Opinion
Civ. No. 98-2031 (DRD).
March 28, 2003
Richard P. Hedeman, Esq., Morristown, NJ, Harvey S. Mars, Esq., Liebowitz Mars LLP, New York, NY, Attorneys for Plaintiff.
James A. Robertson, Esq., Kalison, McBride Jackson, P.A., Liberty Corner, New Jersey, Harry L. Silver, Esq., E. John Steren, Esq., Ober, Kaler, Grimes Shriver, A Professional Corporation, Attorneys for Corporate Defendants.
Peter S. Pearlman, Esq., Jessica V. Henry, Esq. Cohn Lifland Pearlman Hermann Knopf, LLP, Saddle Brook, NJ, Attorneys for Defendant Alan Traster.
OPINION
Plaintiff Thomas Quinn brings this action under the qui tam provisions of the False Claims Act ("FCA"), 31 U.S.C. § 3729 et seq., under New Jersey's Conscientious Employee Protection Act ("CEPA"), N.J.S.A. § 34:19-3, and under New Jersey common law. Plaintiff claims that Defendants violated the FCA by failing to credit New Jersey Medicaid 100% of the amount Medicaid had paid for medications that were provided to Medicaid beneficiaries in long-term care facilities but later returned and redispensed (in some instances, allegedly, to other Medicaid beneficiaries). Plaintiff also claims that Defendants violated the FCA by selling drugs to Medicaid that were recycled in a manner that failed to conform to New Jersey pharmacy regulations. He asserts claims for unjust enrichment on behalf of the United States, based on the same allegations advanced in support of his FCA claims. Plaintiff also claims that he was dismissed (by Omnicare, its subsidiary Pompton Nursing Home Suppliers ("PNHS") (his employer) and by Traster) in retaliation for his investigation and reporting of the allegedly fraudulent practices, and that his dismissal accordingly violated both the anti-retaliation provision of the FCA and CEPA. Defendants have moved for summary judgment as to all claims, and Plaintiff has cross moved for summary judgment with respect to certain of his claims (simultaneously appealing an order by Magistrate Judge Ronald Hedges denying his request to file a such a cross motion. For the reasons stated below, Defendants' motion will be granted with respect to all Plaintiff's FCA claims and as to his unjust enrichment claim. The court will exercise its discretion under 28 U.S.C. § 1367(c) to dismiss Plaintiff's CEPA claims for lack of subject matter jurisdiction. Plaintiff's appeal of Judge Hedges's order will be dismissed as moot, and Plaintiff's cross motion for summary judgment will be denied.
Medicaid services are jointly financed by the state and federal governments, and administered by the state agencies. In New Jersey, the Division of Medical Assistance and Health Services ("DMAHS") is the agency responsible for Medicaid. Subsequent references to Medicaid or New Jersey Medicaid, unless otherwise indicated, refer to the New Jersey Medicaid program administered by DMAHS.
BACKGROUND
In keeping with the standards applicable in summary judgment analysis, the following account presents disputed facts favorable to Plaintiff.
At all times relevant to the present case PNHS was a long-term care pharmacy that supplied medication to long-term care facilities. Traster was president of PNHS before it was sold to Omnicare in August of 1996. After the acquisition, Traster became an employee of Omnicare, serving as "Unit President" of PNHS until his departure at the end of 1998. Plaintiff was an employee of PNHS and (after the acquisition) Omnicare, from February 12, 1996 until his dismissal on August 22, 1997 — occupying the position of Regional Controller. His responsibilities included ensuring that PNHS was in financial compliance with Medicaid rules and regulations, he was also responsible for maintaining PNHS's budget and fiscal operations.
Defendant Bach's Pharmacy, East is apparently PNHS by another name. Like PNHS, corporate Defendants Cherry Hill Pharmacy and Winslow's Pharmacy are subsidiaries of Omnicare. Because Plaintiff worked at PNHS, and because he advances no theory of FCA liability against any other entity that is not advanced against PNHS, the discussion below of specific recycling or crediting practices will focus upon PNHS practices.
A sizeable percentage (Plaintiff suggests figures in the 60% to 70% range) of PNHS's sales of pharmaceuticals were paid by New Jersey Medicaid, the remainder being paid from other sources — for example by patients themselves or by private insurers. In some instances after drugs were dispensed to nursing homes, they would be returned (for reasons including a change in prescription or the transfer or death of a patient). New Jersey pharmacy regulations permit the recycling of such returned medication where it is in unit dose packaging (individual tablets contained in blister packs) and stored in a prescribed manner. When PNHS accepted medication returned for redispensing, it was its policy to credit Medicaid 50% of the price of the returns — sending Medicaid a check for the appropriate amount. According to Defendants, the retention of the remaining 50% was justified as an attempt to recover the cost of restocking and redispensing the medication. One of Plaintiff's duties at PNHS was to review return reports that accounted for returned medication and ensure that payment was made to Medicaid for 50% of the total price of the returned drugs.
