United States District Court, M.D. Florida, Tampa Division
UNITED STATES OF AMERICA, et al., ex rel. MCKENZIE STEPE, Plaintiffs,
RS COMPOUNDING LLC d/b/a ZOE SCRIPTS LABORATORY SERVICES, LLC and d/b/a WESTCHASE COMPOUNDING PHARMACY, RENIER GOBEA, STEPHEN M. CADDICK, Pharm D., and JOHN DOE CORPORATIONS 1-10, all whose true names are unknown, Defendants.
VIRCMNIA M. HERNANDEZ, OVINGTON UNITED STATES DISTRICT JUDGE.
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.
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
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).
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.
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).
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).
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).
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).
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
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).
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).
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.).
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. (Doc. # 70).
Stepe responded on October 4 and 25, 2017. (Doc. ## 65, 73).
The Motions are ripe for review.
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.”)
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
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).
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.
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).
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 ...