UNITED STATES of America, ex rel. Anthony R. SPAY, Plaintiff, v. CVS CAREMARK CORPORATION; Caremark Rx, LLC (f/k/a Caremark Rx, Inc.); Caremark, LLC (f/k/a Caremark, Inc.); SilverScript, LLC (f/k/a Silverscript Inc.), Defendants, 913 F. Supp. 2d 125

MEMORANDUM BUCKWALTER, Senior District Judge. Currently pending before the Court is the Motion by Defendants CVS Caremark Corporation, Caremark RX, LLC, Care-mark, LLC, and Silverscript, LLC (collectively “Defendants”) to Dismiss Relator’s First Amended Complaint. For the following reasons, the Motion is denied in its entirety. I.

FACTUAL AND PROCEDURAL BACKGROUND The present litigation is an action to recover damages and civil penalties on behalf of the United States of America arising from false and/or fraudulent records, statements and claims made, used, and caused to be made, used, or presented by Defendants. (Am. Compl. ¶ 1.) At this stage of the litigation, the Court takes the facts directly from the Amended Complaint. A. General Background on Medicare and the, Medicare Part D Program Medicare is a federally funded and administered health insurance program for certain groups, primarily elderly and disabled persons.

The Department of Health and Human Services (“HHS”) administers the Medicare program through the Centers for Medicare and Medicaid Services (“CMS”). There are four major components to the Medicare program:

(1) Part A, the hospital insurance benefits program, 42 U.S.C. §§ 1395c, 1395d;

(2) Part B, the supplemental medical insurance benefits program, which generally pays for a percentage of certain medical and other health services, including physician services, 42 U.S.C. §§ 1395j, 1395k, 1395Z;

(3) Part C, the Medicare Advantage program, which allows CMS to contract with public and private entities to provide, at a minimum, Medicare Part A and B benefits to certain Medicare beneficiaries, 42 U.S.C. § 1395w-2l-28, et seq.-, and

(4) Part D, the voluntary prescription drug benefit program. 42 U.S.C. § 1395w-101, et seq. Part D was established in 2003 by the Medicare Prescription Drug, Improvement,- and Modernization Act, Pub. L. 108-173, 1Í7 Stat. 2066, which set up a voluntary prescription drug benefits program for Medicare enrollees. Part D became effective January 1, 2006. 42 U.S.C. § 1395w-101(a)(2). An individual may enroll in Part D if he or she lives in the service area of a Part D plan and is entitled to Medicare benefits under Part A or enrolled under Part B. 42 U.S.C. § 1395w-101(a)(3)(A); 42 C.F.R. § 423.30(a).

Unlike Parts A and B, Medicare Part D is based on a private market model, wherein Medicare contracts with private entities, known as Part D “sponsors” to administer prescription drug plans. Part D benefits are provided by a Part D plan sponsor, which is either a prescription drug plan (“PDP”), a Medicare Advantage organization that offers a Medicare Advantage prescription drug plan (“MA-PD plan”), a Program of All-Inclusive Care for the Elderly (“PACE”) organization offering a PACE plan including qualified prescription drug coverage, or a cost plan offering qualified prescription drug coverage. 42 C.F.R. § 423.4.

The Part D plan sponsor must provide qualified prescription drug coverage which includes “standard prescription drug coverage” or “alternative prescription drug coverage” with at least actuarially equivalent benefits. 42 U.S.C. § 1395w-102; 42 C.F.R. § 423.104(c). The requirements for standard or alternative prescription drug coverage relating to deductibles, benefit structure, initial coverage limits, out-of-pocket expenditures, etc., are set out in the Medicare Statute and its regulations. 42 U.S.C. § 1395w-102(b); 42 C.F.R. § 423.104(d)(3).

Plans may also provide supplemental prescription coverage, which can include reductions in cost-sharing (such as deductibles or coinsurance percentages) or covering certain drugs that would qualify as a covered Part D drugs if they were not among the drugs described at 42 U.S.C. § 1396r-8(d)(2), (d)(3) and excluded from the definition of a Part D drug at 42 U.S.C. § 1395w-102(e)(2)(A). A Part D sponsor submits a bid in the year prior to the calendar year in which Part D benefits will actually be delivered. Id. § 423.265.

The bid contains a per member per month (“PMPM”) cost estimate for providing Part D benefits to an average Medicare beneficiary in a particular geographic area. Id. §§ 423.265, 423.272. From the bids, CMS calculates nationwide and regional benchmarks which represent the average PMPM cost. Id. § 423.279. If the Part D plan sponsor’s bid exceeds the benchmark, the enrolled beneficiary must pay the difference as part of a monthly premium. Id. § 423.286.

CMS then provides each Part D plan sponsor with advance monthly payments equal to the Part D plan sponsor’s standardized bid, risk adjusted for health status, minus the monthly beneficiary premium, estimated reinsurance subsidies for catastrophic coverage, and estimated low-income subsidies. 42 C.F.R. § 423.293 When a pharmacy dispenses drugs to a Medicare beneficiary, it submits an electronic claim to the beneficiary’s Part D plan and receives reimbursement from the plan sponsor for the costs not paid by the beneficiary.

The Part D plan sponsor then notifies CMS that a drug has been purchased and dispensed through a document called a Prescription Drug Event (“PDE”) record, which includes the amount paid to the pharmacy. The PDE is an electronically created document that includes at least thirty-seven fields of information about a specific drug transaction. (Defs.’ Mot. Dismiss, Ex.

B, Instructions: Requirements for Submitting Prescription Drug Event Data (“CMS Instructions”), April 26, 2006, at 9.) CMS uses the information in the PDE at the end of the payment year to reconcile its advance payments to the sponsor with actual costs the plan sponsor incurred. Id. If a Part D Plan sponsor’s actual costs exceed the estimated costs, the plan sponsor may be able to recoup some of its losses through a risk sharing agreement with CMS. Id. at 9-10.

If a Part D Plan sponsor’s estimated costs exceed its actual costs by a specified amount, payments to the Part D Plan sponsor for the year are reduced and the Plan sponsor will have to pay back some its estimated payments. Id. Part D Plan sponsors subcontract with many entities to provide drugs to the Medicare Part D beneficiaries enrolled in their plans, including subcontracts with pharmacy benefit managers (“PBM”) who provide drugs through mail order and pharmacies.

As a condition for receiving its monthly payment from CMS, a Part D Plan sponsor must certify the accuracy, completeness and truthfulness of all data related to the payment, which may include enrollment information, claims data, bid submission data, and any other data specified by CMS. 42 C.F.R. § 423.505(k)(l).

If the claims data has been generated by a subcontractor of a Part D plan sponsor, such as a PBM, that entity must “similarly certify” that the claims data it has generated is accurate, complete and truthful, and must acknowledge that it will be used to obtain federal reimbursement. 42 C.F.R. § 423.505(k)(3). Part D Plan sponsors must also certify in their contracts with CMS that they agree to comply with all federal laws and regulations designed to prevent fraud, waste, and abuse. 42 C.F.R. § 423.505(h)(1).

CMS regulations require that all subcontracts between Part D plan sponsors and downstream entities, including pharmacies and PBMs, contain language obligating the pharmacy to comply with all applicable federal laws, regulations, and CMS instructions. 42 C.F.R. § 423.505(i)(4)(iv). B. The Parties and Other Relevant Entities 1. The Relator/Plaintiff Relator/Plaintiff Anthony R. Spay is a licensed physician with approximately thirty-seven years of diversified experience within the pharmacy industry. (Am.

Compl. ¶¶ 8-21.) He is not only a licensed pharmacist, but has been involved with pharmacy management, benefits management, long-term care, behavioral health, executive management, prescription drug fraud/abuse detection, audition, and recovery for many of the nation’s largest payers and pharmacy claims processors. (Id.) 2.

The Defendants Defendant CVS Caremark Corporation (“CVS Caremark”) is the largest provider of prescriptions and related healthcare services in the United States. (Id. ¶ 22.) CVS Caremark participates in the Medicare Part D prescription drug program and has provided Part D Pharmacy Benefits Manager (“PBM”) services to its clients’ Part D Plans through its subsidiaries, Silverscript, Inc., Caremark LLC, CaremarkPCS, CVS Caremark Part D Services, LLC, and RxAmerica, LLC. (Id. 1133.) Since 2006, CVS Caremark has served as a Medicare Prescription Drug Plan (“PDP”) sponsor that contracts with Medicare to provide prescription drug benefits in all fifty states, the District of Columbia, and Puerto Rico through Silver-Script Insurance Company (“SSIC”) and Accendo Insurance Company (“Accendo”). (Id. ¶ 34.) In addition, CVS Caremark operates thousands of retail pharmacies, as well as mail order and specialty pharmacies that process Part D prescriptions and dispense Part D drugs to Medicare beneficiaries. (Id. ¶ 36.) Since 2006, CVS Care-mark, through its subsidiary SSIC, a Medicare Prescription Drug Plan Sponsor, has provided Medicare Part D drug benefits to eligible beneficiaries. (Id. ¶ 37.) Finally, on April 29, 2011, CVS Caremark acquired the Medicare Part D business of Universal American Corp. (“UAM Medicare Part D business”), through which CVS Caremark now provides Medicare prescription drug benefits to more than three million beneficiaries through the community CCRxSM prescription drug plan. (Id. ¶ 39.) Defendant Caremark Rx, LLC (“Care-mark Rx”) is one of the largest pharmaceutical services companies in the United States. (Id. ¶¶ 40^41.) Its services are referred to as pharmacy benefit management (“PBM”) services, which, through its subsidiaries, operates mail order, specialty mail order, and retail specialty pharmacy subsidiaries throughout the United States. (Id. ¶¶ 42^43.) CVS Caremark participates in the administration of Medicare (Part

