U.S. ex rel. Azam Rahimi v. Rite Aid Corp.

RECOMMENDED FOR PUBLICATION

Pursuant to Sixth Circuit I.O.P. 32.1(b)

File Name: 21a0147p.06

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

┐

UNITED STATES OF AMERICA ex rel. AZAM RAHIMI, │

Relator-Appellant, │

> No. 20-1063

│

v. │

│

│

RITE AID CORPORATION,

│

Defendant-Appellee. │

┘

Appeal from the United States District Court

for the Eastern District of Michigan at Detroit.

No. 2:11-cv-11940—Stephen J. Murphy, III, District Judge.

Argued: January 26, 2021

Decided and Filed: June 29, 2021

Before: BATCHELDER, GRIFFIN, and STRANCH, Circuit Judges.

_________________

COUNSEL

ARGUED: Peter A. Patterson, COOPER & KIRK, PLLC, Washington, D.C., for Appellant.

William R. Peterson, MORGAN, LEWIS & BOCKIUS LLP, Houston, Texas, for Appellee.

ON BRIEF: Peter A. Patterson, Charles J. Cooper, Vincent J. Colatriano, COOPER & KIRK,

PLLC, Washington, D.C., Arun Subramanian, William D. O’Connell, SUSMAN GODFREY

LLP, New York, New York, for Appellant. William R. Peterson, MORGAN, LEWIS &

BOCKIUS LLP, Houston, Texas, Kevin J. Biron, Michael J. Ableson, MORGAN, LEWIS &

BOCKIUS LLP, New York, New York, for Appellee. Frederick M. Morgan, Jr., MORGAN

VERKAMP, LLC, CINCINNATI, Ohio, for Amicus Curiae.

No. 20-1063 U.S. ex rel. Rahimi Page 2

_________________

OPINION

_________________

GRIFFIN, Circuit Judge.

Azam Rahimi believes Rite Aid Corporation defrauded the federal government of

hundreds of millions of dollars by overcharging it for generic prescription drugs, so he filed suit

under the False Claims Act (FCA) and several state-law analogues. The district court dismissed

Rahimi’s FCA claim under the Act’s public-disclosure bar and declined to exercise supplemental

jurisdiction over his remaining claims. We agree and affirm.

I.

A.

Defendant Rite Aid Corporation operates a nationwide chain of pharmacies. Like many

of its competitors, Rite Aid offers a discount program—which it calls the “Rx Savings

Program”—that provides its members hundreds of generic prescription drugs at reduced prices.

The program is free and widely available but excludes customers whose prescriptions are paid in

full or in part by publicly funded healthcare programs like Medicare Part D, state-administered

Medicaid programs, or TRICARE.

Federal regulations require pharmacies such as Rite Aid to dispense prescriptions for

beneficiaries of these healthcare programs at their “usual and customary charge to the general

public”—which is often referred to as the “U&C” rate. See 42 C.F.R. § 447.512(b)(2). In

general terms, this means that pharmacies cannot charge the government more than the “cash

price” offered to the public to fill such prescriptions. See United States ex rel. Garbe v. Kmart

Corp., 824 F.3d 632, 636 (7th Cir. 2016).

Relator Azam Rahimi alleges that Rite Aid routinely overbilled these government

programs because the amounts it charged did not “take into account either the lower Rx Savings

Program prices or any lower prices that Rite Aid makes available to other payers.” In other

words, while everyone agrees that Rite Aid was not required to allow beneficiaries of publicly

No. 20-1063 U.S. ex rel. Rahimi Page 3

funded healthcare plans to participate in the Rx Savings Program, Rahimi’s theory is that Rite

Aid was required to offer the government programs an equivalent-or-better discount because of

its obligation to provide the U&C rate.

Rahimi, who is a pharmacist, says he first suspected Rite Aid of overbilling the

government when he saw Rite Aid’s advertisements for the Rx Savings Program that announced

publicly funded healthcare programs were specifically excluded from participating. He then

called a former classmate and current Rite Aid pharmacist in New York, John Doe, to discuss his

suspicions. Doe told Rahimi that at his pharmacy, ninety to ninety-five percent of Rite Aid’s

non-insured customers were enrolled in the Rx Savings Program and that Rite Aid’s billing

software “will only generate the ‘Rx Savings price’ for a customer if the pharmacy has enrolled a

customer in the program,” and would not generate the price for beneficiaries of government-

funded healthcare plans. But when Rite Aid generated bills for those covered by publicly funded

health insurance, it still represented the price to be the U&C rate, even though it “did not include

the discounts offered to cash-paying customers through the Rx Savings Program.”

Doe also obtained specific examples of the alleged fraud from his cousin, a Rite Aid

customer whom he knew to be a New York Medicaid beneficiary. By reviewing his cousin’s

receipts, Doe confirmed that Rite Aid had charged his cousin more for prescriptions than it

would members of the Rx Savings Program. Doe relayed this information to Rahimi, who

further investigated by calling Rite Aid pharmacies in eight other states, inquiring as to the prices

Medicaid beneficiaries would pay for certain generic medications. “In every single instance,

[he] learned that the Rite Aid pharmacy was charging Medicaid significantly higher prices for

the generic medications than the prices made available to their Rx Savings Program members.”

Rahimi also obtained examples involving Medicare Part D and TRICARE.

B.

