MEMORANDUM OPINION & ORDER
In this qui tarn action, Relator Oswald Bilotta alleges that Defendant Novartis Pharmaceuticals Corporation (“Novartis”) violated the False Claims Act (“FCA”), 31 U.S.C. §§ 3729(a)(l)(A)-(B) and related state laws by (1) causing false claims for reimbursement for patient prescriptions— that were written in exchange for kickbacks in violation of the Anti-Kickback Statute, 42 U.S.C. § 1320a-7b and related state laws — to be submitted to federal and state health care programs (“the kickback claims”); and (2) promoting the drug Val-turna for off-label use, thereby causing the submission of false claims to federal and state health care programs (“the off-label promotion claims”).
Novartis has moved to dismiss the Government’s Amended Complaint-in-Intervention, New York’s ComplainL-in-Inter-vention, and the Relator’s Third Amended Complaint. For the reasons stated below, Novartis’s motions will be denied in part and granted in part.
BACKGROUND
I. FACTS
A. The Alleged Kickback Scheme
Plaintiffs allege that from January 2002 through at least November 2011, Novartis systematically bribed doctors to induce them to prescribe drugs from Novartis’s cardiovascular division for their patients. {See U.S. Am. Cmplt. (Dkt. No. 62) ¶¶ 1, 66; N.Y. Cmplt. (Dkt. No. 61) ¶¶2, 3, 57) These drugs include Lotrel, Diovan, Diov-an HCT, Tekturna, Tekturna HCT, Ex-
Novartis induced doctors to prescribe these drugs primarily through the use of “sham” speaker events. (U.S. Am. Cmplt. (Dkt. No. 62) ¶¶ 1-3; N.Y. Cmplt. (Dkt. No. 61) ¶¶ 2^1) According to Novartis’s internal policies, speaker events were intended to be educational programs; Novartis would pay doctors to educate other doctors and health care professionals about Novartis drugs by presenting slides prepared by Novartis. (U.S. Am. Cmplt. (Dkt. No. 62) ¶ 2; N.Y. Cmplt. (Dkt. No. 61) ¶ 4) These events were organized and conducted by Novartis sales representatives. (U.S. Am. Cmplt. (Dkt. No. 62) ¶ 72; N.Y. Cmplt. (Dkt. No. 61) ¶ 69) They chose the speaker, topic, and venue for the events, as well as the attendees. (See U.S. Am. Cmplt. (Dkt. No. 62) ¶¶ 72-73, 81; N.Y. Cmplt. (Dkt. No. 61) ¶¶ 6, 69)
Novartis held thousands of speaker events at which few or no slides were shown, however, and at which the attendees spent little or no time discussing the drugs that were allegedly the focus of the programs. (U.S. Am. Cmplt. (Dkt. No. 62) ¶¶ 2, 95; N.Y. Cmplt. (Dkt. No. 61) ¶¶4, 82) These events thus served as little more than upscale social outings designed to induce doctors to write prescriptions for Novartis drugs. (U.S. Am. Cmplt. (Dkt. No. 62) ¶¶ 1, 77, 121, 135-36; N.Y. Cmplt. (Dkt. No. 61) ¶¶ 2, 4, 82, 86-87)
According to Plaintiffs, the sham nature of these events was apparent from the attendees, speakers, subject matter, and venues. (U.S. Am. Cmplt. (Dkt. No. 62) ¶ 95; N.Y. Cmplt. (Dkt. No. 61) ¶82) Frequently, groups of the same doctors would repeatedly attend speaker events on the same topic within a short period of time, with the doctors taking turns in the roles of attendees and “speakers.” (U.S. Am. Cmplt. (Dkt. No. 62) ¶¶ 95-120, 126; N.Y. Cmplt. (Dkt. No. 61) ¶¶ 82-85) For example, one doctor attended the same presentation ten times between July 2010 and October 2011, and the same three doctors were consistently present at nine of those events. (U.S. Am. Cmplt. (Dkt. No. 62) ¶ 97; N.Y. Cmplt. (Dkt. No. 61) ¶84) Moreover, Novartis hosted many of its speaker events at high-end restaurants or sports bars without private rooms, making it difficult or impossible to hear the speaker or show slides; it was common for no slides to be shown at such events. (U.S. Am. Cmplt. (Dkt. No. 62) ¶¶ 121, 125-28, 130, 133-34; N.Y. Cmplt. (Dkt. No. 61) ¶¶ 86-90) Other venués were similarly inappropriate for the types of “educational” events that Novartis purported to be hosting, such as “round table” programs at Hooters restaurants and fishing trips. (U.S. Am. Cmplt. (Dkt. No. 62) ¶¶ 122-24)
Sales representatives frequently asked speakers who they should invite as attendees to these events, and doctors used this as an opportunity to invite their friends. (Id. ¶ 136; N.Y. Cmplt. (Dkt. No. 61) ¶ 91) Often the drug that was supposed to be the subject of the speaker program was
The doctors who Novartis designated as “speakers” for these events were paid “ho-noraria” by Novartis, even though they spent little or no time discussing the drugs that were supposedly the subject of the programs. (U.S. Am. Cmplt. (Dkt. No. 62) ¶¶ 3, 78; N.Y. Cmplt. (Dkt. No. 61) ¶¶4, 92) “Speakers” were paid between $750 and $1500 for each event, with some speakers being paid as much as $3000. (U.S. Am. Cmplt. (Dkt. No. 62) ¶ 79; N.Y. Cmplt. (Dkt. No. 61) ¶ 67) In some instances, speaker events reflected in Novartis records never took place, or doctors recorded as attending were not, in fact, present; nevertheless, the designated “speakers” were compensated for these non-existent events. (U.S. Am. Cmplt. (Dkt. No. 62) ¶ 138-44; N.Y. Cmplt. (Dkt. No. 61) ¶ 93)
