United States of America ex rel. Uri Bassan v. Omnicare, Inc.

Background

The court considered CVS Health Corporation’s reserved motion for a directed verdict, also called judgment as a matter of law, under Federal Rule of Civil Procedure 50. The motion asked the court to reject the Government’s claims against CVS Health Corporation after the Government had presented its evidence and again after all evidence had been presented.

The Government alleged that CVS Health Corporation caused its subsidiary, Omnicare, Inc., to submit false or fraudulent claims to government-sponsored health-care programs. The alleged false claims involved Omnicare’s dispensing of non-controlled prescription drugs at certain long-term-care facilities without valid prescriptions required by state law. The Government’s theory focused on CVS Health Corporation’s obligations under a Corporate Integrity Agreement that it signed with the Department of Health and Human Services Office of Inspector General in October 2016.

The jury found that the Government proved falsity, knowledge, and materiality, and that CVS Health Corporation caused 1,016,039 false or fraudulent claims after CVS Pharmacy, Inc. acquired Omnicare. The jury also found that CVS Health Corporation’s conduct did not cause the Government to suffer damages. The court then addressed whether the claims should have been removed from the jury under Rule 50.

CVS Health Corporation’s arguments

CVS Health Corporation argued that it could not be liable because it was a publicly traded holding company with no employees and no pharmacy or other business operations. It did not itself dispense medications or submit reimbursement claims to the Government. It also argued that Omnicare managed its own dispensing practices after the acquisition and that CVS Health Corporation’s conduct amounted only to ownership, corporate integration, ordinary oversight, or awareness of Omnicare’s practices.

The court agreed that a parent company is not automatically liable for a subsidiary’s misconduct. The Government had not attempted to disregard or “pierce” the corporate separation between CVS Health Corporation and Omnicare. Therefore, Omnicare’s actions could not simply be attributed to CVS Health Corporation. The court also agreed that ownership, integration into a larger corporate structure, ordinary oversight, or signing a general compliance agreement would not, standing alone, establish liability under the False Claims Act.

Corporate Integrity Agreement

The court concluded that CVS Health Corporation was a party to the Corporate Integrity Agreement and was bound by certain obligations under it. Although the agreement broadly defined “CVS Health” to include CVS Health Corporation and its subsidiaries, the agreement generally exempted subsidiaries other than Omnicare unless it specifically stated otherwise. The court read the agreement as imposing the relevant obligations on CVS Health Corporation and Omnicare.

The agreement required compliance systems and procedures designed to ensure accurate prescription-drug labeling, tracking, dispensing, and billing to federal health-care programs. It also required oversight of institutional pharmacy operations, internal review, reporting, and certifications of compliance. The court determined that the agreement’s requirement for routine audits of automated prescription-labeling and dispensing systems could encompass Omnicare’s dispensing systems and the legal requirement that prescription drugs be dispensed only as authorized by valid prescriptions.

David Falkowski, an employee of CVS Pharmacy, Inc., served as the Chief Compliance Officer for “CVS Health” under the agreement. He had responsibilities to oversee compliance, develop and enforce compliance policies, monitor compliance activities, review audit findings, report to the board committee, and make annual certifications. He certified in March 2017 and February 2018 that CVS Health had implemented procedures reasonably designed to ensure accurate dispensing of prescription drugs, even though the evidence showed that known dispensing problems had not been fully corrected.

Evidence supporting the verdict

The evidence, viewed in the light most favorable to the Government, showed that Omnicare personnel had identified problems involving rollover or cycle-fill dispensing and the use of chart orders or physician order sheets. Those issues concerned whether prescriptions complied with state-law requirements. After the acquisition, CVS Pharmacy’s risk-assessment teams identified the problems as high-priority compliance risks and proposed solutions, including changes to dispensing software and a review of state prescription laws.

The evidence also showed that a system control addressing the rollover problem was implemented and later reversed as a business decision. The issue remained unresolved for an extended period. Communications about the problem reached Mr. Falkowski, and the court stated that a reasonable jury could infer that he knew about the unresolved risks and the reversal of the system correction.

The Government argued that CVS Health Corporation’s conduct was more than passive ownership or general awareness. Its theory was that CVS Health Corporation had the power and contractual responsibility to address the problems, knew about them, certified compliance anyway, and thereby caused Omnicare’s continued submission of false claims.

Ruling

The court denied CVS Health Corporation’s motion for a directed verdict. It reasoned that the evidence could support a finding that CVS Health Corporation undertook affirmative obligations under the Corporate Integrity Agreement and carried them out through its subsidiaries and agents, including Mr. Falkowski.

The court rejected the argument that an employee of CVS Pharmacy could not act on behalf of CVS Health Corporation. Because CVS Health Corporation was not exempt from the agreement, the court concluded that a reasonable jury could find that CVS Pharmacy and Mr. Falkowski acted, or failed to act, on CVS Health Corporation’s behalf while performing the obligations imposed by the agreement.

The court further concluded that the Government’s theory involved more than ownership, awareness, ordinary oversight, or corporate integration. A reasonable jury could find that CVS Health Corporation, acting through its agent, knowingly ratified or facilitated Omnicare’s continued conduct by failing to correct known regulatory problems while making compliance certifications. The court therefore denied the motion and directed the Clerk to remove it from the list of open motions. The opinion does not state that the court entered a damages judgment against CVS Health Corporation; it states that the jury found no damages caused by its conduct.