United States: Lessons From Risk Minimization FCA Cases Post-Escobar

In recent years, plaintiffs in False Claims Act, 31 U.S.C. § 3729 et seq. (2006), cases have sought to expand FCA liability of pharmaceutical and medical device companies alleging that these companies caused the submission of false claims by concealing safety risk data from the U.S. Food and Drug Administration or minimizing risks or overstating benefits to the medical community. These actions, which often are an outgrowth of product liability cases these companies routinely face, present starkly different issues regarding the falsity of government claims and materiality than typical FCA cases alleging off label promotion or kickbacks. The off-label falsity theory is premised on the government's contention that claims for off label uses are not statutorily reimbursable and therefore "false or fraudulent." The kickback falsity theory is based on providers' certifications to comply with the Anti-Kickback Statute, 42 U.S.C. § 1320a-7b (2012) ("AKS"), the government's enforcement history and a 2010 amendment to the AKS expressly providing that claims resulting from kickbacks are false.

Neither theory necessarily applies to FCA claims based on safety risk minimization or benefit overstatement, and plaintiffs have struggled to come up with a viable explanation for how such conduct results in a materially false claim to government health care programs. Plaintiffs — mostly relators thus far rather than the government — argue that claims are false because the FDA would have withdrawn approval or required a label change had the risks been properly disclosed. They also contend that risk minimization or benefit overstatement directed at providers caused those providers to write more prescriptions than they would have otherwise, thereby resulting in excessive expenditures by Medicare and other government healthcare programs.

Relators pursuing FCA suits based on these contentions have faced difficulties getting past dismissal motions, particularly after the U.S. Supreme Court's 2016 Escobar decision, which requires courts to engage in a "rigorous" and "demanding" analysis of the materiality of an alleged statutory, regulatory or contractual violation to the government's payment decision. 1 A key consideration under Escobar is whether the government continues to pay for the items at issue even after being made aware of the alleged violation, which has doomed several FCA actions claiming risk concealment or minimization. Courts have also found that such claims seek to challenge the propriety of FDA approval actions, which is not the purpose of the FCA, and have zeroed in on plaintiffs' inability to identify particular claims that are linked to the alleged misconduct.

Against this landscape, we summarize below some recent significant decisions regarding FCA actions premised on risk minimization or benefit overstatement.

Risk Minimization FCA Cases Under Escobar

In a December 2016 decision, U.S. ex rel. D'Agostino v. ev3 Inc., the First Circuit affirmed the dismissal of an FCA complaint alleging that a medical device manufacturer made fraudulent representations to the FDA, including by omitting safety information.2 The court held that plaintiff's fraud-in-the-inducement claim fell short because he did not allege that the alleged misrepresentations "actually cause[d] the FDA to grant approval it otherwise would not have granted."3 Applying Escobar's materiality standard, the court placed great emphasis on the fact that the FDA had not demanded recall or relabeling after relator brought his complaint. The court also had "serious doubt on [] materiality" because the government continued paying for the device "in the wake of" plaintiff's allegations.4

Drawing a bright line, the court stated that the lack of FDA action "precludes [relator] from resting his claims on a contention that the FDA's approval was fraudulently obtained."5 The court reasoned that jurors should not second guess FDA approval decisions applying the rationale of Buckman, which disallows state law fraud-on-the-FDA claims.6 The D'Agostino holding makes it very difficult for an FCA fraud-in-the-inducement claim to proceed based on allegations of concealment of data from the FDA — as affirmed in a recent Massachusetts district court applying D'Agostino to similar claims.7 The government seems to agree — stating that fraudulent inducement claims should lie only "in the (rare) circumstances in which the defendant's false statements masked problems that were so serious that FDA would have (for example) withheld or withdrawn its approval of the drug application for all indications had it known the truth."8

A May 2017 Third Circuit decision addressed claims of not only fraud on FDA but also claims that a drug manufacturer suppressed risk information to the medical community. In U.S. ex rel. Petratos v. Genentech, the court affirmed the dismissal of a complaint alleging that the defendant suppressed the risks of its cancer medicine, which caused the FDA not to change the label and doctors to prescribe for uses that were not reasonable and necessary.9 As in D'Agostino, the court found a lack of materiality because after relator informed the FDA and DOJ of his concerns, the FDA "continued its approval" and approved three new indications while the DOJ took no action and declined to intervene in the FCA suit.10

The relator claimed materiality was established by his allegation that the government would have paid for fewer claims because disclosure of the true risks would have deterred doctors from prescribing. The court rejected that argument noting that relator was conflating causation with materiality — a key holding because while plaintiffs may be able to allege causation as to providers there is little basis to assert that government payment decisions are premised on the contours of the discussions regarding risks and benefits between companies and providers. As the Third Circuit stated, although plaintiff's concerns and allegations regarding risk disclosure may be "well founded," "a False Claims Act suit is not the appropriate way to address them."11