Claims for these sales were submitted on a Medicaid MC-6 form (or an equivalent electronic form), which included a certification to the effect that the services covered by the claim were actually rendered, that the services and the amount charged for them are "in accordance with the regulations of the New Jersey Health Services Program," that no amount payable under the claim has already been paid, and that the payment claimed will be accepted as payment in full.
Plaintiff variously refers to this price as the "total price," the "acquisition cost," "AWP [average wholesale price], and "amount billed."
Plaintiff in fact discovered (apparently on August 15, 1997) that the return reports themselves already reflected a 50% discount on the prices of the returned medication, so that PNHS was for a substantial period paying giving only a 25% credit for such returns. Such twenty-five percent credits were apparently paid between November 1996 and September of 1997.
The payments sent to Medicaid were not accompanied by return reports, or by any other documentation that clearly indicated the basis upon which the credit amount was calculated. Ambiguous notations transmitted with one credit check from December of 1996 state simply, "50% deduct medicaid" followed by months and amounts; and a note attached to the check states, "Please note[.] Prior month were paid at 100%[.] [W]e are deducting 50% on the prior months paid." Neither the annotations on the check nor the note provide any indication of the starting point for these calculations.
Returned medication was ultimately redispensed, and Plaintiff asserts that the manner in which it was recycled violated pharmacy regulations that permit recycling only where the integrity of unit dose packaging is maintained. Plaintiff asserts that it was PNHS's practice to remove pills from unit dose packaging and ultimately to repackage them for subsequent sale.
When he was first assigned the task of generating credits, Plaintiff questioned Traster about the basis for the practice of providing less than full credit for returned medications. He was advised that Medicaid did not require credits for returns, and that the 50% that PNHS retained was in the nature of a restocking fee. Plaintiff initially accepted Traster's explanation of the practice.
However, subsequently, after learning that another recently acquired Omnicare subsidiary in Illinois (Home Pharmacy Services ("HPS") had been compelled to settle FCA claims relating to returned medication, Plaintiff renewed his inquiries relating to PNHS's crediting policy. On August 13, 1997 (in a conversation he secretly taped) he discussed the policy with Loretta Brickman, a pharmacist and compliance officer at PNHS. Brickman expressed her opinion that the 50% credit policy was illegal absent some specific approval from or agreement with Medicaid. Plaintiff agreed to approach Traster to seek further explanation.
An HPS official had allegedly represented to Medicaid authorities that medication had been destroyed when it was in fact returned and redispensed.
Plaintiff asserts that he had several discussions with Traster about his concerns, and Plaintiff's brief states that at one point he told Traster that the FBI was investigating the business. A review of the deposition testimony cited for this latter point appears to indicate that Plaintiff mentioned an FBI investigation of Omnicare's Illinois subsidiary, HPS.
The regulation to which she referred in support of her view was N.J.A.C. § 8:39-29.4(j), which provides,
Where allowable by law, the facility shall generate a crediting mechanism for medications dispensed in a unit-of-use drug distribution system, or other system that allows for the re-use of medications. The crediting system shall be monitored by the provider pharmacist and a facility representative.
Later the same day Plaintiff approached Traster (again secretly taping their conversation) and again expressed his concerns regarding the policy. Traster repeated his assurance that pharmacies were not required to give credits for returned drugs. When Traster mentioned that Omnicare was "leary right now because they got burnt in another state," Plaintiff suggested that PNHS's practices "could be a situation like another Homecare thing" (presumably an intended reference to the HPS matter) and stated that he wanted "to avoid that." When Traster asked Plaintiff why he saw a resemblance between the two situations, Plaintiff replied, "I don't know, that's the reason I'm asking because I want to make sure that . . . we follow the letter of the law." Plaintiff suggested that some documented approval for the crediting policy should be obtained, saying "I would hate for the State to come in here someday and say hey, listen, this policy is in violation. We never approved it. Bang, you get dinged. You know what I mean?"
Traster responded by raising the possibility of approaching Medicaid officials to set up an approved crediting policy. Plaintiff voiced the concern that such an overture might "be sending up a red flag"; and Traster accordingly suggested that Plaintiff should contact Sam Penza, a representative of the New Jersey Association of Long Term Care Pharmacy Providers, ("NJALTCPP" a long term care pharmacy lobbying group) and address inquiries to him, and that contacts with state officials on crediting issues should be handled through the NJALTCPP. The day after this conversation, Plaintiff sent a memo to Traster confirming Traster's explanation of the policy and its conformity with the relevant regulations. Seeking further confirmation, Plaintiff also asked whether, "absent any documentation from the Long Term Care Group represented by Mr. Penza or any acceptance letter from Medicaid regarding the 50% credit for returns" Traster was "sure that Pompton/Omnicare is not exposed." The memo also asked whether Medicaid expected a "dollar for dollar" return on returned medication, and Plaintiff also inquired, "What will the consequences be to Pompton/Omnicare should Medicaid find this in an audit?"
