Category: Pharmacy

The Granston Memo’s Effect: The DOJ is Dismissing Meritless and Frivolous Actions


The DOJ plans to dismiss eleven FCA lawsuits involving the new theory that patient assistance services supplied by drugmakers are unlawful kickbacks.[1] These lawsuits were brought by shell company whistleblowers backed by the National Healthcare Analysis Group (NHCA), a company that specializes in generating FCA cases. The eleven cases were essentially the same complaints with a different defendant.

The dismissals stem from the DOJ’s Granston memo, which directed federal attorneys to be more aggressive about ending flimsy FCA suits that are causing the government to incur substantial costs to litigate. It also hints that the DOJ is casting doubt on a theory that drugmakers have provided kickbacks to prescribers by assisting with prior authorizations and arranging for nurses to educate patients on proper drug use. Although the NHCA’s reaction accused the government of having a “disturbing alignment with Big Pharma,” the government contends that its high spending on prescription drugs creates a strong interest in making sure patients have basic product support in relation to those medications. These lawsuits “would undermine common industry practices the federal government has determined are, in this particular case, appropriate and beneficial to federal health care programs and their beneficiaries.” The cases also involved allegations of “white coat marketing,” which entails hiring contracted nurses to act as undercover sales reps who engage in prohibited marketing activities. However, the DOJ overlooked those claims, and still wants to dismiss these lawsuits.

The DOJ also accused the NHCA of dishonesty by saying that the transcripts from the “witness interviews reveals the false pretenses NHCA Group uses to obtain information.” Even with the government’s actions on the suits, NHCA believes that a handful of states will ultimately pursue the kickback claims independently, and that the NHCA may choose to challenge the DOJ’s dismissal efforts.

The eleven cases are:

  • S. ex rel. Health Choice Group LLC v. Bayer Corp. et al., case number 5:17-cv-00126;
  • S. ex rel. Health Choice Alliance LLC v. Eli Lilly & Co., case number 5:17-cv-00123;
  • S. ex rel. Health Choice Advocates LLC v. Gilead Sciences Inc. et al., case number 5:17-cv-00121;
  • S. ex rel. Miller v. AbbVie Inc., case number 3:16-cv-02111;
  • S. ex rel. CIMZNHCA v. UCB Inc., case number 3:17-cv-00765;
  • S. ex rel. Carle v. Otsuka Holdings Co., case number 17-cv-00966;
  • S. ex rel. SCEF LLC v. AstraZeneca PLC, case number 17-cv-01328;
  • S. ex rel. SMSF LLC v. Biogen Inc., case number 1:16-cv-11379;
  • S. ex rel. SAPF LLC, v. Amgen Inc., case number 16-cv-05203;
  • S. ex rel. SMSPF LLC v. EMD Serono Inc., case number 16-cv-05594; and,
  • S. ex rel. NHCA-TEV LLC v. Teva Pharmaceutical Products Ltd., case number 17-cv-02040.


The government’s move to dismiss the NHCA cases is consistent with the trend since the Granston memo to investigate qui tam cases more closely to weed out the frivolous and abusive, both to avoid unnecessary costs to the government and to protect providers from the time and expense of defending against them. It also demonstrates that the government is more willing than ever to consider the validity of novel FCA theories, rather than allow relators courts to create new rules for the administration of the federal healthcare programs.

7th Circuit Rules “Usual and Customary Pricing” Can Include Discount Programs


A recent whistleblower case could have a significant impact on Medicare Part D charge limits and corresponding reimbursement and could have ripple effects for aspects of other Medicare programs. The Seventh Circuit Court of Appeals ruled that reduced prescription prices offered by a large retail pharmacy (here Kmart) to participants enrolled in a popular discount program constitute the pharmacy’s “usual and customary” pricing for purposes of Medicare Part D prescription drug program claims. In US ex rel. Garbe v. Kmart Corp., the court ruled that Kmart’s discount drug program could not be distinguished from its non-discount pricing and excluded for determination of its “usual and customary” pricing, which functionally lowers the floor for Part D plan payments.

Many Medicare Part D plans require that aggregate pharmacy provider charges to not exceed the “usual and customary price.” The court notes that the term “usual and customary price” is generally understood to be the “cash price offered to the general public.” The question addressed here by the court was whether Kmart’s membership discount program, called the “Kmart Maintenance Program” (“KMP”), offering discounted prices to KMP members while charging higher prices to non-program insurers and cash customers was available to the “general public” and therefore considered the pharmacy’s usual and customary pricing.

In administering the KMP, Kmart hired a third-party processor to maintain the discount program. Kmart then determined its “usual and customary” price exclusive of the prices offered in the KMP, arguing that members of its discount programs were not part of the “general public.” The court disagreed with Kmart’s position and found that KMP pricing representing the usual and customary price. First, the court noted that the barriers to joining the discount programs were almost nonexistent and that members of the “general public” could easily become members of the discount programs by paying a small fee. Second, the court found that Kmart was not selective in who it permitted to join the program given that membership was offered to anybody who purchased prescription drugs. Third, the members of the programs were unlikely to consider themselves as belonging to any particular group because of their membership in the discount programs.

Going forward, the court affirmed the trial court’s denial of Kmart’s request for summary judgement with regard to calculation of Kmart’s “usual and customary” price, affirmed that the False Claims Act applies to almost all of the plaintiff’s claims and remanded the case to the district court for further proceedings.  The ultimate implications of the trial court’s holding on “usual and customary” meaning “cash price to the general public” will be fact-specific and must take into account specifically defined terms contained in individual state statute and PBM/administrator contracts/payor sheets in determining if there is False Claims Act liability with regard to various Medicare Part D claims.

Health Care Takeaway

Providers should carefully monitor the progress of this case. Pending a final resolution, they should consider whether their discount programs are structured such that they might be construed as being offered to the general public and whether such programs must be considered in determining “usual and customary pricing.” While it is by no means clear that all discount programs must be considered when calculating usual and customary pricing, discount programs that might affect usual and customary pricing should be carefully evaluated in coordination with claims processing and prescription drug plan contracting activities.

If you have any False Claims Act questions, please contact David B. Honig at or (317) 977-1447 or your regular Hall Render attorney. David is in our Indianapolis office.

If you have any pharmacy questions or specific questions about pricing, please contact Todd Nova at or (414) 721-0464, Rachael Ream at or (216) 513-1314 or Stephen Rose at or (425) 278-9337. Todd is in our Milwaukee office, and Rachael and Stephen are in our Seattle office.