May 24, 2017

24 May 2017

Third Circuit Provides New Guidance on Escobar’s Materiality Requirement in Healthcare Cases

In a recent opinion, the Third Circuit provided new guidance on the application of Escobar’s ”heightened” materiality standard to cases involving healthcare entities.  The relator in United States ex rel. Petratos v. Genentech, No. 15-3805 (3d Cir. May 1, 2017) alleged that a pharmaceutical manufacturer ignored safety information about one of its drugs and potentially violated FDA’s adverse event reporting requirements.  As a result, the relator contended, physicians submitted Medicare claims for prescriptions that were not “reasonable and necessary.”  The Third Circuit concluded that the relator did not meet the “high standard” for pleading materiality post-Escobar because he failed to plead that CMS, the federal agency to which Medicare claims for the drug were submitted, consistently refuses to pay claims like those alleged (and indeed “essentially concedes that CMS would consistently reimburse these claims with full knowledge of the purported noncompliance”).  Moreover, the court noted, not only had FDA not taken any enforcement action, but it had actually approved multiple new indications for the drug at issue.  The court also observed that DOJ “has taken no action against Genentech and declined to intervene in this suit.”  (more…)