The day after delivering this memorandum to Traster, Plaintiff (according to the relator statement submitted in connection with this suit) began testing the amounts reflected in return reports and concluded that the reports understated the value of the drugs returned. He discussed his conclusion with a Price Waterhouse employee and manager, Jerome Arnaud, who was at PNHS working on another project. Arnaud concurred in Plaintiff's assessment of the reports. Plaintiff has not referred to any evidence suggesting that Traster was made aware of this disclosure prior to Plaintiff's dismissal.
On August 22, 1997, a few days after his conversation with Traster and the transmission of his memo memorializing it, Plaintiff was called into a meeting with Traster, David Froesel (Omnicare Senior Vice President and CFO), and Patrick Keefe (Omnicare Executive Vice President for Operations), and he was dismissed. Plaintiff contends, with some support in the record, that Traster was one of the decisionmakers in his termination, or at least that he was involved in discussions that led up to it.
DISCUSSION
I. Summary Judgment Standard
Summary judgment will be granted if the record establishes that "there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c).
Rule 56(c) imposes a burden on the moving party simply to point out to the district court that there is an absence of evidence to support the nonmoving party's case. Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). Once the moving party has met this burden, the burden then shifts to the opposition to "set forth specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e). The evidence need not be in a form that would be admissible at trial. Celotex, 477 U.S. at 324. But Rule 56(e) provides that affidavits opposing summary judgment motions must "be made on personal knowledge."
The nonmoving party "must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). Further, a plaintiff may not simply "replace conclusory allegations of the complaint or answer with conclusory allegations of an affidavit." Lujan v. National Wildlife Federation, 497 U.S. 871, 888 (1990) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986)).
At the summary judgment stage, the court's function is not to weigh the evidence and determine the truth of the matter, but rather to determine whether there is a genuine issue for trial.Anderson, 477 U.S. at 249. The mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment. Id. at 247. In determining whether there exists a material issue of disputed fact, however, the facts and the inferences to be drawn from the facts are to be viewed in the light most favorable to the nonmoving party. Pollock v. American Tel. Tel. Long Lines, 794 F.2d 860, 864 (3d Cir. 1986).
II. False Claims
In relevant part, the False Claims Act imposes liability upon any person or entity who
(1) knowingly presents, or causes to be presented, to an officer or employee of the United States Government or a member of the Armed Forces of the United States a false or fraudulent claim for payment or approval;
(2) knowingly makes, uses, or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the Government;
(3) conspires to defraud the Government by getting a false or fraudulent claim allowed or paid; . . .
(7) knowingly makes, uses, or causes to be made or used, a false record or statement to conceal, avoid, or decrease an obligation to pay or transmit money or property to the Government. . . .31 U.S.C. § 3729(a). Plaintiff advances several theories of Defendants' liability under these provisions. First, he contends that Defendants violated §§ 3729(a)(1) and (2) by failing to submit adjustments in order to partially void claims (submitted on required MC-6 claim forms) where the medications supplied pursuant to those claims were ultimately returned. Plaintiff contends that in such cases the initial claims were rendered false (and thus violative of the FCA) by Defendants' recovery of unused medication. Second, in a related theory that also focuses on the same MC-6 Medicaid claim forms, Plaintiff contends that Defendants submitted false claims for the purposes of §§ 3729(a)(1) and (2) by selling Medicaid the same medication twice: MC-6 forms contain a representation that the amount claimed represents full payment for the medication or service that is the subject of the claim; Plaintiff asserts that in submitting Medicaid claims for pills, recovering those pills without giving 100% credit, and then submitting a new claim form in connection with the same pills, Defendants effectively claimed more than the represented "full" amount for the recycled medication (falsely representing on the second claim form that there had been no previous, partial payment for the medication). Third, again citing §§ 3729(a)(1) and (2), Plaintiff contends that Defendants violated the FCA by submitting Medicaid claims for pharmaceuticals that were removed from unit dose packaging in the recycling process, in violation of New Jersey Board of Pharmacy regulations: Plaintiff contends that as Medicaid providers Defendants were required to comply with New Jersey Board of Pharmacy regulations, and that by failing to do so they engaged in conduct contrary to their representations that the services provided conformed to Medicaid regulations. Fourth and finally, Plaintiff contends that Defendants violated § 3729(a)(7) by returning credits to Medicaid for less than 100% of the amount initially claimed for returned medications.
Plaintiff also asserts conspiracy claims under § 3729(a)(3), asserting that Defendants conspired with other Medicaid providers to commit FCA violations. The disposition of these conspiracy claims hinges on the viability of Plaintiff's claims of underlying FCA violations; because, as discussed below, Plaintiff has not presented a sufficient case of underlying liability, his conspiracy claims fail.
None of Plaintiff's suggested theories of liability finds sufficient support in the record. Summary judgment in favor of Defendants is accordingly appropriate as to Plaintiff's claims of liability for the submission of false claims.
