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United States v. Ortho-McNeil Pharmaceutical

July 20, 2007

UNITED STATES OF AMERICA; STATE OF CALIFORNIA; STATE OF DELAWARE; STATE OF FLORIDA; STATE OF HAWAII; STATE OF ILLINOIS; STATE OF MASSACHUSETTS; STATE OF NEVADA; STATE OF TENNESSEE; STATE OF TEXAS; STATE OF VIRGINIA; AND DISTRICT OF COLUMBIA; EX REL. EDWARD WEST, PLAINTIFFS,
v.
ORTHO-MCNEIL PHARMACEUTICAL, INC. AND JOHNSON AND JOHNSON, DEFENDANTS.



The opinion of the court was delivered by: Judge Virginia M. Kendall

MEMORANDUM OPINION AND ORDER

Plaintiff-Relator Edward West ("Relator" or "West") brings this qui tam action on behalf of the United States under the False Claims Act ("FCA"), 31 U.S.C. §§ 3729-3732, and on behalf of California, Delaware, Florida, Hawaii, Massachusetts, Nevada, Tennessee, Texas, Virginia and the District of Columbia, under each state's respective laws modeled after the FCA.*fn1 West alleges that Defendant Ortho-McNeil Pharmaceutical, Inc. ("Ortho-McNeil") and its corporate parent, Defendant Johnson & Johnson knowingly caused to be presented false or fraudulent claims for payment and knowingly made false statements to get said governments to pay false or fraudulent claims. Defendants have moved to dismiss West's First Amended Complaint for failure to plead with particularity, pursuant to Rule 9(b), and for failure to state a claim, pursuant to Rule 12(b)(6).

Because West's claims against Ortho-McNeil do not adequately set forth the "who, what, when, where and how" of the alleged fraud, they do not meet the pleading standard set forth in Rule 9(b). Additionally, West does not allege facts that plausibly suggest a claim against Johnson & Johnson either for its own conduct or the conduct of its subsidiary, Ortho-McNeil.

BACKGROUND

Ortho-McNeil is a pharmaceutical company and a wholly-owned subsidiary of Johnson & Johnson. (1st Am. Compl. ¶ 11.) West is a resident of Illinois and a former sales representative of Ortho-McNeil. (Id. ¶ 10.) West filed this qui tam action on behalf of the United States, California, Delaware, Florida, Hawaii, Massachusetts, Nevada, Tennessee, Texas, Virginia and the District of Columbia, who are the real parties in this action. (Id. ¶¶ 1, 8-9.)

I. Procedural History

West brought this qui tam action under the FCA and the similar laws of several states and the District of Columbia. (Id. ¶¶ 1, 8-9.) The FCA allows a private person, the relator, to bring a civil action on behalf of the United States Government when a false claim has been submitted to the Government. 37 U.S.C. §§ 3729, 3730(b). In a private action, the FCA first requires the relator to serve on the Government "[a] copy of the complaint and written disclosure of substantially all material evidence and information the person possesses." 37 U.S.C. § 3730(b)(2). The complaint then remains under seal for 60 days during which time the government may elect to intervene and proceed with the action. Id. The United States, the states involved and the District of Columbia all have declined to intervene. The United States has submitted a Statement of Interest in which it advocates several points of law, but the United States does not take a position on whether West has pleaded his claim adequately under Rule 9(b).

In his First Amended Complaint, West claims that Defendants: (1) knowingly caused to be presented to the United States Government, and the governments of several states and the District of Columbia, false or fraudulent claims for payment; (2) knowingly made false statements to get false or fraudulent claims paid for by said governments; and (3) knowingly made false records or statements to conceal, avoid, or decrease obligations to pay money to said governments. (1st Am. Compl. ¶¶ 104-06, 113, 119-21, 127-29, 135-37, 142-44, 158-60, 166-68, 174-76, 182-84, 190-92, 198-200.) As factual support for these claims, West first alleges that Defendants utilized a wide array of kickbacks and unlawful remuneration to increase sales of its pharmaceutical drugs Levaquin and Ultram. (Id. ¶¶ 62-99.) Second, West alleges that Defendants marketed Levaquin and Ultram for non-FDA approved -- "off-label" -- uses. (Id. ¶¶ 100-01.)

The U.S. Judicial Panel on Multidistrict Litigation transferred West's action to the District of Massachusetts, but separated and remanded to this Court the claims relating to off-label marketing. As such, remaining before this Court are the claims that Defendants: (1) knowingly caused to be presented to the United States Government and the governments of several states and the District of Columbia, via their off-label marketing practices, false or fraudulent claims for payment; and (2) knowingly made false statements, as part of their off-label marketing practices, to get false or fraudulent claims paid for by said governments.

II. Medicaid

The Medicaid program provides "medical assistance to individuals and families whose resources are insufficient to meet the costs of necessary medical services." 42 U.S.C. § 1396. In order for a drug to be eligible for reimbursement through Medicaid, the drug's manufacturer must enter into a rebate agreement with Medicaid that ensures that the price Medicaid pays is a competitive one. 42 U.S.C. § 1396r-8(a)(1). Medicaid providers, such as pharmacies, pay drug manufacturers for prescription drugs and, in turn, submit claims to state Medicaid agencies for reimbursement. 42 U.S.C. § 1396a(a)(23), (a)(32). While claims are submitted to state Medicaid agencies, the federal government reimburses states for a substantial portion of the funds allotted.

42 U.S.C. § 1396. For this reason, claims submitted to state Medicaid agencies are considered claims presented to the federal government and may give rise to liability under the FCA. U.S. ex rel. Tyson v. Amerigroup Illinois, Inc., 2005 WL 2667207 at *3 (N.D. Ill. 2005).

III. Off-Label Marketing and Medicaid

Under the Food, Drug, and Cosmetics Act ("FDCA"), 21 U.S.C. §§ 301-97, new pharmaceutical drugs cannot be introduced into interstate commerce unless the Food and Drug Administration ("FDA") finds that the drug is safe and effective for each of its intended uses. 21 U.S.C. § 355(a), (d). Although doctors are allowed to prescribe a drug for off-label uses, drug manufacturers are prohibited from marketing or promoting a drug for a use that the FDA has not approved. 21 U.S.C. §§ 331(d), 355(a). Moreover, Medicaid generally reimburses providers only for "covered outpatient drugs." 42 U.S.C. §§ 1396b(i)(10), 1396r-8(a)(3). "Covered drugs" do not include drugs "used for a medical indication which is not a medically accepted indication." 42 U.S.C. § 1396r-8(k)(3). A medically accepted indication is one "approved ...


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