4th Circuit Demands Greater Particularity in False Claims Act Suit Pleading

Mayer_Kirsten_72Hallward-Driemeier_Douglas_72ppiGuest Commentary

by Kirsten V. Mayer and Douglas Hallward-Driemeier, Ropes & Gray LLP

Last month, the U.S. Court of Appeals for the Fourth Circuit reaffirmed that False Claims Act relators must plead presentment of a false claim with particularity.  The decision in United States ex rel. Nathan v. Takeda Pharmaceuticals N.A. Inc. requires that relators proceeding under Section 3729(a)(1)(A) of the False Claims Act offer concrete details that plausibly allege—not just speculate—that actual presentment of a false claim occurred.  By requiring that relators plead false claims with particularity, the Fourth Circuit strikes a blow against relators who would prefer simply to allege a fraudulent scheme and proceed directly to costly discovery.  The holding should be particularly useful to defendants in “off-label” promotion cases, where relators often only speculate that ineligible claims were submitted for reimbursement to government-funded programs.

In Nathan, a Takeda sales manager alleged that Takeda’s Kapidex marketing caused false claims to be presented to the government in two main ways: (1) Takeda allegedly promoted Kapidex to rheumatologists, who do not typically treat patients with conditions that can be treated by Kapidex on-label; and (2) Takeda allegedly promoted Kapidex use at higher doses than FDA had approved.

Liability under Section 3729(a)(1)(A) requires that a defendant actually presented false claims to the government for payment.  Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 789 (4th Cir. 1999).  Nonetheless, the Nathan relator urged the Fourth Circuit to adopt a relaxed application of Rule 9(b) that would rely on inferring from an alleged “fraudulent scheme” that false claims essentially must have been presented to the government.  In support, the relator pointed to a Fifth Circuit decision, United States ex rel. Grubbs v. Kanneganti, 565 F.3d 180 (5th Cir. 2009).   In Grubbs, the relator had alleged with detail that doctors fraudulently recorded medical services that were never performed, and the Fifth Circuit held that this satisfied Rule 9(b), even though the complaint did not provide specific allegations that those records caused the hospital’s billing system to present fraudulent clams to the government.  Id. at 192.

The Fourth Circuit rejected the relaxed standard urged by the relator.  In doing so, it noted that the goals of Rule 9(b) apply with equal force in False Claims Act cases and stressed that, even under the general pleading standard articulated by the U.S. Supreme Court in Ashcroft v. Iqbal, the relator here must still offer “plausible allegations” of presentment.  Op. at 8.

The court of appeals also distinguished Grubbs.  In Grubbs, the court explained, it would have defied logic for the doctors to record unperformed services, but then interrupt the normal billing process to prevent those fraudulently recorded services from being billed.  By contrast, allegations that suggest only that the defendant’s actions “could have led but need not necessarily have led to the submission of false claims,” Op. at 10 (emphasis original), do not satisfy Rule 9(b).

The court went on to hold that the relator’s allegations were insufficient.  While the relator offered general statistics that suggested off-label claims may have been presented to the federal government, the complaint never alleged facts giving rise to a plausible inference that false claims were submitted to the government as a result of Takeda’s marketing.  In so holding, the court looked carefully at – and found wanting – the statistical inferences that the relator had urged the court to draw.  Where it is possible, based on statistics, that ineligible claims were submitted, but also possible that they were not, the court refused to infer that particular prescriptions had been submitted for payment for conditions, or doses, for which the government precluded payment.  Op. at 13.

Nathan reaffirms that False Claims Act liability requires more – and requires that relators plead more – than just a “scheme” to market a drug for uses or doses that are outside the approved labeling.  The sine qua non of False Claims Act liability remains a false claim.  Stressing “the potential consequences flowing from allegations of fraud by companies who transact business with the government,” Op. at 7, the Fourth Circuit rightly required relators to make specific allegations of the false claims, rather than allowing them to file first and then see if discovery yields evidence to support the suit.

One thought on “4th Circuit Demands Greater Particularity in False Claims Act Suit Pleading

  1. Having feared that we would encounter this issue a few years ago as plaintiffs’ counsel in a pharma “off label” case, I am aware of the dilemma. This would be an extraordinarily difficult pleading standard. How can one expect a false claims’ plaintiff (usually an ex-rep from the defendant) to have evidence of a false claim actually paid by, say Medicare? It’s just not a realistic standard, as to confidential medical information. Some facts may be publicly available, but to whom drugs were sold is not. How a trial court would weigh the “inferences” that support the pleading is a big issue.

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