D) Drug Benefit through Caremark Rx. (Id. ¶ 45.) It also “assists employer, union, and other health plan clients that qualify for the Medicare Part D retiree drug subsidy by collecting and submitting eligibility and/or drug cost data to the CMS as required under Part D in order for these employer, union, and other health plan clients to obtain Part D retiree drug subsidies.” (Id. ¶ 46.) Since March 22, 2007, Defendant Silver-Script, LLC (“Silverscript”) has been a wholly-owned subsidiary of Caremark Rx and presently is a wholly-owned subsidiary of CVS Caremark. (Id. ¶ 48.) Since 2006, Defendant Caremark Rx, through Silver-script has provided PBM services to Part D Plan Sponsors throughout the United States. (Id. ¶¶ 49, 52.) Defendant Care-mark, LLC is also a wholly-owned subsidiary of CVS Caremark. (Id. ¶ 54.) In 2006 and before the March 2007 CVSCaremark merger, Defendant Caremark Rx conducted its pharmaceutical services operations through its subsidiaries, including but not limited to, Caremark, Inc. (Now Caremark, LLC) and Caremark PCS. (Id. ¶ 55.) CVS Caremark also participates in the Medicare Part D Program through the offering of Medicare Part D benefits by its subsidiary, SilverScript Insurance Company, a subsidiary of Silverscript. (Id. ¶ 56.) SilverScript Insurance Company obtained a license from the State of Tennessee to operate as a health insurance company in 2006. (Id. ¶ 57.) It now offers Part D Plans in all fifty states, Washington D.C. and Puerto Rico. (Id. ¶ 59.) Overall CVS Caremark’s net revenues include both Part D Payments received from CMS, as well as payments received from Part D Sponsors related to CVS Caremark’s subsidiaries’ Part D PBM services. (Id. ¶ 61.) CVS Caremark’s Part D insurance premiums earned by its PDP are set based on the Part D sponsor’s annual bid and related contractual arrangements with CMS. (Id. ¶ 62.) In addition to the Part D insurance premiums, CVS Caremark’s net revenues include co-payments, deductibles, and co-insurance (collectively, the “Member Co-Payments”) related to PDP members’ actual prescription claims. (Id. ¶ 63.) Finally, CVS Caremark’s net revenues include retiree drug subsidies paid by CMS. (Id. ¶ 64.) 3.

The “Medical Card System” Entities Medical Card System, Inc. (“MCS”) is the second largest health administration and health insurance company in Puerto Rico where more than 725,000 commercial, Medicare, and Puerto Rico Medicaid (“Reforma”) insureds live. (Id. ¶ 66.) MCS provides health plans to more than 1,000 companies and covers over 150,000 employees and family members. (Id.) Among other health services, MCS provides medical plans in Puerto Rico, and Medicare Part D coverage through both PDPs and Medicare Advantage Part D Plans (“MAPDs”), which are offered through MCS’s subsidiary, MCS Life Insurance Company. (Id. ¶ 67.) MCS also provides Part D coverage to employers who offer Part D benefits through employer plans to whom Part D retiree drug subsidies would apply. (Id.) In addition, MCS, through its affiliate, MCS Advantage, Inc., provides managed Medicare coverage. (Id. ¶ 68.) Finally, MCS provides pharmacy benefits to dual eligible Medicare Part D and Medicaid beneficiaries, including members impacted by Low Income Subsidy grants available to Medicare Part D beneficiaries living in the United States territories. (Id. ¶ 69.) MCS Life Insurance Company (“MCS Life”) is a subsidiary of MCS and provides Medicare Part D coverage to plans offered by MCS. (Id. ¶¶ 70-71.) In November 2004, CMS approved MCS Life’s request to offer managed care coverage to Medicare beneficiaries in Puerto Rico. (Id. ¶ 72.) Since January 1, 2006, MCS Life has participated with CMS as a Medicare Part D Plan Sponsor, providing Medicare Part D coverage to plans offered by MCS. (Id. ¶ 73.) From January 1, 2006 through at least September 2007, pursuant to the terms of a contract executed between them (“the Part D Contract”), CVS Caremark and SilverScript provided Medicare Part D PBM services to MCS Life for health insurance plans offered by MCS. (Id. ¶ 74.) In early 2006, MCS Life offered Part D benefits through a number of PDPs and MA-PDs. (Id. ¶ 75.) MCS Life also developed formularies for multiple Part D Plans. (Id. ¶ 76.) Finally, MCS Life also offered Part D benefits to employer plans providing prescription coverage to their retirees. (Id. ¶ 77.) C.

The Prescription Benefit Management Agreement In June 2003, Defendant Caremark Rx entered into a Prescription Benefit Management (“PBM”) Agreement with MCS, pursuant to which Caremark, Inc. provided PBM services to health insurance plans offered by MCS. (Id. ¶ 235.) The Agreement was amended once in 2004 and again in 2006. (

M) In early 2006, MCS Life and Defendant SilverScript entered into a Managed Pharmacy • Benefit Services Agreement — Medicare Part D, pursuant to which SilverScript provided PBM services to support MCS Life’s participation with CMS as a Part D Plan sponsor (the “MCS-SilverScript PBM Agreement” or the “Agreement”). (Id. ¶ 237.) According to the terms of this Agreement, Silver-Script agreed “to participate, as a subcontractor to [MCS], in the management of [MCS’s] Part D Plan, and [SilverScript] understands that its activities must, to the extent these are communicated to Silver-Script, be consistent and comply with [MCS’s] contractual obligations to CMS as a Part D Plan Sponsor.” (Id. ¶ 238.) Both parties also agreed to “comply with applicable CMS Laws and Regulations without the need for further notice to and approval from the other party.” (Id. ¶ 239.) With regard to the submission of Part D claims data, SilverScript and MCS expressly agreed that “SilverScript shall perform data edit and quality control procedures designed to ensure accurate and complete prescription drug data.” (Id. ¶ 241.) Pursuant to the MCS-SilverScript PBM-Agreement, the Caremark Defendants had significant financial incentives for adjudicating Part D claims and dispensing Part D drugs. (Id. ¶ 242.) First, the Care-mark Defendants received administrative fees per paid retail or mail order/on-line claim. (Id. ¶ 242.) Second, they collected a dispensing fee only if the prescription was billed and dispensed to the Part D participant through Caremark’s retail pharmacy network. (Id. ¶ 243.) The Caremark had additional incentives through their Caremark and CVS-owned mail order and retail pharmacies. (Id. ¶ 244.) Under the MCS-SilverScript PBM Agreement, the Medicare Part D PBM services to be provided by Defendant’s subsidiary also included concurrent Drug Utilization Review (“DUR”) services for retail or point of sale (“POS”) claims. (Id. ¶ 245.) According to the contract’s terms, when a claim was rejected by Caremark’s system, but actually represented appropriate therapy in the judgment of the physician or pharmacist, the pharmacist could either dispense the drug at the plan participant’s expense or call MCS Life or Silver-Script to override the denial edit. (Id. ¶ 246.) Under Caremark’s system, however, only those claims processing edits provided by the PBM and selected by the Part D Plan as triggering a denial edit would require further action by the pharmacist to either contact MCS or Silver-Script to override the denial or to have the plan participant obtain the prescription outside Part D at their own expense. (Id. ¶ 247.) The MCS-SilverScript PBM Agreement remained in effect from January 1, 2006 until January 1, 2008, when Catalyst Rx took over as PBM for MCS’s Medicare Part D Program. (Id. ¶ 249.) During that time, SilverScript, as a Caremark subsidiary, provided Medicare Part D PBM services to MCS Life for health insurance plans offered by MCS. (Id. ¶ 250.) In turn, for each health insurance benefit plan offered by MCS, MCS Life provided Medicare Part D prescription drug coverage. (Id. ¶ 251.) D.

The Part D Audit by Pharm/DUR, Inc. 1.

