A former executive at Medco Health Solutions Inc. who sued the health care company on behalf of the United States, California, Florida and New Jersey for allegedly violating anti-kickback laws lacked immediate knowledge of any wrongdoing, a Delaware federal judge ruled on Tuesday.

The whistleblower, former Medco vice president of pharmaceutical contracting Paul Denis, had accused the company of defrauding the government by favoring certain drugs in exchange for kickbacks from AstraZeneca disguised as discounts, which the firm failed to disclose with its clients, including health care plans subsidized by Medicare Part D. The lawsuit was brought under the False Claims Act and related state laws.

Denis said Medco had hid its rebates for more than a decade, dating back to the early 2000s, when it spent more than three years litigating a similar suit by the federal government. Medco settled the suit with the United States in October 2006 and entered a corporate integrity agreement with the Department of Health and Human Services and the Office of Personnel Management.

According to the complaint, the government was particularly concerned about the profit-seeking tactics Medco used to disguise and conceal rebates from pharmaceutical manufacturers to avoid its obligations to pass them on to its customers.

Under the agreement, Medco was required to monitor and track all compensation it received on behalf of drugmakers. However, the agreement specifically excluded relatively small discounts from prompt invoice payments, which typically are not shared with clients.

Denis said Medco always knew the AstraZeneca arrangements were intentionally mischaracterized, but allowed the scheme to continue so that it could continue to disguise rebates as purchase discounts.

“Medco intentionally avoided informing the federal government, as well as states, private employers, unions and health plan administrators, of the true price being paid by Medco for the relevant AZ drugs, thus engaging in deceptive and fraudulent [actions] in violation of the CIA, which was imposed upon Medco for other deceptive and fraudulent conduct.

However, the suit gained little traction in the U.S. District Court for the District of Delaware since it was first filed in 2011. Earlier this year, Judge Richard G. Andrews dismissed the case under the first-to-file rule and the public disclosure bar of the False Claims Act, which requires whistleblowers to be an “original source” who could not have learned of supposed wrongdoing from channels outside the company.

The law was amended in 2010 to remove a requirement that whistleblowers have first-hand knowledge of corporate wrongdoing and replaced it with language mandating that the knowledge be independent and more developed than information that is already publicly disclosed.

Andrews wrote that the amended statute has led to an “awkward rule” in cases that cite wrongdoing that both before and after the 2010 changes took place. In the U.S. Court of Appeals for the Third Circuit, he said, courts are forced to essentially bifurcate the claim on the effective date of the 2010 amendments and then evaluate the same claim using both versions of the public disclosure bar.

“From this court's perspective, the better approach would be to apply the pre-2010 public disclosure bar to the entire continuing fraud claim, because that was the statute in effect at the time the claim accrued, and the statute is not retroactive,” he said.

Nevertheless, Andrews found that Denis' claims failed under both versions of the public disclosure bar.

Under the pre-2010 standard, Andrews said, Denis lacked direct knowledge of Medco's alleged scheme because, despite his high-ranking status, he had not negotiated or administered any contracts between Medco and AstraZeneca.

“In other words, the complaint does not allege that Denis saw or heard the information first-hand. For these reasons, Denis has not demonstrated that he qualifies as an original source under the pre-2010 disclosure bar,” Andrews wrote in a 14-page memorandum opinion.

Andrews continued that Denis' complaint lacked any concrete allegations of post-2010 wrongdoing, beyond stating that Medco had renewed its agreements with AstraZeneca from 2011 to 2013.

“These allegations do not add anything significant to the 'who, what, when, where and how' of the fraudulent scheme,” for Denis to qualify as an original source he said, dismissing the case with prejudice.

Attorneys from both sides did not immediately respond to calls requesting comment, and Medco could not immediately be reached for comment.

The United States, Florida, California and New Jersey were represented by Shannon Thee Hanson, Jeffrey A. Wertkin, William E. Olson and Tiphanie P. Miller of the U.S. Department of Justice.

Denis was represented by Jeffrey S. Goddess and P. Bradford deLeeuw of Rosenthal, Monhait & Goddess.

Medco was represented by Rodger D. Smith II of Morris, Nichols, Arsht & Tunnell.

The case was captioned Doe v. Medco Health Solutions.

