United States ex rel. Petratos v. Genentech Inc.
| Citation | 855 F.3d 481 |
| Decision Date | 01 May 2017 |
| Docket Number | No. 15-3805,15-3805 |
| Parties | UNITED STATES of America, EX REL. Gerasimos PETRATOS, Gerasimos Petratos, ex rel. United States of America; State of California; State of Colorado; State of Connecticut; State of Delaware; State of Florida; State of Georgia; State of Hawaii; State of Illinois; State of Indiana; State of Louisiana; State of Maryland; Commonwealth of Massachusetts; State of Michigan; State of Minnesota; State of Montana; State of Nevada; State of New Hampshire; State of New Jersey; State of New Mexico; State of New York; State of North Carolina; State of Oklahoma; State of Rhode Island; State of Tennessee; State of Texas; Commonwealth of Virginia; District of Columbia, Appellants v. GENENTECH INC.; Roche Group; Hoffman La Roche, Inc.; Roche Holdings, Ltd.; F Hoffman—La Roche, Ltd. |
| Court | United States Courts of Appeals. United States Court of Appeals (3rd Circuit) |
Michael J. DeBenedictis, Debenedictis & Debenedictis, LLC, 125 Kings Highway West, Haddonfield, NJ 08033, Adam Gutride, Seth Safier, Anthony Patek, Matthew T. McCrary, [Argued], Gutride Safier LLP, 100 Pine Street, Suite 1250, San Francisco, CA 94111, Counsel for Plaintiffs-Appellants
Lawrence S. Lustberg, Gibbons P.C., One Gateway Center, Newark, NJ 07102, Matthew J. O'Connor, Mark W. Mosier [Argued], Matthew F. Dunn, David M. Zionts, Covington & Burling LLP, 850 10th Street, N.W., One City Center, Washington, DC 20001, Counsel for Defendants-Appellees
Michael S. Raab, Weili J. Shaw [Argued], U.S. Department of Justice, 950 Pennsylvania Ave., N.W., Washington, D.C. 20530, Counsel for United States of America as Amicus Curiae in support of neither party
Before: HARDIMAN and SCIRICA, Circuit Judges, and ROSENTHAL,* District Judge.
This appeal arising under the False Claims Act involves a multi-billion dollar cancer
drug, Avastin, which was developed by Appellee Genentech. Relator Gerasimos Petratos, who was head of healthcare data analytics for Genentech, filed a qui tam action soon after leaving the company. He alleged that Genentech suppressed data that caused doctors to certify incorrectly that Avastin was "reasonable and necessary" for certain at-risk Medicare patients. The District Court dismissed Petratos's suit for failure to state a claim. Although we disagree with the District Court's grounds for dismissal, we will affirm because Petratos failed to satisfy the False Claims Act's materiality requirement.
A widely prescribed cancer
drug that has accounted for $1.13 billion a year in Medicare reimbursements, Avastin is approved by the FDA to treat several types of cancer. Petratos alleged that Genentech concealed information about Avastin's health risks. Specifically, he claimed the company ignored and suppressed data that would have shown that Avastin's side effects for certain patients were more common and severe than reported. According to Petratos, such analyses would have required the company to file adverse-event reports with the FDA, and could have resulted in changes to Avastin's FDA label. Genentech also allegedly suppressed information regarding Avastin's side effects for patients with renal failure despite a request to disclose that information by a "Key Opinion Leader," a recognized industry expert who "influence[s] peers' medical practice, including but not limited to prescribing behavior." John Mack, A KOL by Any Other Name , 14-03 Pharm. Mktg. News 1, 1 (2015).
Petratos claimed Genentech's data suppression was part of a formal campaign, dubbed "Optimizing Data Value," during which the company avoided certain analyses and data sets that might yield negative results to mitigate its "business risk." App. 324–26. Petratos asserted that he tried to bring the safety risks inherent in this strategy to the attention of upper management, but was told "to stop any further work in [the] area," App. 318, and had his job "threatened," App. 314.
As a consequence of Genentech's data-suppression strategy, Petratos claimed the company caused physicians to submit Medicare claims that were not "reasonable and necessary." In the opinion of one oncologist, if Genentech had properly disclosed
side-effects for certain at-risk patients, "the standard of care would have been to prescribe a lower dose of Avastin, a lower frequency of doses, or no dose at all." App. 341.
Initially filed in 2011, this case was heard by three judges of the United States District Court for the District of New Jersey. Soon before his retirement, Judge Cavanaugh dismissed Petratos's initial complaint in part, but granted a stay of the order so Petratos could amend his complaint. The case was reassigned to Judge Wigenton, who rejected Genentech's argument that an amendment would be futile and held that Petratos "sufficiently alleged causes of action" under the False Claims Act. App. 56. Finally, the case was transferred to Judge Arleo, who took a different tack than Judge Wigenton and reasoned that "medically ‘reasonable and necessary’ is a determination made by the relevant agency, not individual doctors." App. 16–17. Because Petratos's theory relied on the doctors as part of the "reasonable and necessary" determination, Judge Arleo deemed the complaint fatally deficient and dismissed all claims. App. 18–19. Petratos filed this timely appeal.
