Last week, a New York district court found that the government alleged with sufficient detail that Novartis violated federal and state false claims acts by paying doctors kickbacks to prescribe drugs. See U.S. ex rel. Bilotta v. Novartis Pharm. Corp No. 11 Civ. 0071 (PGG) (S.D.N.Y.). Significantly, the district court applied a stricter pleading standard than that urged by the government, but found that the government met that standard. The court’s opinion is an important reminder that Flase Claims Act (FCA) allegations must be pled with specificity.
A former Novartis employee, Oswald Bilotta, filed a qui tam action alleging a nationwide kickback scheme aimed at encouraging doctors to prescribe Novartis’s cardiovascular drugs. New York and the United States intervened, alleging (among other things) that Novartis violated the New York and federal FCAs. The government claims that Novartis hosted thousands of sham speaker events to facilitate its kickback scheme. According to the complaints-in-intervention, these purported educational programs were actually “upscale social outings” for which some “speaker”-attendees received “honoraria” worth thousands of dollars to induce prescriptions. The government further alleged that pharmacies sought reimbursement from healthcare programs for filling those prescriptions and that the reimbursement claims were “false” because compliance with state and federal anti-kickback laws is a condition of reimbursement.
Novartis asked the court to dismiss the complaints because they did not satisfy the particularity requirement of Rule 9(b) of the Federal Rules of Civil Procedure. The government and relator argued that the Fifth Circuit’s relaxed pleading standard – set forth in Grubbs v. Kanneganti, 565 F. 3d 180 (5th Cir. 2009) – should apply. That standard only requires allegations about the “particular details of a scheme paired with reliable indicia that lead to a strong inference that claims were actually submitted.” The district court joined other courts in the district which have rejected Grubbs in favor of the more stringent standard requiring allegations about “the particulars of the false claims themselves.” The district court agreed with Novartis that the pleadings had to allege that particular claims for reimbursement were false; not simply that a kickback scheme existed and supported a “strong inference that claims were actually submitted.”
Applying this standard, the district court held that the government had pleaded the anti-kickback violations and FCA claims with adequate particularity, noting the “hundreds of pages of spreadsheets listing particular false claims” included with the complaints-in-intervention. The district court also explained that “[a]t the pleading stage, it [was] not necessary for the Government Entities to demonstrate with precision that every prescription written by every doctor was written in exchange for a kickback. To the extent that there is evidence that a prescription was written appropriately, that issue may be raised at summary judgment and/or at trial.”
Novartis also argued that claims submitted before the 2010 amendments to the federal Anti-Kickback Statute (AKS) could not give rise to FCA liability. Those amendments made violations of the AKS actionable under the FCA. The United States argued that even before the amendments, reimbursement claims for prescriptions written in violation of the AKS were per se false. The district court found that argument “questionable,” but punted the issue. It held that, under state and federal law, healthcare providers impliedly certified that their reimbursement claims did not arise from a violation of anti-kickback laws.
Novartis also argued that applying New York’s FCA laws to conduct occurring before the Act’s enactment (April 9, 2007) would violate the ex post facto clause of the U.S. Constitution. The court rejected that argument as well after finding that the NY FCA is a civil, not penal, statute.
Novartis did obtain some limited relief. Bilotta alleged that Novartis violated the federal FCA by promoting the off-label use of certain drugs–allegations not adopted by the government intervenors. The court dismissed that claim under Rule 9(b) because Bilotta had not identified “a single false claim that was submitted in connection with the alleged off-label promotion scheme,” and further declined to exercise supplemental jurisdiction over Bilotta’s analogous state-law claims. The court also held that some of New York’s other state-law claims aimed at the kickback scheme were time-barred.