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United States v. RS Compounding LLC

United States District Court, M.D. Florida, Tampa Division

November 8, 2017




         This matter comes before the Court pursuant to Defendants RS Compounding LLC and Renier Gobea's Motion to Dismiss Relator's First Amended Complaint (Doc. # 48), filed on September 20, 2017, and Defendant Stephen Caddick's Motion to Dismiss Relator's First Amended Complaint (Doc. # 70), filed on October 11, 2017. Relator McKenzie Stepe responded on October 4 and 25, 2017. (Doc. ## 65, 73). For the reasons that follow, the Motions are granted and Stepe's Amended Complaint is dismissed with leave to amend by December 7, 2017.

         I. Background

         Defendants Renier Gobea and Stephen M. Caddick, Pharm. D., co-founded Defendant RS Compounding LLC in 2004. (Doc. # 39 at ¶ 35). RS Compounding, which does business as Zoe Scripts Laboratory Services, LLC, and Westchase Compounding Pharmacy, is a compounding pharmacy that “distribute[s] massive quantities of pre-made compounds for both humans and animals throughout the country in a fashion similar to a large pharmaceutical manufacturing company.” (Id. at ¶¶ 5, 7). Defendants market many types of creams and gels, some of which contain ketamine. (Id. at ¶ 8). These creams and gels are intended to treat various medical conditions, including peripheral neuropathy, carpal tunnel syndrome, phantom limb pain, sciatica, and arthritis. (Id. at ¶ 88). “At least 40% to 50% of Defendants' sales and revenues are earned from Medicare and TRICARE reimbursements.” (Id. at ¶ 6).

         Caddick is a licensed pharmacist, but Gobea is not. (Id. at ¶¶ 35-36). Although Gobea at one point sold his ownership interest to Caddick, Gobea returned and purchased Caddick's ownership interest in February of 2014. (Id. at ¶ 35). Thus, “Gobea is the current owner and director of RS Compounding.” (Id.). Nevertheless, prior to his departure, Caddick “oversaw all of RS Compounding's operations, including the training of RS Compounding's sales representatives.” (Id. at ¶ 36).

         Plaintiff relator McKenzie Stepe worked for RS Compounding as a sales representative in New York and New Jersey between November of 2011 and February of 2013. (Id. at ¶ 30). Through her work, Stepe alleges she became of aware of various schemes committed by Defendants in order to increase reimbursements from the Government.

         The first was a marketing scheme, which Defendants called the “1, 2, 3 strategy.” (Id. at ¶ 9). This scheme involved pre-printed script pads, listing RS Compounding's various creams and gels, along with sales representatives' “coaching” physicians to prescribe the most highly reimbursed drugs. (Id. at ¶¶ 9-10). According to Stepe, “Defendants [] Gobea and/or [] Caddick have instructed RS Compounding's sales representatives to fill in the physician's name, National Provider Identifier (‘NPI') number, and to also write in ‘6' for the number of refills, regardless of actual patient need, ” on the pre-printed script pad. (Id. at ¶ 10). And, during Stepe's first year with RS Compounding, Defendants “required that their [script pads] contain prepopulated check marks for the most expensive compounds RS Compounding sold, thereby placing the burden on the prescribing physicians to cross out the check mark and check off another product.” (Id. at ¶¶ 11, 18).

         Stepe alleges that, as a result of these pre-printed script pads, “Defendants automatically ship refills to patients - often of the most expensive products if the physician did not cross out the check mark and check off a different compound - and seek TRICARE, Medicare, Medicaid, and private insurance reimbursements for those refills despite questionable (and unsupervised by a doctor) medical necessity.” (Id. at ¶ 18).

         In addition to the pre-printed script pads, “[u]nder the ‘1, 2, 3 strategy, ' Defendants' sales representatives ‘coach' physicians to number three products on the pre-printed script.” (Id. at ¶ 14). Thus, for pre-printed script pads that did not include checkmarks by the most expensive drugs, Stepe alleges “[p]hysicians are coached to choose their top three preferences for each cream or gel based on the active ingredients.” (Id. at ¶ 67). Sales representatives “‘coach' physicians to write number ‘1' next to either NeuroMax, NeuroPlus-0 or KetaLIGHT, ” which “provide[] the highest reimbursement rate” from the Government or private insurers. (Id. at ¶ 68). Next, sales representatives instruct physicians “to write a number ‘2' next to either NeuroFlex or FlexUltra, ” which “have the second-highest reimbursement rates of Defendants' drugs, if they are covered” by the patient's health plan. (Id. at ¶ 69). “Finally, Defendants instruct sales representatives to ‘coach' physicians to write a ‘3' next to NeuroGel, which has the lowest reimbursement rate of Defendants' drugs.” (Id. at ¶ 70). The importance of this numbering was emphasized to sales representatives like Stepe by RS Compounding's Vice President of Sales and Marketing, Jon Taylor. He “instructed [them] to ‘fill out a sample prescription and highlight how you are suggesting they fill it out. . . . Repeating your message on this until it sticks.” (Id. at ¶ 16).