Rahimi contends this practice violates the False Claims Act, 31 U.S.C. § 3729(a), and

other state-law analogues because Rite Aid knowingly caused claims to be submitted for

reimbursement by the government “that are materially false because they misrepresented

No. 20-1063 U.S. ex rel. Rahimi Page 4

Defendant’s ‘usual and customary charge’ to the general public.”1 This is because, Rahimi says,

“Rite Aid consistently charged government health programs higher amounts for the generic

medications on the Rx Savings Program list than the amounts Rite Aid charged its cash-paying

customers for the same medications.” So, he commenced this litigation on May 3, 2011.

A few more pre-litigation facts are in order. First, as required by the FCA, Rahimi

disclosed the alleged fraud to the government on May 2, 2011. He explained that he learned in

September 2010 that Rite Aid advertised a savings program, and that “it was possible that Rite

Aid was not passing on these discounts to Medicaid, as required by many states’ ‘usual and

customary charge’ billing rules.” But he was uncertain of his theory because he did not know “i)

the percentage of Rite Aid’s non-insured customers enrolling in the program; or ii) whether Rite

Aid might be charging Medicaid a similar or even lower charge compared to the Rx Savings

Program charge.” Rahimi thus recounted the steps he took to investigate his theory, including

his interactions with John Doe.

But his disclosure about the program was far from the only one.

First, from the beginning of Rite Aid’s Rx Savings Program (and before Rahimi’s

disclosures), Rite Aid had clearly stated in its advertisements and announcements that

“[p]rescriptions paid for in whole or in part by publicly funded health care programs [were]

ineligible” for the discounted drug prices.

Second, the State of Connecticut learned in 2010 (again before Rahimi’s disclosures) that

several pharmacies were charging Connecticut Medicaid recipients more than their membership

discount prices, which authorities believed to violate existing law. Nevertheless, Connecticut

then amended its law to require that pharmacies account for any membership discount program

when establishing its U&C price for government billing. But rather than reduce the rate it

1

The reimbursement aspect of Rahimi’s FCA claim stems from the government-sponsored program’s

insurance coverage for prescription drug costs. For example, Medicare Part D is a federal, voluntary prescription

drug benefit program available to persons eligible for Medicare. It is overseen by the Centers for Medicare and

Medicaid Services (CMS), which contracts with private companies (called Part D Sponsors) to handle claim

submissions and payment processes for Medicare Part D beneficiaries. Under this model, Part D Sponsors work

directly with retail pharmacies to provide covered prescriptions at negotiated rates. The Part D Sponsor then tenders

payment to the pharmacy and seeks reimbursement from CMS. State-administered Medicaid programs and

TRICARE similarly operate on a reimbursement system.

No. 20-1063 U.S. ex rel. Rahimi Page 5

charged the government to match the Rx Savings price, Rite Aid raised the prices charged under

the Rx Savings Program, in Connecticut only. Other major pharmacies threatened to discontinue

their membership discount plans in Connecticut entirely. The Connecticut Attorney General

issued a press release concerning Rite Aid on August 25, 2010 to declare that it was subpoenaing

Rite Aid for information about changes to its discount drug pricing, which it “falsely blamed on

a new state law.” The press release summarized the events surrounding the newly enacted law as

follows:

The law requires pharmacies to provide Medicaid and other state programs the

same prescription drug discounts they offer consumers. Apparently in response,

Rite Aid increased prices and made other changes to its Rx Savings discount drug

program in Connecticut. The drug store chain posted signs that falsely blamed the

higher prices and program changes on the new law. . . . All . . . benefits remain

unchanged for consumers outside Connecticut.

This development was widely reported in the United States by national and local media.

Third, the Inspector General of the U.S. Department of Health and Human Services

announced in October 2009 and October 2010 (yet again before Rahimi’s disclosures) that it

would be “review[ing] Medicaid claims for generic drugs to determine the extent to which large

chain pharmacies are billing Medicaid the usual and customary charges for drugs provided under

their retail discount generic programs.”

Fourth, a qui tam action was unsealed by the United States District Court for the Central

District of California the month prior to Rahimi’s complaint being filed, which alleged that

Kmart Pharmacies were engaging in an identical scheme to overcharge the government for

prescriptions dispensed to beneficiaries of Medicaid and Medicare Part D by failing to apply a

discount equal to their membership discount program rate when calculating the U&C charge.

With this in mind, we turn back to Rahimi’s lawsuit. After he filed his complaint, the

district court administratively closed the action while the federal government investigated his

allegations and determined whether to intervene in the suit. More than five years later, the

government formally declined to intervene in the suit, and the district court lifted the seal and

authorized Rahimi to serve Rite Aid with the complaint. Rite Aid then moved for judgment on

the pleadings under Federal Rule of Civil Procedure 12(c), contending the pre-filing facts set

No. 20-1063 U.S. ex rel. Rahimi Page 6

forth above, “[t]aken together,” demonstrated Rahimi could not overcome the Act’s prohibition

on complaints based on publicly disclosed information, known as the “public disclosure bar.”

The district court agreed, granted Rite Aid’s motion for judgment on the pleadings on Rahimi’s

federal claim and declined supplemental jurisdiction over Rahimi’s eighteen state-law claims.

Rahimi then sought reconsideration, which the court denied. Rahimi timely appealed.

II.

