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United States ex rel. Derrick v. Roche Diagnostics Corp.

United States District Court, N.D. Illinois, Eastern Division

June 7, 2018

United States of America ex rel. Crystal Derrick, Plaintiff-Relator,
Roche Diagnostics Corp., et al., Defendants.



         In this qui tam action, plaintiff-relator Crystal Derrick (“relator”) sues her former employer Roche Diagnostics Corporation, and its affiliate Roche Diabetics Care, Inc., (collectively “Roche” or the “Roche defendants”), [1] along with Humana, Inc., and Humana Pharmacy, Inc., (collectively “Humana” or the “Humana defendants”), alleging that they violated the False Claims Act (“FCA” or “the Act”), 31 U.S.C. §§ 3729-3733, by engaging in a business scheme in violation of the Anti-Kickback Statute (“AKS”), 42 U.S.C. § 1320a-7b(b), and by retaliating against her for raising concerns about the lawfulness of that scheme. Roche and Humana have each filed a motion to dismiss the complaint, and relator has moved to strike certain documents that Roche filed in support of its motion. For the reasons that follow, defendants' motions are denied except that Count IV of the complaint is dismissed against Humana, and relator's motion to strike is denied as unnecessary.


         The following summary is drawn from the second amended complaint (“SAC” or “the complaint”), whose factual allegations I accept as true for present purposes. See AnchorBank, FSB v. Hofer, 649 F.3d 610, 614 (7th Cir. 2011). The Roche defendants manufacture and market blood glucose monitoring products used by individuals with diabetes. SAC ¶¶ 5-7, 49. Humana is an insurance company that offers health insurance plans nationwide, including Medicare Advantage plans, which Humana provides pursuant to contracts with the federal government. Id. ¶¶ 8, 47-48, 72. Humana maintains formularies on which it lists products covered by its Medicare Advantage and other federally funded plans. Id. ¶¶ 42-49. Humana Pharmacy operates a mail-order pharmacy called RightSource, which primarily disburses to members covered by government insurance programs. Id. ¶ 48.

         The Medicare Advantage Program, otherwise known as Medicare Part C, contracts with private insurance companies called Medicare Advantage Organizations (“MAOs”), of which Humana is one. The Centers for Medicare & Medicaid Services (“CMS”) compensates MAOs at a capitated rate for the delivery of benefits. To participate in the Medicare Advantage program, MAOs must submit bids to CMS every year in which they offer to provide services for a specified amount per member, per month. Each participating MAO must then enter into a contract with CMS, the terms of which require the MAO to comply with certain laws, including the AKS and the FCA. 42 C.F.R. § 422.503(a), § 422.504(h). To receive payment for services provided under the Medicare Advantage program, MAOs must submit monthly payment requests to CMS along with monthly reports certifying that “all information submitted to CMS in this report is accurate, complete, and truthful.” SAC ¶¶ 72, 74-77.

         Prior to the events giving rise to the complaint, Roche contracted with Humana to make its glucose monitoring products available on Humana's Medicare Advantage and RightSource formularies. Relator was a national accounts manager for Roche from October 2012 to December 2013 and was involved in overseeing Roche's account with Humana. Id. ¶¶ 4, 48-51. According to the complaint, Humana notified Roche in March of 2013 that it would be terminating an agreement under which Roche's products were available on Humana's RightSource formularies. Id. ¶ 50. Relator describes this news as a “significant blow” to Roche's business. Id.

         In May of 2013, relator discovered that Humana had not complied with certain terms of its formulary agreements with Roche. Id. ¶ 51. As a result of Humana's noncompliance, Roche had paid rebates to Humana that were not actually owed. Id. Relator met with Bethany Stein, a contract strategist at Humana, to discuss Roche's rebate overpayments. Id. ¶ 52. Stein acknowledged the overpayments and agreed “that it would be appropriate for Roche to quantify” the amount it had overpaid. Id. In a subsequent conversation, Stein indicated that “due to the potentially large size of the reimbursement” it owed Roche, Humana had decided to have an auditor perform a formal calculation. Id. ¶ 54.

         In or around June of 2013, Roche's finance department determined that the company had overpaid Humana by $45 million. Id. ¶ 55. Recognizing “an opportunity to be placed back on Humana's formularies, ” Roche's general manager, Mark Gibley, directed the company's vice president of finance, David Barnes, to “do whatever it would take” to preserve the relationship with Roche, and Barnes instructed relator to emphasize “Roche's continuation of the Humana contracts in its anticipated negotiations with Humana concerning the overpayment.” Id. ¶ 56. Barnes further instructed relator to discuss the negotiations only with him, and to refrain from speaking about them with anyone else. Id.

         Negotiations ensued. Although Humana originally indicated that it would involve auditors and seek advice from in-house counsel to determine an appropriate reimbursement amount, defendants ultimately did neither. Id. ¶¶ 57, 60, 62. Roche offered to settle the overpayment debt for $27.6 million notwithstanding its $45 million estimate, as it “did not want to jeopardize” its relationship with Humana” by requesting the full amount. Id. ¶ 59. Barnes later sent Stein an email formally requesting repayment of the rebates, which Stein viewed as “pretty harsh” and “not reflective of” defendants' discussions. Id. ¶ 63. Humana responded that it would pay no more than $20 million. Id. ¶ 64.

         Negotiations continued over the course of the next several months. In early December of 2013, defendants signed a contract to place Roche products back on Humana's formularies and to exclude competing brand products from Humana's formularies. Id. ¶ 69. The same week, Humana paid Roche a sum that, according to the complaint, did not exceed $11 million to cover its overpayment debt. Id. ¶ 70. Relator alleges that Roche reserved the right to recover the full amount owed if Humana did not satisfactorily perform its obligations under the parties' new agreement. Id.

         Relator alleges that she was concerned that defendants' arrangement ran afoul of the AKS and repeatedly expressed her concerns to Barnes and to other Roche executives. Id. ¶¶ 67-68, 79. Although she had originally been praised for her discovery of Roche's overpayment to Humana, she was terminated shortly after the parties executed the December 2013 agreement. The putative reason for relator's termination was a mistake Roche claimed she had made two months earlier, when she provided a client with pricing information that the company had not approved. Id. ¶¶ 69-70, 80-84, 87-88, 90. In relator's view, the real reason she was fired was her effort to blow the whistle on defendants' unlawful kickback scheme.

         Relator asserts four claims under the FCA. In Count I, she alleges that Humana presented, and Roche caused to be presented, false claims to CMS in violation of § 3729(a)(1)(A). In Count II, she claims that Humana made material false statements, and that Roche caused material false statements to be made, in conjunction with claims Humana submitted to CMS in violation of § 3729(a)(1)(B). In Count III, she alleges that defendants violated § 3729(a)(1)(C) by engaging in a conspiracy to commit the violations asserted in Counts I and II. And in Count IV, relator asserts that defendants retaliated against her because of her efforts to stop the aforementioned FCA violations.

         Defendants move for dismissal on the ground that the complaint fails the particularity and plausibility standards of Rule 9(b) and Rule (8). They argue that dismissal is appropriate for the additional reason that the conduct relator attributes to them in the complaint falls within the AKS's safe harbor provisions and is consistent with ...

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