme
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 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.
The Rx Program.
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.
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 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.
Usual and Customary Charge.
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. See Id. at 1336.
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
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.
The Third Amended Complaint
TAC adds to these general allegations in three broad ways.
The Court describes the material amendments made in the TAC.
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.
John Doe's Knowledge.
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.
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.
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.