The False Claims Act “prohibits submitting false or fraudulent claims for payment to the

United States, and authorizes qui tam suits, in which private parties bring civil actions in the

Government’s name.” Schindler Elevator Corp. v. United States ex rel. Kirk, 563 U.S. 401, 404

(2011) (internal citations omitted). The Act encourages relators “to act as private attorneys-

general in bringing suits for the common good,” United States ex rel. Poteet v. Medtronic, Inc.,

552 F.3d 503, 507 (6th Cir. 2009) (internal quotation marks omitted), and provides lucrative

incentives to those who do so, see 31 U.S.C. § 3730(d)(1)-(2). However, “[t]o guard against

potential ‘parasitic lawsuits’ and ‘opportunistic plaintiffs,’ Congress included a public-disclosure

bar in the FCA.” United States ex rel. Maur v. Hage-Korban, 981 F.3d 516, 521–22 (6th Cir.

2020) (quoting Poteet, 552 F.3d at 507). That provision “bars qui tam actions that merely feed

off prior public disclosures of fraud.” United States ex rel. Holloway v. Heartland Hospice, Inc.,

960 F.3d 836, 843 (6th Cir. 2020). As most recently amended in 2010, the FCA’s public-

disclosure bar directs that:

The court shall dismiss an action or claim under [the FCA], unless opposed by the

Government, if substantially the same allegations or transactions as alleged in the

action or claim were publicly disclosed—

(i) in a Federal criminal, civil, or administrative hearing in which the

Government or its agent is a party;

(ii) in a congressional, Government Accountability Office, or other

Federal report, hearing, audit, or investigation; or

(iii) from the news media,

unless the . . . person bringing the action is an original source of the

information.

31 U.S.C. § 3730(e)(4)(A) (2010).

No. 20-1063 U.S. ex rel. Rahimi Page 7

We generally apply a three-part test to determine whether the public-disclosure bar

precludes an otherwise valid FCA claim. “First, we ask whether, before the filing of the qui

tam complaint, there had been any public disclosures from which fraud might be

inferred.” Maur, 981 F.3d at 522. Second, we assess how closely related the allegations in the

complaint are to those in the public disclosures. Id. “And third, we ask whether the qui

tam plaintiff is nevertheless an original source of the information.” Id. (internal quotation marks

omitted). We review de novo a district court’s dismissal of a complaint under Rule 12 by way of

the public-disclosure bar. United States ex rel. Harper v. Muskingum Watershed Conserv. Dist.,

842 F.3d 430, 435 (6th Cir. 2016).

We face one additional complication here. While Rahimi has only one claim under the

False Claims Act, the alleged fraud occurred both before and after the FCA was amended in

2010. Because those amendments made substantive changes to the law, which are not

retroactive, there are similar but distinct legal tests for pre- and post-amendment conduct. See

Holloway, 960 F.3d at 843–44. Accordingly, while we retain our usual three-step framework,

we will identify areas where the legal tests diverge. But “[u]nder either version of the public-

disclosure bar, [a relator] must demonstrate ‘(1) that the factual premise of [his] claim was not

publicly disclosed before [he] filed the lawsuit, or (2) even if it was, that [he] was the original

source of the information.’” Holloway, 960 F.3d at 843 (quoting United States ex rel. Advocates

for Basic Legal Equal., Inc. v. U.S. Bank, N.A., 816 F.3d 428, 430 (6th Cir. 2016) (ABLE)).

A.

Under either version of the public-disclosure bar, we must first determine whether “there

had been any public disclosures from which fraud might be inferred” before the filing of the qui

tam complaint. Maur, 981 F.3d at 522; Poteet, 552 F.3d at 511 (pre-amendment framework).

A disclosure is public “if it appears in ‘the news media’ or is made ‘in a criminal, civil, or

administrative hearing, [or] in a congressional, administrative, or Government Accounting Office

report, audit, or investigation.’” Poteet, 552 F.3d at 512 (quoting § 3730(e)(4)(A) (1986)).2

2

The list of potential “public” disclosures shrank with the 2010 amendments to exclude filings and

rulings associated with state-court proceedings. Compare 31 U.S.C. § 3730(e)(4)(A) (2010), with 31 U.S.C.

§ 3730(e)(4)(A) (1986). That distinction is not relevant to this case.

No. 20-1063 U.S. ex rel. Rahimi Page 8

And a statement or allegation satisfies the inference-of-fraud element if “the information is

sufficient to put the government on notice of the likelihood of related fraudulent activity.” Id.

(citation and internal quotation marks omitted). In other words, the “publicly disclosed

documents need not use the word ‘fraud,’ but need merely to disclose information which creates

‘an inference of impropriety.’” United States ex rel. Burns v. A.D. Roe Co. Inc., 186 F.3d 717,

724 (6th Cir. 1999) (quoting United States ex rel. Jones v. Horizon Healthcare Corp., 160 F.3d

326, 332 (6th Cir. 1998)).

Disclosures of fraud generally fall into two categories:

First, if the information about both a false state of facts and the true state of facts

has been disclosed, we [will] find that there has been an adequate public

disclosure because fraud is implied. . . . Second, if there has been a direct

allegation of fraud, we will find a public disclosure because such an allegation,

regardless of its specificity, is sufficient to put the government on notice of the

potential existence of fraud.

