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United State of America and the States of Florida and Illinois Ex Rel. v. Omnicare

March 21, 2011


The opinion of the court was delivered by: The Honorable Amy J. St. Eve


AMY J. ST. EVE, District Court Judge:

Qui tam plaintiff Maureen Nehls ("Relator") filed a Fifth Amended Complaint ("FAC") on December 21, 2010 against defendant Omnicare, Inc. ("Omnicare") and individual defendants Morris Esformes and Philip Esformes (collectively, "Defendants"). Defendant Philip Esformes (hereinafter, "Defendant") moves to dismiss the FAC pursuant to Federal Rule of Civil Procedure 12(b)(6). For the following reasons, the Court denies Defendant's motion.


Relator brings this qui tam action on behalf of the United States and the States of Illinois and Florida and alleges that Defendants violated the False Claims Act, 31 U.S.C. § 3729 et seq. ("FCA"), the Illinois Whistleblower Reward and Protection Act, 740 ILCS 175/1 et seq. ("IWRPA"), the Florida False Claims Act, Fla. Stat. § 68.081 et seq. ("Florida FCA"), and the Illinois Insurance Claims Fraud Prevention Act, 740 ILCS 92/1 et seq. ("ICFPA"). Relator alleges that Defendant Omnicare, in conspiracy with father and son Defendants Morris and Philip Esformes, violated the federal anti-kickback statute, 42 U.S.C. § 1320(a)-7(b)(b), when it purchased Total Pharmacy Services, LLC ("Total Pharmacy") -- in which Defendant held a 40% ownership stake -- for $25 million on June 30, 2004. Relator alleges that Omnicare knowingly paid, and Defendant and Morris Esformes knowingly received, an illegal kickback in that transaction. Because of that illegal kickback, Relator alleges, Omnicare (via its newly-purchased Total Pharmacy) secured valuable long-term contracts with nursing homes owned or controlled by Defendant Morris Esformes. Those contracts provided Omnicare with a captive population of thousands of elderly and disabled customers for its pharmacy services business.

Through its pharmacy services business, Omnicare contracts with the federal government, the State of Illinois, and the State of Florida to provide pharmaceuticals to its customers. Pursuant to those contracts, the governments reimburse Omnicare for its services at specified rates. In order to be eligible to receive those reimbursements, Omnicare must enter into agreements with the governments and certify that it complies with certain Federal and State laws and regulations, including the federal anti-kickback statute ("AKS"). Omnicare must also certify that it complies with the AKS in order to receive reimbursement for its services. Relator specifically alleges that in Florida and Illinois, "the Medicaid claim form Omnicare submits on a regular basis for reimbursement contains a mandatory certification that the provider has complied with all laws and regulations pertaining to Medicaid, including the Anti-Kickback Statute." (R. 114, Fifth Amended Compl., ¶ 74.) Relator alleges that the Medicare program imposes the same requirements. (Id. at ¶ 87.) Relator alleges that Omnicare cannot obtain payments without those certifications, and that compliance with the anti-kickback statute "is a pre-requisite to, and condition of, payment by Florida and Illinois Medicaid Programs," id. at ¶¶ 35, 78, and the Medicare program, id. at ¶¶ 34, 89. Relator alleges that as a result of, and in reliance upon, those fraudulently certified claims, the Medicare program and the Illinois and Florida Medicaid programs paid for Omnicare's provision of pharmaceuticals to the patients at Defendant Morris Esformes's nursing homes. (Id. at ¶¶ 80, 91, 100.) Those false certifications provide the basis for Relator's claims in this litigation.


