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A federal appeals court has reinstated a False Claims Act suit against a pharmaceutical supplier, finding the suit was wrongly dismissed based on a rule that bars such claims when the fraud allegations are already public.

The U.S. Court of Appeals for the Third Circuit reinstated the suit against PharMerica Corp. of Louisville, Kentucky, after a judge below dismissed it under the public disclosure bar, which prohibits a relator from bringing an FCA case based on a fraud that has already been disclosed publicly.

The suit, by plaintiff Marc Silver, accuses the company of unlawfully discounting drugs for nursing homes' Medicare Part A patients in order to secure contracts for patients covered by Medicare Part D and Medicaid, a practice known as “swapping.”

Judges Michael Chagares, Thomas Vanaskie and Julio Fuentes said public disclosures concerning the general risk of swapping in the nursing home industry didn't amount to a bar to specific allegations, supported by nonpublic information, suggesting that PharMerica was engaging in swapping.

They wrote: “We hold that the FCA's public disclosure bar is not implicated in such a circumstance, where a relator's non-public information permits an inference of fraud that could not have been supported by the public disclosures alone.”

The appeals court also found the court below erred by concluding that the fraud was publicly disclosed based on Silver's testimony that he relied on publicly available documents, without undertaking an independent review to find whether those documents sufficiently disclosed the fraud.

According to the decision, nursing homes have an incentive to engage in swapping because they receive a fixed, per diem rate from the government for Part A patients, and must pay for all of the patient's care, including prescription drugs, from this fixed amount, which can be as little as $8 per day. Nursing homes are motivated to negotiate for the lowest possible drug prices for those patients. In contrast, nursing homes are less concerned with the cost of drugs dispensed to Medicaid and Part D patients because pharmacies collect directly from state Medicaid programs or Part D prescription drug plan sponsors for those patients, and nursing homes bear no risk, the court said.

Silver, who developed and operated nursing homes and assisted living facilities, claimed in the suit that PharMerica fraudulently billed the federal government for contracts that it obtained through the alleged kickbacks. Besides Silver, plaintiffs include the U.S. government, 27 states and the District of Columbia.

In late 2016, U.S. District Judge Noel Hillman of the District of New Jersey granted motions for summary judgment, finding, based on several publicly available documents that Silver admits he relied on to deduce his allegations of fraud, that the fraud in the case was publicly disclosed.

Chagares wrote in the opinion Tuesday that, before March 2010, the public disclosure bar to the FCA provided that no court could have jurisdiction over an action based on public disclosure of allegations or transactions unless the person bringing the action is the original source of that that information. After the March 2010 amendment, the public disclosure bar was no longer a jurisdictional matter, though it still provided for dismissal based on prior public disclosure.

Because no one accused PharMerica of engaging in swapping before Silver filed suit, the court had to determine whether the transactions at issue were already publicly disclosed, Chagares wrote.

Hillman determined that various government reports, taken cumulatively, disclosed the alleged fraudulent transactions by PharMerica. His analysis relied most heavily on a 2004 report commissioned by the Center of Medicare and Medicaid Services from the Lewin Group, which discusses interactions between institutional pharmacies and nursing homes, and notes that pharmacies provide many services to nursing homes at little to no cost.

Hillman viewed the Lewin report as linking Silver's claims with publicly disclosed documents about the practice of swapping, and thus triggering the bar.

But the documents don't disclose the fraudulent transactions that Silver alleges because they don't point to any specific fraudulent transactions directly attributable to PharMerica, Chagares wrote.

“Silver's more concrete claim, which set out specific facts suggesting that PharMerica was engaged in swapping, relied upon these general disclosures but could not have been derived from them absent Silver's addition of the non-public per-diem information,” Chagares wrote. “We hold that the FCA's public disclosure bar is not implicated in such a circumstance, where a relator's non-public information permits an inference of fraud that could not have been supported by the public disclosures alone.”

Shauna Itri of Berger & Montague in Philadelphia, who represented Silver, said in an email that her client has a “concrete claim” and that he “set out specific facts suggesting that PharMerica in particular was actually engaged in swapping,” including “nonpublic per-diem information.”

“We are looking forward to getting back into litigation,” Itri said.

Michael Manthei of Holland & Knight in Boston, who argued for PharMerica, said his client does not comment on litigation.