Poteet, 552 F.3d at 512–13 (internal citations and quotation marks omitted; first alteration in

original). However, a public disclosure can also be piecemeal so long as the multiple sources of

information reveal the allegation of fraud and its essential elements. “Courts use the following

formula to explain that concept: If X + Y = Z, Z represents the allegation of fraud and X and Y

represent its essential elements.” Holloway, 960 F.3d at 844 (quoting Jones, 160 F.3d at 331)

(internal quotation marks and brackets omitted). “In order to disclose the

fraudulent transaction publicly, the combination of X and Y must be revealed, from which

readers or listeners may infer Z, i.e., the conclusion that fraud has been committed.” Id. (quoting

Jones, 160 F.3d at 331).

Turning to the facts of this case, the district court found a public disclosure of fraud for

two reasons. It first observed that,

the Connecticut Attorney General’s Office issued a press release on August 25,

2010, recounted in the news media, announcing an investigation of [Rite Aid].

The press release stated that Defendant increased its Rx Savings discount program

prices in Connecticut “[a]pparently in response” to a new Connecticut law

“requir[ing] pharmacies to provide Medicaid and other state programs the same

prescription drug discounts they offer consumers.” The press release further

stated that Defendant “posted signs that falsely blamed the higher prices and

No. 20-1063 U.S. ex rel. Rahimi Page 9

program changes on the new law” by claiming that the law required defendant to

“impose these drug prices increases on Connecticut consumers.”

Second, it found “impossible to ignore” similarities to United States ex rel. Winkelman v.

CVS Caremark Corporation, 827 F.3d 201 (1st Cir. 2016), which concluded that the public-

disclosure bar foreclosed a nearly identical claim brought by a relator against CVS Pharmacy. In

the words of that court, the press release and coverage “dwelt, with conspicuous clarity, upon

CVS’s persistent practice of not giving Medicaid the [membership discount program] price.

Indeed, once the Connecticut legislature amended its Medicaid statutes to mandate that CVS

provide the [discount rate] to the state’s Medicaid program, CVS threatened to end [the program]

entirely.” Id. at 209 (emphasis omitted). The district court thus took its cue from Winkelman

and concluded that “[t]he revelation that, immediately after Connecticut passed its 2010 law,

Defendant raised the prices for its discount program only in Connecticut and publicly blamed the

2010 law for the price increases—just as CVS threatened to terminate its discount program in

response to the same law” disclosed a fraud.

Rahimi challenges this conclusion on appeal, reasoning that the whole of the Connecticut

Attorney General’s press release and surrounding news coverage (the Connecticut Publicity) did

not adequately disclose the essential elements of any fraud. He says that unlike the similar press

release involving CVS, which specifically alleged that CVS’s billings to the government violated

the law, “[t]he issue with Rite Aid was . . . that it had raised prices to its Rx Savings Program

customers in the state, but was falsely claiming to the public that Connecticut’s new law required

it do so.” In other words, Rahimi says that the Rite Aid press release was only about “the

pharmacy’s pretextual use of the new Connecticut law to justify raising prices to customers.”

Thus, he claims that “[t]here was no suggestion of billing fraud against Rite Aid, let alone any

disclosure of the ‘essential elements’ underpinning the present lawsuit.”

We are not persuaded by this view of the facts. The following information was disclosed

to the public and can be considered together for determining whether there was a public

disclosure of the essential elements of a fraud:

No. 20-1063 U.S. ex rel. Rahimi Page 10

• Rite Aid excluded Medicare and Medicaid beneficiaries from participating

in its Rx Savings Program.

• Connecticut believed that its pre-existing rules required pharmacies to bill

its Medicaid program at the lowest drug price they offered consumers,

including their membership discount programs, and passed the new law

when some pharmacies disagreed.

• In 2010, directly in response to Connecticut’s mandating that pharmacies’

U&C price track membership discount prices, Rite Aid raised its Rx

Savings Program prices in Connecticut only.

As the First Circuit concluded in Winkelman, these facts were sufficient to publicly disclose a

fraud:

[I]t requires hardly an inferential step to connect the allegedly true and allegedly

misrepresented facts. The publicly disclosed materials revealed, quite plainly,

that CVS was not providing its [membership discount] price as its U&C price to

Connecticut’s Medicaid program. That is precisely why the Connecticut

legislature essayed a statutory fix. So, too, those materials revealed Connecticut’s

belief that the [membership discount] prices should have been provided to the

state’s Medicaid program even before the statutory change. The allegations and

transactions that comprised the essential elements of the claimed fraud were in

plain sight after these disclosures.

Id. at 209 (internal citation omitted).

Notwithstanding the minor differences between the CVS and Rite Aid press releases, we

agree with our sister circuit that the essential elements of the alleged fraud were in plain sight

after the Connecticut Publicity. The press release and surrounding national news coverage

disclosed that pharmacies doing business in Connecticut were more explicitly required by the

newly amended law to charge to the government a price equal to or lower than the discounted

price paid by participants of the Rx Savings Program. Accordingly, unless Rite Aid had already

matched its Rx Savings Program price to the U&C price (as Rahimi alleges it had always been

required to do), it was forced down one of two paths: It either had to lower the U&C rate charged

to government healthcare plans to match the Rx Savings rate, or it could raise its discount rate,

so that members of the Rx Savings Program paid an amount equal to the government rate. The

Connecticut Publicity establishes that Rite Aid took the latter path and falsely blamed the change

in law for forcing it to raise prices for the Rx Savings Program. But in either circumstance, a

No. 20-1063 U.S. ex rel. Rahimi Page 11

change in how Rite Aid priced its generic prescription drugs would reveal both the

misrepresented facts (that Rite Aid was billing the government at its real U&C rate) and the true

state of facts (that Rite Aid was charging less for the same drugs when dispensed to members of

the Rx Savings Program). So even if the Connecticut Publicity did not put a numerical value on

the difference between the U&C rate charged to the government programs and the lower rate

Rite Aid charged to members of the Rx Savings Program, it sufficiently disclosed the fraud by

allowing readers to infer that Rite Aid requested reimbursement from the government for

prescription drugs at higher prices than it offered through the Rx Savings Program.