The Audit In February 2007, MCS retained Plaintiff Spay’s company, Pharm/DUR, Inc. (“Pharm/DUR”) to perform a comprehensive audit of the Medicare Part D retail and mail order pharmacy claims paid by MCS for MCS Life’s Part D participants from January 1 through December 31, 2006. (Id. ¶ 254.) This audit was to include both desk audits and on-site audits. (Id. ¶ 255.) The desk audit program was used in instances where the Part D data analysis system identified a specific submission or data trend that was fraudulent or abusive, or where the claim volume of a specific pharmacy was not sufficient to be included for an on-site audit. (Id. ¶ 256.) After using pre-determined edits to identify pharmacies, Pharm/DUR made written requests directly from those pharmacies for documentation of specific components of the Part D claims. (Id.) In February 2007, Pharm/DUR informed the Caremark Defendants that MCS had retained Pharm/DUR to conduct its audit. (Id. ¶ 257.) At the same time, Pharm/DUR obtained from the Caremark Defendants the paid Part D claims data for the MCS Life Part D participants. (Id.) The pharmacies in the CVS Care-mark network serving MCS members were throughout the United States and Puerto Rico. (Id. ¶ 260.) Pharm/DUR conducted an analysis of all Part D paid claims data for both retail and mail order pharmacy prescriptions submitted by pharmacies to be adjudicated by Defendant Caremark/Silverscript from January 1, 2006 through December 31, 2006. (Id. ¶ 261.) Following the Part D paid claims data analysis, the next step in the audit process was to perform on-site and desk audits of retail pharmacies and on-site audits of mail order pharmacies. (Id. ¶ 262.) These involved auditors visiting the pharmacies to obtain copies of documents that supported the claims information submitted by the pharmacies and processed by the PBM for specific prescriptions in the review claims data set. (Id. ¶ 263.) The on-site auditor would compare the original hard copy of the prescriptions with the information submitted for payment. (Id. ¶ 263.) Pharm/ DUR sent notices to the Caremark network retail pharmacies selected for desk and/or on-site audits. (Id. ¶ 264.) Thereafter, on August 23, 2007, the Caremark Defendants sent a facsimile on Caremark letterhead to the pharmacies serving MCS members directing them not to cooperate with Pharm/DUR’s Part D audit. (Id. ¶ 264.) Specifically, the fax stated, in pertinent part, “Please DO NOT release any information to [Pharm/DUR] or to MCS.

Pharm/DUR does not have the right or privilege to contact any pharmacy on behalf of MCS, and therefore should not receive any claims, pricing, personal health information, or any confidential proprietary information from you concerning MCS.” (Id. (emphasis in original).) Due to a series of obstructive actions of the Care-mark Defendants, Pharm/DUR was unable to fully complete the desk or on-site audits of many of the MCS retail pharmacies, or to conduct the audits of mail order facilities as requested by MCS, the Part D Sponsor. (Id. ¶ 266.) 2.Pharm/DUR’s Audit Findings Pharm/DUR communicated the results of its audit analysis of paid claims data from MCS’s retail and mail order pharmacies (“CVS Network Providers”) to both MCS and to the Caremark Defendants through a series of communications, which culminated in Pharm/DUR issuing a December 2007 report (the “Audit Report”). (Id. ¶ 267.) The Audit Report documented the six areas where Pharm/DUR concluded that the Defendants had illegally adjudicated, paid, and submitted to CMS claims for Medicare Part D drugs, including the following: 1.

Gender Specific Deviations: fraudulently dispensing of gender-specific drugs: 507 claims, causing improper payments by MCS and reported to CMS totaling $53,608. 2. MAC Pricing: fraudulently failing to apply Maximum Allowable Cost (“MAC”) pricing to all MAC drugs: 3,658 claims causing improperly paid by MCS and reported by MCS to CMS totaling $105,141.80. 3. Expired Drugs: fraudulent payment for expired drugs on 11,286 claims causing improperly paid claims by MCS and reported to CMS by Defendant Caremark totaling $399,794. 4.

False Prescriber Identities: fraudulent payment for claims where Defendant Caremark as the PBM adjudicated claims even though its network pharmacies failed to report accurate physician identifiers, and instead used “push” numbers on 15,-903 claims causing improper payments by MCS and Part D claims reported to CMS totaling $673,494.58. 5. No Prior Authorization: fraudulent adjudication of claims where drugs were dispensed and claims were paid without prior authorization: 15,473 claims improperly paid by MCS and reported by Caremark to CMS totaling $2,842,298.09. 6. 1.

Over Limits: fraudulent adjudication of claims processed for quantities of drugs or days supply over the approved limit on 1,875 improper claims paid by MCS and reported by Caremark to CMS totaling $209,209.66. (Id. ¶ 268.) Pharm/DUR’s conclusions were based on the Part D claims data analysis of mail order and retail pharmacies, as well as desk audits of some of the retail pharmacies. (Id. ¶ 269.) Ultimately, Pharm/DUR identified -48,702 Medicare Part D claims which Defendant Caremark had adjudicated and fraudulently paid, with a total cost of $4,283,546.13 to MCS, all of which were submitted to CMS for payment. (Id.) E.

The Fraud Allegations According to the Amended Complaint, the Caremark Defendants’ nationwide Part D claims adjudication failed to have the required concurrent Drug.

Utilization Reviews (“DUR’s”), including gender contraindications and review for over-utilization. (Id. ¶ 319.) The Part D customers of the Caremark Defendants were thus permitted to illegally reject the performance of drug-to-sex edits at point of sale or point of sale distribution. (Id. ¶ 319.) Part D Plan sponsors are not entitled to receive Medicare Part D payment for claims based on drugs dispensed without appropriate concurrent DUR’s, including for gender-related contraindications and over-utilization. (Id. ¶ 326.) Moreover, the Amended Complaint alleges that during the relevant time period, Defendants regularly and knowingly submitted false or fraudulent PDE data items to CMS. (Id. ¶ 323.) Further, the CVS Caremark Defendants intentionally and fraudulently thwarted the Sponsor’s (MCS’

s) efforts to conduct an appropriate Part D fraud, waste and abuse program as required by 42 C.F.R. § 423.505(h)(1).

The Caremark Defendants’ customers should not have submitted Part D claims data to CMS related to Part D drugs dispensed as a result of the Caremark Defendants’ intentional company-wide failure to perform the Part D claims adjudication process as required for compliance with Medicare Part D program requirements. (Id. ¶ 326.) The payments made to MCS by CMS reflect more than $4 million in Part D claims which should not have been submitted to CMS. (Id. ¶ 335.) By virtue - of these alleged false claims, MCS illegally received an overpayment. (Id. ¶ 335.) In turn, the Caremark Defendants’ efforts to interfere with MCS’s Part D fraud, waste and abuse program resulted in MCS neither reporting the overpayment to CMS nor returning any overpaid funds to CMS. (Id. ¶ 337.) In addition to the foregoing, Defendants’ failures allegedly resulted in CMS improperly paying Part D retiree drug subsidies.

Specifically, MCS also offered, in addition to its plans providing standard Medicare Part D benefits, at least ten employer plans providing prescription coverage to their retirees. (Id. ¶ 344.) As MCS supplies health plans to more than 1,000 companies and covers over 150,000 employees and family members, MCS has applied for Part D Retiree Drug Subsidies (“RDS”) with regard to those employer plans which offer prescription drug benefits similar to Part D Plans to Medicare-eligible retirees. (Id. ¶ 345.) The claims by MCS for these RDS benefits were “plagued” by the CVS Caremark Defendants’ intentional system-wide adjudication fraud and non-compliance with state and Federal laws and Regulations described above with regard to the traditional Part D program. (Id. ¶ 346.) Therefore, any claims for RDS payments made by MCS health plans based upon prescription claims which failed to adhere to applicable Part D requirements led to illegal and unwarranted Part D RDS payments to MCS health plans by CMS. (Id.) Defendant CVS Caremark also administers claims for other Part D customers nationwide and has processed claims which were included in the costs reported by its other customers with employer Plans in support of requests to CMS for RDS. (Id. ¶ 348.) Defendant Caremark’s largest customer during the year ending December 2007 was the Federal Employee Health Benefits Program (“FEHBP”), which qualifies as a group health plan eligible for RDS subsidies. (Id. ¶ 349.) Any claims submitted by Defendant Caremark’s other customers’ health plans, including FEHBP, which included prescription drug claims which failed to adhere to Part D requirements caused illegal and unwarranted Medicare Part D RDS payments by CMS to these plans. (Id. ¶ 351.) Following litigation of contract disputes between MCS and Caremark in 2007 in the United States District Court for the District of Puerto Rico, Civil Action No. 07-1951 (“MCS-Caremark Litigation”) (Defs.’ Mot Dismiss, Ex.

K), Plaintiff Anthony R. Spay initiated this action against Defendants. On August 15, 2011, Plaintiff filed an Amended Complaint alleging violations of the Federal False Claims Act, 31 U.S.C. § 3729(a)(1), (2), and (7). On April 23, 2012, Defendants filed a Motion to Dismiss the Amended Complaint. Plaintiff filed his Response on June 26, 2012, Defendants submitted a Reply Brief on August 3, 2012, and Relator filed a Surreply Brief on September 24, 2012.

In conjunction with this Motion, Plaintiff moved to strike certain exhibits to Defendants’ Motion to Dismiss and Defendants requested that the Court take judicial notice of their exhibits in support of their Motion to Dismiss. Finally, the United States filed a Statement of Interest on September 11, 2012, to which both parties responded. As all of these filings were completed by October 10, 2012, the Motion to Dismiss and related motions are ripe for judicial consideration. II.

EVIDENTIARY MOTIONS Prior to reaching the merits of Defendants’ Motion to Dismiss, the Court must first consider two evidentiary motions filed in conjunction with the dispositive motion. First, Defendants request judicial notice of certain exhibits in support of their Motion to Dismiss. Second, Plaintiff moves to strike certain exhibits attached to Defendants’ Motion to Dismiss. A.

