E-Alert Case Updates

Maryland District Court Dismisses Qui Tam Action Against Pharmaceutical Drug Manufacturers Under the Heightened Pleading Standards of the False Claims Act

United States, et al., ex rel. Jerome Palmieri v. Alpharma, Inc., et al.
Civil Action No. ELH-10-1601 (March 21, 2014)
by Jhanelle A. Graham, Associate
Semmes, Bowen & Semmes (www.semmes.com)

In United States, et al., ex rel. Jerome Palmieri v. Alpharma, Inc., et al., the relator, Jerome Palmieri, filed a qui tam action on behalf of the United States of America and various individual states (collectively, the “Qui Tam States”) against his employers, Alpharma, Inc. and Alpharma Pharmaceuticals, LLC (collectively, “Alpharma”); King Pharmaceuticals, Inc. (“King”); and Pfizer, Inc. (“Pfizer”), pursuant to the False Claims Act (“FCA”), 31 U.S.C. §§ 3729 et seq. and analogous state statutes of the Qui Tam States. The suit concerned the pharmaceutical defendants’ marketing of Flector Patch, a topical pain medication delivered by a transdermal patch, approved by the United States Food and Drug Administration (“FDA”) for the treatment of acute pain due to “‘minor strains, sprains, and contusions.’” Relying upon Nathan v. Takeda Pharmaceuticals North America, Inc., 707 F.3d 451 (4th Cir. 2013) (petition for cert. pending), and finding Nathan to be “completely dispositive” of the action, the Honorable District Judge Ellen Lipton Hollander dismissed the Complaint for failure to state a claim upon which relief may be granted.

Defendants manufacture and market Flector Patch, a transdermal patch that delivers, via absorption through the patient’s skin, a topical application of 1.3% diclofenac epolamine. Diclofenac epolamine is a non-steroidal anti-inflammatory drug (“NSAID”), in the same family as ibuprofen and naproxen. Flector Patch is the only prescription NSAID topical patch on the market. The FDA approved Flector Patch for prescription use in December 2007 as a “‘topical treatment of acute pain due to minor strains, sprains, and contusions.’” (citation omitted in original). However, the use was approved only for up to fourteen (14) days. Like other NSAIDs, Flector Patch entails risks of cardiovascular and gastrointestinal side effects that increase the longer the drug is used, so Flector Patch’s FDA-approved label contains a warning that a patient should use only “‘the lowest effective dose for the shortest duration consistent with individual treatment goals.’” Palmieri had been employed since 2001 as a sales representative for Alpharma (and later, King and Pfizer), to market defendants’ prescription pain medications, including Flector Patch, to physicians who treat chronic pain.

Filing a Complaint on April 20, 2010, Palmieri alleged that the defendants engaged in a comprehensive scheme to promote the prescription of Flector Patch for off-label uses and in excessive dosages. Specifically, Palmieri alleged that the defendants engaged in a program of aggressive and illegal marketing of Flector Patch to physicians, which encouraged physicians, sometimes by way of unlawful “kickbacks,” to prescribe Flector Patch to their patients, including prescriptions for “off-label” uses and at excessive dosages. According to Palmieri, some of the resulting off-label, excessive, or unlawfully-induced prescriptions of Flector Patch were submitted to federal and state health care programs for reimbursement, such as Medicaid and Medicare. Such programs, however, generally do not permit reimbursement for a medication that is prescribed for a so-called “off-label” use—i.e., a use other than the use for which the medication has been approved by the FDA. Defendants moved to dismiss the First Amended Complaint. In particular, the defendants argued that the “first-to-file” rule, 31 U.S.C. § 3730(b)(5), precluded the district court from exercising subject matter jurisdiction. In addition, they contended that the First Amended Complaint failed to state a claim on which relief could be granted, in light of the heightened pleading requirements applicable to fraud claims under Fed. R. Civ. P. 9(b).