B.

The second step in the public-disclosure framework is determining whether the public

disclosures were sufficiently related to the allegations of fraud contained in the qui tam

complaint. Maur, 981 F.3d at 522.

Under the pre-amendment FCA, this means the qui tam claim is “supported by the

previously disclosed information” such that a “substantial identity exists between the publicly

disclosed allegations or transaction and the qui tam complaint.” Poteet, 552 F.3d at 514. “In

applying the substantial-identity test, we held that the relator’s claims are based on prior public

disclosures where ‘essentially the same . . . scheme’ was ‘the primary focus’ of the prior

disclosure and the complaint.” Holloway, 960 F.3d at 847 (quoting United States ex rel

McKenzie v. BellSouth Telecomm., 123 F.3d 935, 940 (6th Cir. 1997)). Pre-amendment qui

tam actions are barred if they are “based even partly upon public disclosures.” Id. (quoting

McKenzie, 123 F.3d at 940). Under the updated FCA, we assess “whether the allegations in the

complaint are ‘substantially the same’ as those contained in the public disclosures.” Maur,

981 F.3d at 522. (quoting Holloway, 960 F.3d at 849). Thus, we have recognized that the post-

amendment bar is “more lenient” to relators because it requires more similarity between the

public disclosures and the qui tam allegations. Holloway, 960 F.3d at 849–51.

1.

Rahimi contends his qui tam claim was not sufficiently related to the publicly disclosed

allegations to fall within the ambit of the public-disclosure bar under either version of the FCA.

No. 20-1063 U.S. ex rel. Rahimi Page 12

In his view, the district court “wrongly extended its public-disclosure ruling about U&C fraud on

Connecticut’s Medicaid Program to every single Medicaid program alleged in the complaint . . .

and federally administered programs[.]” He posits that if “a single news article about a single

investigation by a single state attorney general constitutes a ‘public disclosure’ of any fraud that

could be committed by that company in any state in the country—under any state’s rules, even if

significantly different—the purpose of the FCA is defeated, and relators will have no incentive to

report fraud in other jurisdictions.” In short, Rahimi emphasizes the breadth of his allegations—

he says Rite Aid was defrauding the federal government and 18 states, but the Connecticut

Publicity involved only one of those states and only one of the three healthcare programs

(Medicaid, and not Medicare Part D or TRICARE). Therefore, in his view, the Connecticut

Publicity was too narrow to be sufficiently related to the fraud he alleged, so the public-

disclosure bar does not apply.

But circuit precedent and the First Circuit’s persuasive opinion in Winkleman foreclose

this argument. In Holloway, we concluded, as here, that a relator’s claims could not survive the

public-disclosure bar because his “allegations add[ed] some new details to describe essentially

the same scheme by the same corporate actor” as the publicly disclosed fraud. 960 F.3d at 851–

52. We are compelled to reach the same result here.

And even if not bound by Holloway, Winkleman persuasively explains that once “the

same fraudulent scheme [] was laid bare in the Connecticut disclosures, the identification of

additional government programs does nothing more than add a level of detail to knowledge that

was already in the public domain.” 827 F.3d at 210. It further explained:

The relators labor to distinguish their complaint from the public disclosures by

emphasizing its breadth: the Medicare Part D program was never mentioned in the

Connecticut disclosures, nor did those disclosures aver that CVS was allegedly

playing fast and loose with the Medicaid program in other states. This argument

elevates form over substance. When it is already clear from the public disclosures

that a given requirement common to multiple programs is being violated and that

the same potentially fraudulent arrangement operates in other states where the

defendant does business, memorializing those easily inferable deductions in a

complaint does not suffice to distinguish the relators’ action from the public

disclosures.

Id. We see no reason to disagree.

No. 20-1063 U.S. ex rel. Rahimi Page 13

2.

Rahimi adds an additional reason to reject the district court’s conclusion on this issue,

claiming that variations in the way administering agencies define their U&C rate put his claim

outside the reach of the public-disclosure bar. But before we can consider the merits of that

contention, Rahimi has a procedural hurdle—whether he forfeited our consideration of this new

position by making it for the first time in his motion for reconsideration before the district court.

See Evanston Ins. Co. v. Cogswell Prop., LLC, 683 F.3d 684, 692 (6th Cir. 2012) (“Arguments

raised for the first time in a motion for reconsideration are untimely and forfeited on appeal.”).

Rahimi first says there is no forfeiture because “Rite Aid . . . did not clearly advance the

rationale on which the district court relied, [and] did not clearly argue that the Connecticut

disclosure was itself sufficient to defeat all of those other claims.” We are not persuaded. Once

Rite Aid raised the public-disclosure bar and pointed to the disclosures it thought were related to

the fraud Rahimi alleged, he had an opportunity to explain why the court should conclude that

his claim was not related—for instance, by explaining that each program applied unique U&C

rules.