Defendants’ Request for Judicial Notice of Certain Exhibits in Support of Defendants’ Motion to Dismiss Defendants first request that the Court take judicial notice of Exhibits B through O, attached to the April 20, 2012 Declaration of their counsel, Robert H. Griffith. The Court grants this Motion. Rule 201 of the Federal Rules of Evidence allows a court to take judicial notice of adjudicative facts. Fed.R.Evid. 201(a).

Facts that may be judicially noticed are those not subject to reasonable dispute because they are either generally known within a trial court’s territorial jurisdiction or can be readily determined from sources whose accuracy cannot reasonably be questioned. Id. at 201(b). Where a party requests judicial notice and supplies the necessary information, a court must take judicial notice. Id. at 201(c)(2). “On a motion to dismiss, courts take judicial notice of documents' which are matters of public record such as Securities and Exchange Commission filings, Oran v.

Stafford, 226 F.3d 275, 289 (3d Cir.2000), court-filed documents, Rouse v. II-VI Inc., No. Civ.A. 06-566, 2008 WL 398788, at *1 (W.D.Pa. Feb. 11, 2008), and Federal Drug Administration reports published on the FDA website, In re Wellbutrin SR/Zyban Antitrust Litig., 281 F.Supp.2d 751, 755 n. 2 (E.D.Pa.2003).” McGehean v. AF & L Ins. Co., No. Civ.A. 09-1792, 2009 WL 3172763, at *2 (E.D.Pa. Oct. 2, 2009). Such notice serves only to indicate what was in the public realm at the time, not whether the contents of those documents are true. Benak ex rel. Alliance Premier Growth Fund v.

Alliance Capital Mgmt, L.P., 435 F.3d 396, 401 n. 15 (3d Cir.2006); DCIPA, LLC v. Lucile Slater Packard Children’s Hosp. at Stanford, 868 F.Supp.2d 1042, 1048 (D.Or.2011) (“[T]aking judicial notice of certain documents does not demonstrate the truth of everything contained in those records, and, as such, the truthfulness and proper

interpretation of the document are disputable.”). In the present case, Defendants ask that the Court take judicial notice of fourteen exhibits attached to their pending Motion to Dismiss. Exhibits B through F are documents issued by the Centers for Medicare and Medicaid Services (“CMS”), the entity that administers the federal Medicare and Medicaid programs. Exhibits G through I are reports issued by the Office of the Inspector General for the Department of Health and Human Services. Exhibit J is the Medicare Prescription Drug Benefit Manual, prepared and published by CMS.

Finally, Exhibits K through 0 are documents from prior litigation between MCS and Caremark in the United States District Court for the District of Puerto Rico (“MCS-Caremark Litigation”). Plaintiff does not object to the Court taking judicial notice of these documents. (Pl.’s Resp. Opp’n Req. For Judicial Notice 2.) Indeed, courts regularly take judicial notice of similar documents. See Wellbutrin SR/Zyban, 281 F.Supp.2d at 755 n. 2 (recognizing that courts may take judicial notice of federal government or federal agency documents published on websites or otherwise); McLaughlin v. Volkswagen of Am., Inc., No.

Civ.A. 00-3295, 2000 WL 1793071, at *3 n. 3 (E.D.Pa.2000) (taking judicial notice of National Highway Traffic Safety Administration’s website description of vehicle recall in considering a 12(b)(1) motion); In re Able Labs. Secs. Litig., No. Civ.A. 05-2681, 2008 WL 1967509, at *17 n. 21 (D.N.J. Mar. 24, 2008) (“[I]n reviewing a motion to dismiss, documents subject to judicial notice include matters of public record, orders, and items appearing in the record of the case....

Among the public records a court may examine in order to resolve a motion to dismiss is a judicial proceeding from a different court or case.”) (internal citations omitted). To the extent, however, that Defendants asks for judicial notice of facts gleaned from these documents, the Court declines to do so. A court may take judicial notice of an adjudicative fact if that fact is not subject to reasonable dispute.

Fed.R.Evid. 201(b). “A judicially noticed fact must either be generally known within the jurisdiction of the trial court, or be capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned.” Werner v. Werner, 267 F.3d 288, 295 (3d Cir.2001). “The Third Circuit has cautioned that we may not take judicial notice of a prior court opinion in order to establish the truth of the adjudicative facts on which the opinion is based.” Montgomery v. Beneficial Consumer Disc. Co., No. Civ.A. 04-2114, 2005 WL 497776, at *4 n. 5 (E.D.Pa. Mar. 2, 2005) (citing S.

Cross Overseas Agencies, Inc. v. Wah Kwong Shipping Grp., Ltd., 181 F.3d 410, 426 (3d Cir.1999) (“Specifically, on a motion to dismiss, we may take judicial notice of another court’s opinion-not for the truth of the facts recited therein, but for the existence of the opinion, which is not subject to reasonable dispute over its authenticity.”)); see also Able Labs., 2008 WL 1967509, at *17 n. 21 (“Taking judicial notice of the existence of other proceedings does not convert a motion to dismiss into a motion for

summary judgment as long as the court does not take judicial notice of those proceedings to find facts.”). “Taking judicial notice of the truth of the contents of a filing from a related .action could reach, and perhaps breach, the boundaries of proper judicial notice.” Werner, 267 F.3d at 295. In the present case, Defendants ask the Court to take judicial notice “of the fact that the District Court Judge in the MCSCaremark Litigation twice denied MCS’s attempt to amend its complaint.”, (Defs.’ Mem. Supp.

Mot. for Judicial Notice 6.) In their concurrently-filed Motion to Dismiss, Defendants then expand their request to judicial notice of the fact that the audit “led to litigation based on the contract between MCS and Caremark” and “of the MCS-Caremark litigation and MCS’s unsuccessful attempt in that litigation to amend its complaint to assert causes of action based upon the same audit findings alleged by Pharm/DUR as Spay asserts here.” (Defs.’ Mem. Supp.

Mot. to Dismiss 30 n. 17.) Although Defendants vigorously argue that such facts are true and reasonably inferrable from the noticed documents, judicial notice of such facts is not appropriate. To do so would “breach! ] the boundaries of proper judicial notice.” Accordingly, the Court will grant Defendants’ Request and take judicial notice of Exhibits B through 0 to their Motion to Dismiss to establish the existence of those documents. The Court, however, declines to make findings of fact based on those documents or rely on those documents for the truth of the matters asserted. B.

Plaintiffs’ Motion to Strike, or, in the Alternative, Objections to Exhibits to Defendants’ Motion to Dismiss Having taken judicial notice of all exhibits attached to Defendants’ Motion to Dismiss, the Court must now consider Plaintiffs Motion to Strike/Specific Objections to Exhibits. In deciding- Rule 12(b)(6) motions, “courts generally consider only the allegations contained in the complaint, exhibits attached to the complaint, and matters of public record.” Pension Benefit Guar. Corp. v. White Consol. Indus. Inc., 998 F.2d 1192, 1196 (3d Cir.1993) (citations omitted).

A court may also consider an exhibit to a defendant’s motion to dismiss if the plaintiffs claims are based on that document and if that document is indisputably authentic. Id.; Pryor v. Nat’l Collegiate Athletic Ass’n, 288 F.3d 548, 560 (3d Cir.2002). Plaintiff now moves to strike and/or objects to all but two of the exhibits attached to Defendants’ Motion to Dismiss. In so doing, however, Plaintiff does not withdraw his prior concession — discussed in the previous

section of this Memorandum — that the Court may take judicial notice of these documents. Rather, for each allegedly problematic exhibit, he offers a string cite of objections followed by the applicable evidentiary rule, but with absolutely no supporting case law or analysis. For example, with respect to Exhibit A, Plaintiff argues as follows: Plaintiff objects to this Exhibit because it does not relate to this Court’s consideration of the jurisdictional issues raised by Defendants in their Motion to Dismiss.

Moreover, it is being offered by Defendants for the truth of the matters asserted therein and therefore cannot be considered by this court at this stage of the proceedings. In addition, it constitutes inadmissible hearsay (Fed.R.Evid. 802); it lacks foundation and has not been properly authenticated (Fed. R.Evid.901); it fails to satisfy the “best evidence” Rule (Fed.R.Evid.1002); and it is not relevant (Fed.R.Evid.402) at this stage - of the proceedings to this Court’s consideration of Defendants’ Motion to Dismiss. (PL’s Mem. Supp.

Mot. to Strike 4.) Aside from the fact that such cursory objections provide insufficient analysis on which their merits may be assessed, Plaintiffs arguments áre entirely improper at this stage of the proceedings. Primarily, as Plaintiff did not oppose the Court’s taking of judicial notice of these documents, his current objections as to authenticity are waived. Moreover, the Court’s judicial notice is limited to what was known and in existence in the public realm at the time and not to demonstrate the truth of everything contained in those documents.