After reviewing the First Amended Complaint, the Maryland district court concluded, in United States ex rel. Palmieri v. Alpharma, Inc., 928 F. Supp. 2d 840 (D. Md. 2013) (“Palmieri I”), that the first-to-file rule did not bar the relator’s claim, but that his allegations failed to meet the Rule 9(b) standard for pleading fraud with particularity. Specifically, the district court observed that the First Amended Complaint merely recounted the total volume of Flector Patch prescriptions submitted to Medicaid and Medicare since 2008, and the amounts of money paid in reimbursements for those prescriptions, to suggest that at least some of these prescriptions must have been off-label, excessive, or illegally induced prescriptions resulting from defendants’ alleged scheme. See Palmieri I, 840 F. Supp. 2d at 846. Nevertheless, the district court granted leave to amend. Id. at 857-58.

On April 2, 2013, Palmieri filed his Second Amended Complaint, which included new allegations regarding prescriptions written for nine (9) patients by two (2) Pennsylvania physicians. Defendants again moved to dismiss the complaint, challenging the Second Amended Complaint on three (3) grounds: the “first-to-file” rule under 31 U.S.C. § 3730(b)(5); the Rule 9(b) heightened pleading standard; and the public disclosure bar under 31 U.S.C. § 3730(e)(4)(A). For the following reasons, the district court concluded that the Second Amended Complaint failed to state a claim upon which relief can be granted under the Rule 9(b) standard.

First, the district court explained that the False Claims Act permits a private party, as relator, to sue on behalf of the government to recover damages from defendants who have caused fraudulent claims for payment to be submitted against the public. As an incentive to bring such suits, a successful relator is entitled to share in the government’s recovery from the defendants. See generally ACLU v. Holder, 673 F.3d 245, 246-51 (4th Cir. 2011) (describing history and current provisions of FCA). Suits brought under the False Claims Act sound in fraud, and thus are “subject to Federal Rule of Civil Procedure 9(b), which requires that claimants plead fraud with particularity.” Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 783-84 (4th Cir. 1999). In addition, “Rule 9(b)’s heightened pleading standard applies to state law fraud claims asserted in federal court.” N. Am. Catholic Educ. Programming Found., Inc. v. Cardinale, 567 F.3d 8, 13 (1st Cir. 2009). Therefore, a Rule 9(b) analysis governs a relator’s state law qui tam claims as well as his claims under the FCA. Rule 9(b) states: “In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person’s mind may be alleged generally.” Under the rule, a plaintiff alleging claims that sound in fraud “‘must, at a minimum, describe the time, place, and contents of the false representations, as well as the identity of the person making the misrepresentation and what he obtained thereby.’” United States ex rel. Owens v. First Kuwaiti Gen’l Trading & Contracting Co., 612 F.3d 724, 731 (4th Cir. 2010) (citation omitted);

Second, the court drew an analogy to Fourth Circuit precedent in Nathan, in which the relevant standards for qui tam actions may be found in the Fourth Circuit. Like Palmieri, the relator in Nathan alleged a false claim violation arising out of a scheme to promote a prescription drug, Kapidex, for off-label use. Indeed, the alleged Kapidex marketing scheme was remarkably similar to the scheme to promote Flector Patch that was alleged by Palmieri. In that case, the district court dismissed the claim and the Fourth Circuit affirmed, stating that under the FCA, “the critical question is whether the defendant caused a false claim to be presented to the government, because liability under the Act attaches only to a claim actually presented to the government for payment, not to the underlying fraudulent scheme.” 707 F. 3d at 456. According to the district court, Nathan plainly indicated that, when allegations concerning Medicare patients “do not identify with particularity any claims that would trigger liability under the [FCA,]” a court is “unable” to infer either that the prescription was filled or that a claim for reimbursement was submitted to a government-funded health care program.

Applying the standards set forth in Nathan, the district court held that Palmieri’s new allegations in the Second Amended Complaint still fell short of alleging the presentment of an actual false claim for reimbursement that was submitted to the government. Thus, the only remaining question was whether dismissal of the Second Amended Complaint should be with or without prejudice. In their dispositive motion, the defendants sought dismissal with prejudice, and the relator did not ask for further leave to amend. The court noted, however, that other courts have adopted differing approaches to the Rule 9(b) standard in the context of the federal False Claims Act, and it is conceivable that the relator’s state law claims could prove viable under a more lenient standard found to be applicable to those claims. In light of those considerations, Judge Hollander dismissed the state law claims, without prejudice.