U.S. ex rel. Rost v. Pfizer, Inc.

Decision Date15 November 2007
Docket NumberNo. 06-2627.,06-2627.
Citation507 F.3d 720
PartiesUNITED STATES of America ex rel. Peter ROST, Plaintiff, Appellant, v. PFIZER, INC.; Pharmacia Corporation, Defendants, Appellees.
CourtU.S. Court of Appeals — First Circuit

Mark I. Labaton with whom Megan Benett, Hilary B. Taylor, and Kreindler & Kreindler LLP were on brief for appellant.

Jamie Ann Yavelberg, Attorney, with whom Peter D. Keisler, Acting Attorney General, Michael J. Sullivan, United States Attorney, Douglas N. Letter, Attorney, and Michael D. Granston, Attorney, Civil Division, Department of Justice, were on brief for United States, amicus curiae.

Ethan M. Posner with whom Carolyn F. Corwin, Tara M. Steeley, Mark W. Mosier, and Covington & Burling LLP were on brief for appellees.

Mary Ita Snyder, Timothy J. Hatch, James C. Dougherty, Karen L. Manos, Minodora D. Vancea, and Gibson, Dunn & Crutcher LLP on brief for National Defense Industrial Association, amicus curiae.

Jonathan L. Diesenhaus, Catherine E. Stetson, Jessica L. Ellsworth, Jake M. Shields, Hogan & Hartson LLP, Diane E. Bieri, Melinda Reid Hatton, and Maureen D. Mudron were on brief for Pharmaceutical Research and Manufacturers of America and American Hospital Association, amici curiae.

Before TORRUELLA, Circuit Judge, CYR, Senior Circuit Judge, and LYNCH, Circuit Judge.

LYNCH, Circuit Judge.

Dr. Peter Rost filed this whistleblower action against Pfizer, Inc. and its subsidiary Pharmacia Corporation under the federal False Claims Act ("FCA"), 31 U.S.C. § 3729 et seq., and analogous state statutes. The suit alleges that Pharmacia's misconduct in marketing a human growth hormone, Genotropin, for uses unapproved by the Food and Drug Administration led to claims for reimbursement to the United States for unreimbursable, off-label drug prescriptions.

The district court rejected defendants' argument that the suit be dismissed for lack of jurisdiction under 31 U.S.C. § 3730(e)(4), but granted the motion to dismiss on the ground that Rost's complaint failed to meet the pleading requirements for allegations of fraud under Federal Rule of Civil Procedure 9(b). United States ex rel. Rost v. Pfizer Inc., 446 F.Supp.2d 6, 28 (D.Mass.2006).

Rost's appeal urges reversal of that holding. Pfizer, supported by two sets of amici, agrees that Rost's complaint fails the pleading standard of Rule 9(b) — but claims error by the district court in deciding the threshold issue of whether one of the FCA's jurisdictional bars, see 31 U.S.C. § 3730(e)(4), applies to Rost's suit. The United States, appearing as amicus, argues for affirmance on the jurisdictional ground and notes that the Rule 9(b) ruling is consistent with the law of this circuit. The jurisdictional bar issue raises questions of statutory interpretation unresolved in this circuit.

We affirm the decision of the district court that § 3730(e)(4) does not bar Rost's suit. We also agree that the complaint fails to meet the heightened pleading standard for FCA claims, but remand so that the district court may consider Rost's request for leave to amend, which it did not address.

I.

Genotropin is a brand of synthetic human growth hormone originally marketed by Pharmacia. The FDA has approved Genotropin only for the treatment of three specific pediatric disorders and of adult growth hormone deficiency. Physicians may prescribe Genotropin for non-FDA-approved indications, but the Food, Drug & Cosmetic Act ("FDCA"), 21 U.S.C. § 321 et seq., prohibits pharmaceutical companies from marketing drugs for such "off-label" uses. In addition, Medicaid generally does not reimburse patients for off-label prescriptions. See 42 U.S.C. §§ 1396b(i)(10), 1396r-8(k)(3), (k)(6).1 There is a wide and lucrative market for off-label uses of human growth hormone. One such use is to slow the effects of aging in adults. Also, some parents request the drug to boost the growth of short children, even absent a hormonal deficiency. Sales to the domestic market for off-label uses significantly enhance the profitability of synthetic human growth hormone.

Rost joined Pharmacia in 2001 as Vice President of Marketing in the company's Endocrine Care unit. Among his responsibilities was oversight of global marketing for Genotropin. Rost soon became concerned that subordinates in charge of marketing Genotropin within the United States were utilizing problematic tactics. Pharmacia sales representatives received incentive payments for each new patient prescribed Genotropin, whether for on- or off-label uses.

