November 28, 2020

Volume X, Number 333


Pharmacies Avoid False Claims Act Suit: Fox Rx Inc. v. Omnicare Inc. et al.

On August 12, 2014, Judge Denise Cote of the U.S. District Court for the Southern District of New York dismissed a suit against three pharmacies (Omnicare, Inc., Neighborcare, Inc., and PharMerica Corp.) and one pharmacy benefits administrator (MHA Long Term Care Network) brought by qui tam relator Fox Rx, Inc. (“Fox”)—a Medicare Part D program sponsor—for violations of the False Claims Act and various state pharmacy laws. Fox asserted that the defendants (1) failed to substitute generic drugs for brand-name drugs in states that have laws mandating such substitution, and (2) dispensed drugs after the termination date of the national drug code (“NDC”) in states that have laws prohibiting pharmacies from dispensing drugs beyond their shelf-life expiration dates. The plaintiffs argued that, by engaging in such practices, the defendants falsely indicated in submissions to a federal agency that the drugs they dispensed were “covered” by Medicare, and that they overcharged Medicare and Medicaid.

Judge Cote disagreed. Noting that “[n]oncompliance with regulations that are ‘irrelevant’ to the Government’s disbursement decisions . . . do not constitute legally false certifications . . .,” Judge Cote dismissed the claims on the grounds that the plaintiff did not identify any federal statute or regulation that conditioned reimbursement of Medicare Part D claims on the substitution of a generic drug or brand name equivalent, on not dispensing drugs beyond the NDC’s termination date, or even on complying with the specific state pharmacy laws recited in the complaint. Judge Cote distinguished between compliance with statutes or regulations as prerequisite to governmental payment, versus compliance with statutory or regulatory provisions that establish conditions of participation in a federal health care program. She noted that “asserting that pharmacists should not have been dispensing branded drugs in those state jurisdictions with statutes mandating the use of generic drugs . . . does not constitute a false statements claim, a violation of the FCA, or a violation of the [Medicare Modernization Act].” She further found that, because Fox failed to adequately plead that the termination date of an NDC number and the expiration date of a quantity of manufactured drugs are the same, that the claim that the drugs were worthless because the NDC had expired must be dismissed. She also noted that, while in some cases the NDC termination date and expiration date are the same, termination of the code may also be the result of a “simple change” such as changing the quantity of pills in a package.

Ultimately, Judge Cote dismissed the claims against MHA because MHA was not a pharmacy with a duty to comply with the state laws cited, and thus had not assumed any duty to comply with those laws.

© 2020 Covington & Burling LLPNational Law Review, Volume IV, Number 241



About this Author

Alan Pemberton, Covington, Litigation attorney
Senior Counsel

Alan Pemberton has practiced in the government contracts area since 1982, and chaired or co-chaired Covington’s government contracts practice from 2000 to 2016. His practice includes the full range of government contracts matters, including bid protest and other procurement litigation before GAO, agency boards, and federal and state courts and ADR tribunals. He advises large and small contractors and grantees about the full range of government proposal, performance, compliance, regulatory, suspension and debarment, transactional and legislative issues. He also directs...

Jennifer Plitsch, Litigation attorney, Covington

Jennifer Plitsch is co-chair of the firm’s Government Contracts practice group where her practice includes a wide range of contracting issues for large and small businesses in both defense and civilian contracting. Her practice involves advising clients on contract proposal, performance, and compliance questions as well as litigation, transactional and legislative issues. She has particular expertise in advising clients on intellectual property and data rights issues under the Federal Acquisition Regulations and Bayh-Dole Act, and has significant experience in...

Susan B. Cassidy, Government Contracts Attorney, Covington Burling, Law Firm

Susan Cassidy advises clients on the complex rules and regulations imposed on government contractors, with a special emphasis on the defense and intelligence sectors. She combines a sophisticated knowledge of the FAR and DFARS with the practical insight gained from senior in-house positions at both dedicated defense and commercial item contractors.

Ms. Cassidy conducts internal investigations for clients on wide array of government contracts and national security compliance issues. She regularly advises on FAR mandatory disclosure obligations and represents...