Strangest Regulatory Interpretation of the Month


The Massachusetts federal district court is hands-down winner of the August award for strangest regulatory interpretation of the month.

The interpretation came in the context of denial of Omnicare’s summary judgment motion in a False Claims Act (FCA) action brought against it by three whistleblowers.   The allegation was that Omnicare violated the Anti-Kickback Statute (AKS) by accepting discounts on drugs in return for promoting them to its pharmacies and then violated the FCA by submitting AKS-tainted claims for reimbursement to Medicaid without disclosing the discounts to Medicaid. The federal government and 28 states declined to intervene on behalf of the whistleblowers.

Omnicare based its motion primarily on the AKS safe harbor protecting discounts that are (1) fixed and disclosed in writing at the time of initial sale and (2) for which the provider furnishes documentation “upon request by the Secretary [of HHS] or a state agency.”  The court acknowledged fulfillment of the first requirement but ruled that Omnicare had failed the second.

This is where the strangeness comes in.  The court concluded that Omnicare failed “to disclose upon request” because neither the Secretary nor any state agency ever made a request.   In other words, the court interpreted the disclose-upon-request requirement as failed whenever there has been no request.  The court declared that to do otherwise would reward Omnicare “for either its own good luck or regulatory laxity.”

Generally, when Medicare and Medicaid claimants rely on this discount safe harbor, they consider themselves fortunate when no governmental authority requests documentation—much as taxpayers consider themselves fortunate not to be selected for audit.  But under the court’s reasoning in this case, those claimants are the unfortunate ones because they have lost the protection of the safe harbor.

The case is United States ex rel. Banigan v. Organon USA, No. 07-12153-RWZ (D. Mass., Aug. 23, 2016).

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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