Next, Rahimi claims that he raised this argument in his response to Rite Aid’s motion for

judgment on the pleadings. But neither of Rahimi’s cited examples explained that the existence

of various formulations of a U&C price meant that the Connecticut Publicity did not reach the

fraud he alleged. In his response to the motion for judgment on the pleadings, he argued that the

Connecticut Publicity was insufficient to “lead[] to an inference that Rite Aid overbilled

Connecticut Medicaid or other government programs.” In other words, he argued that the

Connecticut Publicity did not meet the first step of the framework by disclosing any fraud—not

that the allegations of his qui tam complaint were unrelated to the fraud in the public view. And

in a court-authorized sur-reply, Rahimi referenced how some state’s Medicaid rules defined

“usual and customary” to mean “a pharmacy’s lowest charge or require the charge to the

government to reflect all discounts and special pricing.” But he went no further in explaining

how any of these differences affected the public disclosure analysis. That is insufficient to

preserve the argument for review. See FTC v. E.M.A. Nationwide, Inc., 767 F.3d 611, 630 (6th

Cir. 2014).

No. 20-1063 U.S. ex rel. Rahimi Page 14

Finally, Rahimi points to the district court’s reasoning in denying his motion for

reconsideration. In his view, “when the district court denied reconsideration, it held that it was

doing so because, in ruling on Rite Aid’s motion, it had already ‘explicitly considered in detail’

the argument based on differences in program billing requirements.” But this mischaracterizes

what the district court said:

[T]he motion raises two issues, both of which were explicitly considered in detail

and resolved in the Court’s initial order.

First, Relator took issue with the Court’s analysis of his claims in light of

[Winkelman]. . . .

Second, Relator disagreed with the court’s discretionary decision not to exercise

supplemental jurisdiction over state law claims under the laws of numerous states

in a case in which there are no remaining federal claims.”

The court did not say that it had “explicitly considered in detail” anything relating to the

differing U&C definitions.

We therefore conclude that Rahimi forfeited the argument that the public-disclosure bar

does not apply because the unique application of varying U&C definitions meant that the fraud

he alleged was not sufficiently related to the information in the public domain. Further, we

decline Rahimi’s invitation to excuse the forfeiture because failing to consider his argument will

not result in “a plain miscarriage of justice.” Scottsdale Ins. Co. v. Flowers, 513 F.3d 546, 552

(6th Cir. 2008) (citation and internal quotation marks omitted).

C.

Having concluded Rahimi’s claim alleges fraud that is sufficiently close to transactions

already in the public domain, the final step in the analysis is determining whether he may

nonetheless pursue his claim as an original source. See 31 U.S.C. § 3730(e)(4)(A)–(B).

1.

We must first address an apparent conflict between the Supreme Court’s interpretation of

the pre-amendment original-source exception and our caselaw. The text of the 1986 version of

the FCA provided that an original source is an individual: (1) with “direct and independent

knowledge of the information on which the allegations are based;” and (2) who has “voluntarily

No. 20-1063 U.S. ex rel. Rahimi Page 15

provided the information to the government before filing an action under [the FCA] which is

based upon the information.” 31 U.S.C. § 3730(e)(4)(B) (1986). Our court has understood this

provision to require an original source to disclose his information to the government before any

public disclosure of the allegations, McKenzie, 123 F.3d at 942, an interpretation that we adopted

after consideration of the D.C. Circuit’s opinion in United States ex rel. Findley v. FPC-Boron

Employees’ Club, 105 F.3d 675 (D.C. Cir. 1997). And it appears we are the only two circuits to

read the 1986 version of the Act this way. See McKenzie, 123 F.3d at 941–42 (noting circuit

split).

Subsequently, in Rockwell International Corporation v. United States, 549 U.S. 457

(2007), the Supreme Court interpreted § 3730(e)(4) in a manner that was plainly inconsistent

with McKenzie’s view of the text. Rockwell held that the original-source exception applies to

“information upon which the relators’ allegations are based” rather than “information underlying

the public disclosure.” Id. at 470–71. In so reasoning, the Court compared § 3730(e)(4)(A)’s bar

on actions based on “the public disclosure of allegations or transactions” with subparagraph

(B)’s original-source exception for persons having “direct and independent knowledge of the

information on which the allegations are based.” § 3730(e)(4)(B). The Court first explained that

subparagraph (B)’s “information on which the allegations are based” must mean the facts

underlying the relator’s alleged fraud. Id. at 470–71. Second, it rejected the reading that the

“allegations or transactions” referenced in subparagraph (A) must be the same as the

“allegations” referenced in subparagraph (B), a reading which would make “original-source

status [dependent] on knowledge of information underlying the publicly disclosed allegations.”

Id. at 471. It reasoned that Congress would have used the identical phrase in subparagraph (B) if

it had “wanted to link original-source status to information underlying the public disclosure.” Id.

Thus, the Court drew a distinction between public allegations and the information underlying the

public allegations. Id. at 471–72. In sum, the Court held a relator may make the same

allegations as disclosed in a prior public disclosure and still qualify for original source status, so

long as the relator had direct and independent knowledge of the information underlying his

allegations. See id. at 472 (“To bar a relator with direct and independent knowledge of

information underlying his allegations just because no one can know what information underlies

the similar allegations of some other person simply makes no sense.”).

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Although the D.C. Circuit has subsequently recognized that requiring a relator to furnish

his information to the government before any public disclosure is contrary to Rockwell (and

therefore no longer follows its Findley decision), see United States ex rel. Davis v. District of

Columbia, 679 F.3d 832, 838–39 (D.C. Cir. 2012), we have continued to apply the

Findley/McKenzie rule. See United States v. Garman, 719 F. App’x 459, 463–64 (6th Cir.

