Scott D. Stein Brenna E. Jenny January 31 2018 Second Circuit finds government's continued payment in face of fraud allegations undercuts materiality Sidley Austin LLP | Healthcare & Life Sciences - USA Scott D. Stein, Brenna E. Jenny Healthcare & Life Sciences IntroductionFactsDecisionIntroductionIn Universal Health Services v United States ex rel Escobar the Supreme Court emphasised that questions of materiality are not "too fact intensive for courts" to decide through a motion to dismiss. Nonetheless, what facts a plaintiff must allege adequately in order to plead materiality consistent with Escobar's "demanding" standard remains hotly contested. In its recent decision in United States ex rel Coyne v Amgen, Inc (17-1522 (2d Cir December 18 2017)) the Second Circuit held that the relator's failure to plead sufficiently that CMS – the allegedly defrauded agency – had changed its reimbursement practices after becoming aware of information supposedly withheld by the defendant doomed the complaint on materiality grounds. The decision underscores the significance of the materiality requirement at the motion to dismiss stage.FactsThe relator, a former paid speaker for Amgen, filed a qui tam suit alleging that the company had withheld certain material information from CMS relating to representations in the labelling of Epogen, a drug used to treat anaemia. The 'indications and usage' section on Epogen's label describes the Food and Drug Administration's (FDA's) approved indication to treat chronic kidney disease by raising haemoglobin levels to the target level of 10-12 grams per decilitre (g/dl). The 'clinical experience' section states that once a patient reaches target haemoglobin levels of 10-12g/dl, "statistically significant improvements were demonstrated for most quality of life parameters". Following Epogen's FDA approval, Amgen conducted a clinical trial showing that patients reaching levels of 9-11g/dl experienced improved health, whereas patients reaching levels of 13-15g/dl experienced a higher rate of adverse effects. Amgen reported the results to FDA. According to the relator, the clinical trial demonstrates that quality of life parameters do not improve beyond haemoglobin levels of 11g/dl. As a result, the relator alleged that the 'clinical experience' section was misleading to the extent that it maintained that patients with 11-12g/dl levels experienced improved quality of life scores. Therefore, Epogen prescriptions for this subset of patients were ineligible for CMS reimbursement because they were not "reasonable and necessary".DecisionThe Second Circuit affirmed the district court's dismissal based on a lack of materiality. The Second Circuit explained that any misrepresentations in the 'clinical experience' section are unlikely to be material because the FDA-approved indication was accurately set forth in a different section of the labelling. All prescriptions written consistent with the FDA-approved indication presumably do not present false claims. The court's conclusion was reinforced by the fact that Amgen had ultimately updated the 'clinical experience' section to describe the results of the clinical trial at issue. However, even after Amgen included this supposedly withheld information on the labelling, the relator found no facts to suggest that CMS had "alter[ed] its reimbursement practices with respect to Epogen or exercise[d] any independent discretion from the presumption of FDA approval". The "operation in practice" of CMS's continued reimbursement demonstrated that the data was not material to CMS payment decisions.A copy of the court's opinion can be found here.For further information on this topic, please contact Scott D Stein at Sidley Austin LLP's Chicago office by telephone (+1 312 853 7000) or email ([email protected]). Alternatively, please contact Brenna E Jenny at Sidley Austin LLP's Washington DC office by telephone (+1 202 736 8000) or email ([email protected]). The Sidley Austin website can be accessed at www.sidley.com.