A former executive at Medco Health Solutions Inc. who sued the health care company on behalf of the United States, California, Florida and New Jersey for allegedly violating anti-kickback laws lacked immediate knowledge of any wrongdoing, a Delaware federal judge ruled on Tuesday.

The whistleblower, former Medco vice president of pharmaceutical contracting Paul Denis, had accused the company of defrauding the government by favoring certain drugs in exchange for kickbacks from AstraZeneca disguised as discounts, which the firm failed to disclose with its clients, including health care plans subsidized by Medicare Part D. The lawsuit was brought under the False Claims Act and related state laws.

Denis said Medco had hid its rebates for more than a decade, dating back to the early 2000s, when it spent more than three years litigating a similar suit by the federal government. Medco settled the suit with the United States in October 2006 and entered a corporate integrity agreement with the Department of Health and Human Services and the Office of Personnel Management.

According to the complaint, the government was particularly concerned about the profit-seeking tactics Medco used to disguise and conceal rebates from pharmaceutical manufacturers to avoid its obligations to pass them on to its customers.

Under the agreement, Medco was required to monitor and track all compensation it received on behalf of drugmakers. However, the agreement specifically excluded relatively small discounts from prompt invoice payments, which typically are not shared with clients.

Denis said Medco always knew the AstraZeneca arrangements were intentionally mischaracterized, but allowed the scheme to continue so that it could continue to disguise rebates as purchase discounts.

“Medco intentionally avoided informing the federal government, as well as states, private employers, unions and health plan administrators, of the true price being paid by Medco for the relevant AZ drugs, thus engaging in deceptive and fraudulent [actions] in violation of the CIA, which was imposed upon Medco for other deceptive and fraudulent conduct.

However, the suit gained little traction in the U.S. District Court for the District of Delaware since it was first filed in 2011. Earlier this year, Judge Richard G. Andrews dismissed the case under the first-to-file rule and the public disclosure bar of the False Claims Act, which requires whistleblowers to be an “original source” who could not have learned of supposed wrongdoing from channels outside the company.

The law was amended in 2010 to remove a requirement that whistleblowers have first-hand knowledge of corporate wrongdoing and replaced it with language mandating that the knowledge be independent and more developed than information that is already publicly disclosed.

Andrews wrote that the amended statute has led to an “awkward rule” in cases that cite wrongdoing that both before and after the 2010 changes took place. In the U.S. Court of Appeals for the Third Circuit, he said, courts are forced to essentially bifurcate the claim on the effective date of the 2010 amendments and then evaluate the same claim using both versions of the public disclosure bar.

“From this court's perspective, the better approach would be to apply the pre-2010 public disclosure bar to the entire continuing fraud claim, because that was the statute in effect at the time the claim accrued, and the statute is not retroactive,” he said.

Nevertheless, Andrews found that Denis' claims failed under both versions of the public disclosure bar.

Under the pre-2010 standard, Andrews said, Denis lacked direct knowledge of Medco's alleged scheme because, despite his high-ranking status, he had not negotiated or administered any contracts between Medco and AstraZeneca.

“In other words, the complaint does not allege that Denis saw or heard the information first-hand. For these reasons, Denis has not demonstrated that he qualifies as an original source under the pre-2010 disclosure bar,” Andrews wrote in a 14-page memorandum opinion.

Andrews continued that Denis' complaint lacked any concrete allegations of post-2010 wrongdoing, beyond stating that Medco had renewed its agreements with AstraZeneca from 2011 to 2013.

“These allegations do not add anything significant to the 'who, what, when, where and how' of the fraudulent scheme,” for Denis to qualify as an original source he said, dismissing the case with prejudice.

Attorneys from both sides did not immediately respond to calls requesting comment, and Medco could not immediately be reached for comment.

The United States, Florida, California and New Jersey were represented by Shannon Thee Hanson, Jeffrey A. Wertkin, William E. Olson and Tiphanie P. Miller of the U.S. Department of Justice.

Denis was represented by Jeffrey S. Goddess and P. Bradford deLeeuw of Rosenthal, Monhait & Goddess.

Medco was represented by Rodger D. Smith II of Morris, Nichols, Arsht & Tunnell.

The case was captioned Doe v. Medco Health Solutions.