As such, Plaintiffs objections based on hearsay and the “best evidence” rule are premature. Finally, to the extent Plaintiff broadly objects to the documents based on relevancy, the Court must consider the context in which each document is offered in order to determine whether it is relevant. Such an objection is not, at this juncture of the litigation, an appropriate basis on which to exclude an entire document. Ultimately, Plaintiffs argument appears to assume that Defendants’ Motion to Dismiss is being converted into a motion for

summary judgment. This is not the case. The Court considers the Motion to Dismiss under the standards set forth in Federal Rule of Civil Procedure 12(b)(6). By taking judicial notice of the Defendants’ exhibits, the Court does not necessarily accept these documents for the truth of their content: Rather, the Court continues to take the well-pled allegations of the Amended Complaint as true. Therefore, Plaintiffs Motion to Strike and/or Objections is denied in its entirety. III. RULE 12(b)

(6) STANDARD OF REVIEW Under Rule 12(b)(6), a defendant bears the burden of demonstrating that the plaintiff has not stated a claim upon which relief can be granted. Fed. R.Civ.P. 12(b)(6); see also Hedges v. United States, 404 F.3d 744, 750 (3d Cir.2005). In Bell Atl. Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007), the United States Supreme Court recognized that “a plaintiffs obligation to provide the ‘grounds’ of his ‘entitle[ment] to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Id. at 555, 127 S.Ct. 1955.

Following these basic dictates, the Supreme Court, in Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009), subsequently defined a two-pronged approach to a court’s review of a motion to dismiss. “First, the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions. Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id. at 678, 129 S.Ct. 1937.

Thus, although “Rule 8 marks a notable and generous departure from the hyper-technical, code-pleading regime of a prior era ... it does not unlock the doors of discovery for a plaintiff armed with nothing more than conclusions.” Id. at 678-79, 129 S.Ct. 1937.

Second, the Supreme Court emphasized that “only a complaint that states a plausible claim for relief survives a motion to dismiss.” Id. at 679, 129 S.Ct. 1937. “Determining whether a complaint states a plausible claim for relief will, as the Court of Appeals observed, be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense.” Id. A complaint does not show an entitlement to relief when the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct. Id.; see also Phillips v.

Cnty. of Allegheny, 515 F.3d 224, 232-34 (3d Cir.2008) (holding that: (1) factual allegations of complaint must provide notice to defendant; (2) complaint must allege facts suggestive of the proscribed conduct; and (3) the complaint’s “ ‘factual allegations must be enough to raise a right to relief above the speculative level.’ ” (quoting Twombly, 550 U.S. at 555, 127 S.Ct. 1955)). Notwithstanding these new dictates, the basic tenets of the Rule 12(b)(6) standard of review have remained static. Spence v. Brownsville Area Sch. Dist., No. Civ.A. 08-626, 2008 WL 2779079, at *2 (W.D.Pa. July 15, 2008).

The general rules of pleading still require only a short and plain statement of the claim showing that the pleader is entitled to relief and need not contain detailed factual allegations. Phillips, 515 F.3d at 233. Further, the court must “accept' all factual allegations in the complaint as true and view them in the light most favorable to the plaintiff.” Buck v. Hampton Twp. Sch. Dist., 452 F.3d 256, 260 (3d Cir.2006). Finally, the court must “determine whether, under any reasonable reading of the complaint, the plaintiff may be entitled to relief.” Pinker v.

Roche Holdings Ltd., 292 F.3d 361, 374 n. 7 (3d Cir.2002). Notably, however, it is well-established that qui tarn actions brought under the False Claims Act must be pled with particularity under Federal Rule of Civil Procedure 9(b). United States ex rel. Schmidt v. Zimmer, Inc., 386 F.3d 235, 242 n. 9 (3d Cir.2004) (citing United States ex rel. LaCorte v. SmithKline Beecham Clinical Labs., Inc., 149 F.3d 227, 234 (3d Cir.1998)); U.S. ex rel. Budike v. PECO Energy, 897 F.Supp.2d 300, 316-17, 2012 WL 4108910, at *10 (E.D.Pa. Sep. 14, 2012); United States ex rel. Atkinson v. Pa. Shipbuilding Co., No.

Civ.A. 98-7316, 2000 WL 1207162, at *10 (E.D.Pa. Aug. 24, 2000). In order to satisfy this exacting standard, the plaintiff must “plead (1) a specific false representation of material fact; (2) knowledge by the person who made it of its falsity; (3) ignorance of its falsity by the person to whom it was made; (4) the intention that it should be acted upon; and (5) that the plaintiff acted upon it to his damage.” Shapiro v. UJB Fin. Corp., 964 F.2d 272, 284 (3d Cir.1992) (citing Christidis v. First Pa. Mortg. Trust, 717 F.2d 96, 99 (3d Cir.1983)).

The stringency of this requirement stems from the Federal Rules’ goal of: [P]rotect[ing] a defending party’s reputation from harm, to minimize strike suits, and to provide detailed notice of a fraud claim to a defending party. The Rule [9(b) ] also discourages meritless fraud accusations that can do serious damage to the goodwill of a business or a professional person. The requirements of Rule 9(

b) effectively prevent a claimant from searching for a valid claim after a civil action has been commenced. 2 James Wm. Moore et al., Moore’s Federal Practice, § 9.03[l][a] (3d ed. 2002) (citations omitted). Rule 9(

b) commands that “[i]n alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person’s mind may be alleged generally.” Fed.R.Civ.P. 9(b). Pursuant to this heightened pleading standard, plaintiffs must “plead with particularity the ‘circumstances’ of the alleged fraud in order to place the defendants on notice of the precise misconduct with which they are charged, and to safeguard defendants against spurious charges of immoral and fraudulent behavior.” Seville Indus. Mach. Corp. v. Southmost Mach.

Corp., 742 F.2d 786, 791 (3d Cir.1984). This standard requires a description of the “ ‘who, what, when, where and how’ of the events at issue.” In re Rockefeller Ctr. Props., Inc. Secs. Litig., 311 F.3d 198, 217 (3d Cir.2002) (internal quotation marks and citation omitted). Rule 9(

b) is generally considered satisfied when a defendant has “fair notice” of the charges against it. United States v. Kensington Hosp., 760 F.Supp. 1120, 1126 (E.D.Pa.1991). IY. MERITS OF DEFENDANTS’ MOTION TO DISMISS Defendants now move to dismiss the entirety of Plaintiffs Amended Complaint on three broad grounds. First, they com tend that Plaintiff cannot plead the elements of a cause of action under the False Claims -Act.

Second, they argue that Plaintiffs attempts to broaden the scope of his complaint to plead “nationwide” FCA violations fail to allege fraud with particularity as required by Federal Rule of Civil Procedure 9(b). Finally, Defendants assert that Plaintiffs suit is barred in its entirety by the False Claims Act’s Public Disclosure Provision. .The Court addresses each argument in turn. A. Whether Plaintiff Pleads the Elements of a Cause of Action under the False Claims Act Plaintiffs Amended Complaint centers on the False Claims Act (“FCA”), 31 U.S.C. § 3729, et seq. (1994).

The False Claims Act enables the government to recover losses it has incurred as a result of fraud. United States v. Educ. Mgmt. Corp., 871 F.Supp.2d 433, 445-46 (W.D.Pa.2012). “Its roots can be traced to the Civil War, when it was enacted in response to contractors who sold faulty weaponry, rancid food and unseaworthy ships to the government.” Id.

Because of the difficulty in having the government discover and prosecute all potential violations, the False Claims Act “provides a qui tam enforcement mechanism, which allows a private party (i.e., a relator) to bring a lawsuit on behalf of the government and against an entity to recover money the government paid as a result of fraudulent claims.” Id. (quotations omitted). In return, relators, may keep a percentage of the proceeds from any judgment or settlement in their cases. Id. The Amended Complaint in this case appears to allege violations of three separate sections of the FCA.

These sections provide that a person is liable to the United States government when that person: “knowingly presents, or causes to be presented, to an officer or employee of the United States Government ... a false or fraudulent claim for payment or approval,” 31 U.S.C. § 3729(a)(1); “knowingly makes, uses, or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the Government,” 31 U.S.C. § 3729(a)(2); and “knowingly makes, uses, or causes to be made or used, a false record or statement to conceal, avoid, or decrease an obligation to pay or transmit money or property to the Government.” 31 U.S.C. § 3729(a)(7).

