Liberty Mutual Group, Inc. v. 700 Pharmacy, LLC

In Liberty Mutual Group, Inc., et al. v. 700 Pharmacy, LLC, et al., 2022 PA Super 2022, several insurance companies filed suit against multiple physicians and pharmacies claiming fraud, aiding and abetting and unjust enrichment. The insurance companies claimed the health care defendants created an unlawful business structure under which doctors prescribed illegally produced topical compound pain creams to patients who had been injured at work or in automobile accidents. The patients then filled the prescriptions at pharmacies in which the doctors had a financial interest. The insurance companies alleged the compound pain creams were formulated by pharmacies for the sole purpose of generating a profit and the defendant doctors were receiving unlawful kickbacks. The insurance companies also claimed the health care defendants made false and fraudulent representations to the insurance companies by submitting, or causing to be submitted for payment, invoices for fraudulent compounded creams.

The health care defendants moved for summary judgment arguing that the insurance companies had neither presented nor produced any evidence to support the allegations in the complaint. The health care defendants argued the evidence established the pharmacies (1) dispense a wide range of medications, including compound medications, (2) are licensed and operate within the boundaries of state and federal law, (3) have physicians with minority ownership consistent with state and federal law, (4) paid each owner (whether or not a physician) profits based solely upon their percentage of ownership, i.e., there were no kickbacks, (5) did not require physician owners to prescribe any medications through the pharmacies, and (6) operated legally. The health care defendants also claimed the trial court lacked subject matter jurisdiction because the insurance companies failed to join indispensable parties, including at least two doctors who had received dividends from the pharmacies after prescribing compound pain creams in 2016.

The trial court granted summary judgment in favor of the health care providers and dismissed the complaint, finding the insurance companies failed to produce evidence to show the health care defendants made material misrepresentations to support their claim of fraud. The trial court concluded it did not have jurisdiction to consider whether the letters of necessity contained misrepresentations about the necessity of each patient’s medical treatment outside of the Workers’ Compensation Act. The court also found the prescription pain creams met the definition of a “compound drug” under Section 503A of the FDCA and the health care defendants’ business structure was legal. Finally, the trial court concluded there was no evidence to support a claim for unjust enrichment and that, because of the insurance companies’ failure to prove an underlying tort by the health care defendants, their aiding and abetting claim must also fail.

On appeal, the Pennsylvania Superior Court determined that absent an appropriate claim and identifiable issues of material fact concerning misconduct by the unnamed defendants, the record did not establish that they were indispensable parties. Pa. State Educ. Ass’n v. Commonwealth, 50 A.3d 1263, 1277 (Pa. 2012); Martin v. Rite Aid of Pa., Inc., 80 A.3d 813, 814 (Pa. Super. 2013) Nonetheless, the insurance companies were not entitled to relief because the trial court did not have subject matter jurisdiction to review the letters of medical necessity outside the procedures of the Pennsylvania Workers’ Compensation Act.  77 P.S. § 531(6); Burgess v. Workers’ Compensation Appeal Board (Patterson-UTI Drilling Company LLC), 231 A.3d 42, 46-47 (Pa. Cmwlth. 2020) (Utilization Review is a mandatory first step in determining whether a provider’s treatment is reasonable and necessary.)

The Superior Court next addressed the fraud claims. To establish a claim for common law fraud, the plaintiff must demonstrate: (1) A representation; (2) which is material to the transaction at hand; (3) made falsely, with knowledge of its falsity or recklessness as to whether it is true or false; (4) with the intent of misleading another into relying on it; (5) justifiable reliance on the misrepresentation; and, (6) the resulting injury was proximately caused by the reliance. Weston v. Northampton Pers. Care, Inc., 62 A.3d 947, 960 (Pa. Super. 2013). “Unsupported assertions and conclusory accusations cannot create genuine issues of material fact as to the existence of fraud.” Hart v. Arnold, 884 A.2d 316, 339 n.7 (Pa. Super. 2005).

The Superior Court found that the insurance companies failed to establish how the inclusion of uncontrolled, non-peer reviewed studies, is a fact, or even presents a material issue of fact, amounting to a material misrepresentation by the medical providers who submitted the letters of medical necessity as a template for their insurance claims. Further, even accepting the insurance companies’ assertions that “gastrointestinal issues were not reflected in every patient’s medical records” or that the creams did not appear to reduce opioid levels, those facts do not establish that the providers misrepresented their patients’ need for topical pain creams. Moreover, the Court concluded the insurance companies failed to present evidence to establish the health care defendants failed to comply with Section 503A of the FDCA. The Court explained that Section 503A limits the quantity of drug product pharmacies may compound before receiving a prescription; however, there is nothing in the record to establish any of the pharmacies exceeded those limitations. Further, the pain cream formula need only be prescribed for an individual patient, not solely for one patient.

The Court concluded that physician ownership is not prohibited by the Pharmacy Act if the medical practitioners holding a proprietary or beneficial interest in the pharmacy does not exercise supervision or control over the pharmacist in his professional responsibilities and duties. The evidence shows the interest owned by the physicians is not more than 49 percent, a percentage that has been approved by the Pharmacy Board. The evidence further showed the interest held by the defendant physicians was non-voting, non-controlling and non-supervisory. Moreover, the Court determined there was no evidence correlating the amount of the dividend received by the investor to the number of prescriptions written and that the defendant physicians were paid more dividends based on the number of prescriptions for pain cream they wrote. Owners were paid dividends based on the pharmacies’ profits, which included compounded drugs as well as pills and other medications the pharmacies were authorized to dispense and the percentage of ownership in the pharmacy. The fact that the investors were paid large dividends does not correlate to illegal kickbacks. Lastly, according to Title 35 P.S. § 449.22 (a), a physician may refer a patient to a pharmacy if the physician disclosed his/her financial interest in the pharmacy evidence showed that, in fact, such disclosures were made; thus, was no evidence of illegal self-referrals.

To succeed on an unjust enrichment claim, the plaintiff must prove: (1) benefits were conferred on the defendant by the plaintiff; (2) appreciation of such benefits by the defendant; and (3) acceptance and retention of such benefits under such circumstances that it would be inequitable for the defendant to retain the benefit without payment of value.” Wilson v. Parker, 227 A.3d 343, 353 (Pa. Super. 2020) (citation omitted). The Court ruled because the insurance companies failed to produce evidence to prove fraud, their unjust enrichment claim also failed. Likewise, the Court concluded that since the claims for fraud and insurance fraud failed, the underlying unlawful act required to state a claim for aiding and abetting is nonexistent and therefore the claim was dismissed. The Superior Court ultimately ruled the insurance companies were not entitled to relief.