Nothing New: Sixth Circuit Rejects Suit Against Rite Aid Under the Public Disclosure Bar

In a recent, noteworthy decision under the public disclosure bar, the Sixth Circuit rejected the claims of a relator whose “input consist[ed] solely of putting more flesh on [a] fraud scheme, of which the bones were already public.”

In United States ex rel. Rahimi v. Rite Aid Corp., No. 20-1063, 2021 WL 2660331 (6th Cir. June 29, 2021), relator Azam Rahimi alleged that Rite Aid overbilled government healthcare programs by failing to offer them an equivalent-or-better discount than that offered to other healthcare programs through Rite Aid’s “Rx Savings Program”—i.e., “the usual and customary charge to the general public” (U&C). Relator suspected fraud after reviewing Rite Aid ads and then reached out to a former classmate and Rite Aid pharmacist, John Doe, for more information. Mr. Doe then reached out to his cousin, a Rite Aid customer and Medicaid beneficiary, to gather receipts, which he shared with Rahimi. Rahimi filed his qui tam suit in May 2011.

Unfortunately for Rahimi, he was not the first to flag this alleged fraud: In 2010, the state of Connecticut issued a press release—which was widely reported in the US by national and local media—conveying that it was subpoenaing Rite Aid for information related to changes to its discount drug pricing. The press release specifically referenced the Rx Savings Program. On top of that, in 2009 and 2010, HHS-OIG announced that it would be reviewing whether large chain pharmacies were billing Medicaid the U&C charges for certain generic drugs. Additionally, a different qui tam action alleging a similar scheme by Kmart Pharmacies was unsealed a month before Rahimi filed suit. Finally, Rite Aid’s own ads announced that prescriptions covered by government healthcare programs were ineligible for discounted drug pricing.

The district court, focusing primarily on the press release and related publicity, granted Rite Aid’s motion for judgment on the pleadings based on the public disclosure bar. Rahimi appealed, arguing chiefly that the press release did not sufficiently disclose the “essential elements” of the fraud he alleged because: (1) unlike his allegations of billing fraud, the press release concerned Rite Aid’s pretextual use of a Connecticut law to justify its price increases and (2) his allegations of a nationwide fraud were not adequately disclosed through “a single news article about a single investigation by a single state attorney general.” Additionally, he argued that, regardless of the press release, he was an original source and thus excepted from the public disclosure bar.

The Sixth Circuit disagreed. Relying heavily on United States ex rel. Winkelman v. CVS Caremark Corp., 827 F.3d 201 (1st Cir. 2016), it found that, once the press release and news coverage were out in the public domain, “the essential elements of the alleged fraud were in plain sight.” In particular: (1) the press release and related publicity “sufficiently disclosed the fraud by allowing readers to infer that Rite Aid requested reimbursement from the government for prescription drugs at higher prices than it offered through the Rx Savings Program” and (2) “the same fraudulent scheme [as that alleged by Rahimi] was laid bare in the Connecticut disclosures”—notwithstanding their more limited geographic focus—and so Rahimi’s “identification of additional government programs does nothing more than add a level of detail to knowledge that was already in the public domain.”

The Sixth Circuit also rejected Rahimi’s original source argument, finding “that the majority of Rahimi’s information was not gained by his own efforts and instead came from John Doe (and Doe’s cousin)” and that “Rahimi’s own investigation boiled down to calling various Rite Aid pharmacies and inquiring about particular drug prices charged to customers, not the prices submitted to the government for reimbursement.” This was simply not enough to constitute “direct and independent knowledge” sufficient to overcome the bar.

One especially interesting point about this decision: In its analysis of the original source exception, the Sixth Circuit observed “an apparent conflict” between its prior interpretation of the exception—i.e., that a relator must have provided its information to the government prior to any public disclosure to qualify—and the intervening SCOTUS decision in Rockwell International Corporation v. United States, 549 US 457 (2007). Observing that this was “one of those unusual cases” in which an intervening SCOTUS decision “allow[ed] a panel of our court to revisit prior precedent ‘even in the unusual situation where binding circuit precedent overlooked earlier Supreme Court authority,’” the Sixth Circuit found that its prior interpretation was incompatible with Rockwell. And joining its sister circuits, it noted that it would “no longer require that a relator provide information to the government prior to any public disclosure to qualify as an original source.” Unfortunately for Rahimi, however, this shift in caselaw did not help him overcome his public disclosure bar hurdles.

Stay tuned as we continue to track the Sixth Circuit’s application of the public disclosure bar, including its clarified interpretation of the original source exception.

© Arnold & Porter Kaye Scholer LLP 2021 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.