Novartis’s internal analysis showed that its speaker programs had a high “return on investment,” as doctors who attended the events — as either speakers or attendees — wrote an increased number of prescriptions for Novartis drugs. (U.S. Am. Cmplt. (Dkt. No. 62) ¶¶3, 145-48; N.Y. Cmplt. (Dkt. No. 61) ¶¶ 94-96) Novartis found that the more incentives doctors received in the form of meals, entertainment, and honoraria from these events, the more Novartis prescriptions the doctors would write. (U.S. Am. Cmplt. (Dkt. No. 62) ¶ 147; N.Y. Cmplt. (Dkt. No. 61) ¶ 95) The highest return on investment came from doctors who were paid to “speak” at the events. (U.S. Am. Cmplt. (Dkt. No. 62) ¶ 3) Novartis considered its speaker programs to be a “key component of [Novartis’s] promotional activities aimed at increasing its sales of drugs” from 2002 to at least 2011. (Id. ¶ 71; N.Y. Cmplt. (Dkt. No. 61) ¶ 61) Novartis spent more than $65 million for more than 38,000 speaker programs ostensibly about Lotrel, Starlix, and Valturna between January 1, 2002 and November 2011. (U.S. Am. Cmplt. (Dkt. No. 62) ¶ 71; N.Y. Cmplt. (Dkt. No. 61) ¶ 61)
Novartis intended its speaker programs to increase prescription-writing, and doctors knew this. (U.S. Am. Cmplt. (Dkt. No. 62) ¶ 147-50; N.Y. Cmplt. (Dkt. No. 61) ¶¶ 97-99) Doctors were chosen to be speakers if they wrote a high number of prescriptions for Novartis cardiovascular division drags, and they had to maintain or increase that level of prescription-writing in order to be invited to appear as a “speaker” again. (U.S. Am. Cmplt. (Dkt. No. 62) ¶ 149; N.Y. Cmplt. (Dkt. No. 61) ¶ 98) Accordingly, once they began receiving honoraria, many doctors significantly increased the number of prescriptions that they wrote for Novartis drugs, or started prescribing Novartis drags if they had not done so before. (U.S. Am. Cmplt. (Dkt. No. 62) ¶¶ 150-58; N.Y. Cmplt. (Dkt. No. 61) ¶¶ 99-124) Doctors often continued to increase their prescription-writing as the amount of honoraria they received increased. (U.S. Am. Cmplt. (Dkt. No. 62) ¶¶ 150-58; N.Y. Cmplt. (Dkt. No. 61) ¶¶ 99-124) Novartis placed no limit on the number of programs a doctor could attend or how often a doctor could attend the same program. (U.S. Am. Cmplt. (Dkt. No. 62) ¶ 84; N.Y. Cmplt. (Dkt. No. 61) 171)
Novartis also encouraged sham events by creating incentives for its sales representatives to host them. Sales representatives in the cardiovascular division were compensated based upon the number of prescriptions that doctors wrote for Novartis drugs. (U.S. Am. Cmplt. (Dkt. No. 62) ¶ 75; N.Y. Cmplt. (Dkt. No. 61) ¶¶ 6, 64) They were given budgets to use on speaker events, and they were pressured to exhaust their budgets for such events.
Novartis also turned a blind eye as to whether its speaker programs were being used for illegitimate purposes. (U.S. Am. Cmplt. (Dkt. No. 62) ¶5; N.Y. Cmplt. (Dkt. No. 61) ¶ 6) Novartis did not require signatures on attendance sheets at speaker events, and it was the sales representatives themselves who were responsible for reviewing the accuracy of receipts from speaker event venues. (U.S. Am. Cmplt. (Dkt. No. 62) ¶¶ 91-92; NY. Cmplt. (Dkt. No. 61) ¶¶ 78-79) There was no system in place to prevent sales representatives from repeatedly selecting the same doctors as attendees at speaker programs on the same topics, or to prevent them from arranging for the same doctors to take turns speaking and attending each other’s programs repeatedly. (U.S. Am. Cmplt. (Dkt. No. 62) ¶ 84; N.Y. Cmplt. (Dkt. No. 61) ¶ 71) When sales representatives were reported for misconduct, Novartis’s only punishment was a “slap on the wrist,” such as placing a “conduct memo” in the employee’s file. (U.S. Am. Cmplt. (Dkt. No. 62) ¶¶ 5, 169-71; N.Y. Cmplt. (Dkt. No. 61) ¶ 6) In some circumstances, sales representatives who were reported for noncompliance were even later promoted. (U.S. Am. Cmplt. (Dkt. No. 62) ¶ 5; NY. Cmplt. (Dkt. No. 61) ¶ 6)
When doctors wrote increased prescriptions for Novartis drugs as a result of kickbacks — which pharmacies then filled, submitting claims for reimbursement to federal and state healthcare programs— they violated federal and state anti-kickback laws. According to Plaintiffs, compliance with these laws is a precondition for reimbursement. (U.S. Am. Cmplt. (Dkt. No. 62) ¶¶ 17-18, 175-82; N.Y. Cmplt. (Dkt. No. 61) ¶¶ 135-44) Accordingly, as a result of the kickbacks it offered to physicians, Novartis caused thousands of false claims to be submitted for payment to federal healthcare programs — including Medicare, Medicaid* TRICARE, and the Veterans Administration healthcare program, (U.S. Am. Cmplt. (Dkt. No. 62) ¶¶ 6, 20-56, 175) — and state healthcare programs, including New York Medicaid. (N.Y. Cmplt. (Dkt. No. 61) ¶¶7, 135-46)
B. Alleged Off-Label Promotion
Novartis allegedly promoted one of its cardiovascular — Valturna—for off-label use. (Relator Third Am. Cmplt. (“TAC”) ¶¶ 104-25)
Prior to June 2010, Novartis had been selling Diovan, a “blockbuster” hypertension drag. (See id. ¶¶ 104, 108) Diovan generated more than $4 billion for Novartis in 2009. (Id. ¶ 104) Novartis’s patent for Diovan was set to expire in 2012. (Id.)