A motion under Rule 12(b)(6) challenges the sufficiency of the complaint to state a claim upon which relief may be granted. Hallinan v. Fraternal Order of Police of Chicago Lodge No. 7, 570 F.3d 811, 820 (7th Cir. 2009). When ruling on a defendant's motion to dismiss, the court must accept as true all of the factual allegations contained in the complaint. Erickson v. Pardus, 551 U.S. 89, 94, 127 S. Ct. 2197, 167 L.Ed.2d 1081 (2007); McGowan v. Hulick, 612 F.3d 636, 638 (7th Cir. 2010) (courts accept factual allegations as true and draw all reasonable inferences in plaintiff's favor). Generally, a complaint need only provide a short and plain statement giving defendants fair notice of the nature and basis of each claim. Fed.R.Civ.P. 8(a)(2). Fraud allegations, however, are subject to the heightened pleading standard of Federal Rule of Civil Procedure 9(b), which requires plaintiffs to plead with particularity. United States ex rel. Gross v. AIDS Research Alliance-Chicago, 415 F.3d 601, 604 (7th Cir. 2005) ( "The FCA is an anti-fraud statute and claims under it are subject to the heightened pleading requirements of Rule 9(b) of the Federal Rules of Civil Procedure.") (citing United States ex rel. Garst v. Lockheed-Martin Corp., 328 F.3d 374, 376 (7th Cir. 2003) (Rule 9(b) applies "because the False Claims Act condemns fraud but not negligent errors or omissions.")). This means that the complaint must allege "the who, what, when, where and how" of the alleged fraud. Pirelli Armstrong Tire Corp. Retiree Medical Benefits Trust v. Walgreen Co., 631 F.3d 436, 441-42 (7th Cir. 2011) (quoting United States ex rel. Lusby v. Rolls-Royce Corp., 570 F.3d 849, 854 (7th Cir. 2009)); Gross, 415 F.3d at 605 (quoting United States ex rel. Garst v. Lockheed-Martin Corp., 328 F.3d 374, 376 (7th Cir. 2003)). To ensure that the courts and litigants do not "erroneously take an overly rigidly view of the formulation, the requisite information ... may vary on the facts of a given case." Pirelli, 631 F.3d at 442. "To say that fraud has been pleaded with particularity is not to say that it has been proved (nor is proof part of the pleading requirement)." Lusby, 570 F.3d at 855.


Defendant does not dispute that Relator has properly alleged that he received an illegal kickback from Omnicare.*fn1 Rather, Defendant moves to dismiss the FAC pursuant to Rule 12(b)(6) on the grounds that, as a matter of law, the alleged false certifications are not material to Medicare-based claims. Defendant also argues that Relator fails to meet the heightened pleading standard of Rule 9(b) because: (i) Relator does not properly allege that the false certifications were material to the federal or state governments' decisions to pay the allegedly false claims, and (ii) Count IV does not properly plead a violation of the Illinois Insurance Claims Fraud Protection Act. Finally, Defendant argues that Count IV is time-barred in whole or in part. The Court addresses Defendant's arguments in turn.

I. Relator Satisfactorily Pleads a False Certification Claim

The FCA imposes liability against any person who knowingly makes, uses, or causes to be made or used, a false record or statement material to get a payment from the government. 31 U.S.C. § 3729(a)(1). An FCA claim under § 3729(a)(1) has three essential elements: (1) the defendant made a statement in order to receive money from the government, (2) the statement was false, and (3) the defendant knew it was false. 31 U.S.C. § 3729(a)(1); Gross, 415 F.3d at 604. An FCA claim premised upon an alleged false certification of compliance with statutory or regulatory requirements also requires that the certification of compliance be a condition of or prerequisite to government payment. United States ex rel. Crews v. NCS Healthcare of Illinois, Inc., 460 F.3d 853, 858 (7th Cir. 2006); Gross, 415 F.3d at 604 (citations omitted).

Defendant argues that for Relator's claims to succeed, Relator must allege that compliance with the anti-kickback statute is necessary for payment. In the alternative, Defendant contends that where the express language of the certification does not mention payment, Relator may be able to plead that a statute or regulation makes payment conditional on compliance. See R. 53, Def.'s Mem. in Support at 5. In so arguing, Defendant creates a constricted definition of materiality that the Seventh Circuit has flatly rejected. See United States v. Rogan, 517 F.3d 449, 452 (7th Cir. 2008). In Rogan, the defendant argued that the alleged statutory violations (i.e. defendant's failure to disclose the kickbacks) that the government pleaded in its complaint were not material to the government's decision to pay the claims. As the Seventh Circuit noted, however, the accepted definition of materiality provides that "a statement is material if it has 'a natural tendency to influence, or [is] capable of influencing, the decision of the decisionmaking body to which it was addressed.'" United States v. Rogan, 517 F.3d 449, 452 (7th Cir. 2008) (citing (Neder v. United States, 527 U.S. 1, 16, 119 S.Ct. 1827, 144 L.Ed.2d 35 (1999) (quotations omitted)). The Seventh Circuit found that "information that a hospital has purchased patients by paying kickbacks has a good probability of affecting the decision." Id. It further explained:

The United States is entitled to guard the public fisc against schemes designed to take advantage of overworked, harried, or inattentive disbursing officers; the False Claims Act does this by insisting that persons who send bills to the Treasury tell the truth. As Justice Holmes put ...

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