Interestingly, district courts within the Third Circuit both before and after Petratos have allowed risk minimization claims to proceed under Escobar. A few weeks prior to Petratos, a Pennsylvania district court denied a motion to dismiss a claim of fraudulent inducement based on misrepresentations of study data to the FDA. In U.S. ex rel. Brown v. Pfizer, the court distinguished the First Circuit's D'Agostino decision finding that plaintiffs alleged that the FDA would not have approved the medicine if it knew of the allegedly concealed risks.12 On Escobar materiality, the court put little stock in the fact that federal and state governments continued to pay for the drug after relators came forward stating that knowledge of fraud allegations was not "actual knowledge" of fraud and was not otherwise dispositive on materiality. And just last week, a New Jersey district court allowed an FCA suit based on risk minimization and benefit overstatement to proceed past dismissal because relator pled that the government would have denied reimbursement of prescriptions as not medically necessary even though they were on label.13 Both cases could very well end up before the Third Circuit, which will then have to determine the scope and applicability of its Petratos decision.

Risk Minimization FCA Cases Under Rule 9b

Prior to Escobar, three appellate courts confronted claims based on safety risk minimization dismissing them for failure to meet Federal Rule of Civil Procedure 9(b) by not identifying false claims that resulted from the conduct.

In U.S. ex rel. Ge v. Takeda Pharm. Co., the First Circuit affirmed the dismissal of claims that the defendant failed to adequately disclose risks of four medicines to the FDA in its adverse event reports.14 The court held that plaintiff did not allege how the alleged misconduct resulted in false claims and stated that aggregate spend data was insufficient because it did not show "that some subset of claims for government payment for the four subject drugs was rendered false as a result of," the alleged misconduct. There was a similar result in U.S. ex rel. Simpson v. Bayer Healthcare, in which plaintiff claimed that the defendant downplayed risks and overstated efficacy of its product to doctors leading them to prescribe more than they would otherwise.15 The Eighth Circuit affirmed dismissal on Rule 9(b) grounds, stating that plaintiff did not show how any claim was fraudulent in and of itself, noting that the fact that the drug was prescribed to a patient for the relevant condition did not show fraud. The Fourth Circuit in U.S. ex rel. Walterspiel v. Bayer AG, 639 Fed. Appx. 164 (4th Cir. 2016), similarly dismissed FCA claims based on allegedly false study data submissions to FDA on Rule 9(b) grounds for failing to identify false claims.16 Although Escobar arguments are important, Rule 9(b) remains an key defense tool particularly where plaintiffs claim that some subgroup of on label prescriptions were medically unnecessary because of risk/benefit discussions with providers.


These cases demonstrate that while plaintiffs may be able to allege misconduct generally, perhaps armed with discovery in a mass tort products case, they will have a difficult time showing that such conduct is material to government payment decisions or finding "false" claims that resulted. Yet, although appellate courts have not been kind to risk minimization FCA claims, they have not dismissed them out-of-hand given the role of the FDA. With the potential for multimillion-dollar recoveries and lower court decisions that have permitted such claims to proceed,17 companies will likely continue to see FCA cases based on concealment or minimization of safety risks or overstatement of benefits, as relators try to open up a new front in their battles against the pharmaceutical and device industry.

Manvin S. Mayell is a partner in the New York office of Arnold & Porter Kaye Scholer LLP and a former federal prosecutor.

Adeel Wahid, a student at The University of Michigan Law School, contributed to this article.


1 Universal Health Servs., Inc. v. United States, 136 S. Ct. 1989 (2016).

2 D'Agostino v. ev3, Inc., 845 F.3d 1, 12 (1st Cir. 2016).

3 Id. at 7 (emphasis in original).

4 Id. at 7.

5 Id. at 8.

6 Buckman Co. v. Plaintiff's Legal Committee, 531 U.S. 341 (2001)

7 Elliot-Lewis v. Abbott Labs, Inc., No. 1:14-cv-13155, 2017 WL 1826627 (D. Mass. May 5, 2017) (dismissing FCA claim alleging false Premarket Approval Application for medical device).

8 Brief for the United States of America as Amici Curiae in Support of Neither Party at 26, U.S. ex rel. Petratos v. Genentech, No. 15-3805 (3rd Cir. May 23, 2016).

9 U.S. ex rel. Petratos v. Genentech Inc., 855 F.3d 481, 489 (3d Cir. 2017).

10 Id. at 490.

11 Id. at 494.

12 U.S. ex rel. Brown v. Pfizer, Inc., No. CV 05-6795, 2017 WL 1344365, at *10 (E.D. Pa. Apr. 12, 2017).

13 U.S. v. Johnson & Johnson, Civil Action 12-7758 (D.N.J. May 31, 2017)

14 U.S. ex rel. Ge v. Takeda Pharmaceutical Co., 737 F.3d 116, 129 (1st Cir. 2013).

15 In re Baycol Prod. Litig., 732 F.3d 869, 872 (8th Cir. 2013).

16 U.S. ex rel. Walterspiel v. Bayer AG, 639 F. App'x 164, 169 (4th Cir. 2016).

17 In addition to Brown and J&J, supra, other district courts have denied dismissal motions of concealment of risk data or misrepresentation of benefits. See U.S. ex rel. Krahling v. Merck & Co., 44 F. Supp. 3d 581, 609 (E.D. Pa. 2014).

Originally published in Law360

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