UPDATE: On Wednesday, the Food and Drug Administration announced that the government has decided not to seek en banc or Supreme Court review of the Second Circuit’s decision. Presumably, the government did not want to risk an adverse decision by the full Second Circuit or from the Supreme Court that could further restrict the FDA’s ability to bring off-label marketing cases. Instead of seeking further review, the FDA has sought to characterize the Caronia holding as a narrow one. In a statement explaining the government’s decision, the FDA said that it does not believe Caronia will “significantly affect the agency’s enforcement of the drug misbranding provisions of the Food, Drug and Cosmetic Act.” According to the FDA, “[t]he decision does not strike down any provision of the . . . act or its implementing regulations, nor does it find a conflict between the act’s misbranding provisions and the First Amendment or call into question the validity of the act’s drug approval framework.”
This story is still playing out in other Circuits around the country, and the Supreme Court may review the issue in another case. But the government’s decision allowing this precedent to stand is good news for potential False Claims Act defendants in off-label marketing cases in the Second Circuit and elsewhere.
On December 3, 2012, the Court of Appeals for the Second Circuit issued a landmark ruling in United States v. Caronia, No. 09-5006 (2d Cir. December 3, 2012) declaring that truthful, non-misleading off-label promotion is constitutionally-protected commercial speech. In a 2-1 ruling accompanied by a vigorous dissent, the Court vacated the conviction of former Orphan Medical, Inc., sales representative Alfred Caronia for conspiracy to introduce a misbranded drug into interstate commerce. The government alleged that, while Caronia was an Orphan sales rep, he promoted the drug Xyrem for off-label use. In appealing his misdemeanor conviction, Caronia argued that the First Amendment barred the government from convicting him for disseminating truthful and non-misleading information about an FDA-approved drug “where such use is not itself illegal and others are permitted to engage in such speech.” Op. at 25. The majority agreed, in effect “declin[ing] the government’s invitation to construe the FDCA’s misbranding provisions to criminalize the simple promotion of a drug’s off-label use by pharmaceutical manufacturers and their representatives because such a construction . . . would run afoul of the First Amendment.” Op. at 33.
The majority dissected the often-unchallenged notion that off-label promotion, in and of itself, is illegal or renders a drug misbranded. It observed that neither the FDCA nor its implementing regulations expressly prohibit off-label promotion. Op. at 26. Instead, the regulatory scheme permits promotional speech to be used as evidence of a drug’s intended use. Yet despite the absence of a flat prohibition on off-label communication, Caronia argued on appeal that he was being prosecuted for having engaged in truthful, non-misleading speech. The government, by contrast, contended that his speech served to establish evidence of intent to introduce misbranded Xyrem into interstate commerce. The majority disagreed, finding that “the record makes clear that the government prosecuted Caronia for his off-label promotion.” Op. at 20.
The Court then analyzed the extent to which Caronia’s off-label promotional speech was protected by the First Amendment. In arriving at its conclusion that the speech was in fact protected, the Court relied on last year’s Supreme Court decision in Sorrell v. IMS Health, Inc., 131 S. Ct. 2653 (2011). In Sorrell, which also originated in the Second Circuit, the Supreme Court struck down a Vermont law prohibiting pharmaceutical companies from using prescribed-identifying information in their marketing efforts. The Second Circuit used Sorrell as a backdrop and concluded that the government’s prohibition of off-label communication was both content and speaker-based. It then moved to the next step of the analysis and asked whether the government had shown that the restrictions on speech were consistent with the First Amendment. Relying on the Supreme Court’s decision in Central Hudson Gas & Electric Corp. v. Public Service Commission of N.Y., 447 U.S. 557 (1980), the Second Circuit found that the government had satisfied only two of the four prongs necessary to show that commercial speech is not protected by the First Amendment. As part of that ruling, the majority concluded that there were less restrictive ways for the FDA to regulate the provision of information about off-label usage, citing in support an article by Sidley partner Coleen Klasmeier. Accordingly, the Court concluded that the “government cannot prosecute pharmaceutical manufacturers and their representatives under the FDCA for speech promoting the lawful, off-label use of an FDA-approved drug.” Op. at 51.
A spirited dissent authored by Judge Livingston, who also dissented from the Second Circuit’s majority opinion in Sorrell, challenged the majority at almost every turn. Judge Livingston disagreed with the majority’s interpretation that Caronia was convicted for promoting Xyrem off-label, finding instead that “Caronia’s speech was used simply as evidence of Xyrem’s intended uses. . . .” Dissent at 7. Accordingly, she concluded that his “conviction does not run afoul of the First Amendment.” Id.
