In a decision that has important ramifications for the life sciences industry, on January 28, 2013, in Caldwell ex rel State of Louisiana v. Janssen Pharmaceutical, Inc., (No. 2012-C-2447, No. 2012-C-2466), the Supreme Court of Louisiana, by a 4–3 vote, reversed a $330 million trial court award against Janssen Pharmaceutica, Inc., and entered final judgment in Janssen’s favor. Under the theory of liability that had been pursued by Louisiana at trial, virtually any public statement about any product that might be subject to Medicaid reimbursement could be subject to civil penalties totaling hundreds of millions of dollars—on a state-by-state basis—even if the statement was not made as part of a claim for reimbursement and there was no proof that the providers who wrote prescriptions for it did so for any reason other than a medical determination the product was the more appropriate treatment option for a particular patient.

The Court in Caldwell found that, as a matter of law, Janssen’s alleged conduct did not violate the Louisiana Medical Assistance Programs Integrity Law (“MAPIL”) a close analog to the federal False Claims Act. The reversed award, which included attorneys’ fees and costs, was the product of multiplying a $7250-per-violation penalty by approximately 35,000 instances of dissemination of an allegedly misleading “Dear Health Care Provider” letter. The October 2003 letter discussed FDA’s decision to require that all atypical antipsychotics carry class labeling about diabetes risks. An entity within FDA later issued a warning letter characterizing statements within the October 2003 letter as promotional and therefore “false or misleading” (a regulatory term of art). At trial, Louisiana advanced the informal, nonbinding allegation in the warning letter as a finding that the October 2003 letter had failed to satisfy FDA regulatory disclosure requirements.

At trial, there was no proof—or indeed even any allegation—that the October 2003 letter had caused or was even likely to have caused a single improper prescription to be written. Instead, the case was tried on the theory that any misleading statement about a drug that might be the subject of a prescription submitted for Medicaid reimbursement was at least an attempt to cause submission of a false claim for payment. In a well-reasoned decision, the Court found the statute’s requirement that “[n]o person shall present or cause to be presented a false or fraudulent claim” only embraced situations in which the defendant “knowingly caused a health care provider or its billing agent to present a claim for payment the health care provider or its billing agent knew to be false or misleading.“ (emphasis added). The Court also found that general marketing statements were not statutory misrepresentations under MAPIL, and thus rejected an argument by the State that “misrepresentation” was established by any “knowing failure to truthfully or fully disclose any and all information” required by any source of law. The Court refused to read MAPIL—a Medicaid fraud statute substantially similar to that found in many states—as a general statute regulating the substance of all communications about medical products. It instead read MAPIL as being limited in scope to misrepresentations made on a “claim or provider agreement” or in a direct communication with the agency administering Louisiana’s Medicaid statute. Finally, the Court rejected the State’s effort to predicate liability on an attempt theory and noted that what needed to be attempted was a statutory misrepresentation or submission of a false claim, elements that could not be established absent “a causal link between the misleading marketing statement and a false or fraudulent claim for payment to a health care provider.” The dissent would have permitted imposition of liability on an attempt theory on the basis of a reading of the definition of misrepresentation that would have permitted MAPIL penalties for any failure to truthfully or fully disclose any information required by any source, not just information required on a claim form or provider agreement.

The Caldwell Court’s interpretation of the Louisiana statute, which obviated the need to resolve a host of preemption, First Amendment, excessive fines and evidentiary issues implicated by the State’s broad proposed interpretation of the scope of MAPIL, provides a needed level of fairness and predictability to application of Medicaid fraud statutes. It also, hopefully, will serve as a template for interpretation of similar statutes that other states have used to pursue civil penalty actions against pharmaceutical manufacturers.