Two Circuit Courts of Appeals recently came out on opposite ends of the False Claim Act’s (FCA’s) public disclosure bar.  On February 19, 2015, the United States Court of Appeals for the Third Circuit affirmed the district court’s dismissal of claims related to allegations of fraudulently inflated pharmaceutical prices, holding that the information underlying the suit had been publicly disclosed in the media and elsewhere and that the relator failed to qualify as an original source.  U.S. ex rel. Morgan v. Express Scripts, Inc., No. 14-1029, 2015 WL 728029 (3rd Cir. Feb. 19, 2015) (unpublished).  On February 25, 2015, the United States Court of Appeals for the Sixth Circuit reinstated a claim against a hospital related to allegedly fraudulent Medicaid and Medicare charges, holding that the allegations, though previously known to government auditors, had not been publicly disclosed.  U.S. ex rel. Whipple v. Chattanooga-Hamilton County Hospital Authority, No. 13-6645, 2015 WL 774887 (6th Cir. Feb. 25, 2015).  These different outcomes demonstrate the fact-intensive nature of the inquiry under the public disclosure bar.

In Express Scripts, the pharmacist-relator alleged that certain pharmaceutical industry defendants profited from artificially inflated Average Wholesale Prices (AWPs).  In affirming dismissal, the Third Circuit agreed with the district court’s finding that the allegations underlying the case had been widely disclosed, including by the news media and in previously-filed lawsuits (including one in which the relator served as an expert).  Thus, the relator needed to be an “original source” of the information for his suit to proceed.  The Third Circuit held that the relator could not meet this standard.  The relator, who was never an employee of any of the defendants, purportedly identified the alleged fraud by performing an “eyeball” comparison of two publicly available price lists.  Moreover:

The mere fact that Morgan quantified the AWP differential does not remove his allegations from the public disclosure realm.  Morgan’s 4.16 percent differential simply indicates an AWP based on a 25 percent markup over wholesale acquisition cost, a markup disclosed in a Congressional report predating Morgan’s complaint.  The report’s disclosure of a specific, industry-wide markup shift provided Morgan with all the “essential elements” needed to arrive at a 4.16 percent price differential.

In Whipple, the Sixth Circuit confronted a different and more thorny public disclosure issue.  The court, applying the pre-Patient Protection and Affordable Care Act version of the public disclosure bar, determined that the information underlying the complaint’s allegations had not been publicly disclosed, even though the allegations of improper billing had already been the subject of an audit and investigation conducted by the United States Department of Health and Human Services Office of Inspector General (OIG) and Centers for Medicare & Medicaid Services’ contractor charged with investigating fraud and waste.  The defendant hospital had also conducted an internal investigation through its own outside counsel and auditors.  The hospital had submitted a voluntary refund check as a result of these audits, and the OIG had administratively closed its investigation before the relator brought suit.

Nonetheless, distinguishing between [...]

Continue Reading