May 31, 2017

Eighth Circuit Rules That Public Disclosure Bar Applies in Drug Price Inflation Suit

By Hallie Noecker

Early this month, the U.S. Court of Appeals for the Eighth Circuit declined to revive a whistleblower’s False Claims Act (FCA) suit, ruling that prior litigation and government reports triggered the statutory public disclosure bar, even though the public disclosures at issue did not mention the defendants in the case. The case, United States ex rel. Lager v. CSL Behring. LLC, concerned fraud in the prescription drug context.

The FCA’s public disclosure bar prevents whistleblowers from pursuing an action and recovering an award when the fraud was previously disclosed in certain ways—such as by the media—unless the whistleblower was the original source of the information. Although the contours of the public disclosure bar are often nuanced and fact-specific, the bar’s overall aim is to encourage whistleblowers with new and helpful allegations to come forward, while disqualifying parasitic or repetitive actions.  In this case, the appellate court agreed with the lower court, finding whistleblower Shane Lager’s allegations fell into the latter camp.

In the underlying action, Lager alleged that drug manufacturer CSL Behring and pharmacies Accredo Health, Inc. and Coram LLC conspired to submit false claims by inflating wholesale prices of two durable medical equipment (DME) infusion drugs.  Lager’s suit alleged that CSL, his former employer, inflated its reported average wholesale prices (AWPs) for the drugs to increase the “spread” between the  drugs’ respective AWPs and actual average sale prices (ASPs), thus increasing payments from the government. According to the suit, defendants induced the government to overpay them by $280 million through the scheme.

But the lower court dismissed Lager’s suit, finding that multiple government and media sources had previously disclosed that AWPs do not reflect actual drug prices, and that, in general, drug-makers use the drug pricing spreads to their advantage. The court also noted that the issue was litigated and yielded a 2007 Massachusetts federal court decision. And with respect to the specific drugs at issue, the court pointed to government and third-party publications that collectively contained each drug’s ASP and AWP from 2007 to 2013, finding this publicly-available data demonstrated the “significant spread” between the two pricing figures.

On appeal, the Eighth Circuit rejected Lager’s claim that the public disclosure bar could not apply because the disclosures did not identify the defendants or the fraud. With respect to identifying the defendants, the appellate court found that, “viewed collectively,” the disclosures “‘set the government squarely on the trail’ of the defendants’ participation in the purported fraudulent reporting of prices for DME infusion drugs.” And as for the fraud, the court concluded that “all elements critical to Lager’s complaint theory were already in the public domain before Lager brought suit.”

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