A. The Failure to Void or Adjust Claims
Plaintiff's first theory, that MC-6 forms were rendered false when products were returned, fails because Plaintiff has not pointed to any language in the MC-6 form, the instructions that attend it, or any regulations and instructions relating to claim adjustments, to suggest that the MC-6 claim expresses or implies any statement to the effect that the medication may not be returned. Instructions provided by New Jersey Medicaid in its Pharmacy Services Fiscal Agent Billing Supplement require that claims be adjusted or entirely voided to account for errors — in cases of overpayment or underpayment, or where entire claims are submitted in error. But nothing suggests that claims for medication that is initially delivered but ultimately returned to the provider are erroneous for the purposes of these rules. Similarly, regulations requiring the use of adjustment forms do not indicate that adjustments are required where medication once delivered is later returned. See N.J.A.C. § 10:49-8.3 (requiring adjustment where a claim is "incorrectly paid" and voiding of claims where a claim is "paid in error"). The similar regulation on the reversal of electronic claims also does not provide for adjustments for returns: N.J.A.C. § 10:51-1.25(j)(2) requires reversal where services are not provided. But the regulation does not indicate that a product is not "provided" for the purposes of the rule where it is made available to the beneficiary in the first instance and subsequently returned.
B. Successive Claims for the Same Medication
Plaintiff's contention that Defendants violated the FCA by submitting successive claim for the same medication fails for at least two reasons. First and most simply, Plaintiff has not succeeded in identifying a specific instance in which the same items were the subject of two claims to New Jersey Medicaid. It can of course be inferred from credit payments that items once paid for by New Jersey Medicaid were returned to stock; and Plaintiff, pointing to the fact that a substantial percentage of Defendants' business was transacted with New Jersey Medicaid, argues that an assumed proportion of the returned goods can be deemed to have been the subject of successive claims. Such a theory of FCA liability, however, runs afoul of the requirement that an FCA Plaintiff prove the actual submission of a false claim to the government. There is no such proof where the Plaintiff does nothing more than identify fraudulent or unlawful practices on the part of an entity that does a certain percentage of business with the government and then argue that the practices must have resulted in the submission of false claims. Cf. U.S. ex rel. Clausen v. Laboratory Corp. of America, Inc., 290 F.3d 1301, 1311-15 (11th Cir. 2002), (finding FCA allegations deficient under Fed.R.Civ.P. 9(b) and noting that it is insufficient for a plaintiff "merely to describe a private scheme in detail but then to allege simply and without any stated reason for his belief that claims requesting illegal payments must have been submitted, were likely submitted or should have been submitted to the Government"), cert. denied, 123 S.Ct. 870 (2003).
The second fatal deficiency in Plaintiff's successive claims theory is that even if successive claims were submitted for the same medication, the successive claims were for separate transactions and were therefore not duplicative in any sense that would make them inconsistent with the full-payment representation on the MC-6. As the discussion below of crediting issues details, when Defendants recovered returned medication and sent credits to Medicaid, they legitimately reacquired the medication. Having done so they could clearly dispose of it in any manner they chose — including sales involving other Medicaid beneficiaries. While successive Medicaid claims for the same items may very well shed a harsh light on the gaps in the regulatory scheme that allowed Defendants to recover returned medication at bargain rates, there is no escaping the conclusion that if Defendants were entitled to reacquire medication on such terms, they were also entitled to sell it to whomever they wished.
C. Recycling in Violation of Pharmacy Regulations
Plaintiff theorizes that Defendants submitted false claims when they presented claims for medication that had been recycled in a manner that contravened New Jersey Board of Pharmacy regulations. Plaintiff asserts that Defendants removed pills from unit dose packaging in the recycling process and therefore ultimately resold to Medicaid beneficiaries medication processed improperly for the purposes of N.J.A.C. § 13:39-9.15 (which sets forth the conditions under which medication may be recycled) and N.J.A.C. § 13:39-5.9 (which sets forth labeling requirements). Plaintiff contends that by certifying (on the MC-6) compliance with regulations governing the NJ Health Services Program, Defendants ultimately certified compliance with New Jersey Board of Pharmacy regulations, and that accordingly any claim for medication recycled in violation of those regulations was a false claim. Where a claimant certifies compliance with regulations as a condition of payment, the failure to comply with such regulations can render a claim false for the purposes of the FCA.See Mikes v. Straus, 274 F.3d 687, 697 (2d Cir. 2001).
Disposal of unused medications
(a) Written policies and procedures governing unused medications shall be established and implemented by the registered pharmacist-in-charge and shall comply with the following requirements:
1. All medications where the drug source, control number or expiration date are missing, shall be sent to the pharmacy for final disposition, or shall be disposed of by the health care facility according to its written protocol.
2. If a unit dose packaged medication has been stored in a medication room or secure area in the institution and the medication seal and control number are intact, the medication may be recycled and redispensed.
As noted in Mikes, however, even where a claim certifies compliance with laws or regulations, the failure to comply does not render a claim false for the purposes of the FCA where compliance is not a condition of payment. See Mikes, 274 F.3d at 697.
