A New York federal judge recently dismissed two separate cases brought by Fox Rx Inc.--one against Omnicare, the other against Walgreens. In both complaints, Fox asserted that the pharmacies (1) failed to substitute generic drugs for brand-name drugs in states that have laws that mandate such substitution, and (2) dispensed drugs after the termination date of a national drug code in states that have laws prohibiting pharmacies from dispensing drugs beyond their shelf-life expiration dates.
The complaint alleged that by engaging in practices that violated state law, the defendants falsely indicated in “submissions” to a federal agency that the drugs they dispensed were covered by Medicare, and thus overcharged the government. Judge Denise Cote disagreed, essentially ruling that the defendants' potential violations of state laws, without more, were not violations of the False Claims Act (FCA).
View the full Omnicare opinion here.
Dispense As Written Codes
Physicians sometimes write prescriptions for drugs by using the name of the branded drug even after its generic equivalent has become available on the market. To explicitly indicate a preference for the brand-name drug, the physician may write “dispense as written” (“DAW”) or “brand necessary.” When a doctor doesn’t include this product-specific notation, nine states actually require the pharmacist to dispense the generic version of the drug.
Florida law, for example, provides that “[a] pharmacist who receives a prescription for a brand name drug shall . . . substitute a less expensive, generically equivalent drug product . . . [l]isted in the formulary of generic and brand name drug products” established by that pharmacy, except where otherwise requested by the purchaser or the prescriber.
Fox argued that the pharmacy defendants utilized a “0” DAW Code when they chose not to substitute an available generic, even though state pharmacy laws and their contracts with Part D Sponsors required the substitution. As the image below indicates, “0” could mean many things, including the fact that no indication was written by the prescriber:
By choosing “0,” the pharmacies would essentially be stating that a generic substitution would be allowed, because, for example, the prescriber didn’t specify a brand name. The court outlined Fox's argument that under state law, when the prescriber does not specifically state “dispense as written” or certain other exceptions, “the branded drug may only be lawfully dispensed when the generic is unavailable,” which would fall into DAW 8, in the chart above. “In such circumstances, the pharmacist who dispenses the branded drug should use the DAW Code '8' to indicate that the generic drug was not available in the marketplace and may not use the DAW Code '0' to indicate that the prescribing physician made no selection of a branded or generic drug.”
But the court pointed out an interesting flaw in Fox's analysis:
“[I] the pharmacist ignored state law and dispensed branded drugs even when the generic version is available -- which is the crux of Fox’s accusation -- the pharmacist should not use the DAW Code ‘8’ to indicate that the generic drug was unavailable. Using an ‘8’ in such circumstances might constitute a false statement. The appropriate code is ‘0’ -- the very code that Fox asserts was utilized here. Thus, even under this construction of Fox’s theory of liability, there is no factually false statement made when the pharmacist (or the sponsor) uses the DAW Code ‘0.’”
By filling out “0” and not substituting the generic, the pharmacies would have broken state law in the nine states requiring it. But this wouldn’t necessarily rise to the level of fraud under the False Claims Act, the court reasoned. Thus, they dismissed this claim.
Termination of National Drug Code
Second, Fox alleged that the pharmacies had dispensed drugs and submitted claims to Medicare after the termination date of the relevant National Drug Code (NDC), an 11-digit number indicating manufacturer and product, among other information. This termination date typically coincides with when a drug product is discontinued or withdrawn from the market due to health and safety reasons. However, the judge ruled that Fox failed to show that an NDC termination date always equates to an expiration date. Fox wrongly conflated the two, the judge said.
“It is assumed for purposes of this discussion that the submission to CMS of a claim for payment of a drug that was dispensed after the drug’s expiration date constitutes a violation of the FCA,” the court stated. “Despite that assumption, Fox has failed to plead a violation of the FCA.” Fox’s complaint did not assert that a pharmacy “dispensed drugs after the expiration date for the drugs.” Instead, Fox asserted that the pharmacies dispensed drugs after their NDC termination dates and insisted that the NDC termination date should be equated with the drug’s expiration date.
“Because Fox has failed to adequately plead, however, that the termination date of an NDC number and the expiration date of a quantity of manufactured drugs are the same, these claims must be dismissed.”
The facts in this case are fairly specific, and it would be risky to apply this opinion to a broad assertion that violating state generic substitution laws can never serve as a grounds for FCA liability. A different complaint may have achieved a different result.
On the generics issue, Judge Cote stated that “Fox’s allegation effectively amounts to a claim that the pharmacies shouldn’t have dispensed branded drugs in states with statutory mandates to use generic drugs, and these alleged violations of state law are not violations of the FCA or Medicare law.” Furthermore, Judge Cote took a very mechanical approach in showing why, even if the pharmacies did improperly dispense brand names instead of generics, they did not misrepresent their actions on the DAW Code form.
A major takeaway seems to be that Fox did a poor job in tying the state law violation to a scheme that suggested the pharmacies’ attempting to defraud the government. The plaintiff didn’t allege that pharmacies were specifically engaging in unlawful coding to charge the government more money for brand drugs.
Fox's second allegation was a reach. By making the broad assertion that the drug's termination date on the NDC equated to its expiration date, the plaintiff exposed themselves to an easy dismissal. Judge Cote left open the possibility that submitting a claim for payment to CMS of a drug that was dispensed after the drug’s expiration date could constitute a violation of the FCA, but she didn't have to address it because Fox's allegation failed on its face.
It will be interesting to see if more FCA cases crop up against pharmacies and other intermediaries between drug companies and the patient, especially now that plaintiffs are more aware of what not to do.