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Third Circuit Clarifies the Public Disclosure Bar in United States ex rel. Silver v. PharMerica

Posted  September 7, 2018

Whistleblower Marc Silver secured a victory from the Third Circuit on September 4, 2018, which held that his action was not blocked by the “public disclosure bar” of the False Claims Act, reversing a lower court that had dismissed his action. The Third Circuit’s opinion appropriately recognizes that a whistleblower can use non-public information as a bridge between public information and allegations of fraud, without triggering the public disclosure bar.

Although Silver’s complaint included publicly available information, his personal knowledge of non-public information about defendant PharMerica’s pricing was critical to his allegations of fraudulent conduct. The Third Circuit recognized that “where the public information – standing alone – could not have reasonably or plausibly supported an inference that the fraud was in fact occurring,” the relator had “relie[d] upon non-public information to make sense of publicly available information.”

In his complaint, Silver alleged that PharMerica, an owner of pharmacies that service nursing homes, violated the Anti-Kickback Statute and False Claims Act by engaging in “swapping.” Swapping is a practice whereby pharmacies (or other entities) offer discounted prices to nursing homes to serve Medicare Part A patients in exchange for nursing homes referring Medicare Part D patients to the pharmacies. The incentive for the pharmacies to “swap” is based on the payment structure for nursing home patients in Medicare Parts A and D. Under Medicare Part A, the government pays the nursing homes on a flat per-diem basis per patient regardless of how many treatments or drugs any patient needs. Under Medicare Part D, a pharmacy is directly reimbursed by the government for pharmaceuticals it dispenses to patients. Therefore, the “swapping” relationship is mutually beneficial for the two entities because the nursing homes receive a discount on pharmaceuticals from the pharmacies to provide to their Part A patients and the pharmacies receive more Medicaid or Part D patients from the nursing homes to dispense drugs to and be directly reimbursed at higher rates.

Silver alleged that the discounts PharMerica gave nursing homes on pharmaceuticals for Part A patients constituted remuneration in exchange for referrals under the Anti-Kickback Statute. Silver’s allegations were based partially on public documents including HHS and OIG memoranda and PharMerica financial statements and – critically – on non-public information Silver had, including non-public contracts and his own knowledge of PharMerica’s per diem rates under Medicare Part A.

The District Court in New Jersey had granted PharMerica’s motion for summary judgment, finding that Silver’s allegations were barred under the False Claims Act’s public disclosure bar. The public disclosure bar serves the purpose of preventing parasitic lawsuits by requiring dismissal of actions “if substantially the same allegations or transactions as alleged in the action or claim were publicly disclosed,” unless the whistleblower was the original source of the public disclosure in question.

In reversing the District Court and permitting the whistleblower’s case to proceed, the Third Circuit’s opinion advances the policy of the False Claims Act, encouraging whistleblowers to come forward with non-public information. The decision is an important contribution to the case law interpreting the public disclosure bar. For other articles discussing this topic, see: Fourth Circuit 2015; Ninth Circuit 2015; Third Circuit 2016; Fourth Circuit 2016; Eighth Circuit 2017.

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Tagged in: Anti-Kickback and Stark, Court Decision, FCA Federal, Healthcare Fraud, Medicaid, Part D, Pharma Fraud, Public Disclosure and Public Information,