Successful Rule 9(b) Defense of False Claims Act Whistleblower Litigation
The lure of significant monetary awards continues to stimulate high-risk whistleblower actions under the False Claims Act (FCA), and these claims are increasingly common in the pharmaceutical and medical device industry. The decision in United States v. Novartis AG, 2015 U.S. Dist. LEXIS 32771 (D. Mass. March 17, 2015), is a bright spot for corporate defendants across all industries, as it underscores the importance of applying Rule 9(b) of the Federal Rules of Civil Procedure in fraud claims under the FCA.
Novartis involved claims by three separate whistleblowers (relators) who worked as sales representatives for Novartis. The whistleblowers alleged that Novartis engaged in fraudulent conduct by: (1) inducing physicians to prescribe the medication Xolair® for off-label, or unapproved, uses; (2) paying illegal kickbacks to prescribing physicians for the promotion of Xolair®; and (3) illegally instructing physicians to use improper medical codes (or “upcoding”), all resulting in the submission of false claims to the government for reimbursement under Medicare, Medicaid and other federal benefit programs. Although the district court’s decision addresses a number of procedural items, it turns on the whistleblowers failure to satisfy Rule 9(b)’s requirement for pleading fraud with particularity.
Rule 9(b) requires that a complaint set forth the “who, what, when, where and how of the alleged fraud.” In the context of a claim under the FCA, Rule 9(b) requires that the whistleblower allege that the defendant submitted false claims directly or indirectly (for example, by inducing a third party to submit false claims by offering a payment or kickback). In an effort to satisfy these requirements, the whistleblowers in Novartis included allegations such as the following:
- Listing examples of kick-back activity to promote sales of Xolair®;
- Providing references to documents showing efforts to target specific doctors and to maximize the billing of Medicaid patients; and
- Describing unlawful practices utilized to instruct physicians to use improper medical codes for the administration of Xolair®.
Although the district court found these allegations were sufficient to claim improper marketing and illegal kickback activities, they were not sufficient to establish a violation under the FCA because they did not provide evidence of the submission of any false claim. The whistleblowers’ complaints did not provide any examples of alleged fraudulent conduct resulting in the reimbursement for Xolair® by any federal program. Without that, the allegations were not sufficient to strengthen any inference of fraud beyond a “possibility.” The complaint therefore did not satisfy Rule 9(b) and the district court dismissed the lawsuit.
Novartis is a useful decision because it details the process for holding whistleblower plaintiffs to the higher standard imposed under 9(b). In the False Claims Act context, it is not enough for whistleblowers to make allegations that suggest or create an inference that fraudulent conduct resulted in claims being paid from government programs. Rather, whistleblowers must include specific allegations—including the “who, what, when, where and how” under Rule 9(b)—demonstrating that false claims were in fact paid. Holding whistleblowers to this standard can be an effective tool in defending against FCA litigation.