Rost also suspected Pharmacia of using a Genotropin "study program" to funnel improper payments to doctors for prescribing the drug. Every doctor that prescribed Genotropin became eligible to participate in the program, which collected data about patients with growth disorders who took Genotropin. Participating doctors would receive a cash payment for every patient to whom they prescribed Genotropin and enrolled in the study. Doctors participating in the study program also received all-expenses-paid trips to conferences at luxury resorts where, among other Genotropin-related topics, doctors would discuss off-label uses of the drug.

In addition, Rost discovered that Pharmacia granted financial incentives to distributors targeting the off-label market for human growth hormone. These discount pricing contracts and rebates benefitted "anti-aging" clinics, internet-based vendors, and others unlikely to dispense Genotropin for its FDA-approved uses. Rost feared these incentives subsidized the off-label market for Genotropin.

The company hired physicians and others as "independent consultants" to promote Genotropin for off-label uses. For instance, Pharmacia retained a company in Canada to create marketing materials touting Genotropin's anti-aging uses. Pharmacia also made substantial payments to the director of several anti-aging clinics in Florida.

Rost believed these practices ran afoul of the FDCA. See, e.g., 21 U.S.C. §§ 331, 355 (prohibiting interstate distribution of drugs that have not undergone FDA approval process); id. § 333 (providing criminal penalties for such distribution). Rost also believed these practices were suspect under the anti-kickback statute, 42 U.S.C. § 1320a-7b(b), which criminalizes the payment of kickbacks, bribes, or other inducements to doctors in an effort to influence decisions about prescriptions that are reimbursed by a federal health care program.

Rost reported his concerns up the chain of management at Pharmacia. The company initiated an internal investigation and cut back on the problematic marketing activity. Rost, however, remained skeptical of some continuing practices.

In July 2002, Pfizer announced it would acquire Pharmacia. In meetings with Pfizer personnel during October and November of 2002, Rost and other Pharmacia employees aired their concerns about Genotropin marketing. Rost also wrote to a Pfizer marketing executive in early 2003 regarding Pharmacia's off-label sale and marketing of Genotropin.

Pfizer completed its acquisition of Pharmacia on April 16, 2003. Pfizer immediately initiated an internal investigation into the legacy marketing practices of its new subsidiary. It also moved quickly to inform the relevant federal authorities about potential problems.

On May 16, 2003, Pfizer contacted two separate offices within the Department of Health and Human Services ("HHS") regarding Pharmacia's problematic marketing practices. One was the FDA's Division of Drug Marketing, Advertising, and Communications ("DDMAC"), to which Pfizer wished to disclose information regarding the off-label marketing and distribution of Genotropin. Pfizer followed up on May 19, 2003, with a confidential letter to the DDMAC and the FDA's Office of Chief Counsel. The letter summarized Pharmacia's past off-label sales to anti-aging doctors and clinics, referring to the improper discount contracts and to sales representatives who focused their marketing efforts on the off-label market. The letter also described remedial measures taken by Pharmacia and Pfizer.

Pfizer also contacted on May 16, 2003, the HHS Office of Inspector General ("OIG"), which is charged with investigating and preventing fraud in federal health care programs such as Medicare and Medicaid. The OIG administers a voluntary disclosure program to encourage health care providers to inform the office of fraudulent conduct, and Pfizer sought to enter the program. Pfizer representatives met with OIG officials on May 21, 2003, to discuss the off-label marketing of Genotropin and various forms of improper payments to prescribing physicians. The OIG officials informed Pfizer that an investigative agent had been assigned to the matter and invited Pfizer to submit a letter requesting admission into the voluntary disclosure program. In another confidential letter sent to the OIG on June 3, 2003, Pfizer identified three areas of potential misconduct related to Pharmacia's promotion of Genotropin: first, payments made to physicians in the form of consulting contracts and "professional or educational" junkets; second, payments for participating in the Genotropin study program, which the letter acknowledged may have been motivated by "sales and marketing concerns"; and third, Pharmacia's engagement of "outside entities to provide product support services" for Genotropin to physicians. Pfizer sent a copy of the letter to the Civil Fraud Section of the Department of Justice.

Pfizer continued its internal investigation into Pharmacia's former marketing practices after its correspondence to the HHS but did not make any public announcement regarding Genotropin at that time. Pfizer first disclosed problems with Genotropin marketing in a publicly available document on March 10, 2004, in materials appended to a Form 10-K filed with the Securities and Exchange Commission. That document states that Pfizer "recently was notified that the U.S. Department of Justice is...

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