Court Permits False Claims Act Suit To Proceed, But Requires Relators To Amend Complaint To Allege Express Certification Or Actual Falsity For Pre-ACA Claims

Last week, Judge McMahon (S.D.N.Y.) denied a motion to dismiss in a notable False Claims Act case against Teva Pharmaceuticals.  Although the court allowed the case to proceed, it rejected part of the relators’ implied certification theory.

Relators Charles Arnstein and Hossam Senousy filed a qui tam suit against Teva Pharmaceuticals USA, Inc. and two of its subsidiaries, Teva Neuroscience, Inc. and Teva Sales and Marketing, Inc. (Teva).  Relators alleged that Teva violated the False Claims Act and the Anti-Kickback Statute (AKS)  in connection with a bribery and kickback scheme.

Teva allegedly bribed physicians to prescribe neurological drugs Azilect and Copaxone with millions of dollars of sham honoraria and speaker fees.  As a result of this conduct, pharmacies dispensed these two drugs and submitted claims to federal, state, and local health care programs for reimbursement.  By causing the pharmacies to submit these reimbursement claims that were based on bribed prescriptions, relators argued that Teva violated the FCA and the AKS.  The government did not intervene, and Teva moved to dismiss.

On February 22, 2016, Judge McMahon denied Teva’s motion to dismiss, holding that the relators had adequately alleged that Teva engaged in a kickback scheme, the pharmacies submitted false claims, and that Teva willfully and knowingly caused the false claims to be submitted.

However, the Court did limit the types of AKS violations that may be brought under the False Claims Act, holding that plaintiffs must allege that the submitted claim was: (1) factually false, or (2) legally false through express or implied certification of compliance with the AKS.   The court also held that implied certification was only available for claims submitted after the March 23, 2010 enactment of the Patient Protection and Affordable Care Act, because this was the first notice that implied certification of the AKS could constitute a false claim.

Accordingly, the Court required the relators to amend their complaint within 30 days to allege express certifications or factual falsity for the claims that were submitted prior to March 23, 2010.

It will be interesting to see what impact the implied certification case that will be argued next month at the Supreme Court, Universal Health Services v. United States ex rel. Escobar, written about previously here, will have on the numerous cases, such as this one, that are winding their way through the lower court system.