United States: $1.2 Billion Medicaid Fraud Penalty Award Reversed And Claim Dismissed In Arkansas Appeal

Last Updated: March 25 2014
Article by Kenneth J. Wilbur

In another decision narrowing the scope of state Medicaid fraud statutes, on March 20, 2014, the Supreme Court of Arkansas, in Ortho-McNeil-Janssen Pharmaceuticals, Inc. v. State of Arkansas, No. CV-12-1058, unanimously reversed and dismissed a $1.19 billion award under the Arkansas Medicaid Fraud False Claims Act (MFFCA), and reversed and remanded for a new trial a related $11.4 million award under the Arkansas Deceptive Trade Practices Act (DTPA). In reversing a Medicaid fraud claim predicated on statements not made in the context of an actual claim for payment from Medicaid, the Arkansas decision parallels the Supreme Court of Louisiana's decision in Caldwell ex rel State of Louisiana v. Janssen Pharmaceutical, Inc., (No. 2012-C-2447, No. 2012-C-2466), see related article.

The Arkansas decision turned on the interpretation of Ark. Code Ann. § 20-77-902, which provides:

A person shall be liable to the State of Arkansas, through the Attorney General, for a civil penalty and restitution if he or she: ... (8) Knowingly makes or causes to be made or induces or seeks to induce the making of any false statement or representation of a material fact: (A) With respect to the conditions or operation of any institution, facility, or entity in order that the institution, facility, or entity may qualify either upon initial certification or upon recertification as a hospital, rural primary care hospital, skilled nursing facility, nursing facility, intermediate care facility for the mentally retarded, home health agency, or other entity for which certification is required; or (B) With respect to information required pursuant to applicable federal and state law, rules, regulations, and provider agreements[.]

The State alleged that Janssen had violated a general FDA labeling regulation, 21 C.F.R. § 201.57(e), by including in a "Dear Health Care Provider" letter information that was inconsistent with Risperdal's approved package insert. Despite having stipulated that it had no evidence that a single prescription had been written or dollar of Medicaid funds spent as a result of the alleged falsity, the State argued that Janssen had made a false statement "with respect information required pursuant to applicable federal ... regulations," under § 20-77-902(8)(B). The $1.19 billion trial award was predicated on imposing a $5000 penalty for each of the 238,874 prescriptions written or refilled during the relevant time period.

The unanimous 7-0 decision on the MFFCA claim is set forth in two opinions, a four justice majority and a three justice concurrence, with the concurring justices dissenting on the DTPA claim. The opinion of the four-justice majority focuses the absence of any division of § 20-77-902(8) into an (A) or (B) when the statute was enacted in 1993 as Act No. 1299. Attributing the ambiguity with respect to the scope of (B) to clerical errors by the Arkansas Code Revision Commission in codifying the statue, the majority found that subsection (B) did not make violation of any federal regulation actionable under the MFFCA, but was limited in scope to statements that violated state or federal regulations made in conjunction with the functions addressed in (A): the certification or certification of health-care facilities. The three concurring justices reached this same result interpreting the statute as codified, without reference to the original format of Act 1299.

The division of the Court on the related DTPA claim turned on an evidentiary issue. In support of its claim that the Dear Health Care Provider letter was false, deceptive or unconscionable under the DTPA, the State introduced an informal Warning Letter from officials in FDA's Division of Drug Marketing, Advertising and Communications (DDMAC) stating that DDMAC considered certain statements in the Dear Health Care Provider letter "false or misleading" (a regulatory term of art) due to alleged deviations from the substance of the product's FDA-approved package insert. The Dear Health Care Provider letter was found misleading, and a $2500 penalty was imposed on each of the 4,569 copies of the letter distributed in Arkansas.

In reversing the $11.4 million DTPA award, four members of the court held that the DDMAC warning letter was inadmissible, highly prejudicial hearsay that fell outside the public records hearsay exception, Ark. R. Evid. 803(8)(iv), because it was the product of a specific investigation of a particular complaint. In dissent, three members of the Court would have permitted the DTPA award to stand, arguing that the Warning Letter was the product of DDMAC's regularly conducted and regularly recorded activities. As a result, the DTPA award was reversed and remanded for a new trial in which the Warning Letter would be inadmissible. In remanding, the Court did not reach a number of evidentiary, preemption, First Amendment, and excessive-fines issues that had been raised as challenges to the MFFCA and DTPA claims. It also reversed an award of attorneys' fees and costs in excess of $180 million.

The decision is important since it reaffirms the principle that for a statement to give rise to a Medicaid false claim cause of action, the statement must be made in support of a claim for payment, not merely concern a product that is made the subject of a reimbursement claim. The ruling on the Warning Letter is also significant. Such letters, while highly prejudicial, are a common part of an informal dialog between FDA and its regulated entities on specific issues of concern. They do not even rise to the level of formal agency action, let alone qualify as the kind of routine agency record, such as a periodic water quality report, intended to be covered by the business records hearsay exception.

Drinker Biddle represented Janssen in this matter.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Kenneth J. Wilbur
In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions