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AstraZeneca Asks Court Not to Revive Whistle-Blower Suit

AstraZeneca Plc (AZN) and Bristol-Myers Squibb Co. (BMY) urged a Philadelphia federal appeals court not to revive a 10-year-old lawsuit alleging the drugmakers paid kickbacks to benefits manager Medco Health Solutions Inc.

A lower court in January dismissed the whistle-blower case brought by Karl Schumann, a former Medco employee, ruling that his allegations were based on public information and he failed to show he had direct and independent knowledge of a scheme. Schumann simply sat in meetings, the companies said, calling his lawsuit “parasitic” in court filings.

“It’s not enough under this court’s precedence for Mr. Schumann to come in and say, ‘I was a peripheral participant to the company’s discount negotiation,’” Catherine Stetson, an attorney for New York-based Bristol-Myers, told the three-judge appeals panel today.

Schumann filed a complaint in September 2003 on behalf of the U.S. government and 11 states alleging the companies paid kickbacks to Medco, then the largest manager of employee prescription-drug benefits, to buy and recommend brand-name drugs including London-based AstraZeneca’s heartburn medication Nexium.

False Claims

Schumann filed his case under the False Claims Act, which allows whistle-blowers to file suit on behalf of the U.S. against defendants for falsely claiming federal funds. The U.S. declined to participate in his case after six years of investigating the claims.

Whistle-blowers are entitled a portion of any recovery in a false-claims case. A decision by the government not to join the suit means plaintiffs must pursue the action at their own expense.

Schumann amended his complaint four times over eight years before it was finally dismissed. He claims that the lower court judge who threw out the case applied an incorrect standard requiring him to have direct knowledge of the fraudulent conduct.

“A relator need not know every aspect of the fraudulent scheme to qualify as an original source,” Paul Honigberg, an attorney for Schumann, argued in court today.

If Schumann can’t prove the companies actually carried through on the scheme he allegedly witnessed in meetings, how can he show it was really carried out, U.S. Circuit Judge Jane Roth said.

Claim Submitted

“It’s called the False Claims Act, but are we sure there was a false claim submitted by the drug companies?” she asked.

AstraZeneca and Bristol Myers argue that Schumann filed his complaint seven months after leaving Medco. Other complaints were filed during that time, triggering news articles and wide-ranging government inquiries, the companies’ said.

In October 2006, more than three years after Schumann sued, Medco agreed to pay $155 million to settle U.S. allegations that it accepted kickbacks from drugmakers. The settlement came as a result of the U.S.’s intervention in whistleblower complaints filed in 1999 and 2000.

Medco also agreed that month to settle Schumann’s claims, which allowed him to receive $860,000 as his share of the government’s recovery.

Medco was bought by St. Louis-based Express Scripts Holding Co. (ESRX) for $29 billion in 2012.

The case is U.S. ex rel Karl Schumann v. AstraZeneca Pharmaceuticals LP, 13-1489, U.S. Court of Appeals for the Third Circuit (Philadelphia)

To contact the reporter on this story: Sophia Pearson in federal court in Philadelphia at spearson3@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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