Plaintiff has not pointed to sufficient support in the record for FCA liability based on lack of compliance with Board of Pharmacy regulations. As in connection with his duplicative claims argument, Plaintiff has not pointed to any specific instances in which Medicaid claims were submitted for non-conforming medications. Accordingly, even assuming that the MC-6 certified compliance with the Board of Pharmacy regulations as a condition of payment, Plaintiff has not pointed to sales inconsistent with the certification. In the absence of such specific evidence of false claims, Plaintiff cannot establish FCA liability on the basis of lack of conformity with the Board of Pharmacy regulations.
Plaintiff's theory of false certification also fails for a second reason — because compliance with Board of Pharmacy regulations cannot fairly be considered a condition of payment in connection with any claims. The MC-6 certification reaches Medicaid regulations, but it does not directly reach Board of Pharmacy regulations, which are not in themselves Medicaid regulations. Plaintiff notes that New Jersey Medicaid regulations, N.J.A.C. § 10:51-1.2(a) and (d)(i), require Medicaid provider pharmacies to comply with Board of Pharmacy regulations as a condition of participation in the Medicaid program; and Plaintiff suggests that in this indirect fashion the MC-6 therefore requires certification of compliance with Board of Pharmacy regulations as a condition of payment. However, although presumably failure to comply with Board of Pharmacy regulations could disqualify a provider from participation in the program, it does not appear that compliance with such regulations is a pre-requisite for payment of any particular claim submitted by a participating provider.
D. The Failure to Provide Medicaid with 100% Credit for Returned Medication
Plaintiff's argument that Defendants are liable under the FCA because they failed to provide the government with full credit for returned medication hinges on his ability to establish that Defendants were in fact under some legal obligation to give Medicaid 100% credit for such medications. Plaintiff has not and cannot show such an obligation; accordingly his attempt to predicate FCA liability on Defendants' payment of only partial credit for returned drugs is without merit.
No federal or New Jersey statute or regulation governing Medicaid specifically addresses the issue of credits for returned medication; Plaintiff however points to N.J.A.C. § 8:39-29.4(j), a New Jersey Department of Health and Senior Services ("DHSS") regulation. This regulation, promulgated under the heading of Standards for the Licensure of Long-term Care Facilities, provides,
Where allowable by law, the facility shall generate a crediting mechanism for medications dispensed in a unit-of-use drug distribution system, or other system that allows for the re-use of medications. The crediting system shall be monitored by the provider pharmacist and a facility representative.
Plaintiff contends that this regulation is applicable to pharmacies (such as the Defendant pharmacies here) providing services to long-term care facilities, and that it requires payment of full credit for returned medication. It is debatable whether this DHSS regulation even governs the conduct of Medicaid provider pharmacies, and Defendants in fact argue at some length that it does not; but there is no need to decide that issue. Even if the regulation does apply to Medicaid provider pharmacies, it does not impose upon them a requirement that they credit Medicaid any specific amount for returned medications. In fact the regulation does not by its terms require any credit for returns; rather, it simply appears to assume the existence of such a requirement.
Plaintiff points to a state assessment of the economic impact of the predicted economic impact of then proposed regulation, an assessment recorded in the New Jersey register, 26 N.J.R. 1776 (Monday, May 2, 1994). The assessment expresses the expectation that the Medicaid program will benefit from the proposed rule. The reference does lend some additional support to the argument that N.J.A.C. § 8:39-29.4(j) requires credits. But it does not clearly establish that credits are required. In any case, as already noted, even if the regulation does require some credits, it certainly does not prescribe the rate at which credits for returned medication must be given.
Plaintiff also points to Defendants' commitment in its Medicaid provider agreement to conform to regulations (in the agreement provided by Plaintiff, N.J.A.C. § 10:51-1.5; § 10:51-4.5) governing maximum charges and pricing policies. But these regulations do not require credits for returned medication. Similarly, Plaintiff's references to regulations barring the collection of an "administrative charge or service fee for . . . services for which reimbursement is included as part of the Medicaid fee," N.J.A.C. § 10:49-14.5, is also unavailing. Plaintiff notes that Defendants in some instances characterized the funds retained in connection with returned goods as a restocking fee, and he contends that retention of such a fee is barred by the regulation. But his argument assumes that such a restocking fee pays for a service "for which reimbursement is included" in other Medicaid payments; and there is no clear basis for such an assumption. There is no indication that either Medicaid reimbursement for individual claims or the "Prescription dispensing fee" (paid on a capitation basis under N.J.A.C. § 10:51-2.7) is understood to include costs associated with the recovery and reprocessing of returned medication.
