Second Circuit Finds That The Government’s Continued Payment In The Face of Fraud Allegations Undercuts Materiality

The Supreme Court emphasized in Escobar that questions of materiality are not “too fact intensive for courts” to decide through a motion to dismiss.  Nonetheless, what facts a plaintiff must allege adequately to plead materiality consistent with Escobar’s “demanding” standard remains a hotly contested question.  In a recent decision, the Second Circuit held that the relator’s failure to allege that CMS, the agency allegedly defrauded, changed its reimbursement practices after becoming aware of information supposedly withheld by the defendant, doomed the complaint on materiality grounds.  See United States ex rel. Coyne v. Amgen, Inc., No. 17-1522 (2d Cir. Dec. 18, 2017).  The decision underscores the significance of the materiality requirement at the motion to dismiss stage.

The relator, a former paid speaker for Amgen, filed a qui tam suit alleging that the company withheld certain material information from CMS relating to representations in the labeling of Epogen, a drug used to treat anemia.  The “Indications and Usage” section on Epogen’s label describes FDA’s approved indication to treat chronic kidney disease by raising hemoglobin levels to the target level of 10–12 grams per deciliter (“g/dL”).  The “Clinical Experience” section of the label states that once a patient reaches target hemoglobin levels of 10–12 g/dL, “statistically significant improvements were demonstrated for most quality of life parameters….”  Following Epogen’s FDA approval, Amgen conducted a clinical trial showing that patients reaching levels of 9–11 g/dL obtained improved health outcomes, whereas patients reaching levels of 13–15 g/dL experienced a higher rate of adverse events.  Amgen reported the results to FDA.  According to the relator, the clinical trial demonstrates that quality of life parameters do not improve beyond hemoglobin levels of 11 g/dL.  As a result, the relator alleged, the Clinical Experience section was misleading to the extent it maintained that patients with 11–12 g/dL levels experienced improved quality of life scores.  Under this view, Epogen prescriptions for this subset of patients were ineligible for CMS reimbursement because they were not “reasonable and necessary.”

The Second Circuit affirmed the district court’s dismissal based on a lack of materiality.  Any misrepresentations in the Clinical Experience section are unlikely to be material, the Second Circuit explained, because the FDA-approved indication was accurately set forth in a different section of the labeling.  All prescriptions written consistent with the FDA-approved indication presumptively do not present false claims.  The court’s conclusion was buttressed by the fact that Amgen had ultimately updated the Clinical Experience section to describe the results of the clinical trial at issue.  Yet even after Amgen included this supposedly withheld information on the labeling, the relator could point to no facts indicating that CMS “alter[ed] its reimbursement practices with respect to Epogen or exercise[d] any independent discretion from the presumption of FDA approval.”  The “operation in practice” of CMS’s continued reimbursement demonstrated that the data were not material to CMS payment decisions.

A copy of the court’s opinion can be found here.