United States District Court, M.D. Florida, Tampa Division
UNITED STATES OF AMERICA, ex rel. MCKENZIE STEPE, Plaintiffs,
RS COMPOUNDING LLC d/b/a ZOE SCRIPTS LABORATORY SERVICES, LLC and d/b/a WESTCHASE COMPOUNDING PHARMACY, and RENIER GOBEA, Defendants.
VIRGINIA M. HERNANDEZ COVINGTON UNITED STATES DISTRICT JUDGE.
matter comes before the Court pursuant to Defendants Renier
Gobea's Motion to Dismiss the United States' Amended
Complaint in Partial Intervention (Doc. # 74) and RS
Compounding LLC's Motion to Dismiss the United
States' Amended Complaint in Partial Intervention (Doc. #
75), both filed on October 31, 2017. The United States
responded on November 21, 2017. (Doc. # 85). For the reasons
that follow, the Motions are denied.
“co-founded RS Compounding . . . with Dr. Stephen
Caddick in 2004 . . . . Gobea is the current owner and
director of RS Compounding.” (Doc. # 42 at ¶ 10).
RS Compounding is a compounding pharmacy that does business
as Zoe Scripts and Westchase Compounding Pharmacy.
(Id. at ¶¶ 8, 35). RS Compounding's
products were prescribed to uninsured patients, patients
covered by private insurance, and those covered by federal
healthcare programs, such as TRICARE. (Id. at
¶¶ 12, 45).
is the federal healthcare program that “provides
coverage for approximately 9 million active duty military
personnel and their families.” (Id. at ¶
12). “TRICARE's regulations prohibit fraudulent and
abusive billing relationships.” (Id. at ¶
27). One type of abuse is “charging [TRICARE]
beneficiaries rates for services and supplies that are in
excess of those charges routinely charged by the provider to
the general public.” (Id.).
Scripts, Inc., is “the TRICARE retail and mail order
pharmacy services contractor for all TRICARE
beneficiaries.” (Id. at ¶ 21). In turn,
Express Scripts has a contract with “the Strategic
Health Alliance, the Pharmacy Services Administrative
Organization that assists pharmacies like RS Compounding with
negotiating representation with Express Scripts.”
(Id. at ¶¶ 22, 24). “RS Compounding
agreed to the terms in the contract between Express Scripts
and its Pharmacy Services Administrative Organization when it
became a TRICARE provider on June 5, 2009.”
(Id. at ¶ 25).
United States alleges that “[f]rom January 1, 2012 to
January 31, 2014, the Defendants knowingly submitted, or
caused to be submitted, thousands of false claims to TRICARE,
which resulted in millions of dollars of reimbursement that
would not have been paid but for the Defendants'
misconduct.” (Id. at ¶ 3). This alleged
fraud was brought to the United States' attention by
Relator McKenzie Stepe, who worked for RS Compounding as a
sales representative from November 2011 to February 2013.
(Id. at ¶ 7).
The Alleged Fraud
a break with the traditional use of compounded drugs,
Defendants took advantage of the high reimbursement rates for
compounded prescriptions by mass-producing these compounds
and eliminating, or at least sharply reducing, the
individualization of the compounds.” (Id. at
¶ 35). When wholesale companies sold medications to RS
Compounding, they “reported to RS Compounding two
prices: the Average Wholesale Price and the acquisition
price.” (Id. at ¶ 36). While the
“acquisition price was the price RS Compounding
actually paid for the medication, ” the Average
Wholesale Price was higher and “was reported to
nationally recognized pricing sources and third party payors,
including TRICARE.” (Id. at ¶ 37).
TRICARE “used the reported prices to set reimbursement
TRICARE “limits the amount it will pay for compound
formulations to ‘the lesser of the usual and customary
price or the maximum allowable cost.'”
(Id. at ¶ 23). “[T]he maximum allowable
cost for compounded prescriptions is the ‘Average
Wholesale Price' of the ingredients, ” meaning
“the average price at which wholesalers sell drugs to
their customers, including physicians and pharmacies.”
(Id. at ¶ 26). Under the Express Scripts manual
for pharmacies, the usual and customary price is the cash
price for a compound: the “retail price of a Covered
Medication in a cash transaction at the Pharmacy dispensing
the Covered Medication (in the quantity dispensed) on the
date that it is dispensed, including any discounts or special
promotions offered on such date.” (Id. at
¶ 24). “The Express Scripts Manual states that
‘[a]ll claims submitted must include the Pharmacy's
Usual and Customary retail price, including all discounts on
applicable date of fill'” - a requirement to which
RS Compounding is allegedly bound. (Id. at
the pharmacy's “Compounder” software system,
RS Compounding “reported the Average Wholesale Price .
. . instead of its acquisition cost” in its records.