Defendants now set forth four separate arguments for dismissal of these causes of action: (

a) Plaintiff cannot plead falsity as a matter of law under 31 U.S.C. § 3729(a)(1); (

b) Plaintiffs 31 U.S.C. § 3729(a)(2) claim fails to allege that Care-mark submitted or caused to be submitted a “claim” to the Government “to get” a claim paid; (

c) any FCA conspiracy claim, under 31 U.S.C. § 3729(a)(3), fails as a matter of law; and (

d) Plaintiffs reverse false claims cause of action, under 31 U.S.C. § 3729(a)(7), fails as a matter of law. The Court individually considers each argument. 1. Whether Plaintiff Properly Pleads Falsity for Purposes of Subsection (a)(1) “A plaintiff, in order to establish a prima facie FCA violation under

section 3729(a)(1), must prove that ‘(1) the defendant presented or caused to be presented to an agent of the United States a claim for payment; (2) the claim was false or fraudulent; and (3) the defendant knew the claim was false or fraudulent.’ ” United States ex rel. Wilkins v. United Health Grp., Inc., 659 F.3d 295, 305 (3d Cir.2011) (quoting United States ex rel. Schmidt v. Zimmer, Inc., 386 F.3d 235, 242 (3d Cir. 2004); Hutchins v. Wilentz, Goldman & Spitzer, 253 F.3d 176, 182 (3d Cir.2001)). Defendants’ primary argument in favor of dismissal focuses on the second element— falsity — which, as noted above, must be pled with particularity under Rule 9(b). An allegation under this

section of the FCA may proceed under two theories: (1) a legally false claim under the false certification theory and (2) a worthless services theory. See In re Genesis Health Ventures, Inc., 112 Fed.Appx. 140, 143 (3d Cir.2004) (recognizing various theories); Wilkins, 659 F.3d at 305 (referencing a legally false claim theory and a factually false claim theory, which is comparable to worthless services). Plaintiff, in this matter, puts forth allegations under both of these theories and the Court addresses them separately. a.

False Certification Theory The crux of Plaintiffs’ FCA allegations focus on legally false claims. “A legally false FCA claim is based on a ‘false certification’ theory of liability.” Wilkins, 659 F.3d at 305. “[C]ourts have recognized that there are two types of false certifications, express and implied.” Id. (citations omitted). “Under the ‘express false certification’ theory, an entity is liable under the FCA for falsely certifying that it is in compliance with regulations which are prerequisites to Government payment in connection with the claim for payment of federal funds.” Id. (citations omitted).

In addition, there is an “implied false certification” theory which occurs “when a claimant seeks and makes a claim for payment from the Government without disclosing that it violated regulations that affected its eligibility for payment.” Id. In other words, it “is premised ‘on the notion that the act of submitting a claim for reimbursement itself implies compliance with governing federal rules that are a precondition to payment.’ ” Id. (quoting Mikes v. Straus, 274 F.3d 687, 699 (2d Cir.2001)).

The Third Circuit, however, has cautioned that “the implied certification theory of liability should not be applied expansively, particularly when advanced on the basis of FCA allegations arising from the Government’s payment of claims under federally funded health care programs.” Id. at 307. “Thus, under this theory a plaintiff must show that if the Government had been aware of the defendant’s violations of the Medicare laws and regulations that are the bases of a plaintiffs FCA claims, it would not have paid the defendant’s claims.” Id.

Plaintiff alleges that he has sufficiently pled that Defendants submitted,'or caused to be submitted, claims for payment that are false under the FCA. In particular, he asserts that Defendants are required, as a condition of payment under the Part D Program, to certify that the PDE’s they submit are “true, accurate, and complete,” “based on best knowledge information and belief.” 42 C.F.R. § 423.505(k)(

l) and (3). Yet, Defendants knowingly submitted false and inaccurate Medicare Part D PDEs to Medicare in violation of both their express certifications and Medicare Regulations that condition payment on the submission of true, accurate, and complete PDEs. (Am. Compl. ¶¶ 99, 101, 136, 139-47, 334-35.) Defendants’ alleged false certification that each PDE was “true, accurate, and complete,” in violation of this condition of payment, rendered the claims they submitted false under the FCA. Defendants’ offer a three-fold argument for dismissal of this claim.

First they assert that 42 C.F.R. § 423.505(k) — requiring that PDEs be certified as “true, accurate, and complete” — does not apply to PBMs as a condition of payment that can form the basis of a False Claims Act violation. Second, even if this regulation were to apply to PBMs, Defendants assert that none of the individual violations allegedly committed by Defendants involve “data related to payment” within the confines of this section. Finally, assuming arguendo both that 42 C.F.R. § 423.505(

k) is a condition of payment applicable to PBMs and the errors by Defendants involve data related to payment, Plaintiff has not pled that Defendants submitted any false, inaccurate, or incomplete data. The Court first considers the definition of a “condition of payment and then addresses the substance of Defendants’ three arguments. i. What is a Condition of Payment?

The United States Court of Appeals for the Third Circuit has held that the False Claims Act was not designed for use as a “blunt instrument” to enforce compliance with all medical regulations— but rather only those regulations that are a precondition to payment. Wilkins, 659 F.3d at 307. A violation concerns a “condition of payment” if such violation “might cause [the government] to actually refuse payment.” Id (citing United States ex rel. Conner v. Salina Reg’l Health Ctr., Inc., 543 F.3d 1211, 1220 (10th Cir.2008)). Notably, conditions of payment are not the equivalent of conditions of participation.

The regulations define “Conditions of Participation” as “the requirements providers ... must meet to participate in the Medicare program....” 42 C.F.R. § 488.1. “Conditions of Participation are quality of care standards directed towards an entity’s continued ability to participate in the Medicare program rather than a prerequisite to a particular payment.” U.S. ex rel. Landers v. Baptist Mem’l Health Care Corp., 525 F.Supp.2d 972, 978 (W.D.Tenn.2007).

A legally false certification of compliance with a statute or regulation cannot form a viable FCA cause of action unless payment is expressly conditioned on that certification. United States ex rel. Schmidt v. Zimmer, Inc., 386 F.3d 235, 243 (3d Cir.2004) (“[A] false certification of compliance creates liability when certification is a prerequisite to obtaining a government benefit.”); United States ex rel. Willard v.

Humana Health Plan of Tex., Inc., 336 F.3d 375, 381 (5th Cir.2003) (“The False Claims Act does not create liability merely for a healthcare provider’s disregard of government regulations or improper internal policies unless, as a result of such acts, the provider knowingly asked the government to pay amounts it does not owe.” (citation omitted)).

Rather, as stated by the Third Circuit, “under [the false certification] theory a plaintiff must show that if the Government had been aware of the defendant’s violations of the Medicare laws and regulations that are the bases of a plaintiffs FCA claims, it would not have paid the defendant’s claims.” Wilkins, 659 F.3d at 307. Absent this requirement, the FCA could turn “into ‘a blunt instrument to enforce compliance with all ... regulations’ rather than ‘only those regulations that are a precondition to payment.’ ” Id (quotations omitted). ii.

Whether Defendants are Required as a Condition of Payment Under the Part D Program, to Certify that the PDEs They Submit are True, Accurate, and Complete Plaintiffs false certification theory alleges that Defendants’ non-compliance with 42 C.F.R. § 423.505(

k) was a condition of payment on which an FCA claim may be based. This provision, entitled “Certification of data that determine payments,” provides, in pertinent part, as follows:

(1) General rule. As a condition for receiving a monthly payment under ' subpárt G of this part (or for fallback entities, payment under subpart Q of this part), the Part D plan sponsor agrees that its chief executive officer (CEO), chief financial officer (CFO), or an individual delegated the authority to . sign on behalf of one of these officers, and who reports directly to the officer, must request payment under the contract on a document that certifies (based on best knowledge, information, and belief) the accuracy, completeness, and truthfulness of all data related to the payment.

The data may include enrollment information, claims data, bid submission data, and other data that CMS specifies.

(3) Certification of claims data. The CEO, CFO, or an individual delegated with the authority to sign on behalf of one of these officers, and who reports directly to the officer, must certify (based on best knowledge, information, and belief) that the claims data it submits under § 423.329(b)(3) (or for fall back entities, under § 423.871(f)) are accurate, complete, and truthful and acknowledge that the claims data will be used for the purpose of obtaining Federal reimbursement.

If the claims data are generated by a related entity, contractor, or subcontractor of a Part D plan sponsor, the entity, contractor, or subcontractor must similarly certify (based on best knowledge, information, and belief) the accuracy, completeness, and truthfulness of the data and acknowledge that the claims data will be used for the purposes of obtaining Federal reimbursement. 42 C.F.R. § 423.505(k)(l) & (3) (emphasis added). Defendants now reason that

section 423.505(k)(

l) only makes it a “condition of payment” for the Part D Plan Sponsor to certify that all data related to a requested payment from the government be accurate, truthful, and complete.

Caremark, however, was the PBM, a, subcontractor of a Part D sponsor and, thus, was bound only by subsection (k)(3), which simply stated that a PBM must “similarly certify” the accuracy, completeness, and truthfulness of the data and “acknowledge that the claims data will be used for the purposes of obtaining Federal reimbursement.” Because that subsection does not include the “condition of payment language,” the canon of construction expressio unius est ex-clusio alterius requires a finding that the “condition of payment” language was not meant to apply to subsection (k)(3).

In turn, Defendants conclude that because a PBM’s improper certification under subsection (k)(3) is not-a condition of payment, it cannot serve as a basis for an FCA cause of action. The Court, however, must disagree with Defendants’

interpretation. While Defendants correctly observe that subsection (k)(3) does not use the “condition of payment” language, it is a well-established principle that “the text of a statute must be considered in the larger context or structure of the statute in which it is found.” Alli v. Decker, 650 F.3d 1007, 1012 (3d Cir.2011) (quotations omitted). Subsection (k) — under which both subsections (k)(

l) and (k)(3) are found — is entitled “Certification of data that determine payments.” It logically follows then that all subparts to this heading necessarily relate to certifications that “determine” or, potentially, are a “condition” of payment, even if those subparts do not specifically use such terms. Reading the three ensuing subparts of subsection (

k) together reveals that, as a condition for receiving payment, a Part D sponsor must certify the accuracy, completeness, and truthfulness of all data, including claims data, related to the requested payment from the government. When that claims data is generated by a subcontractor of a Part D Sponsor, such as a PBM, the subcontractor must similarly certify, as a condition of payment, the truthfulness, accuracy, and completeness of the data. This

interpretation finds support in CMS’s Prescription Drug Benefit Manual.