To make up for anticipated losses resulting from the expiration of the Diovan patent, Novartis sought to build the market share of Valturna. (Id. ¶ 105) Novartis’s strategy was to market Valturna to
When healthcare providers prescribed Valturna and subsequently submitted claims for payment, they were required to certify — as a pre-condition to payment— that the services for which they were billing were “medically indicated and necessary for the health of the patient.” (Id. ¶ 114) Relator alleges that Novartis’s off-label promotion of Valturna caused healthcare providers to submit claims for reimbursement that were false, because the drag was neither medically indicated nor necessary for the treatment of diabetic patients. (Id.)
C. Novartis’s 2010 Settlement
In September 2010, Novartis entered into an agreement with the United States Department of Justice and several states, including New York, to settle a number of FCA claims that had been brought against it. (See U.S. Am. Cmplt. (Dkt. No. 62) ¶ 4; N.Y. Cmplt. (Dkt. No. 61) ¶ 5) In the settlement agreement, Novartis acknowledged that it had “provided illegal remuneration, through mechanisms such as speaker programs, advisory boards, and gifts (including entertainment, travel and meals), to health care professionals to induce them to promote and prescribe the [Novartis] drags Diovan, Zelnorm, Sandos-tatin, Exforge, and Tekturna, in violation of the Federal Anti-Kickback Statute, 42 U.S.C. 1320a-7b(b).” (U.S. Am. Cmplt. (Dkt. No. 62) ¶ 63; N.Y. Cmplt. (Dkt. No. 61) ¶ 54) By offering kickbacks to health care professionals, Novartis had caused false claims — in the form of claims for reimbursement for prescriptions for those drugs — to be submitted to federal and state healthcare programs. (See U.S. Am. Cmplt. (Dkt. No. 62) ¶ 4; N.Y. Cmplt. (Dkt. No. 61) ¶ 5)
In connection with the 2010 settlement, Novartis signed a Corporate Integrity Agreement (“CIA”) with the U.S. Department of Health and Human Services Inspector General’s Office in which Novartis agreed to implement a rigorous compliance program to comply with the Anti-Kickback Statute and the FCA. (See U.S. Am. Cmplt. (Dkt. No. 62) ¶ 4; N.Y. Cmplt. (Dkt. No. 61) ¶ 5) The CIA required Novartis to “ensure that [its] Policies and Procedures address ... appropriate ways to conduct Promotional Functions in compliance with all applicable Federal healthcare program requirements, including, but not limited to the federal anti-kickback statute ... and the False Claims Act,” and to enact polices and procedures that “address ... programs to educate sales representatives, including but not limited to presentations by [health care professionals]” in order “to ensure that the programs are used for legitimate and lawful purposes. ...” (U.S. Am. Cmplt. (Dkt. No. 62) ¶ 64; N.Y. Cmplt. (Dkt. No. 61) ¶ 55) The CIA further required Novartis to enact compliance policies that “address ... compensation (including ... salaries, bonuses, and contests) for ... sales representatives” “to ensure that financial incentives d[id] not inappropriately motivate such individuals to engage in improper promotion,
II. PROCEDURAL HISTORY
Relator Oswald Bilotta — a former Novartis sales representative — filed the qui tarn Complaint in this action on January 5, 2011. (Relator Cmplt. (Dkt. No. 1)) According to Bilotta, in paying kickbacks to doctors, Novartis caused the submission of false claims in relation to drugs other than those named in the 2010 settlement, and Novartis did not disclose this fact during the settlement -negotiations. Bilotta further claims that Novartis continued its unlawful practices even after the 2010 settlement, with respect to drugs that were named in the settlement, as well as additional drugs. Bilotta also alleges that Novartis caused false claims to be submitted-by promoting Valturna for off-label use.
Bilotta — as Relator — asserted claims on behalf of the United States, 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, Washington, Wisconsin, the District of Columbia, the City of Chicago, and the City of New York.
On April 26, 2013, the United States elected to intervene as a plaintiff in this case — but only as to the kickback claims— and filed a Complainb-in-Intervention. (Dkt. Nos. 13, 16) On July 10, 2013, Relator filed a Third Amended Complaint (“TAC”) asserting both the kickback and off-label promotion claims. (Dkt. No. 50) On August 26, 2013, New York State filed a Complainh-in-Intervention, electing to intervene as to the kickback claims only. (N.Y. Cmplt. (Dkt. No. 61)) All other states and municipalities declined to intervene.