(Id. at ¶¶ 38-39). And, “rather than
separately calculating or computing the Usual and Customary
cost of [each compounded prescription], the Compounder
software had an ‘Equalizer' button that made the
Usual and Customary cost of the compound equal to the Average
Wholesale Price.” (Id. at ¶ 40). Thus,
when it requested reimbursement for “each compounded
prescription, RS Compounding reported to TRICARE both an
Average Wholesale Price and a Usual Customary Price, ”
which “[w]ith few, if any exceptions” were the
same price. (Id. at ¶ 42). As a result, the
United States alleges, “RS Compounding did not
separately report to TRICARE the true Usual and Customary
price - that is, the price paid by cash paying
patients.” (Id. at ¶ 43). “Since
TRICARE pays the lesser of the Average Wholesale Price and
the Usual and Customary Cost, by equalizing the two amounts
Defendants guaranteed payment of the inflated Average
Wholesale Price.” (Id. at ¶ 44).
short, the United States alleges that, “[f]rom January
1, 2012 until January 31, 2014, RS Compounding sold the exact
same compounds to government and cash payors for drastically
different prices.” (Id. at ¶ 45). The
United States provides charts indicating the different rates
charged for two of RS Compounding's medications, with the
price per gram charged to TRICARE far exceeding the price per
gram paid by cash buyers. (Id. at ¶¶ 54,
61). For those two compounded medications, the United States
alleges RS Compounding charged between 2, 000 and 2, 100%
“more for the exact same compound than it charged cash
payors.” (Id. at ¶¶ 55, 62).
United States also provides charts listing sample claims for
drugs with inflated prices that were actually submitted to
TRICARE. (Id. at ¶¶ 58, 65). For example,
the United States identifies a prescription dispensed on
August 15, 2012, for patient C.E. (Id. at ¶
65). Although the cash price for the 240mg compound
prescribed was $30.00, RS Compounding charged TRICARE
$990.00. (Id.). According to the United States,
“[i]f TRICARE knew it was paying over 2, 000% more than
cash payors, it would not have paid such high reimbursements
to RS Compounding.” (Id. at ¶ 57).
“[e]ffective February 1, 2014, RS Compounding altered
its reimbursement scheme to stop offering the same
formulations to cash payors and TRICARE.” (Id.
at ¶ 47). This change was made because, on January 27,
2014, “Silas Raymond, RS Compounding's head
pharmacist, was notified that RS Compounding could not seek
reimbursement for formula it provided to cash-paying patients
at a discounted price.” (Id. at ¶ 48). At
Raymond's request, Megan Stead, a pharmacy technician and
Manager of Customer Service, drafted a new policy.
(Id. at ¶ 49). “Instead of extending the
same discounts offered to cash paying customers to government
payors (like TRICARE), RS Compounding's new policy
instead ceased offering the same compounds to cash and
insured payors.” (Id.). A new formulation was
created just for cash payors and “offered cash payors
the same low costs.” (Id. at ¶ 50).
“At that same time [RS Compounding] continued offering
its ‘custom' formulations to insured patients at
inflated rates.” (Id.).
to the United States, the means by which RS Compounding
changed its billing practices - i.e. no longer providing the
exact same formulations to cash payors and TRICARE, rather
than charging TRICARE the lower prices previously charged to
cash payors - is meaningful. In the United States' eyes,
this decision to continue charging TRICARE high rates
confirms that RS Compounding knew “of the unlawfulness
of its disparate pricing scheme.” (Id. at
¶ 52). And the United States alleges that,
“[d]espite this knowledge, neither Gobea nor RS
Compounding made any attempt to refund the difference between
the price paid by cash payors and the amount submitted for
reimbursement to TRICARE.” (Id. at ¶ 53).
Gobea's Alleged Personal Involvement
United States alleges “Gobea knowingly participated in
determining the disparate amounts charged for RS
Compounding's products and, as such, the amounts for
which Defendants submitted claims to the government”
and “knowingly participated in falsely certifying the
Usual and Customary price to TRICARE.” (Id. at
¶¶ 80-81). The United States emphasizes that Gobea
is the owner and sole shareholder of RS Compounding, and that
“RS Compounding has no recorded officers or directors
besides Gobea.” (Id. at ¶¶ 66, 86).
Gobea was also RS Compounding's highest-paid employee,
receiving a monthly salary of up to $120, 000 and taking
“shareholder distributions from the company whenever he
pleased” without a “set schedule or procedure for
these distributions.” (Id. at ¶¶
83-85). The “salary and distributions Gobea gave
himself have significantly impaired RS Compounding's
ability to pay its obligations under the [FCA].”
(Id. at ¶ 85).
to the United States, “[f]ew details about Gobea's
business were too small to merit his attention.”
(Id. at ¶ 73). He hired and fired employees,
approved the costs of renewing pharmacy licenses, and
approved the use of “a different type of compound base
that had a ‘significantly higher' Average Wholesale
Price.” (Id. at ¶¶ 73, 75-76). Gobea
“requested that he see every audit response before it
was submitted to Express Scripts” and “became
involved when legal and regulatory matters arose.”
(Id. at ¶¶ 75, 77). Gobea was informed by
Stead “of the policy change to cease offering identical
formulations to TRICARE and cash payors.” (Id.
at ¶ 82). But, “[d]espite Gobea's knowledge
that RS Compounding's prior practices were unlawful, he
made no effort to return the exorbitant amounts his company
had charged TRICARE.” (Id.).
the United States alleges that Gobea at least
“deliberately ignored and/or recklessly disregarded the
falsity of the information RS Compounding submitted to
TRICARE” and “the fraudulent practices of his
employees.” (Id. at ¶ 68).
December 16, 2013, Relator 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 ...