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.
President Obama recently signed into law two pieces of legislation that, together, represent the most comprehensive reform that the U.S. healthcare system has seen in decades.1 In addition to providing for sweeping changes to health insurance coverage, healthcare delivery, and healthcare funding mechanisms, these laws substantially expand the government’s investigative and enforcement authority in connection with healthcare fraud and abuse. Additionally, the new laws include increased penalties for fraud and abuse in several contexts, as well as heightened disclosure and compliance obligations for providers, manufacturers, and other entities as part of government efforts to reduce fraud and to increase transparency.
This update highlights the key provisions of the new laws pertaining to anti-fraud and pro-transparency initiatives. Several of these new enforcement risks and compliance obligations take effect immediately or within one year, so affected entities will need to familiarize themselves with these provisions and plan for their implementation accordingly.