In July 2013, Novartis submitted a pre-motion letter indicating that it intended to move to dismiss the Government’s Com-plaini>-in-Intervention. A pre-motion conference was held on July 18, 2013. Although it had not yet intervened, New York attended this conference. The Court questioned whether the Government’s Complainh-in-Intervention satisfied the pleading requirements of Fed.R.Civ.P. 9(b), because the pleading did not “contain any allegations about who submitted the [false or fraudulent] claims, how they were submitted and paid, or when they were submitted, and in particular when they were paid within the 11-year time frame cited in the complaint.” (July 18, 2013 Tr. (Dkt. No. 53) at 11). This Court granted the Government leave to amend its pleading. (Dkt. No. 51)
After this conference, the Government filed an Amended Complaint-in-Intervention. (U.S. Am. Cmplt. (Dkt. No. 62)) The Amended Complaint includes 316 pages of spreadsheets that list allegedly false or fraudulent claims for reimbursement — relating to prescriptions that were written for Novartis drugs — that were submitted by pharmacies to specific federal programs. (See U.S. Am. Complt. (Dkt. No. 62), Exs. A-O) The Government asserts claims for violations of Sections 3729(a)(1)(A) and (a)(1)(B) of the FCA, as well as a common law claim for unjust enrichment. (Id. ¶¶ 183-92)
On August 26, 2013, New York filed its Intervenor Complaint (the “New York Complaint”). (N.Y. Cmplt. (Dkt. No. 61)) New York asserts claims for (1) violation of the New York False Claims Act (“NY FCA”), N.Y. State Fin. Law § 189(l)(a), relating to the filing of false claims for Medicaid reimbursement; (2) violation of
On October 24, 2013, Novartis moved to dismiss the Government’s Amended Complaint and the New York Complaint. (Dkt. Nos. 79, 81) On December 20, 2013, Novartis moved to dismiss the Relator’s TAC. (Dkt. No. 98)
DISCUSSION
I. LEGAL STANDARD
A. Pleading Standards on Motion to Dismiss
1. Fed.R.Civ.P. 12(b)(6) Standard
“To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ ” Ashcroft v. Iqbal,
A complaint is inadequately pled “if it tenders ‘naked assertion[s]’ devoid of ‘further factual enhancement,’ ” Iqbal,
2. FedR.Civ.P. 9(b) Standard
“Because the False Claims Act is an anti-fraud statute, ‘claims brought under the FCA fall within the express scope of Rule 9(b).’ ” United States v. New York Soc. for the Relief of the Ruptured & Crippled, Maintaining the Hosp. for Special Surgery, No. 07 Civ. 292(PKC),
“Rule 9(b) does not impose a ‘one size fits all’ list of facts that must be included in every FCA complaint.” U.S. ex rel. Kester v. Novartis Pharm. Corp.,
B. False Claims Act
1. Federal False Claims Act
“The FCA facilitates restitution to the federal government when money is fraudulently taken from it.” New York Soc.,
“If the United States declines to intervene, and the relator successfully pursues the action, the relator may receive between 25 and 30 percent of any recovery.” Id. (citing 31 U.S.C. § 3730(d)(2)). “If the Government proceeds with an action ... [the relator] shall ... receive at least 15 percent but not more than 25 percent of the proceeds of the action or settlement of the claim, depending upon the extent to which the person substantially contributed to the prosecution of the action.” 31 U.S.C. § 3730(d)(1).
“The relator may bring an action [under the FCA] against any person who ‘knowingly presents, or causes to be presented, to an officer or employee of the United States ... a false or fraudulent claim for payment or approval....’” New York Soc.,
2. New York False Claims Act
“The NY FCA, enacted on April 1, 2007, is closely modeled on the federal FCA.” U.S. ex rel. Pervez v. Beth Israel Med. Ctr.,
II. STANDARD FOR PLEADING FALSE CLAIMS
The parties dispute the degree of particularity that is required to plead the false or. fraudulent claims that form the basis of an FCA cause of action. The United States, New York, and Relator argue that the Fifth Circuit’s relaxed pleading standard — set forth in U.S. ex rel. Grubbs v. Kanneganti,
Courts in this District have rejected Grubbs, concluding that it violates Second Circuit precedent requiring that fraud claims be pled with particularity. See New York Soc.,
Courts in this Circuit have held that “to satisfy Rule 9(b), an FCA claim must allege the particulars of the false claims themselves, and that allegations as to the existence of an overall fraudulent scheme do not plead fraud with particularity.” New York Soc.,
In reaching this conclusion, courts have looked to the pleading requirements of Rule 9(b) and the intent of the FCA. “Generally speaking, Rule 9(b) requires a
[t]he submission of a claim is ... the sine qua non of a False Claims Act violation.
As such, Rule 9(b)’s directive that “the circumstances constituting fraud or mistake shall be stated with particularity” does not permit a False Claims Act plaintiff merely to describe a private scheme in detail but then to allege simply and without any stated reason for his belief that claims requesting illegal payments must have been submitted, were likely submitted or should have been submitted to the Government.... [I]f Rule 9(b) is to be adhered to, some indicia of reliability must be given in the complaint to support the allegation of an actual false claim for payment being made to the Government.
Accordingly, in this Circuit, courts have held that the complaint must provide details that identify particular false claims for payment that were submitted to the government.... [D]etails concerning the dates of the claims, the content of the forms or bills submitted, their identification numbers, the amount of money charged to the government, the particular goods or services for which the government was billed, the individuals involved in the billing, and the length of time between the alleged fraudulent practices and the submission of claims based on those practices are the types of information that may help a [plaintiff] to state his or her claims with particularity. These details do not constitute a checklist of mandatory requirements that must be satisfied by each allegation included in a complaint. However, ... some, of this information for at least some of the claims must be pleaded in order to satisfy Rule 9(b).
