NDCA rejects Scios’ motion to dismiss False Claims Act pharma case for failure to state claim, lack of particularity

by bvernia | January 7th, 2010

In a December 23 decision in US ex rel Strom v. Scios, Inc., District Judge Charles Breyer denied the pharma company’s motion to dismiss the government’s complaint in intervention, brought under rules 12(b)(6) and 9(b).

In the suit, the US alleges that Scios and Johnson & Johnson, maker of Natrecor&#0153 (nesiritide), promoted the drug for an off-label use – the treatment of non-acute episodes of congestive heart failure (it was approved for acute use only). The government claims that Scios misrepresented the results of a study it conducted, paid healthcare providers to market the off-label use, sent physicians for training at outpatient clinics that prescribed the drug off-label, and hired ghostwriters to write and submit articles to journals. The US alleges that the company was aware that the drug was prescribed to Medicare patients, and misled some Medicare contractors to issue local coverage determinations. After contractors asked CMS for a national coverage determination, the agency concluded in 2006 that the drug’s off-label use was not reimbursable by Medicare.

Judge Breyer first addressed the companies’ argument that the US complaint failed to state a claim upon which relief could be granted. Scios argued that the False Claims Act only applies where there is a “bright line” rule, and that in the absence of such a rule, the government’s claims lacked a basis in law. The court disagreed, reasoning that Scios’ argument overlooked the expansive definition of “knowing” in the FCA:

Given this broader definition of “knowing,” Plaintiff has succeeded in stating a claim under the FCA. In sum, the Government alleges that Defendants’ marketing activities created the market for the outpatient use of Natrecor, and that Defendants encouraged such a use even though they had no credible evidence that Natrecor was effective in that context. Because Defendants had no evidence supporting the efficacy of Natrecor in the outpatient context, Plaintiff effectively alleges that they acted in reckless disregard of the truth when they encouraged submission of such claims to Medicare. See 31 U.S.C. § 3729(a)(1)(A) (extending liability to parties who “caused to be presented” a false claim for payment). “Reckless disregard” satisfies the “knowing” element of an FCA action. See 31 U.S.C. § 3729(b)(1).

The court continued, finding that the Government’s allegation that the drug was not, in fact, safe and effective for the off-label purpose, coupled with Medicare’s “reasonable and necessary” standard for reimbursement, would suffice to establish the falsity of a claim for a prescription of the drug. In a footnote, Judge Breyer rejected the contention that this amounted to second-guessing the medical judgment of physicians:

This is not to say, as Defendants suggest, that this Court is “second-guess[ing] doctors’ considered medical opinions.” Mot. at 10. Rather, this Court acknowledges that the Complaint alleges that doctors did not, in fact, make considered medical judgments. Instead, the Complaint alleges that doctors prescribed Natrecor for outpatient use only because they were induced to do so by Defendants’ misrepresentations.

Judge Breyer likewise rejected the company’s argument that the lack of evidence of ineffectiveness, and the local coverage determinations of some Medicare contractors shielded them from liability. The company’s argument regarding the absence of evidence of ineffectiveness once again overlooked the expansive definition of “knowing,” he reasoned, and the coverage determinations offered no relief because the US alleged they were procured through misrepresentations.

The court then addressed the company’s argument that the government’s complaint lacked particularity in failing to identify claims (except through an algorithm which the US had shared with the company in a letter). Noting that there is a split of authority on the question of particularity in the pharma context, Judge Breyer found the complaint sufficient:

This Court concludes that, given the purposes of Rule 9(b), the specifics of all claims are unnecessary at the pleading stage. The gravamen of this action concerns fraudulent inducement of doctors, and the Complaint provides exhaustive allegations relating to this fraud. In this context, the specifics of the claims themselves are somewhat less important. Instead, the case concerns the marketing activities of Defendants and whether they acted in reckless disregard of the truth. The allegations in the Complaint put defendants on sufficient notice of the nature of the action, and given the immense number of claims at issue, requiring them to be listed one-by-one in the Complaint is ungainly and unfair. While Plaintiff undoubtedly bears the burden of proof as to damages, Plaintiff need not conclusively meet this burden at the pleading stage.

This approach is in keeping with the purpose of Rule 9(b). The Ninth Circuit has explained that, in order to comply with Rule 9(b), allegations of fraud must be “specific enough to give defendants notice of the particular misconduct which is alleged to constitute the fraud charged so that they can defend against the charge and not just deny that they have done anything wrong.” Neubronner v. Milken, 6 F.3d 666, 672 (9th Cir. 1993). This standard has been met here. Plaintiff has alleged a thorough and complex series of actions which, if true, constitutes a violation of the False Claims Act. Indeed, Defendants do not argue that allegations regarding their conduct are insufficiently particular. Instead, Defendants focus on the fact that the individual claims for reimbursement are not identified.
However, allegations of that nature are by no means necessary in order to Defendants to formulate their defense. Plaintiff is clear as to the wrongs it believes Defendants to have committed. While there may indeed be factual disputes as to which claims, if any, were the result of Defendants’ fraudulent activity, it is not Plaintiff’s burden to prove such causation at the pleading stage. Given the tremendous burden to fully identify such claims at the pleading stage, and the fact that Defendants have been fully apprised of what “is alleged to constitute the fraud charged,” id., dismissal is not warranted.

Finally, Judge Breyer denied Scios’ bid to dismiss claims filed after the company ceased off-label activities relating to Natrecor:

Even though the Complaint itself explains that Scios “terminate[d] the use of any promotional material or programming that directly conflicts with” a specialists’ panel recommendation that off-label use not be prescribed in July of 2005, Comp. ¶ 104, the broader allegations suggest that the only reason any doctor prescribed Natrecor was because of Defendants’ earlier promotion. In other words, while Defendants’ termination of promotion is a step in the right direction from Plaintiff’s perspective, the Complaint alleges that after many years of promotion, Defendants were not able to un-ring the bell. The Complaint alleges that Defendants’ actions created the market for off-label use of Natrecor, and so alleges that all such uses can be traced back to Defendants’ actions. Subsequent attempts shift course on their own do not absolve Defendants for earlier allegedly fraudulent activity.

Judge Breyer held out some hope for Scios, however, mentioning at the beginning of his opinion: “While Defendants’ arguments may gain more traction at the summary judgment stage or at trial, at present the Complaint sufficiently alleges a cause of action under the FCA.”

Like its predecessor, US ex rel Franklin v. Parke-Davis, 147 F.Supp.2d 39 (D.Mass. 2001), as a legal matter, the decision here may say more about the limits of a motion to dismiss under rule 12(b)(6) than about the full-term viability of a False Claims Act suit alleging off-label promotion of a prescription drug. There remain many uncertainties in such cases – especially how the plaintiff (US or relator) must prove damages and causation. As with the Parke-Davis decision, however, the practical effect of even an early-stage decision like this will be to embolden both the US and relators to continue pressing these claims and expanding their theories.

Fraud Section attorney Renée Orleans and NDCA AUSAs Sara Winslow and Julie Ann Arbuckle are handling the case for the US. Scios is represented by John Potter and Josh Cohen of San Francisco’s Quinn Emmanuel.

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