HOUSTON (CN) - Pharmacy service provider Omnicare must face claims that its practice of forgiving multimillion-dollar fees owed by nursing homes is Medicare fraud, a federal judge ruled.
Omnicare is the largest provider of pharmaceutical care services for residents of long-term care facilities in the United States and Canada.
Susan Ruscher was Omnicare's collections manager from 2005 to 2008.
After Omnicare fired her for raising concerns about its billing practices she filed a qui tam
whistleblower complaint against the company and 200 affiliates.
In the lawsuit she claims that to induce some nursing home owners to choose Omnicare for their residents' drug needs, Omnicare does not make them pay for drugs supplied to Medicare Part A beneficiaries.
Medicare Part A covers nursing home care.
According to Ruscher, the fraud started in 1998 and is continuing. As of late 2009, she claims, some of Omnicare's largest nursing home clients owed it more than $720 million in past due payments, with the bulk coming from "forgiven debt" kickbacks.
Ruscher claims the scheme boils down to a cost-benefit analysis for Omnicare.
Omnicare makes up the lost revenue by serving the homes' Medicaid Part D patients, which makes business sense given the large number of Part D benefit recipients compared to those covered by Part A, Ruscher claims in the lawsuit.
The federal government subsidizes the cost of prescription drugs for Medicare Part D enrollees.
Ruscher sued Omincare on behalf of the United States and several states in November 2008, alleging violations of the False Claims Act. The law requires whistleblowers to file a lawsuit under seal and entitles them to get 33 percent of any recovery.
The law also allows the feds to intervene, which they opted not to do in this case after a two-year investigation.
Ruscher filed a third amended complaint in August 2013 and Omnicare moved to dismiss, alleging she had failed to state a valid claim.
The False Claims Act makes any person or company that knowingly submits a phony claim civilly liable. Because Omnicare's alleged scheme involves forgiving debt, however, Ruscher argued that the criminal Anti-Kickback Statute serves as a predicate violation that triggers False Claims Act liability.
In its motion to dismiss, Omnicare argued that Ruscher's anti-kickback arguments were not specific enough, since she "has not alleged that Omnicare actually wrote off, or cleared the amounts due, never intended to collect the debt, or that any delay in collection was for the purpose of inducing a specific customer to give any Omnicare pharmacy Medicare Part D or Medicaid business."
U.S. District Judge Keith Ellison refused to dismiss the lawsuit last week.
But he did pare down Ruscher's claims to alleged kickbacks that took place between 2005 and 2008, when she worked for the company.
"The leap from that three-year period to '1998 to the present' is remarkable, and ultimately unsupportable," Ellison wrote.
The complaint includes claims brought under laws of 21 states and the District of Columbia. Ellison kept most of those intact but culled them to the 2005 through 2008 window, as he did for her federal claims.
Ruscher also sought damages from Joel Gemunder, Omnicare's CEO from 1981 to July 2010.
But Ellison chided her for adding Gemunder as a defendant in her third amended complaint without first seeking leave to add him, and ruled that the move "ran afoul of the Federal Rules of Civil Procedure."