Stringent Pleading Requirements Result in Dismissal of FCA Claims for Off-Label Use

February 9, 2009

Federal courts impose strict pleading standards for False Claims Act qui tam actions, and many complaints fail to surpass the motion to dismiss phase. One area which has proven to be particularly challenging for qui tam relators are cases grounded in allegations of off- label use. In the recently decided case of United States ex rel. Kennedy v. Aventis Pharmaceuticals, Inc., et al. 2008 WL 5211021 (N.D.Ill. Dec. 10, 2008), two former Aventis employees alleged that defendants had marketed the drug Lovenox for uses other than those approved by the Food and Drug Administration (also referred to as “off-label” uses). The relators alleged that the defendants’ marketing plan caused hospitals and doctors to submit false claims for reimbursement to federally funded healthcare programs.

The False Claims Act (“FCA”) imposes civil liability on “[a]ny person [who] knowingly presents, or causes to be presented, to . . . the United States . . . a false or fraudulent claim for payment or approval.” See 31 U.S.C. § 3729(a)(1). Furthermore, a person violates the FCA if he “knowingly makes, uses, or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved.” 31 U.S.C. § 3729(a)(2). Many courts have held that a claim will not be considered a “false claim” unless the false claim, statement or record is shown to have been material to the government’s decision to pay.

In Kennedy, a case with a substantial procedural history, the United States District Court for the Northern District of Illinois dismissed the relators’ FCA claims because the complaint failed to identify itemized off-label uses that were paid for by federally funded healthcare programs. The court explained that both the Medicare and Illinois Medicaid programs, the two governmental payors in the case, provide fixed payments based on the diagnosis related group code (“DRG”) assigned to each patient based on his or her diagnosis and age. See 42 U.S.C. § 1395ww(d); see also 42 C.F.R. § 412.60. Concluding that individual prescriptions are immaterial to the amount paid by the government for the treatment of a given patient, the court held the relators’ allegations failed to establish FCA liability.

Kennedy is by no means a stand-alone case; federal courts around the nation have repeatedly dismissed FCA actions where the complaint fails to identify an actual false claim submitted to the government for the itemized cost or specific prescription associated with an off-label use. See, e.g., United States ex rel. Rost v. Pfizer, Inc., 446 F.Supp.2d 6 (D.Mass. 2006), aff’d, 507 F.3d 720 (1st Cir. 2007); United States ex rel. McDermott v. Genentech, Inc., 2006 WL 34741920 (D.Me. Dec. 14, 2006); United States ex rel. Hess v. Sanofi-Synthelabo, Inc., 2006 WL 1064127 (E.D.Mo. Apr. 21, 2006); United States ex rel. West v. Ortho-McNeil Pharm., Inc., 2007 WL 2091185 (N.D.Ill. July 20, 2007); United States ex rel. Hopper v. Solvay Pharmaceuticals, Inc., 2008 WL 4177927 (M.D.Fla. Sept. 8, 2008). However, the Kennedy opinion is unique in the way it reached this conclusion. Kennedy hinges on the fact that the government reimbursed the alleged off-label claims pursuant to a fixed DRG code assigned to the patients, noting that the services actually rendered were irrelevant to payment. The majority of other courts have focused solely on the relators’ failure to do more than speculate that a false claim at an individualized transaction level existed based upon the alleged off-label marketing practices. Such failure, the courts have repeatedly said, is insufficient to meet Rule 9(b) of the Federal Rule of Civil Procedure’s requirement that “the party must state with particularity the circumstances constituting fraud.”

While this trend may appear to bode well for pharmaceutical, biotech and medical device manufacturers in the ongoing battle with qui tam whistleblower complaints, these companies are certainly not immune from these claims. In light of the various courts’ guidance as to where the complaints’ deficiencies lie, whistleblowers are likely to attempt to overcome this procedural hurdle by looking more closely at the claims and including details of specific itemized claims paid for by federally funded healthcare programs.

More significant than the guidance which may be gleaned from these cases, however, is the prospect that the days of reliance on the particularity requirements of Rule 9(b) to defend qui tam suits may be numbered. When the last Congressional session ended, there were bills pending in both the House and the Senate which, if passed, would significantly affect the ability of qui tam defendants to assert many defenses which have gained momentum in the last few years. See October 8, 2007 legal update. One of the changes in the House bill would completely eliminate the requirement that qui tam relators plead FCA allegations with particularity under Rule 9(b). Given the make-up of Congress and the emphasis on transparency of the new administration, it is anticipated that these bills will be re-introduced in the new Congress.

Members of McGuireWoods LLP’s Life Sciences Group and Government Investigations Group have significant experience representing companies, practice groups and individuals in both federal and state False Claims Act cases and investigations. If you have any questions or would like to discuss any aspect of the False Claims Act or related investigations, please contact the authors or any member of the Life Sciences or Government Investigations group.