For now, the ruling applies only in the Second Circuit, which encompasses New York, Vermont, and Connecticut. It remains to be seen whether the United States will seek rehearing by the full Second Circuit or review by the Supreme Court. Regardless, the ruling has broad implications for pharmaceutical manufacturers at a time when DOJ is extracting record settlements in cases premised on allegations of off-label marketing. As the dissent noted, “the majority calls into question the very foundations of our century-old system of drug regulation.” Dissent at 1. Judge Livingston argued that if drug companies “were allowed to promote FDA-approved drugs for nonapproved uses, they would have little incentive to seek FDA. approval for those uses.” Id. at 21. As a result, Judge Livingston feared a scenario where “a drug manufacturer must be allowed to distribute a drug for any use so long as it is approved for one use.” Id. at 23. Under the majority’s view, it’s not clear how, in the Second Circuit, the government could enforce what has long been considered a bright-line rule against off-label promotion.
While the court’s ruling plainly forecloses criminal prosecution under the FDCA for providing truthful, non-misleading promotional information about off-label uses, the impact in civil FCA cases based on off-label promotion is less clear. The opinion appears to undercut any argument that communicating truthful, non-misleading promotional information about off-label uses is sufficient to render a claim “false or fraudulent.” But what if the off-label use is not covered by Medicare or Medicaid because it is not for a “medically accepted indication?” Does Caronia provide a First Amendment shield from FCA liability for engaging in off-label promotion of a drug that is not covered by federal healthcare programs for the off-label use? Can the government or a relator overcome Caronia in a civil FCA case by simply characterizing evidence of off-label promotion as evidence of intent to cause the submission of false claims? These and similar issues will no doubt be hotly contested in future off-label cases, and the impact of the Second Circuit’s ruling will no doubt continue to be explored on this blog and in other forums.
Posted by Scott Stein and Catherine Kim
In August, we wrote about a decision in which a court rejected the government’s theory that submission of claims for services that failed to comply with industry guidelines were “false.” Last week, another plaintiff seeking to impose FCA liability based on violation of voluntary guidelines suffered a similar defeat.
On November 14, Judge Brian Cogan of the Eastern District of New York dismissed the relator’s Fifth Amended Complaint in United States ex rel. Polansky v. Pfizer, Inc., No. 04-cv-0704 (E.D.N.Y. Nov. 14, 2012) alleging that Pfizer engaged in off-label marketing of its popular statin Lipitor in violation of the False Claims Act. The complaint alleged that Pfizer engaged in off-label marketing by encouraging physicians to prescribe Lipitor to lower the cholesterol of patients whose risk factors for heart disease and cholesterol levels did not fall within the National Cholesterol Education Program (“NCEP”) Guidelines. Specifically, the relator contended that the publication of an NCEP Guidelines chart in Lipitor’s 2005 label prohibited Pfizer from marketing the drug to physicians for use on patients who fell outside the parameters of the guidelines. Though such guidelines were not republished in the 2009 label, the relator noted that they were still referenced in the Dosage and Administration section.
Concluding that “[o]ff-guideline use does not equate to off-label[,]” the court dismissed the complaint, holding that the NCEP Guidelines did not constitute a legal restriction, but were “merely informational and advisory[.]” The court noted that had the FDA desired to limit Lipitor use to patients falling within the NCEP guidelines, it could have done so expressly. Yet the 2009 label, as read by the court, contained no restrictions regarding the appropriate patient population for Lipitor. Indeed, the only reference to the guidelines appeared in a four-word parenthetical in the label’s dosage instructions.
For these reasons, the court held that the relator’s off-label claims failed under the 2009 label. And since the relator conceded that the changes to the 2009 label from the earlier label were not substantive, the court concluded that the relator’s claims must fail under the 2005 label as well.
“The False Claims Act, even in its broadest application, was never intended to be used as a back-door regulatory regime to restrict practices that the relevant federal and state agencies have chosen not to prohibit through their regulatory authority,” wrote Judge Cogan. “I cannot accept plaintiff’s theory that what the scientists at the [NCEP] clearly intended to be advisory guidance is transformed into a legal restriction simply because the FDA has determined to pass along that advice through the label.”
Posted by Scott Stein and Nirav Shah
In an area of evolving False Claims Act jurisprudence, a district court in Georgia has found that the Medicare Part D program does not cover off-label uses of drugs that are not supported by a medically accepted indication. U.S. ex rel. Fox Rx v. Omnicare, Inc., No. 1:11-CV-00962 (N.D. Ga. Aug. 29, 2012). In Fox, the relator alleged that Defendants Omnicare and Neighborcare, both of which are specialty pharmacies, submitted false claims in connection with services they provided to long-term care facilities, such as nursing homes. The Complaint alleged that the Defendants were responsible for submitting false claims involving atypical antipsychotic drugs prescribed for dementia to residents of long-term care facilities, some of whom are beneficiaries of the Part D program. Defendants responded with a Motion to Dismiss under Rules 12(b)(6) and 9(b).
