Materiality in False Claims Act: United States ex rel. Petratos v. Roche Group

Introduction

The case of United States of America, ex rel. Gerasimos Petratos v. Genentech Inc. et al., adjudicated by the United States Court of Appeals for the Third Circuit on May 1, 2017, centers around allegations under the False Claims Act (FCA). Gerasimos Petratos, a former executive at Genentech, filed a qui tam action accusing the pharmaceutical giant of suppressing data related to the cancer drug Avastin. Petratos claimed that this suppression led to incorrect certifications by physicians regarding the drug's "reasonableness and necessity" for Medicare patients. The District Court dismissed the suit, leading to an appellate review.

Summary of the Judgment

The Third Circuit affirmed the District Court's dismissal of Petratos's FCA claims. While the appellate court disagreed with some of the District Court's reasoning, it ultimately upheld the dismissal because Petratos failed to demonstrate that the alleged data suppression was materially related to the government's payment decisions. The court emphasized the stringent materiality requirement established by the Supreme Court in Universal Health Services v. Escobar, highlighting that mere noncompliance without evidence of its impact on payment decisions is insufficient for FCA claims.

Analysis

Precedents Cited

The judgment heavily relies on the Supreme Court's decision in Universal Health Services v. Escobar (2016), which set a high bar for materiality under the FCA. Other significant cases referenced include:

• Wilkins v. United Health Grp., Inc. (3d Cir. 2011) – Clarified elements of FCA violations, including falsity and causation.
• Sanford-Brown, Ltd. (7th Cir. 2016) – Reinforced the necessity of materiality in FCA claims.
• Race Tires Am., Inc. v. Hoosier Racing Tire Corp. (3d Cir. 2012) – Emphasized that different statutory terms convey distinct meanings.
• RUSH v. PARHAM (5th Cir. 1980) – Recognized the role of physicians in determining reimbursable services.

These cases collectively underscore the judiciary's stance on the necessity of demonstrating that misrepresentations materially influence government payment decisions to sustain FCA claims.

Legal Reasoning

The court dissected the FCA's requirements, focusing on four elements: falsity, causation, knowledge, and materiality. While acknowledging that the District Court erred in conflating "reasonable and necessary" with "medically accepted," the appellate court found no merit in Petratos's arguments regarding materiality. It reiterated that under Universal Health Services, materiality is a stringent requirement, necessitating that misrepresentations directly influence the government's payment decisions. Petratos failed to provide factual allegations that CMS would have altered its reimbursement decisions had the alleged data suppression been rectified.

Impact

This judgment reinforces the high threshold plaintiffs must meet to prove materiality in FCA cases, potentially limiting future qui tam actions where the link between alleged misconduct and government payments is tenuous. Pharmaceutical companies and other entities subject to FCA scrutiny may find this precedent beneficial, as it narrows the scope for successful claims based on internal data suppression without clear evidence of impact on reimbursement decisions.

Complex Concepts Simplified

False Claims Act (FCA)

The FCA is a federal law designed to combat fraud against government programs. It allows private individuals, known as relators, to sue on behalf of the government and share in any recovered damages. A successful FCA claim requires proving that the defendant knowingly submitted false claims for government funds.

Materiality Requirement

Materiality in FCA cases means that the false statement or omission must have a natural tendency to influence, or be capable of influencing, the government's payment decisions. It's not enough that a misrepresentation is false; it must significantly impact the outcome of government reimbursements.

Qui Tam Action

A qui tam action allows a private individual to sue on behalf of the government and potentially receive a portion of the recovered funds as a reward. This provision incentivizes whistleblowers to expose fraud against government programs.

Conclusion