2017); United States ex rel. Antoon v. Cleveland Clinic Found., 788 F.3d 605, 617 (6th Cir.

2015); Poteet, 552 F.3d at 515.3 So the district court considered itself bound to follow that

precedent and concluded that Rahimi could not qualify as an original source under the 1986

version of the Act.

We agree with the D.C. Circuit’s conclusion in Davis and now hold McKenzie’s

interpretation of the original-source exception is incompatible with Rockwell. And although we

have applied McKenzie post-Rockwell, we are not bound by our continued, uncritical application

of the Findley/McKenzie rule because intervening Supreme Court decisions allow a panel of our

court to revisit prior precedent, “even in the unusual situation where binding circuit precedent

overlooked earlier Supreme Court authority.” Ne. OH. Coal. for the Homeless v. Husted,

831 F.3d 686, 720 (6th Cir. 2016). This is one of those unusual cases. Accordingly, when

applying the 1986 version of the Act, we will no longer require that a relator provide information

to the government prior to any public disclosure to qualify as an original source.

2.

While the district court relied on McKenzie to conclude that Rahimi could not qualify as

an original source under the pre-amendment FCA, we affirm on the alternative grounds that

Rahimi did not have direct knowledge of the information on which his allegations were based.

See § 3730(e)(4)(B) (1986).

We have explained that “direct” knowledge does not require that the relator be a

corporate insider because “first-hand knowledge is not a necessary component of direct

knowledge.” Antoon, 788 F.3d at 618 (emphasis omitted). “For instance, a relator may have

3

There appears to be a reason for this. Upon review of the briefs in those cases, we note the parties failed

to bring the conflict between Rockwell and McKenzie to our attention, and so gave us no reason to reconsider our

prior authority.

No. 20-1063 U.S. ex rel. Rahimi Page 17

direct (but not first-hand) knowledge of the billing practices of an institution, and uncover fraud

only after consulting a public document that reveals those practices are fraudulent.” Id. at 618–

19. We thus interpret § 3730(e)(4)(B) to mean “direct knowledge is knowledge gained by the

relator’s own efforts and not acquired from the labor of other people,” id. at 619 (internal

quotation marks omitted), and a relator’s knowledge is “independent” if it “does not depend or

rely upon the public disclosure.” Id. at 617 (internal citation marks and citation omitted).

Finally, we are mindful that “[e]ach case is different and must be analyzed to assess the degree of

the relator’s original input into the facts disclosed to the government.” Id. at 619.

We conclude that the majority of Rahimi’s information was not gained by his own efforts

and instead came from John Doe (and Doe’s cousin) and therefore cannot itself be considered

“direct.” On this record, this information—including that a particular Rite Aid pharmacy in New

York was charging Medicaid beneficiaries more than the Rx Savings Program rate and that the

overwhelmingly majority of cash purchasers at the same pharmacy were members of the Rx

Savings Program—was not the fruit of Rahimi’s labor. Id.; see also United States ex rel. Reagan

v. E. Tex. Med. Ctr. Reg’l Healthcare Sys., 384 F.3d 168, 177 (5th Cir. 2004) (“The plain

meaning of the term ‘direct’ requires knowledge derived from the source without interruption or

gained by the relator’s own efforts rather than learned second-hand through the efforts of

others.”).

Beyond this second-hand information, Rahimi’s own investigation boiled down to calling

various Rite Aid pharmacies and inquiring about particular drug prices charged to customers, not

the prices submitted to the government for reimbursement. We have explained that “[t]he

purposes of the Act would not be served by allowing a relator to maintain a qui tam suit based on

pure speculation or conjecture.” Antoon, 788 F.3d at 620 (quoting United States ex rel. Aflatooni

v. Kitsap Physicians Servs., 163 F.3d 516, 526 (9th Cir. 1999)). In Antoon, this principle meant

that a patient did not qualify as an original source where he suspected that his doctor had not

actually performed a medical procedure based on his own pre- and post-operation observations

and medical records but had no further information to establish whether the doctor was

personally involved with the surgery. Id. at 619–20. We said that, although the relator “suspects

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that [his doctor] submitted a false claim, mere suspicion is insufficient to qualify” that relator as

an original source. Id. at 620.

The same holds true here. Until Rahimi obtained evidence of individual claims that Rite

Aid submitted to state Medicaid programs (included in his Third Amended Complaint), Rahimi

could only suspect that Rite Aid was submitting false claims to the government based on the

rates quoted to him by Rite Aid pharmacists for the prices beneficiaries of publicly funded

insurance would pay. And because that further evidence was not part of Rahimi’s disclosures to

the government, it cannot be considered for determining whether he was an original source at the

time he filed suit. See 31 U.S.C. § 3730(e)(B)(4)(B).

While mere reference to public documents is not an automatic bar to original-source

status, the inquiry is fact-dependent and must be analyzed as to the degree of the relator’s

original input into the facts disclosed to the government. Antoon, 788 F.3d at 618 (collecting

cases). Here, Rahimi’s original input consists solely of putting more flesh on the fraud scheme,

of which the bones were already public. It would be contrary to the purpose of the Act to extend

the original source exception to such activities. Accordingly, we hold that Rahimi does not

qualify as an original source under the 1986 version of the Act.

3.