The conclusion that no regulation requires a specific amount to be credited to Medicaid for returned Medication is somewhat reinforced by the views expressed by Edward J. Vaccaro, Assistant Director of the Office of Health Service Administration within the DMAHS, in a December 4, 1998 letter addressed to New Jersey Deputy Attorney General John Krayniak in connection with the present qui tam action. Asked to provide insight on Medicaid regulation of credits and returns, Vaccaro wrote,
1. DMAHS does not regulate the crediting or return of unused medications dispensed to nursing facility beneficiaries. Providers of nursing facility pharmacy services voluntarily credit the State of New Jersey for costs related to initially dispensed then returned prescriptions. I am unaware of credit provided by Medicaid for controlled drugs and destroyed medications.
2. Regulations governing the crediting of unused medications in nursing facilities are promulgated by the Department of Health and Senior Services (DHSS). . . .
3. Based on my discussion with Mr. Crocker on December 3, 1998, these regulations may be found at N.J.A.C. 8:39-29.4(j).
4. Although we do not regulate the return of unused medications, there is still a potential for fraud related to the provider's decision to reissue unused medications and to bill Medicaid a second time for the full cost of such medications. . . .
6. . . . I am unaware of federal and Sate regulations requiring that any unused pharmaceuticals be properly credited to Medicaid.
As noted above, the concern expressed here with such successive claims appears inconsistent with the view that pharmacies may legitimately reacquire returned drugs initially intended for Medicaid beneficiaries.
The view that the regulations in force at the relevant time did not require Defendants to pay 100% credit for returns is also supported by the observation that subsequently the state has undertaken to revise its regulations to provide specific crediting rules.
As Plaintiff notes, Vaccaro substantially qualified in his deposition the statements made in his December 4, 1998 letter. In his testimony he asserted that DHSS regulations required that credits be given to Medicaid, and he also asserted that it was his expectation that such credits would amount (at least approximately) to 100% of the amount initially charged to Medicaid for the returned drugs. Vaccaro also testified that where payments were made they would be assumed to represent 100% credits. Vaccaro did however concede even in his testimony that no regulation exists requiring a specific amount of credit — or barring the collection of a restocking fee.
Plaintiff cites Vaccaro's testimony in support of his position, and he also invokes the opinions expressed by Gary Haffner, a Pharmacy Consultant with New Jersey Medicaid, in response to surveys of state Medicaid regulations conducted for Omnicare in June of 1996 and October of 1997. Haffner stated in the first survey that where drugs are returned the pharmacy "must return, to Medicaid, a check representing the total returned drugs"; and he expressed a similar opinion in the second survey. Plaintiff also notes opinions expressed by Brickman to the effect that the failure to credit 100% of returned medication to Medicaid was fraudulent. Finally, Plaintiff notes that Omnicare Guidelines require "full credit" for returned medication.
It must be noted that the cited guidelines address processing procedures and are not apparently state-specific. It is accordingly entirely possible that here "full credit" refers to the full amount required under applicable substantive rules — not necessarily to 100% credit.
None of these opinions, however, controls the ultimate determination whether Defendants had any legal duty to pay Medicaid 100% credit for returned medication. As one court already determined, an examination of the relevant regulations, and the agreed terms of Defendants' Medicaid business, simply does not reveal any clear obligation to provide Medicaid with a specific sum as credit for returned medications. In the Matter of Genesis Health Ventures, Inc., 272 B.R. 558 (Bankr. D. Del 2002).
Supplementing his discussion of regulations and agreements, Plaintiff contends that Defendants, by the mere act of making some payment in the nature of a credit for returned goods, acknowledged an obligation to give back the full amount paid for such returned items. But given that such payments were not made against the background of rules calling for full credit, such an interpretation of Defendants' payments is unwarranted. Even if Defendants' payments could be viewed as implicit representations that full credit was being given, such a representation would not violate § 3729(a)(7) because, absent an obligation to give credit in full, the misrepresentation would not be made to "conceal, avoid, or decrease an obligation to pay or transmit money or property to the Government." The same reasoning also precludes any liability based on the ambiguous references such as those to 50 and 100% attached to one of the credit checks sent to Medicaid: the notations do not make clear what the percentages refer to; and even if they did (and could be regarded as misrepresentations of the crediting calculation) they would not constitute misrepresentations made to avoid any legal obligation to the government.
Even if the relevant regulations could be construed to contain such an obligation, the lack of clear legal authority might preclude any finding that Defendants breached the obligation with the requisite level of knowledge.
III. Retaliation
In addition to his charges that Defendants submitted false claims to the government, Plaintiff also claims that Defendants violated the "whistleblower" section of the FCA, 31 U.S.C. § 3730(h), by dismissing him in retaliation for his investigation and internal reporting of its crediting practices. Section 3730(h) provides,
Any employee who is discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against in the terms and conditions of employment by his or her employer because of lawful acts done by the employee on behalf of the employee or others in furtherance of an action under this section, including investigation for, initiating of, testimony for, or assistance in an action filed or to be filed under this section, shall be entitled to all relief necessary to make the employee whole.