Because the relator alleged that the defendant-pharmacies submitted claims for off-label uses of atypical antipsychotics in violation of the False Claims Act, a central plank of Defendants’ rebuttal was that Part D Plan sponsors may cover off-label uses of drugs. By statute, Part D covers drugs that meet the Social Security Act’s definition of “covered Part D drug,” which provides, in part:
Except as provided in this subsection, for purposes of this part, the term “covered part D drug” means—
(A) a drug that may be dispensed only upon a prescription
and that is described in subparagraph (A)(i), (A)(ii), or (A)(iii) of
section 1396r-8(k)(2) of this title . . .
and such term includes . . . any use of a covered part D drug for a medically
accepted indication (as defined in paragraph (4)).
42 U.S.C. § 1395-102(e)(1) (2006 & Supp. IV 2010) (emphasis added). The term “medically accepted indication” is defined as “any use for a covered outpatient drug which is approved under the Federal Food, Drug, and Cosmetic Act or the use of which is supported by one or more citations included or approved for inclusion in any of [three compendia].” 42 U.S.C. § 1396r-8(k)(6). Thus, if any of the uses for dementia had been supported by a compendium listing, they would have been a “medically accepted indication,” and, therefore, the use would have involved a “covered Part D drug.”
Defendants argued that the final clause of the definition of “covered Part D drug” (which the Court dubbed the “includes” clause and is italicized above), creates a floor, not a ceiling, to coverage. That is, Part D Plans must, at a minimum, cover drugs for a “medically accepted indication,” but Plan sponsors may also opt to cover other, potentially off-label uses of drugs absent a medically accepted indication. Relator and the United States, which filed a statement of interest in response to Defendants’ Motion to Dismiss, argued that the “includes” clause sets a coverage ceiling, meaning that Part D plans may cover off-label prescriptions of drugs only when they are accompanied by a “medically accepted indication”—and nothing more.
Although the Court conceded that the statutory definition was “inartfully drafted,” it held that under the relevant canons of construction, the legal meaning was unequivocal: “to be a ‘covered Part D drug’ the drug must be used for a ‘medically accepted indication.'” Op. at 19. According to the Court, in order to give the “includes” clause meaning, it must be read to “limit the expansive scope” of the “medically accepted indication” language. Op. at 20. The Defendants’ interpretation, according to the Court, would render the “includes” clause superfluous because off-label use “would be equally covered with our without the ‘includes’ clause.” Id. Accordingly, the Court found that Part D does not cover off-label uses of drugs that are not supported by a medically accepted indication as demonstrated by a listing in one or more of the approved compendia.
Although the underlying counts were ultimately dismissed under Rule 9(b), the Fox court’s analysis is at odds with the ruling of another district court in Layzer v. Leavitt, 77 F. Supp. 2d 579, 584-87 (S.D.N.Y. 2011). The Layzer court interpreted the very same statutory language and found the definition of “covered part D drug” was not limited by whether usage is supported by approved compendia because the “includes” clause is illustrative rather than definitional. Id. Under the reasoning in Layzer, Medicare Part D can be required to cover uses of drugs that are both off-label and “off compendia.” Yet another district court that has looked at the issue came out on the same side as the Fox court. See Kilmer v. Leavitt, 609 F. Supp. 2d 750, 754 (S.D. Ohio 2009). In Kilmer, the court held that the statute requires use for a “medically accepted indication” as part of the definition of “covered part D drug.”
As courts continue to grapple with the construction of the Part D statute, expect manufacturers, relators, and the government to look to additional sources of evidence and policy to support their preferred interpretation.
On June 1, Judge Rya Zobel issued a decision dismissing most of relators’ claims against pharmaceutical manufacturer Organon and two long-term care pharmacies, Pharmerica and Omnicare, concerning the antidepressant drug Remeron. Relators’ complaint was premised on allegations that defendants (1) received and/or paid kickbacks in exchange for switching patients to Organon’s preferred drugs, (2) misreported pricing and rebates associated with Organon drug sales to the federal government, and (3) promoted Organon drugs for off-label use in order to switch more patients to those drugs. The complaint alleged kickback claims against all defendants and pricing and off-label claims against Organon only.