The District Court had subject-matter jurisdiction over Petratos's federal claim under 28 U.S.C. § 1331 and supplemental jurisdiction over his state-law claims under 28 U.S.C. § 1367. We have appellate jurisdiction under 28 U.S.C. § 1291. We "exercise plenary review of the District Court's order granting appellees' motion to dismiss for failure to state a claim." United States ex rel. Wilkins v. United Health Grp., Inc. , 659 F.3d 295, 302 (3d Cir. 2011). We review for abuse of discretion both the District Court's decision to reconsider a predecessor judge's ruling, Fagan v. City of Vineland , 22 F.3d 1283, 1290 (3d Cir. 1994), and its denial of leave to amend the complaint, United States ex rel. Schumann v. Astrazeneca Pharms. L.P. , 769 F.3d 837, 849 (3d Cir. 2014).
Petratos's claims implicate three interlocking federal schemes: the False Claims Act, Medicare reimbursement, and FDA approval. We begin by briefly outlining each scheme.
The False Claims Act is meant "to reach all types of fraud ... that might result in financial loss to the Government." Cook Cty. v. United States ex rel. Chandler , 538 U.S. 119, 129, 123 S.Ct. 1239, 155 L.Ed.2d 247 (2003) (quoting United States v. Neifert-White Co. , 390 U.S. 228, 232, 88 S.Ct. 959, 19 L.Ed.2d 1061 (1968) ). A False Claims Act violation occurs when a person "knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval." 31 U.S.C. § 3729(a)(1)(A). A claim is legally false when it does not comply "with a statute or regulation the compliance with which is a condition for Government payment." Wilkins , 659 F.3d at 305.1
The allegedly false claims in this case were submitted to the Medicare program, which reimburses the health care costs incurred by program beneficiaries. The Medicare statute provides that "no payment may be made" for items and services that "are not reasonable and necessary for the diagnosis and treatment of illness or injury." 42 U.S.C. § 1395y(a)(1)(A). Because a claim can be false if it does not comply with statutory conditions for payment, the claims at issue here are false if Avastin was not "reasonable and necessary." See id.
One important factor considered by the Centers for Medicare and Medicaid Services (CMS) to determine whether a prescribed drug is "reasonable and necessary" is whether it has received FDA approval. Indeed, CMS guidance explains that "with some exceptions, a drug must have final marketing approval from the FDA to be considered ‘reasonable and necessary.’ " Medicare Benefit Policy Manual, CMS Pub. 100-2, ch. 1, § 30 (Part A). In most instances, the drug must also be used for a "medically accepted indication"—meaning that it has been deemed appropriate for the particular treated condition. 42 U.S.C. § 1395x(t)(2). An indication is "medically appropriate" if it has been approved by the FDA or supported by research in certain authoritative compendia. See id .; 42 C.F.R. § 414.930.
A False Claims Act violation includes four elements: falsity, causation, knowledge, and materiality. Universal Health Servs., Inc. v. United States ex rel. Escobar , ––– U.S. ––––, 136 S.Ct. 1989, 1996, 195 L.Ed.2d 348 (2016) (materiality); Wilkins , 659 F.3d at 304–05 (falsity, causation, knowledge). The District Court focused on the falsity element, concluding that the disputed claims were not false because they were "reasonable and necessary" as a matter of law.
The District Court reached its conclusion by conflating two separate standards from the Medicare statute. First, the Court noted that § 1395x provides that a drug is used for a "medically accepted indication" when it has been approved by the FDA or listed in authoritative compendia. 42 U.S.C. § 1395x(t)(2)(A). It then adopted the rule from another district court case that this "medically accepted" standard is coterminous with the "reasonable and necessary" standard in § 1395y(a)(1)(A). App. 14 (citing United States ex rel. Simpson v. Bayer Corp. , 2013 WL 4710587, at *3 (D.N.J. Aug 30, 2013) ). Consequently, the District Court held that because "Avastin is approved by the FDA and supported by compendia listings, ... [Petratos cannot] argue that prescriptions [for] Avastin were not ‘reasonable and necessary.’ " App. 14 (citations omitted) (second alteration in original). The Court explained that its decision aligns with the principle that " ‘reasonable and necessary’ is a determination made by the relevant agency, not individual doctors." App. 17.
We disagree with the District Court's reading of the statute. In our view, its analysis was premised on a false choice, namely, that "this dispute comes down to whether...
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