District Court of New Jersey Highlights Importance of Materiality Requirement at Pleading StageJuly 28, 2017 – Articles
The United States District Court for the District of New Jersey recently dismissed an FCA lawsuit due to a relator’s failure to plead materiality with specificity. United States v. Bristol-Myers Squibb Co. (In re Plavix Mktg., Sales Practice & Prods. Liab. Litig.), 2017 U.S. Dist. LEXIS 98810 (D.N.J. June 27, 2017). Bristol-Myers illustrates the standards relators must meet when attempting to plead a prima facie false claim, and how Rules 9(b) and 12(b)(6) can serve an important gatekeeping function by preventing vague FCA allegations from proceeding to costly discovery when those claims do not meet the “rigorous” materiality requirement.
In Bristol-Myers, the relator based her claims on the defendants’ allegedly deceptive marketing efforts for their blood-thinning drug, Plavix®. In many states, Medicaid pays for only cost-effective drugs, meaning Medicaid will not cover a more expensive drug that has a less expensive equivalent. According to the relator, the defendants promoted Plavix (which costs approximately $4 per pill) as superior to aspirin (which costs approximately 4 cents per pill) for certain usages, when Plavix in fact was no more effective for the indicated usages.
The relator alleged the defendants targeted their allegedly deceptive marketing at not only prescribing physicians but also physicians on states’ formulary committees. Formulary committees can designate certain drugs as “preferred drugs.” When a drug is listed as a “preferred drug,” Medicaid automatically covers a prescription for that drug without requiring any individual prior authorization. Plavix was listed on each state’s “preferred drug” list (PDL).
Because the relator failed to allege the necessary materiality element, the court granted the defendants’ motion to dismiss. The court, in reaching this conclusion, relied on Escobar’s description of the materiality standard as “rigorous.” To survive dismissal under this “rigorous” standard, the relator in Bristol-Myers had “to allege that the prescribers’ implied false certification of cost-effectiveness affected the government Medicaid payors’ decision to pay the claims for Plavix.” But the relator instead “baldly allege[d] that government payors would not have reimbursed for Plavix had they been aware of the alleged false certification of cost-effectiveness . . . .” Belying this allegation was the auto-reimbursement for Plavix stemming from the drug’s being listed on each state’s PDL.
The court sniffed out the relator’s attempt to mask a causation allegation as one of materiality. The relator tried to argue that because the allegedly deceptive marketing was material to the physicians’ decision to prescribe the drug and submit a claim to Medicaid, the marketing was material to the government’s payment of those claims. The court rejected this allegation, stating it was “relevant only to the extent that it shows that Defendants induced or caused claims containing implied false certifications of cost-effectiveness to reach the government Medicaid payors.” By contrast, the court stated the analysis of materiality begins only “after a claim has been submitted . . . .” Because Medicaid automatically paid the Plavix claims upon their submission, the relator could not demonstrate that defendants’ marketing affected the payment decisions.
The court also rejected the relator’s novel argument in the alternative: that the defendants violated the False Claims Act by committing “fraud on the formulary committee.” Under this theory, the relator alleged “the allegedly fraudulent inclusion of Plavix on a PDL by a formulary committee, not the submission of a false claim by a physician, is the operative act affecting each Medicaid payment decision in this case.” The relator attempted to analogize the situation to that of a contract induced by fraud. The court stated this theory lacked a direct causal connection to the submission of a claim for reimbursement, and this deficiency was fatal.