In New York ex rel. Westmoreland et al. v. Amgen, Inc. et al., 2011 WL 2937420 (1st Cir. July 22, 2011), the relator filed a qui tam action against pharmaceutical manufacturer Amgen and two other corporate defendants. The relator, a former Amgen employee, alleged that the defendants violated seven state FCAs by engaging in a kickback scheme to induce Medicaid providers to prescribe the anemia drug Aranesp. According to the relator, the kickback scheme had two prongs. First, the relator alleged that Amgen included extra Aranesp in its single-dose vials of the drug and encouraged providers to bill this free product to Medicaid. Second, the relator alleged that Amgen and the other two defendant companies channeled improper benefits to providers through allegedly sham consulting agreements, honoraria, retreats, and the like to encourage them to purchase Aranesp. The relator argued that the alleged kickbacks rendered the Medicaid reimbursement claims ineligible for payment in violation of the state FCAs of California, Georgia, Illinois, Indiana, Massachusetts, New Mexico, and New York. The states of California, Illinois, Indiana, Massachusetts, and New York intervened in the action. Georgia and New Mexico declined intervention. Amgen, at *1-2.

The defendants moved to dismiss the claims under Rule 12(b)(6) on the ground that the relator and the state intervenors failed to identify a false claim for Medicaid payment under the state FCAs at issue. The district court granted the motion to dismiss, employing the same traditional legal falsity analysis that the First Circuit held was inappropriate in the Blackstone case (and discussed in Part II of this post).

The First Circuit reversed the district court’s dismissal of the plaintiffs’ claims under six of seven state FCAs and affirmed the dismissal of the plaintiffs’ claims under the Georgia FCA on different grounds. Using the new falsity test announced the prior month in Blackstone, the First Circuit held that “plaintiffs have more than adequately alleged that providers submitted claims that misrepresented compliance with a precondition of Medicaid payment in New York, Massachusetts, California, Illinois, Indiana, and New Mexico,” but failed to do so for Georgia. Amgen, at *2. The First Circuit observed that its new falsity test “is a fact-intensive and context-specific inquiry” which “looks to the preconditions of payment recognized under the seven state Medicaid programs” at issue. Amgen, at *6.

The First Circuit began its falsity analysis by conducting an intensive state-by-state examination of specific statutory provisions and regulations identified by the relator concerning Medicaid payment in Illinois, Indiana, Massachusetts, and New York. The court concluded that the relevant statutes and regulations demonstrate that kickback-tainted claims are ineligible for reimbursement under the Medicaid programs of those four states. Amgen, at *7-8.

The First Circuit next turned to the issue of whether kickback-tainted claims violated preconditions of payment under the California and New Mexico Medicaid programs. The court declined to look at statutes and regulations in those two states, reviewing instead the state Medicaid provider agreements identified by the plaintiffs. The court held that the provider agreements sufficiently established that kickback-tainted claims are ineligible for payment under the California and New Mexico Medicaid programs because:

The California agreement requires providers to represent compliance with the state’s anti-kickback statute, and the New Mexico agreement requires providers to acknowledge that non-compliance with anti-kickback laws vitiates a provider’s ability to get its claims paid.

Amgen, at *9.

With respect to the Georgia claims, the First Circuit held that the relator failed to identify any sources that indicate that claims affected by kickbacks violate a precondition of payment under Georgia’s Medicaid program:

It may be that under Georgia’s Medicaid program it is a precondition of payment that claims not be affected by kickbacks like the kickbacks alleged in this case. [The relator] has not identified any authority, however, that makes this clear. It bears emphasis that Georgia, unlike the other six states involved in this litigation, does not have a state law analogue to the federal AKS.

Amgen, at *10.

Based on the above reasoning, the First Circuit reversed the district court’s Rule 12(b)(6) dismissal of the relator’s claims under the state FCAs in California, Illinois, Indiana, Massachusetts, New Mexico, and New York and affirmed the district court’s dismissal of the relator’s claims under Georgia’s FCA.

Our next post will explore the potential consequences of the First Circuit’s new falsity test and will suggest measures companies may want to consider to minimize FCA exposure.