Polansky,
This Court joins the other courts in this Circuit that have rejected Grubbs, and holds that in order to sufficiently plead violations of the FCA, Plaintiffs must allege the false claims themselves with suffi
III. KICKBACK CLAIMS
A. Effect of Government’s Intervention on Relator’s Federal Kickback Claims
Given the Government’s intervention in this action, the status of Relator’s federal FCA claims related to the kickback scheme must be addressed.
Relator claims that “it is more accurate to deem the federal kickback claims asserted in the TAC to be superseded by the Government’s intervention (as opposed to dismissed) as a technical matter.” (Relator Br. (Dkt. No. 105) at 7) “Relator acknowledges that the Government’s Complaint supersedes the Relator’s Complaint for all intervened claims[,] [and] [t]hus ... the Government has primary responsibility for prosecuting the claims upon which it has intervened, while the Relator’s role and position becomes essentially derivative to the claims upon which the Government has intervened.” (Id. at 7 n. 5) While Relator acknowledges that he may not “engage in any disruptive, repetitious or otherwise counterproductive actions,” he objects to any limitation on his participation in this action with respect to the federal kickback claims. (Id.)
Novartis responds that its “present motion does not pertain in any way to Relator’s ability to continue to participate in the Government action. Rather, it relates to whether the Relator has standing to maintain, separate from the Government, any kickback claims alleged in his Complaint.” (Def. MTD-Relator Reply Br. (Dkt. No. 102) at 2)
The Government takes the position that its claims have superseded Relator’s federal kickback claims, but acknowledges that Relator remains a party as to these claims. (See Jan. 17, 2014 U.S. Ltr. (Dkt. No. 96)) Neither the United States nor New York seeks to limit Relator’s participation in this action. (Jan. 17, 2014 U.S. Ltr. (Dkt. No. 96); Jan. 17, 2014 N.Y. Ltr. (Dkt. No. 97))
The False Claims Act provides that “[i]f the Government proceeds with the action, it shall have the primary responsibility for prosecuting the action, and shall not be bound by an act of the person bringing the action. Such person shall have the right to continue as a party to the action, subject to [certain] limitations set forth in [the Act].” 31 U.S.C. § 3730(c)(1). Accordingly, courts have held that “by automatic operation of the statute, the Government’s
In FCA qui tarn cases in which the Government has intervened, a number of courts have dismissed the relator’s claims on which the Government intervened. See, e.g., U.S. ex rel. Badr v. Triple Canopy, Inc.,
The District Court for the District of Columbia recently considered the question and concluded that dismissal is unnecessary, because the Government’s claims automatically supersede identical claims asserted by the relator. See Sansbury, — F.Supp.3d at —,
B. Whether the Government Entities’ FCA Kickback Claims Have Been Pled with Sufficient Particularity Under Rule 9(b)
Novartis moves to dismiss the kickback claims under the FCA and New York FCA in the Government’s Amended Complaint and in the New York Complaint, respectively, for failure to plead with sufficient particularity under Fed.R.Civ.P. 9(b). (Def. MTD-U.S. Br. (Dkt. No. 80) at 6-22; Def. MTD-N.Y. (Dkt. No. 82) at 5-18) Because Novartis makes essentially the same arguments as to each pleading, the two complaints will be considered together.
1. Pleading of the Underlying Anti-Kickback Statute Violations
Novartis contends that the Government Entities have failed to plead the anti-kickback violations underlying their FCA and New York FCA claims with sufficient particularity. (Def. MTD-U.S. Br. (Dkt. No. 80) at 6-13; Def. MTD-N.Y. (Dkt. No. 82) at 5-11) In particular, Novartis claims that the pleadings are deficient in that they (1) rely on only a handful of sham speaker events as examples of the alleged nationwide kickback scheme, (2) improperly premise the alleged anti-kickback violations on violations of Novartis’s internal policies and the Pharmaceutical Research and Manufacturers of America’s Code on Interactions with Healthcare Professionals (the “PhRMA Code”), and (3) do not plead facts adequate to demonstrate the requisite scienter.
a. Federal and New York Anti-Kickback Statutes
Where an FCA claim is premised on violations of the anti-kickback statute, plaintiff must “plead with particularity the ‘who, what, when, where and how’ of the fraudulent ... scheme.” U.S. ex rel. Mooney v. American, Inc., No. 06-CV-1806
“The [federal Anti-Kickback Statute] makes it illegal to ‘knowingly and willfully offer[ ] or pay[ ] any remuneration (including any kickback, bribe, or rebate) ... to any person to induce such person’ to ‘purchase or ... recommend purchasing’ a drug that is covered by a federal health care program.” Kester,
“A 2010 amendment to the Anti-Kickback Statute, which became effective on January 1, 2011, states that a claim for services that violates the Anti-Kickback Statute also violates the FCA.” New York
New York’s anti-kickback statute similarly provides that
[n]o medical assistance provider shall:
(a) solicit, receive, accept or agree to receive or accept any payment or other consideration in any form from another person to the extent such payment or other consideration is given: (i) for the referral of services for which payment is made under title eleven of article five of this chapter; or (ii) to purchase, lease or order any good, facility, service or item for which payment is made under title eleven of article five of this chapter; or
(b) offer, agree to give or give any payment or other consideration in any form to another person to the extent such payment or other consideration is given: (i) for the referral of services for which payment is made under title eleven of article five of this chapter; or (ii) to purchase, lease or order any good, facility, service or item for which payment is made under title eleven of article five of this chapter[.]