Section 80. 1, entitled “The False Claims Act,” specifically references

section 423.505(k)(3) and provides as follows: 80.1 — The False Claims Act Sponsors should devise their compliance programs so that their policies and procedures are consistent with the Federal Civil False Claims Act ... When submitting claims data to CMS for payment, Sponsors and their subcontractors must certify that the claims data is true and accurate to the best of their knowledge and belief [footnote referencing

section 423.505(k)(3) ]. The False Claims Act is enforced against any individuallentity that knowingly submits (or causes another individual/entity to submit) a false claim for payment to the Federal government. (CMS Prescription Drug Benefit Manual,

Chapter 9-Part D Program to Control Fraud, Waste and Abuse (“CMS Prescript Drug Benefit Manual

Chapter 9”), at 67, § 80.1 (footnotes omitted).) The plain import of this language suggests that

Section 423.505(k)(3) was designed precisely to make a subcontractor’s certification of the truthfulness, accuracy, and completeness of claims data a condition of payment. Further, it indicates that false certification by a subcontractor of this information, which “causes” the Part D Sponsor to submit a false claim for payment to the government, is grounds for an FCA claim. Finally, the Court’s reading of this provision finds guidance from the decision in United States v. Merck-Medco Managed Care, L.L.C., 336 F.Supp.2d 430 (E.D.Pa.2004).

In that case, relators and United States brought action under the FCA, Public Contracts Anti-Kickback Act (“AKA”), and common law alleging that the pharmacy benefit manager had defrauded United States by billing for services not rendered, fraudulently avoiding contractual penalties, fraudulently inducing physicians to authorize drug switches, and favoring one pharmaceutical manufacturer over other manufacturers. Id. at 433-34.

Confrohting a challenge to the “falsity” element of the FCA claim in the context of a motion to dismiss, the court remarked that “[t]he FCA reaches ‘all fraudulent attempts to cause the Government to pay out sums of money.’ ” Id. at 438 (quoting Hutchins, 253 F.3d at 183). It went on to note that Medco [the PBM] billed Blue Cross [the ' sponsor and health insurér] and hence the Government for services it was required to render in accordance with its contract and with state law — any claims submitted that do not fulfill these prerequisites are false.

In some cases, such as the drug shorting allegations, Medco allegedly billed for products that it simply did not provide. ' If the allegations are true, these bills could form the basis of a false claim. Moreover, Medco was required to submit certifications of its performance which were used to assess contractual penalties and to determine whether its contract with Blue Cross would be renewed. To the extent that these certifications were false, they could have fraudulently induced Blue Cross to renew its contract with Medco. Id. at 439. Although this case did not touch on the

interpretation of

section 423.505(k), its reasoning makes clear that governmental regulations and conditions of payment on a Medicare Part D plan sponsor may be similarly imposed upon the sponsor’s subcontracting PBM via the relevant contract between the sponsor and PBM for .purposes of the FCA. Specifically, in this matter, by improperly certifying the truthfulness, accuracy, and completeness of its claims data to the MCS, Defendants — like the defendants in Merck-Medco — caused MCS to improperly submit requests for payment to the Government that were not true. In other words, even though the “condition of payment” language in subsection (k)(

l) only applies to MCS as the Part D Plan Sponsor, Defendants’ improper certification fraudulently caused MCS to seek payment from the Government, thereby making Defendants liable. Defendants attempt to counter this reasohing' by relying on the Third Circuit decision in United States ex rel. Wilkins v. United Health Group, 659 F.3d 295 (3d Cir.2011), a qui tarn, False Claims Act case in which the relators alleged that their employer had knowingly, violated several Medicare marketing regulations. Id. at 300.

Proceeding under an implied certification theory, the Third Circuit cautioned that it “should not be applied expansively, particularly when advanced on the basis of FCA allegations arising from the Government’s payment of claims under federally funded health care programs.” Id. at 307. It held that the alleged violations of Medicare marketing regulations were not conditions of payment, but rather conditions of participation. Id. at 309.

The court further noted that the relators had failed to cite to any regulation demonstrating that a participant’s compliance with Medicare marketing regulations was a condition for its receipt of payment from the government. Id. at 309-10. Indeed, the court found that while the government considered substantial compliance with marketing regulations a condition of ongoing participation, it did not require .absolute compliance for receiving Medicare payments for services rendered. Id. at 310. The present case, however, is distinguishable from Wilkins on -several grounds.

First, PDE records, which are used by CMS for payment purposes are simply not analogous to Medicare marketing regulations. Moreover, the FCA claim in this case is not premised on noncompliance with the PDE requirements, but rather the false certification of compliance. Under 42 C.F.R. § 423.505(k). Indeed, as indicated above, CMS’s Prescription Drug Benefit Manual specifically envisions False Claims Act liability for the certification and submission of inaccurate or false PDE data.

In the absence of such liability, a subcontractor to a Part D Sponsor — in this case, Defendants — “would be virtually unfettered in its ability to receive funds from the government while flouting the law.” United States v. Educ. Mgmt. Corp., 871 F.Supp.2d 433, 457 (W.D.Pa.2012). In short, the Court finds that when properly interpreted, 42 C.F.R. § 423.505(

k) makes proper certification of data a “condition of payment.” In turn, failure of either a Part D Plan sponsor or the Sponsor’s subcontractor to submit accurate, complete, and truthful data related to payment may give rise to an FCA claim. Accordingly, the Court rejects this portion of Defendants’ argument. iii. Whether Any of the Allegedly False Data Submitted by Defendants Was “Data Related to Payment” Under 42 C.F.R. § 423.505(

h) Having found that

section 423.505(k)(

l) is a condition of payment that applies to Defendants, the Court must next consider whether any of the allegedly false data submitted by Defendants was data “related to payment,” and thus within the confines of this provision. They contend that only four of the thirty-seven data fields on a PDE record are actually used to determine payment.

In support of this proposition, Defendants cite only to the Amended Complaint, wherein Plaintiff alleges that: CMS specifically relies upon and uses the following PDE cost and payment fields in its year end reconciliation: gross drug cost above out-of-pocket threshold, gross drug cost below out-of-pocket threshold, low-income, cost-sharing subsidy, and covered D Plan paid amount (the four PDE data elements). The Sponsor, or its PBM calculates the four data elements from the point-of-sale claims data submitted by the pharmacy using instructions provided by CMS. (Am. Compl. ¶ 127.).

Because the six alleged defects in the PDE records submitted by Defendants have nothing to do with payment, Defendants’ certification of this purportedly false data does not, according to Defendants, fall within the bounds of § 423.505(k). In turn, Defendants contend that it cannot form the basis of a False Claims Act violation. Defendants’ argument, however, is misplaced in several respects. First, to the extent Defendants rely on paragraph 127 of the Amended Complaint, their reliance is faulty.

Plaintiff does not attempt, in this paragraph, to define “data related to payment.” Rather, the cited paragraph simply defines some of the information CMS relies upon in its year-end reconciliation. At no point does Plaintiff attempt to provide a comprehensive list of data related to determining the monthly subsidy payments sent to Part D Sponsors. More importantly, this Court’s own review of the regulations and administrative materials reveals that “data relating to payment” has a far more expansive meaning than that proposed by Defendants. As set forth above, Sections 423.505(k)(

l) and (k)(3) require that a Part D plan sponsor and its subcontractors certify “the accuracy, completeness, and truthfulness of all data related to the payment.” 42 C.F.R. § 423.505(k)(l) (emphasis added). This

section goes on to state that “[t]he data may include enrollment information, claims data, bid submission data, and other data that CMS specifies.” Id. While “data relating to payment” is not otherwise defined in this section, reference to other sections within this part of the regulations provides some guidance. Subpart G of

Part 423 of the Medicare Regulations- — under which § 423.505(

k) falls — is entitled, “Payments to Part D Plan Sponsors for Qualified Prescription Drug Coverage.” Within the confines of this title, 42 C.F.R. § 423.322 discusses the “Requirement for Disclosure of Information” and states, in pertinent part, that “Payments to a Part D sponsor are conditioned upon provision of information to CMS that is necessary to carry out this subpart, or as required by law.” Id. § 423.322(a) (emphasis added).

CMS’s Instructions for submission of Part D prescription PDE claims data then clarify § 423.322 and confirm that “information ... necessary to carry out this subpart” includes the data elements of a PDE. These Instructions state, in pertinent part, as follows: As a condition of payment, all Part D plans must submit data and information necessary for CMS to carry out payment provisions (§ 1860D15(e)(l)(

C) and (d)(2) of the Act, and 42 CFR § 423.322). This document describes how CMS will implement the statutory payment mechanisms by collecting a limited subset of data elements on 100 percent of prescription drug “claims” or events. We describe the required data submission per event, the mode and frequency of submission, and how the data will be used to make payment and conduct reconciliation. These requirements apply to all Part D plans as defined in § 423.401 unless separate instructions are issued. Much of the data, especially dollar fields, will be used primarily for payment.

