On Tuesday, the Justice Department announced its record recovery of nearly $5 billion in False Claims Act settlements in 2012, exceeding the previous annual record by $1.7 billion. In the last four years, according to remarks by Acting Associate Attorney General Tony West, the Justice Department had netted $13.3 billion in false claims settlements, much of it from pharmaceutical companies accused of healthcare fraud.
But will a blockbuster ruling Monday by the 2nd Circuit Court of Appeals turn off the spigot of false claims billions from the pharma industry?
As you’ve probably heard, a divided three-judge panel of the 2nd Circuit vacated the conspiracy conviction of Alfred Caronia, a pharmaceutical sales representative who was involved in the off-label marketing of an FDA-approved narcolepsy drug called Xyrem. The Justice Department, which charged Caronia under the Federal Drug and Cosmetic Act, did not allege that he lied or misrepresented the truth when he told a physician about off-label (but related) uses for the drug, but merely that he conspired to introduce a misbranded pharmaceutical product into interstate commerce. Second Circuit Judges Denny Chin and Reena Raggi found that Caronia’s prosecution was a violation of his First Amendment right to free speech. And they went a step further: Citing the U.S. Supreme Court’s 2010 decision in Sorrell v. IMS Health, Chin and Raggi held that the FDCA cannot restrict off-label marketing, as long as it’s truthful.
“We decline to adopt the government’s construction of the FDCA’s misbranding provisions to prohibit manufacturer promotion alone as it would unconstitutionally restrict free speech,” wrote Chin for himself and Raggi. “We construe the misbranding provisions of the FDCA as not prohibiting and criminalizing the truthful off-label promotion of FDA approved prescription drugs.” (Judge Debra Livingston, in a stinging dissent, said that under the majority’s reasoning, “if drug manufacturers have a First Amendment right to distribute drugs for any use to physicians or even directly to patients, then the entire FDCA may well be unconstitutional.”)
The 2nd Circuit’s decision had been hotly anticipated by lawyers on both sides of pharmaceutical fraud and false claims cases, since Caronia is the first defendant to mount an appellate challenge to off-label marketing accusations on First Amendment grounds. (As several lawyers noted in interviews Tuesday, pharmaceutical manufacturers have been reluctant to take on the Justice Department because they face the risk of being debarred from Medicare and Medicaid payments.) Former Justice Department healthcare prosecutor Michael Loucks, now at Skadden, Arps, Slate, Meagher & Flom, and former Food and Drug Administration deputy chief counsel Jeff Senger of Sidley Austin both said that the 2nd Circuit’s holding was presaged by the Sorrell case, in which the Supreme Court said that a Vermont statute restricting the sale of pharmacy prescription records violates free speech rights. But the Caronia ruling could have a much broader impact, since the Justice Department has made liberal use of off-label marketing accusations in False Claims Act and criminal actions against pharma companies.