Third Circuit Decides Important Medical Necessity False Claims Act Case Brought By Qui Tam Whistleblower

On May 1, 2017, the United States Court of Appeals for the Third Circuit decided U.S. ex rel. Petratos v. Genentech, Inc. et al., C.A. No. 15-3805 (3^rd Cir. 2017), a qui tam lawsuit filed pursuant to the federal False Claims Act (“FCA”) and the False Claims Acts of the states of California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Illinois, Indiana, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Oklahoma, Rhode Island, Tennessee, Texas, Virginia, and the District of Columbia.[1]

The Allegations in Petratos

The Relator in Petratos “alleged that Genentech suppressed data that caused doctors to certify incorrectly that Avastin [an FDA-approved drug] was ‘reasonable and necessary’ for certain at-risk Medicare patients.”  Petratos, at 4.  In holding the relator’s allegations legally insufficient, the district court reasoned that “medically ‘reasonable and necessary’ is a determination made by the relevant [government] agency, not individual doctors.”  Id. at 6.

The Third Circuit Disagrees with the District Court’s Reasoning

The Third Circuit disagreed sharply with the district court, and held that the medical necessity of an FDA-approved product is a “process involving the FDA, CMS, and individual doctors.”  Id. at 9 (emphasis in original).  In reaching its holding, the Petratos Court noted the role of each entity involved in the process of determining medical necessity:

-FDA –“One important factor considered by the Centers for Medicare and Medicaid Services (CMS) to determine whether a prescribed drug is ‘reasonable and necessary’ is whether it has received FDA approval.” at 8.

-CMS – “[T]he ‘reasonable and necessary’ determination does not end with FDA approval. The claim at issue must also be ‘reasonable and necessary for [the] individual patient’ based on “accepted standards of medical practice and the medical circumstances of the individual case.” at 10 (emphasis in original) (citation omitted).

-Individual Doctors – Ultimately, CMS relies on the medical judgment of individual physicians in deciding whether to pay claims. This reliance is reflected in the standard certifications physicians make to get paid: “[i]ndeed, physicians . . . must submit CMS Form 1500 along with a claim for reimbursement, wherein the doctor certifies that the drug was ‘medically necessary and personally furnished by me.’”   (citations omitted).

The Petratos Court noted the common sense inherent in this approach:  “[f]rom a practical perspective, this multi-step interpretation makes sense. CMS and the FDA are best positioned to make high-level policy decisions— such as issuing national coverage determinations and drug approvals. These general approvals demarcate what treatments can be considered ‘reasonable and necessary,’ and are thus a necessary condition for reimbursement. Meanwhile, the doctors are best suited to evaluate each patient and determine whether a treatment is ‘reasonable and necessary for [that] individual patient.’”  Id. at 12 (emphasis in original) (citation omitted).

The Petratos Court also reviewed the FCA’s materiality requirement.  In Petratos, the relator did not dispute that, had the government known of the defendant’s suppression of adverse event data, the government still would have paid the claims.  Petratos, at 14.  Consistent with the U.S. Supreme Court’s decision in Universal Health Services v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016), the Petratos Court held that this concession was dispositive of the materiality analysis and that it doomed the relator’s claims.  Id.

In summary, although the Third Circuit dismissed the relator’s complaint in the Petratos decision, the opinion is very helpful to future whistleblowers who file qui tam lawsuits under the False Claims Act based on a lack of medical necessity.

[1] A copy of the decision is attached as Exhibit A.