However, some of the other data elements such as pharmacy and prescriber identifiers will be used for validation of the claims as well as for other legislated functions such as quality. (CMS Instructions, at intro (emphasis added).)

Section 1.1 of these Instructions goes on to note that: For each dispensing event, the plan must submit a prescription drug event or PDE record. Most organizations or sponsoring entities will use a pharmacy benefit manager (PBM) or other third party administrator to process incoming claims from pharmacies. Claims typically undergo several rounds of transactions between these parties before the plan finally adjudicates a claim for payment. The PDE is a

summary record that documents the final adjudication of a dispensing event.

Section 2 lists the required set of data elements for all PDE records (15 data elements from the NCPDP billing transaction, 5 data elements from the NCPDP billing response transaction, and 17 data elements defined by CMS for purposes of administering Part D, for a total of 37 data elements). (Id. § 1.1.) Finally,

Section 2 goes on to list the thirty-seven data elements “that must be submitted on PDE records for payment.” Id. (emphasis added). In light of such materials, it becomes abundantly obvious that, contrary to Defendants’ belief, 42 C.F.R. § 423.505(k)(l)’s reference to “data related to payment” includes all thirty-seven data fields on a PDE record. This is, of course, not to say that such data fields are “conditions of payment,” such that submission of these records with incomplete or inaccurate data automatically gives rise to a violation of the False Claims Act.

Rather, it is the act of certifying the truth, accuracy, and completeness of these fields under § 423.505(k)(l) & (3) when such data is not actually truthful, accurate, or complete, that gives rise to a False Claims Act cause of action. Plaintiffs Amended Complaint asserts that Defendants falsely and/or inaccurately identified the physicians who wrote the prescriptions to Medicare beneficiaries (fields 12 and 13). (Am.

Compl. ¶¶ 271-88.) Further, it claims that Defendants falsely and/or inaccurately inflated the cost that the Part D Plan incurred for the prescription drugs being dispensed (field 28). (Id. ¶¶ 315-18.) The Amended Complaint goes on to allege that, in violation of

Section 423.505(k), Defendants then falsely certified the truth, accuracy, completeness of those data fields. Such allegations give rise to a proper claim under the False Claims Act. iv. Whether Plaintiff Has Adequately Pled that Any Statements on the PDE’s were False In a last ditch effort to establish that Plaintiff has failed to plead “falsity” for purposes of the FCA, Defendants contend that Plaintiff does not adequately plead how Defendants’ PDE submissions were false. Specifically, Defendants contend that “[e]ven if 42 C.F.R. § 423.505(k)(

l) did apply here, and even if it applied to all data rather than just ‘data related to payment,’ it addresses certification ‘based on best knowledge, information, and belief to the ‘accuracy, completeness, and truthfulness’ of the data.” (Defs.’ Reply Br. 12.) They go on to note that out of the six fraud allegations raised by Plaintiff, the only two that suggest that any data was inaccurate, incomplete, or untrue are his Maximum Allowable Cost (“MAC”) pricing and provider identifier claims. (Id.) Defendants now assert that the Amended Complaint fails to plead falsity in these fields.

The Court now considers each of these allegations individually. a. Maximum Allowable Cost Pricing According to the Amended Complaint, “Maximum Allowable Cost” or “MAC” pricing means the unit price established by Defendant SilverScript for a generic drug included in Defendant SilverScript’s MAC list. (Am.

Compl. ¶ 315.) The PDE reports require that the following three data elements that relate to the cost of the drugs dispensed be included in the report: Field 27 (Ingredient Cost Paid); Field 28 (Dispensing Fee); and Field 29 (Sales Tax). (Id ¶¶ 162, 332.) The audit found that SilverScript “fraudulently failed to apply MAC pricing to all of the MAC drugs.” (Id ¶ 316.) According to Plaintiff, this intentional and fraudulent failure to apply MAC pricing caused both the Part D beneficiary to pay a higher co-pay and the Plan to report higher Part D costs to CMS. (Id ¶ 318.) Defendants contend that Plaintiff does not and cannot plead that the costs that Defendants allegedly reported in the PDE data were not the costs that MCS actually paid.

They reason that there can be no falsity when a PBM reports the price actually charged, even if that price is different from or higher than a list of MAC pricing, especially because MAC pricing is strictly a private contractual arrangement between a Part D Sponsor and a PBM. Moreover, the government is prohibited by statute from requiring particular price structures. 42 U.S.C. § 1395w-lll(i), meaning it could not find any falsity in the non-application of MAC pricing by a PBM.

Thus, the remedy for a PBM charging a price allegedly in violation of a contract with a Part D Sponsor is not an FCA claim, but for the Part D Plan sponsor to sue the PBM for breach of contract. (Defs.’ Reply Br. 11.) At this juncture of the litigation, and taking Plaintiffs allegations as true, the Court must reject Defendants’ argument. 42 C.F.R. § 423.104 requires that a Part D Plan sponsor — in this case MCS — “provide its Part D enrollees with access to negotiated prices for covered Part D drugs included in its Part D plan’s formulary.” 42 C.F.R. § 423.104(a).

While this provision clearly applies to the Part D sponsor, the Part D sponsor then places a similar obligation on the PBM by contracting with the PBM for MAC pricing on certain Part D drugs. (Am. Compl. ¶ 315.) - The regulations, in turn, require that the PDE report list the ingredient cost paid, dispensing fee and sales tax. (Am. Compl. ¶¶ 162, 332.) When the PBM inaccurately charges above the negotiated MAC pricing to beneficiaries', that reported pricing information can be deemed “inaccurate” since the negotiated prices were not provided to Part D enrollees.

Because such information regarding cost is generated by the PBM; the PBM must certify the truth, accuracy, and completeness of that information. 42 C.F.R. § 423.505(k)(3). That PDE is then submitted to CMS to allow for payment on the claim and results in CMS unknowingly paying higher than the required “negotiated prices” required to be provided to beneficiaries under 42 C.F.R. § 423.104. In short, by charging above MAC pricing, reporting such pricing on a PDE, and certifying the accuracy of that pricing, a PBM can be deemed to be submitted to the government a claim for payment that is false.

Nor does Defendants’ reliance on 42 U.S.C. § 1395w-lll(

i) allow it to dodge this outcome.

Section 1395w-lll(

i) states: In order to promote competition under this part and in carrying out this part, the Secretary— (1) may not interfere with the negotiations between drug manufacturers and pharmacies and PDP sponsors; and (2) may not require a particular formulary or institute a price structure for the reimbursement of covered part D drugs. 42 U.S.C.A. § 1395w-lll.

Defendants argue that because the government is prohibited from requiring particular price structures for the reimbursement of covered Part D drugs and from interfering with Part D Sponsors’ pricing negotiation, compliance with MAC pricing could not possibly be a condition of payment imposed by the government. (Defs.’ Mem. Supp. Mot.

Dismiss 18.) This argument, however, again misunderstands the applicable “condition of payment.” While the government may not impose “particular” pricing structures and may not “interfere with negotiations” between sponsors and PBMs, the government does require that any negotiated pricing be provided by the Part D sponsor, through the PBM, to beneficiaries. 42 C.F.R. § 423.104. When a PBM certifies its pricing information on a PDE record, it implicitly certifies that it has provided this negotiated pricing to beneficiaries.

That certification — not the negotiated price itself — is, as discussed in detail above, a condition of payment. When that certification is false, it causes both beneficiaries and CMS to pay out higher costs and, in turn, violates the False Claims Act. Ultimately, the question remains whether CMS, who has born the cost of the alleged falsity, would deem the prescriptions valid for purposes of the False Claims Act despite the fact that the negotiated rate was not provided to the beneficiaries or the government.

Based on the information presently of record, however, the Court errs on the side of not dismissing this claim. b. Physician Identifícation Numbers In addition to the false pricing information, the Amended Complaint alleges that Defendants knowingly submitted, or caused the submission of, numerous PDEs that falsely and/or inaccurately identified the physicians who wrote the prescriptions reflected in those claims.

Specifically, the Amended Complaint states as follows: 271.Pharm/DUR’s analysis demonstrated that the Caremark Defendants fraudulently paid claims where fictitious physician identifi- ers (including “Physician Push Numbers” or other obviously incorrect numbers) were used to populate PDE Fields 12 and 13 and to adjudicate the Part D claim. 272. Physician “push” numbers are fictitious physician identifiers created by inserting a random alphanumeric data of the appropriate number of characters where PDE data element No. 13 belonged on the electronic PDE record.

The most commonly used “push number” or false physician identifier used was “AA00000000,” which Defendant Caremark fraudulently, knowingly and recklessly permitted to occupy Field 13 on 4,360 claims involving 993 members. 273. The creation of these false identifier numbers also caused PDE claims, particularly Field No. 12, the “Prescriber ID Qualifier,” which describes the type of identifier (for example, DE

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