N.Y. Soe. Serv. Law § 366-d(2). A medical assistance provider is “any person, firm, partnership, group, association, fiduciary, employer or representative thereof or other entity who is furnishing care, services or supplies under” the New York Medicaid program. Id. § 366-d(l).
b. The Government Entities Have Sufficiently Pled the Underlying Anti-Kickback Violations
Here, the Government Entities allege that Novartis used sham speaker events as a vehicle to provide remuneration to doctors in order to induce them to write prescriptions for Novartis cardiovascular division drugs. As discussed above, both the United States and New York have described in their pleadings — in detail — how this scheme worked. {See, e.g., U.S. Am. Cmplt. (Dkt. No. 62) ¶¶ 1-2, 77; N.Y. Cmplt. (Dkt. No. 61) ¶¶ 3, 65) They allege that Novartis hosted lavish events that— while ostensibly intended to “educate” attendees about Novartis cardiovascular division drugs — actually provided little to no information about the drugs. Instead, the events constituted upscale, all-expense paid social outings for the doctors, as evidenced by the fact that (1) Novartis sales representatives repeatedly invited the same participants and “speakers” to attend events concerning the same drug or topic in a short span of time; (2) Novartis spent exorbitant amounts of money on these events, both at the macro level and at the individual event level; (3) doctors were paid thousands of dollars to “speak” at these events, even when Novartis drugs were not discussed or the events did not take place; and (4) the events were held in venues that were not appropriate for their purported “educational” purpose, such as at crowded sports bars and restaurants, at Hooters restaurants, and on fishing trips.
The Government Entities further claim that Novartis intended to use the sham speaker events to induce doctors to write more prescriptions for its cardiovascular division drugs. According to Plaintiffs, Novartis’s return-on-investment analyses revealed that this strategy was successful in inducing prescription-writing. Accordingly, Novartis used the sham speaker events as a key mechanism to promote its drugs. In doing so, Novartis allegedly violated its own internal policies governing speaker programs. Novartis also created incentives for its sales representative to hold more sham events, by basing representatives’ compensation on the number of prescriptions that doctors wrote and by turning a blind eye to the sham nature of the events.
Both the Government’s Amended Complaint and the New York Complaint describe specific examples of alleged sham speaker events, as well as specific doctors who were repeat speakers or attendees.
The Amended Complaint also describes several additional “clusters” of doctors who repeatedly attended Novartis events on the same topic within a short period of time, and who exchanged roles as attendees and speakers at these events. The Government has also identified the geographic location of these events. (Id. ¶¶ 107, Ill, 114) The United States has also provided the dates and locations of two fishing trips that were allegedly speaker events; the dates and locations of seven Hooters “round table” events; the dates and locations of seventeen events at high-end restaurants that resulted in exorbitant bills (including the amount of the bills and, in some instances, the doctors who attended identified by initials); and the dates and locations of at least 22 events that were inaccurately reported by Novartis sales representatives, either be
The New York Complaint describes four New York doctors who were paid as speakers by Novartis to give the same presentation to the same doctors over a short period of time.
Given these particularized examples and the specificity with which the pleadings describe the manner in which sham speaker events were conducted, the Government Entities have described the underlying kickback scheme with sufficient particularity to satisfy the requirements of Rule 9(b).
c. The Representative Examples Set Forth in the Government Entities’ Complaints are Adequate to Plead the Underlying Anti-Kickback Violations
Novartis argues that the facts the Government Entities have alleged are not sufficient to plead the underlying anti-kickback violations with sufficient particularity. Courts in this Circuit have repeatedly held, however, that “[i]n cases where the alleged fraudulent scheme is extensive and involves ‘numerous transactions that occurred over a long period of time, ... it [is] impractical to require the plaintiff to plead the specifics with respect to each and every instance of fraudulent conduct [to comply with Rule 9(b) ].’ Pleading the specifics of thousands of claims would be ‘cumbersome, unwieldy, and would accomplish no purpose.’ ” Kester,
Here, the alleged kickback scheme took place over nine years and involved thousands of sham speaker events that took place nationwide. To require Plaintiffs to plead the details of every one of those events or every one of the doctors who was a speaker or attendee at those events would be “ ‘cumbersome, unwieldy, and would accomplish no purpose.’ ” Kester,
d. The Government Entities Rely on More than Internal Policies and Industry Standards to Demonstrate the Underlying Anti-Kickback Violations
Novartis argues that the Government Entities have not sufficiently alleged the underlying kickback scheme because their pleadings cite Novartis’s internal policies and the PhRMA Code as evidence of what a proper speaker program should entail, and violations of internal policies are not sufficient to demonstrate an anti-kickback violation. (Def. MTD-U.S. Br. (Dkt. No. 80) at 11-12; Def. MTD-N.Y. Br. (Dkt. No. 82) at 9-10) This argument is merit-less. While the policies may bolster Plaintiffs’ argument that Novartis knew that the speaker events were improper and illegal, the Amended Complaint and the New York Complaint present facts that inde
e. The Government Entities Have Sufficiently Pled Scienter for the Underlying Anti-Kickback Violations
Novartis also argues that the Government Entities have not pled facts sufficient to adequately allege the requisite scienter for an anti-kickback violation. Under Fed.R.Civ.P. 9(b), “[m]alice, intent, knowledge, and other conditions of a person’s mind may be alleged generally.” Here, the Government Entities have -alleged that Novartis sales representatives provided compensation and lavish dinners to doctors in exchange for the doctors writing more prescriptions for Novartis drugs. The allegations in the pleadings also link the sales representatives’ conduct to Novartis’s senior management: the complaints allege that Novartis encouraged its sales representatives to host sham events by basing representatives’ compensation on doctors’ prescription-writing; by failing to monitor events; and by imposing no discipline when sales representatives were reported for non-compliance with Novartis policies and the anti-kickback laws.