         Another scheme involved disparate pricing of the compounds and gels sold by Defendants, in which different patients were charged different amounts for the same substances. According to Stepe, “the Company charged vastly different prices for individuals who were uninsured, who had private insurance, and who were covered by TRICARE, Medicare, and Medicaid.” (Id. at ¶ 76). For example, Stepe alleges “Defendants regularly billed TRICARE $1, 200.00 for the same 120-gram bottle that they charged uninsured patients between $15.00 and $45.00 for.” (Id. at ¶ 17). After receiving complaints from physicians about the allegedly inflated prices, Stepe and another sales representative spoke with the Vice President of Sales and Marketing, Mr. Taylor. (Id. at ¶¶ 74-79). Mr. Taylor “instructed them to not question it because prices were set ‘at the top of the Company, ' thereby directly implicating RS Compounding's owners Mr. Gobea and/or Dr. Caddick.” (Id. at ¶ 80).

         Also, Stepe alleges Defendants “do not train their sales representatives regarding proper and improper use, or potential contra-indications or warnings.” (Id. at ¶ 89). “Defendants did not offer or provide [Stepe] with any formal training or educate her or any sales representatives about the efficacy or proper use of their products while she was employed.” (Id.). “Defendants also do not sufficiently inform patients about the proper use of their compounds for these medical conditions” and the basic instructions provided to physicians “do not provide specific information about Defendants' differing compounds.” (Id. at ¶¶ 90-91).

         As a result of these various schemes, Stepe alleges Defendants have submitted fraudulent claims to the Government and have made false records and statements material to such claims. (Id. at ¶ 94). According to Stepe, “[u]nder the FCA and its state-level equivalents, claims for Defendants' creams and gels have been and continue to be fraudulent because the claims submitted for reimbursement are based upon illegal marketing.” (Id. at ¶ 95).

         On December 16, 2013, Stepe filed her Complaint against RS Compounding and John Doe Corporations 1-10 under seal, alleging violations of the False Claims Act (FCA), 31 U.S.C. § 3729(a), and Florida's state equivalent of the FCA. (Doc. # 1). On April 28, 2017, the Government elected to intervene in part as to the fraudulent pricing allegations, but not as to the “remaining allegations (including [Stepe's] fraudulent marketing and promotional allegations).” (Doc. # 33). The Government filed its Complaint in partial intervention on June 30, 2017, and subsequently filed its Amended Complaint in partial intervention on September 9, 2017, against RS Compounding and Gobea. (Doc. ## 36, 42).

         Stepe filed her Amended Complaint on July 12, 2017, again alleging violations of the FCA and various States' equivalent statutes against RS Compounding, Gobea, Caddick, and John Doe Corporations 1-10. (Doc. # 39). Stepe alleges claims under the state equivalents of the FCA for Florida, Virginia, Massachusetts, California, Colorado, Delaware, Georgia, Illinois, Indiana, Louisiana, Maryland, Nevada, New Jersey, New Mexico, Oklahoma, Tennessee, and Texas. (Id.).

         RS Compounding and Gobea filed their Motion to Dismiss Stepe's Amended Complaint on September 20, 2017. (Doc. # 48). Caddick filed his Motion to Dismiss Relator's First Amended Complaint on October 11, 2017.[1] (Doc. # 70). Stepe responded on October 4 and 25, 2017. (Doc. ## 65, 73). The Motions are ripe for review.

         II. Legal Standard

         On a motion to dismiss, this Court accepts as true all the allegations in the complaint and construes them in the light most favorable to the plaintiff. Jackson v. Bellsouth Telecomms., 372 F.3d 1250, 1262 (11th Cir. 2004). Further, this Court favors the plaintiff with all reasonable inferences from the allegations in the complaint. Stephens v. Dep't of Health & Human Servs., 901 F.2d 1571, 1573 (11th Cir. 1990)(“On a motion to dismiss, the facts stated in [the] complaint and all reasonable inferences therefrom are taken as true.”)

         However, the Supreme Court explains that:

While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do. Factual allegations must be enough to raise a right to relief above the speculative level.

Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)(internal citations omitted). Courts are not “bound to accept as true a legal conclusion couched as a factual allegation.” Papasan v. Allain, 478 U.S. 265, 286 (1986).

         Rule 9(b) of the Federal Rules of Civil Procedure imposes more stringent pleading requirements on claims alleging fraud. Clausen v. Lab. Corp. of Am., Inc., 290 F.3d 1301, 1305 (11th Cir. 2002). The complaint must allege “facts as to time, place, and substance of the defendant's alleged fraud, specifically the details of the defendant['s] allegedly fraudulent acts, when they occurred, and who engaged in them.” Hopper v. Solvay Pharm., Inc., 588 F.3d 1318, 1324 (11th Cir. 2009).

         III. Analysis

         Enacted in 1863, the FCA “was originally aimed principally at stopping the massive frauds perpetrated by large contractors during the Civil War.” Universal Health Servs., Inc. v. United States ex. rel. Escobar, 136 S.Ct. 1989, 1996 (2016)(internal quotation marks omitted). “Since then, Congress has repeatedly amended the Act, but its focus remains on those who present or directly induce the submission of false or fraudulent claims.” Id. The FCA's civil penalties are “essentially punitive in nature” and subject defendants to treble damages plus penalties of up to $10, 000 per claim. Id. (internal quotation marks omitted).

         The FCA may be enforced by the government or by a relator through a qui tam action brought “in the name of the Government.” 31 U.S.C. § 3730(b). Thus, the FCA permits private persons to file qui tam actions on behalf of the United States against any person who:

(a)(1)(A) knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval;
(a)(1)(B) knowingly makes, uses, or causes to be made or used, a false record or statement material to a false ...

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