The Court of Appeals has described the requirements for a case under § 3730(h) in the following terms:
A plaintiff asserting a cause of action under § 3730(h) must show (1) he engaged in protected conduct, (i.e., acts done in furtherance of an action under § 3730) and (2) that he was discriminated against because of his protected conduct. In proving that he was discriminated against because of conduct in furtherance of a False Claims Act suit, a plaintiff must show that (1) his employer had knowledge he was engaged in protected conduct; and (2) that his employer's retaliation was motivated, at least in part, by the employee's engaging in protected conduct. At that point, the burden shifts to the employer to prove the employee would have been terminated even if he had not engaged in the protected conduct.Hutchins v. Wilentz, Goldman Spitzer, 253 F.3d 176, 186 (3d Cir. 2001) (citations and internal quotation marks omitted),cert. denied, 122 S.Ct. 2360 (2002). A plaintiff can bring a successful action for retaliation even where his or her protected conduct does reveal activities that actually violate the FCA.Id. at 187. Plaintiff's theory of retaliation is that Traster was informed of conduct on Plaintiff's part that qualifies as "protected" for the purposes of § 3730(h), that he played at least a consultative role in Plaintiff's dismissal, and that protected activity accordingly was a contributing factor in the termination decision.
There is considerable dispute regarding Traster's role in the dismissal. There are indications in the record that he at least communicated with Omnicare officials who fired Plaintiff, and he was in the room when the firing took place. But Defendants contend he was not a decisionmaker in Plaintiff's dismissal. Because, as discussed below, Plaintiff cannot show that Traster (or by extension, any decisionmaker) had notice of any protected conduct on his part, there is no need to address the dispute regarding Traster's role in the dismissal.
Given Plaintiff's theory of retaliation, it is essential for him to show that Traster had notice of conduct that qualifies as protected for the purposes of the § 3730(h) analysis. (The record does not indicate that the other decisionmakers could have obtained such knowledge from any source other than Traster.) Because Plaintiff has failed to show that Traster had such notice, his retaliation claim is not viable. In Hutchins, the Court of Appeals discussed at length the considerations that bear on the determination whether conduct is protected under the whistleblower provision. The court noted that the protected conduct inquiry is fact specific. Id. at 187. However certain general principles are apparent from its analysis. Because of the statute's requirement that protected conduct be "in furtherance of an action under this section," the employee's conduct, in order to be protected, must put the employer on notice of the "distinct possibility of False Claims Act litigation." Id. at 188. Under the right circumstances, internal reporting of potential wrongdoing can qualify as protected conduct. Id. at 187. But because the statute requires a nexus with an FCA action, simply reporting concerns about mischarging the government is not protected conduct. Id. at 188. It is apparent from the discussion in Hutchins that the focal point of the protected conduct analysis is some indication that the employee may ultimately initiate an FCA action himself or report his employer's activities to the government. The Court of Appeals repeatedly referred to such indications of the employees intentions in its discussion.
An employer's notice of the "distinct possibility" of False Claims Act litigation is essential because without knowledge an employee is contemplating a False Claims Act suit," there would be no basis to conclude that the employer harbored § 3730(h)'s prohibited motivation [,]i.e., retaliation.Id. at 188 (internal quotation marks omitted).
[T]he inquiry into whether an employee puts his employer on notice is whether the employee engaged in conduct from which a fact finder could reasonably conclude that the employer could have feared that the employee was contemplating filing a qui-tam action against it or reporting the employer to the government for fraud. Litigation is a "distinct possibility" only if the evidence reasonably supports such fear; if the evidence does not support this fear, litigation would not have been a distinct possibility.Id. at 188 (internal quotation marks and alterations omitted). The court observed that "the employer is on notice of the `distinct possibility' of litigation when an employee takes actions revealing the intent to report or assist the government in the investigation of a False Claims Act violation," id. at 189, and it noted that "plaintiff must show employer was on notice that she was laying the groundwork for legal action."Id. at 193.
It must be noted that there are some indications inHutchins that an employee provides sufficient notice of protected activity by characterizing as illegal or fraudulent the activity he or she reports or investigates. See id. at 192. However, in the context of the court's overall discussion of protected activity, it is apparent that such characterizations are significant only to the extent that they implicitly provide notice of the distinct possibility that the employee will report suspect activity or file a qui tam suit. An extreme example illustrates the point: if an employee disclosed fraudulent activity to a supervisor and immediately proposed a plan to cover it up, he or she would obviously not be engaging in protected conduct.