The pleadings further allege that Novartis’s Ethics and Compliance Policies— which were issued in 2003 and re-issued in January 2006 — describe the Federal Anti-Kickback Statute’s prohibition of bribes and kickbacks, and state that “[ijnterac-tions with Healthcare Professionals should be focused on providing information about [Novartis] products, providing scientific and educational information[,] and supporting medical research and education in venues that are conducive to such discussions.” (U.S. Am. Cmplt. (Dkt. No. 62) ¶¶ 57-58; N.Y. Cmplt. (Dkt. No. 61) ¶¶ 46-48) In instructing that speaker programs must be held at venues “conducive to an exchange of medical information,” Novartis’s policies provide that food and beverages should be “ancillary to meaningful discussion” and modest in quantity and cost. (U.S. Am. Cmplt. (Dkt. No. 62) ¶ 60; N.Y. Cmplt. (Dkt. No. 61) ¶ 50) The policies also require speakers to make a presentation using slides provided by Novartis, and require at least three health care professionals and one sales representative to be present at every speaker program. (U.S. Am. Cmplt. (Dkt. No. 62) ¶ 62; N.Y. Cmplt. (Dkt. No. 61) ¶ 53) Novartis’s conduct — as alleged in the pleadings — violates each of these policies, raising a strong inference that Novartis acted knowingly and willfully in using the speaker events to induce prescription-writing in violation of the anti-kickback laws.
Plaintiffs have also alleged that the Pharmaceutical Research and Manufacturers ’ of America — a trade organization of which Novartis is a member — issued the PhRMA Code in 2004, and that Novartis is a signatory to and certified that
The Government Entities have also sufficiently alleged that the doctors who wrote prescriptions for Novartis drugs in exchange for compensation or other benefits from Novartis possessed the requisite scienter for an anti-kickback violation. The pleadings support a strong inference that the doctors recognized that the Novartis speaker events were shams. The doctors allegedly attended and/or were paid to speak at lavish events where there was no substantive presentation about or discussion of Novartis drugs. Moreover, the same doctors repeatedly attended the same sham events. The doctors arranged for their friends to attend these events, which took place at high-end restaurants, at sports bars, at Hooters restaurants, and at fishing venues. The Government Entities have further alleged that the doctors (1) were aware that they would receive increased compensation and other benefits from Novartis based on the number of prescriptions that they wrote for Novartis drugs; and (2) wrote more prescriptions for Novartis drugs in order to receive more “speaker” fees and to attend more lavish dinners and social outings. The allegations in the pleadings are sufficient to support a strong inference that the doctors knowingly and willfully violated the anti-kickback laws when they wrote prescriptions for Novartis drugs in exchange for this remuneration, knowing that the prescriptions they wrote would be paid for by Medicare or Medicaid. Moreover, in order to participate in the government programs that provided reimbursement for those prescriptions, the doctors were required to certify that they were not in violation of state and federal laws, including anti-kickback laws. (See, e.g., U.S. Am. Cmplt. (Dkt. No. 62) ¶¶ 37, 41-44, 53, 56; N.Y. Cmplt. (Dkt. No. 61) ¶¶ 29-37)
Novartis argues, however, that the doctors — many of whom prescribed Novartis drugs before attending Novartis speaker events — may have prescribed Novartis cardiovascular division drugs for proper purposes, rather than in exchange for kickbacks, and that the court must take this into account as a “plausible opposing inference” in determining whether scienter has been sufficiently pled. (Def. MTD-U.S. Br. (Dkt. No. 80) at 21-22; Def. MTD-N.Y. Br. (Dkt. No. 82) at 17-18) While it is true that the doctors identified in the pleadings allegedly prescribed Novartis
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Given the examples of doctors and sham speaker events set forth in the pleadings, and the detailed description of how the scheme functioned, the Government Entities have pled the underlying anti-kickback violations with sufficient particularity to satisfy the requirements of Rule 9(b).
2. Pleading of False Claims Act Violations
Novartis argues that the FCA and New York FCA claims must be dismissed because the pleadings have not “sufficiently link[ed] [Novartis’s] alleged wrongdoing to the submission of false claims.” (Def. MTD-U.S. Br. (Dkt. No. 80) at 13; Def. MTD-N.Y. Br. (Dkt. No. 82) at 11) In particular, Novartis argues that the Government Entities have not (1) linked anti-kickback violations to particular false claims; (2) sufficiently alleged a nationwide scheme, given that Plaintiffs have cited only a comparatively small number of doctors who submitted false claims; (3) alleged that the doctors who attended speaker events for certain Novartis drugs increased their prescription-writing for the particular drug or drugs that were the subject matter of those events, or alleged that all of the Novartis drugs at issue were the subject of sham speaker events; and (4) alleged sufficient facts to demonstrate that Novartis possessed the requisite scienter for an FCA or New York FCA claim.
a. The Government Entities Have Adequately Linked Particular False Claims to Anti-Kickback Violations
Novartis claims that the Government Entities have not pled sufficient facts to link actual false claims to underlying anti-kickback violations. As noted above, however, the Government Entities have attached as exhibits to their complaints hundreds of pages of spreadsheets listing particular alleged false claims. The records submitted by the United States include (1) the name of the prescribing doctor, (2) the name of the Novartis drug prescribed, (3) the National Drug Code for the drug prescribed, (4) the government program the claim was submitted to, (5) the date the prescription was filled, (6) the name of the pharmacy that dispensed the drug, (7) the identification number for the pharmacy that dispensed the drug, (8) the cost of the prescription, and (9) the date that the claim was processed and paid.