Judge Zobel’s decision leaves little of the complaint standing. First, the court found that it lacked jurisdiction over all claims against Pharmerica and all kickback and pricing claims against Organon under the FCA’s first-to-file and public disclosure bars. Two aspects of this ruling are particularly noteworthy: (1) Following the D.C. Circuit, the court rejected relators’ contention that a first-filed complaint must satisfy Rule 9(b) because such a requirement would “frustrate the purpose of the first-to-file bar by raising the threshold for it to apply,” Slip Op. 12 n.17, and (2) It was enough for the first-filed complaint to list the Organon drug Remeron, and expressly naming defendant Organon was not necessary, id. at 15. The two complaints alleged the same essential elements of fraud and that was “sufficient to put the government on the trail.” Id. at 16. It did not matter that that these relators provided “additional details and types of kickbacks.” Id.
Second, the court dismissed off-label marketing claims brought under 31 U.S.C. § 3730(a)(1)-(3) because “if a state Medicaid program chooses to reimburse a claim for a drug prescribed for off-label use, then that claim is not ‘false or fraudulent,’ and liability cannot therefore attach for reimbursement.” Id. at 26. Relators alleged only that a state “may” deny coverage for an off-label prescription, not that any states actually did or that states must do so under the Medicaid statute. The allegation that states had a choice whether to cover such prescriptions and did, the court found, could not establish FCA liability for reimbursement claims purportedly filed because of an off-label marketing scheme. Id. at 27-28.
Third, the court dismissed claims against Omnicare premised on so-called “collateral kickbacks”—that is, incentive payments “such as research grants, sponsorship of annual meetings, data purchasing agreements, nominal-price transactions, and participation in corporate partnership programs”—because they failed to satisfy Rule 9(b). Id. at 28-33. The court found, for example, that “budget[ing] for payments to Omnicare does not confirm that such payments were actually made, that Omnicare solicited them, or that the payments were inducements to participate in the conversion or therapeutic interchange scheme alleged,” and the “conclusory allegation that ‘Omnicare actively pursued Organon to participate in corporate partnership programs, which were mainly ways to funnel money to Omnicare in exchange for Remeron prescriptions'” would not do. Id. at 33. (The court did not say whether dismissal was with or without prejudice.)
Although the court did not dismiss relators’ claims entirely, each of these rulings is critically important to limiting the scope of FCA liability that is frequently pursued in analogous cases against pharmacy providers and pharmaceutical manufacturers.
On May 7, the Department of Justice announced that Abbott Laboratories has agreed to plead guilty to a criminal charge of misbranding and agreed to pay $1.5 billion to resolve criminal and civil claims for alleged off-label promotion. In an agreed statement of facts, Abbott admitted that from 1998 through 2006, it maintained a specialized sales force trained to market the drug Depakote in nursing homes for the control of agitation and aggression in elderly dementia patients, despite the absence of credible scientific evidence that Depakote was safe and effective for that use. Abbott also admitted that from 2001 through 2006, it marketed Depakote in combination with atypical antipsychotic drugs to treat schizophrenia, even after its clinical trials failed to demonstrate that adding Depakote was any more effective than an atypical antipsychotic alone for that use.
The $1.5 billion settlement is the second largest ever by a pharmaceutical manufacturer. Over half ($800 million) of the amount is being paid to settle FCA claims by the federal and state governments that the challenged conduct caused false claims to be submitted as a result of the conduct underlying the criminal plea (to which Abbott stipulated) and allegations of unlawful kickbacks (which Abbott denied). Four relators will receive a total of $84 million from the federal government’s share of the settlement. The remaining $700 million consists of a criminal fine of $500 million, a forfeiture of assets of $198.5 million, and a payment of $1.5 million to the Virginia Medicaid Fraud Control Unit. Among the conditions of its probation are that Abbott must report any “probable” violation of the Food, Drug, and Cosmetics Act to the probation office, and is prohibited from compensating sales representatives for off-label sales.
Documents relating to the settlement can be found here:
The U.S . Department of Health and Human Services has released its Fiscal Year 2013 “Budget in Brief,” an overview of how HHS proposes to spend the close to $1 billion in budget authority for HHS requested in President Obama’s 2013 budget request. Program integrity is a top priority, with HHS noting that over the last three years, Health Care Fraud and Abuse Control (which comprises $610 million of the budget request) has produced a “return on investment” of $7.20 for every dollar spent. Among the key initiatives these funds will support are a continued emphasis on improper fee-for-service payments by Medicare, expansion of the Health Care Fraud Prevention and Enforcement Action Team (HEAT) task forces, and “an increased focused on civil fraud, such as off-label marketing and pharmaceutical fraud.” (page 62).