The present record does not contain support for a reasonable inference that Traster and Omnicare were on notice of protected activity on Plaintiff's part. Plaintiff of course voiced concerns to Traster about Defendants' crediting policy and procedures. But he did not definitely characterize them as fraudulent or illegal, instead framing his concerns as inquiries or attempts to obtain reassurance of clarification. This tentative approach is exemplified in Plaintiff's August 14, 1997 memo to Traster. Plaintiff memorializes Traster's explanation of the policy and the justification for it under the prevailing regulations, then asks whether, "absent any documentation from the Long Term Care Group represented by Mr. Penza or any acceptance letter from Medicaid regarding the 50% credit for returns" Traster is "sure that Pompton/Omnicare is not exposed." Plaintiff goes on to ask Traster what Medicaid expects and requires as to credits, and he asks, "What will the consequences be to Pompton/Omnicare should Medicaid find this in an audit?" Similarly, Plaintiff's August 13, 1997 discussion with Traster of the legal implications of the returns policy is framed as an inquiry and as an attempt to ensure that his employer conforms to legal requirements. When Traster raised the topic of the Home Pharmacy case in that discussion, Plaintiff suggested that Defendants' credit policies "potentially could be a situation like another Homecare thing" — asserting, "I want to avoid that." When asked by Traster why he entertained such fears, Plaintiff stated, "I don't know, that's the reason I'm asking because I want to make sure that, you know, we follow the letter of the law."
Even if Plaintiff's expressions of concern could be understood as firm characterizations of the credit policy as illegal, the record does not indicate that Plaintiff so much as hinted to Traster that he might report the crediting policy to the government or initiate litigation himself. Indeed, the August 13, 1997 conversation contains affirmative indications that Plaintiff did not wish even to conduct inquiries in a manner that might alert the government to his concerns. Plaintiff himself suggested that contacting Medicaid in an effort to clarify or seek agreement on crediting issues might raise a "red flag." Traster accordingly suggested, and Plaintiff apparently agreed, that Plaintiff should contact Penza and address inquiries to him, and that contacts with state officials on crediting issues should be handled through Penza and the NJALTCPP. This manifest reluctance on Plaintiff's part to raise any "red flags" with state officials weighs heavily against the inference that Traster was alerted to protected conduct on Plaintiff's part.
Brickman's testimony indicates that she may have discussed with Traster her conversation with Plaintiff regarding PNHS's crediting policy. But it is not clear that she did so before Plaintiff's dismissal. Even if she did convey the substance of her conversation with Plaintiff to Traster, she would not have thereby provided him with notice of protected conduct. In her conversation with Plaintiff Brickman voiced the opinion that the crediting policy as described to her was illegal. But neither the fact of their discussion nor the substance of it indicates that Plaintiff was laying the groundwork for legal action.
Plaintiff has not pointed to any affirmative indications in the record showing that Traster (or Keefe or Froesel) had any knowledge of Plaintiff's discussions with Omnicare or Price-Waterhouse staff beyond what was communicated to Traster by Plaintiff.
At least two additional factors also weaken any inference that Plaintiff's employer was on notice of protected conduct. First, Plaintiff's inquiries regarding the legality of the crediting process could at least to some extent be viewed as within his ordinary responsibilities. As the Hutchins court noted, "in some instances where an employee's job duties involve investigating and reporting fraud, the employee's burden of proving he engaged in protected conduct and put his employer on notice of the distinct possibility of False Claims Act litigation is heightened." Id. at 191. Even if, as Plaintiff argues, his duties did not include the investigation of fraud at PNHS, and even if (as he also testified) his responsibilities did not reach operational as opposed to financial matters, his duties as he describes them did include ensuring compliance with regulations governing accounts and financial disclosures. Accordingly, given that his job implicated some examination of legal issues, his inquiries regarding the crediting policy could certainly be viewed as a natural part (or at least a natural outgrowth) of his assigned duties. Therefore, those inquiries and concerns did not by themselves reveal a distinct possibility that he would initiate or assist in an FCA action.
Second, although (as already noted) it is possible to maintain an action under the anti-retaliation provision of the FCA without presenting a winning case of false claims liability, here the fact that the policy subject to investigation was not fraudulent (and certainly was not clearly so) also makes it harder to infer that Defendants were on notice of protected conduct. Where an employee's investigation reveals conduct readily recognizable as fraudulent, an employer might be presumed to infer from the mere report of such conduct that litigation is imminent. Here by contrast, Traster cannot be deemed to have notice of impending litigation merely because Plaintiff sought to clarify a murky legal issue.
Because there is no sufficient basis on which to attribute knowledge of protected conduct to Plaintiff's employer, his claim of retaliatory dismissal under § 3730(h) cannot go forward.
IV. Unjust Enrichment
Plaintiff's claim of unjust enrichment rests upon the same bases of liability for which he argues in connection with FCA claims, and just as he cannot establish Defendants' liability for the submission of false claims, he similarly cannot provide sufficient support for his unjust enrichment claim. Accordingly, summary judgment is also appropriate as to Plaintiff's unjust enrichment claim.
CONCLUSION
For the reasons stated above, Defendants' motion for summary judgment will be granted with respect to all Plaintiff's claims under the FCA, and as to his claim on behalf of the United States for unjust enrichment. In addition, the court will exercise its discretion under 28 U.S.C. § 1367(c) to dismiss Plaintiff's remaining state law claims for lack of subject matter jurisdiction. Plaintiff's appeal of Judge Hedges's order will be dismissed as moot, and Plaintiff's cross motion for summary judgment will be denied. An appropriate order will be entered.