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FCA Claim Dismissed Because Whistleblower Not the 'Original Source' of Pricing Information

June 18, 2015

Author: Chris Cadena.

The Third Circuit recently affirmed a ruling that the False Claims Act’s (FCA) “original source rule” is not satisfied if a whistleblowing relator merely compiles publicly available information. In U.S. ex rel. Morgan v. Express Scripts, Inc., the court affirmed the dismissal of a whistleblower’s FCA allegations because the relator was not an original source of the information supporting his claims, as the information was publicly disclosed in various sources. The District Court of New Jersey had dismissed Morgan’s claim under Federal Rule of Civil Procedure 12(b)(1) for lack of subject matter jurisdiction. The Third Circuit affirmed the order granting the defendant’s motion to dismiss Morgan’s FCA and corresponding state law claims.

In Morgan, the pharmacist-turned-relator claimed that the pharmacy benefit manager (PBM) defendants used wholesaler First Databank, Inc. as their exclusive pricing source despite knowing that First Databank fraudulently inflated its standardized prices. As a result, Morgan claimed that the PBM defendants profited from charging inflated Average Wholesale Prices (AWPs) for brand-name drugs. He stated that he discovered the widespread price inflation of brand-name drugs “through his diligence.”  Morgan’s “diligence” consisted of comparing two publicly available price listings from a major pharmaceutical manufacturer – he never worked as an employee for any of the defendants.

Morgan’s allegations were directly based on public disclosures in the news media, other civil proceedings, and a Congressional report.  According to the Third Circuit, “the mere fact that Morgan quantified the AWP differential [disclosed in these sources] does not remove his allegations from the public disclosure realm” (emphasis added). Therefore, Morgan did not demonstrate the “direct and independent knowledge” required under the FCA’s original source requirement.

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Chris Cadena
Associate – San Francisco
Phone: +1 415.365.7279
Email: ccadena@crowell.com