The FCA now provides:

For purposes of this paragraph, “original source” means an individual who either

(i) prior to a public disclosure under subsection (e)(4)(A), has voluntarily

disclosed to the Government the information on which allegations or transactions

in a claim are based, or (2) who has knowledge that is independent of and

materially adds to the publicly disclosed allegations or transactions, and who has

voluntarily provided the information to the Government before filing an action

under this section.

31 U.S.C. 3730(e)(4)(B) (2010). Therefore, the original source exception is now explicitly tied

to public disclosures, but Congress also provided a safety valve for relators who do not furnish

the information to the government before a public disclosure but have “knowledge that is

independent of and materially adds to the publicly disclosed allegations.” Id. “Materiality in

this setting requires the claimant to show it had information ‘[o]f such a nature that knowledge of

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the item would affect a person’s decision-making,’ is ‘significant,’ or is ‘essential.’” ABLE, 816

F.3d at 431 (quoting Black’s Law Dictionary 1124 (10th ed. 2014)). “In other words, the relator

must bring something to the table that would add value for the government.” Maur, 981 F.3d at

527.

The district court determined that Rahimi’s allegations failed the materiality requirement

because the general fraudulent scheme “was easily inferred from the Connecticut publicity[,]

[a]nd Relator’s specific examples of Defendant’s implementation of the scheme [did] not

materially add to the public disclosures.” Rahimi now argues that his allegations were material

because “[n]othing in the public disclosures spoke to whether the Rx Savings price was the usual

and customary price that Rite Aid charged, or whether Rite Aid’s billing systems took those

prices into account when computing charges to government payers.” Thus, the argument goes

that “[w]ithout that information, neither the public, nor the government payers, had sufficient

information to determine whether Rite Aid was liable for violating U&C billing rules.”

We first observe that Rahimi is attempting to rewrite what he disclosed to the

government. He contends on appeal that his pre-suit disclosure “reveal[ed] whether the Rx

Savings Program price was so prevalent that it had become the usual and customary price under

the rules of almost every government health program.” But his pre-suit disclosure did nothing of

the sort; he reported to the government that he thought the Rx Savings Program price became the

U&C price once it was “offered” to plan participants. The only information he relayed about

public participation in the Rx Savings Program was that John Doe had reported that ninety

percent of cash buyers at his pharmacy were enrolled—he did not disclose any information about

broader consumer participation in the Rx Savings Program.

But more to the merits, relator’s allegations do not materially add to the public

disclosures because the government was already on notice that Rite Aid had not been applying

its Rx Savings Programs discount when making its U&C rate calculation by operation of the

Connecticut Publicity. Even though Rahimi was able to add additional state-specific information

and examples of government beneficiaries paying more than its Rx Savings Program rate,

“[o]ffering specific examples [of the alleged fraud] does not provide any significant new

information where the underlying conduct already has been publicly disclosed.” Winkelman,

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827 F.3d at 212; see also ABLE, 816 F.3d at 432 (“A qui tam plaintiff ‘is not allowed to proceed

independently if it merely adds details to what is already known in outline.” (quoting United

States ex rel. Bogina v. Medline Indus., Inc., 809 F.3d 365, 370 (7th Cir. 2016) (internal

quotations marks and brackets omitted))); Maur, 981 F.3d at 528 (“[B]y merely providing

additional instances of the same type of fraud . . . , Maur has failed to offer information of ‘such

a nature that knowledge’ of it ‘would affect’ the ‘government’s decision-making.’” (quoting

ABLE, 816 F.3d at 431–32)). In sum, we agree with the district court that Rahimi proffered no

information to change the government’s thinking or decision-making with respect to the alleged

fraud. He therefore does not qualify as an original source under the 2010 version of the FCA.

D.

For these reasons, the district court properly applied the FCA’s public-disclosure bar to

Rahimi’s FCA claim.

III.

Finally, we consider whether the district court abused its discretion by declining

supplemental jurisdiction over four of Rahimi’s state-law claims. In declining supplemental

jurisdiction, the district court determined that it should, in most cases, avoid deciding novel

issues of state law and further observed that the general practice of federal district courts is to

dismiss supplemental state-law claims if the federal claims are dismissed before trial.

Rahimi argues that even if the district court properly dismissed his federal claim, it

should have exercised supplemental jurisdiction over his equivalent claims brought under state

law (and for which, unlike the federal government here, the states waived application of the

public-disclosure bars). Generally, he argues that the district court did not adequately balance

the interests because it failed to give due weight to judicial economy (the case had been pending

in district court for almost nine years) and the avoidance of multiplicity of litigation.

We are unpersuaded. Even though the seal had been lifted for more than three years, the

case was still about two years away from its scheduled trial date when the district court granted

Rite Aid’s motion for judgment on the pleadings. And while the parties had exchanged some

No. 20-1063 U.S. ex rel. Rahimi Page 21

discovery while the motion was under advisement, it was largely an exchange of documents—no

depositions or expert discovery took place. And finally, the district court was correct to

highlight that resolution of the remaining state-law claims would require it to opine on the

intricacies of various states’ false-claim statutes. See Landefeld v. Marion Gen. Hosp., 994 F.2d

1178, 1182 (6th Cir. 1993) (holding that a district court did not abuse its discretion by declining

supplemental jurisdiction when novel state-law questions outweighed judicial-economy

interests). For these reasons, the district court permissibly declined to exercise supplemental

jurisdiction.

IV.

We affirm the district court’s judgment.