Novartis is liable to the federal government for damages based on the payment of the[se] ... claims and all other claims submitted to federal health care programs for prescriptions written by these physicians for the relevant Novartis drugs beginning from the time they began receiving honoraria payments or other remuneration and running through at least 2011, because the claims were the result of prescriptions induced by honoraria or other remuneration.
[] Compliance with the Anti-Kickback Statute is a precondition of payment by virtue of federal and statute statutes, regulations, provider agreements, and contracts.
[ ] The certifications and attestations signed by physicians, pharmacies, PBMs, and Part D sponsors certified compliance with the [Anti-Kickback Statute]. Kickbacks that were paid to physicians as alleged herein rendered those certifications and attestations false
[] Claims for Novartis[] prescription[ ] drugs arising from the kickbacks expressly and impliedly misrepresent[ed] compliance with a material condition of payment, to wit, compliance with the [Anti-Kickback Statute].
(Id. ¶¶ 178-81) The United States also describes in detail the processes by which the prescriptions these doctors wrote were submitted to pharmacies, which filled them and submitted claims for reimbursement to each of the government programs listed in the Amended Complaint. (Id. ¶¶ 20-56) For each of these government programs, the United States further identifies the relevant “statutes, regulations, provider agreements, and contracts” that it alleges made doctors’ compliance with the Anti-Kickback Statute a condition of payment. (See id.)
The records of false claims attached to the New York Complaint list (1) the pharmacy provider identification number for each claim, (2) the pharmacy name, (3) the name of the prescribing physician, (4) the date of service, (5) the amount that New York Medicaid paid toward the drug, (6) the payment date, (7) the formulary (drug) code, (8) the name of the Novartis drug prescribed, and (9) the weight of the prescribed tablets or capsules. (N.Y. Cmplt. (Dkt. No. 61), Ex. A) New York alleges that these claims “were reimbursed by Medicaid for those Novartis drugs referenced in th[e] Complaint which were prescribed by ... physicians [who] wrote prescriptions for Novartis drugs which were induced by honoraria and exorbitant meals and entertainment provided by Novartis. The claims listed ... are limited to claims submitted after these physicians began attending Novartis events.” (Id. ¶ 136) New York further alleges that
in order to submit claims to Medicaid, physicians are required to sign a Certification Statement attesting that the care, services, or supplies for which claims to Medicaid are submitted were furnished “in accordance with applicable federal and state laws and regulations,” including but not limited to the Federal and New York Anti-Kickback Statutes.
[ ] In addition, in order to dispense and submit claims to Medicaid for prescription medications, pharmacies are required to sign the same Certification Statement ...
[ ] The Certification Statements are representations of compliance with a material condition of payment, namely that the Novartis drugs for which claims for payment were made to Medicaid were provided in accordance with all applicable Federal and State laws regarding the provision of health care services, including the Federal and New York Anti-Kickback Statutes. Kickbacks that Novartis paid to physicians as alleged herein render those certifications false.
[] Claims for payment for Novartis drugs prescribed by physicians who received kickbacks from Novartis as alleged herein expressly and impliedly misrepresent compliance with multiple material conditions of payment of the New York State Medicaid Program.
(Id. ¶¶ 137-38, 141, 143) New York also describes in detail the regulations that govern the submission of claims to the New York Medicaid Program, and the process by which claims for reimbursement are submitted to the Medicaid program by pharmacies filling prescriptions. (Id. ¶¶ 28-37) In addition to the list of alleged false claims, New York also attaches to its Complaint signed certification statements for the doctors and pharmacies associated with the submission of the alleged false claims. (Id., Exs. B-C)
Novartis argues that “[t]he raw data of all ... [federally- or state-]reimbursed prescriptions written by [a few] doctors ... does not make clear which of these claims were allegedly fraudulent,” particularly because some of these doctors were prescribing Novartis drugs prior to attending sham speaker events. (Def. MTD-U.S. Br. (Dkt. No. 80) at 17-18 (internal quotations omitted); Def. MTD-N.Y. Br. (Dkt. No. 82) at 14 (internal quotations omitted)) Viewing the pleadings in the light most favorable to Plaintiffs and drawing all inferences in their favor, however— as the Court must do on a motion to dismiss — the United States and New York have sufficiently alleged that all of the claims attached to their pleadings are false claims, because they were submitted by doctors at a time when the doctors were writing prescriptions for Novartis cardiovascular division drugs in exchange for kickbacks, while certifying that they were in compliance with state and federal laws, including anti-kickback statutes. At the pleading stage, it is not necessary for the Government Entities to demonstrate with precision that every prescription written by every doctor was written in exchange for a kickback. To the extent that there is evidence that a prescription was written appropriately, that issue may be raised at summary judgment and/or at trial. See U.S. ex rel. Lisitza v. Johnson & Johnson,
The Court rejects Novartis’s contention that “it [is] impossible for [Novartis] to determine [from the pleadings] ... which doctors (other than [those] ... identified) were allegedly induced, when within the nearly ten-year time frame doctors were allegedly induced, and the value of any resulting prescriptions.” (Def. MTD-U.S. Br. (Dkt. No. 80) at 18; Def. MTD-N.Y. Br. (Dkt. No. 82) 14-15) The examples of false claims that the Government Entities have pleaded, combined with the detailed allegations concerning the sham speaker programs, are sufficient to put Novartis on notice of which claims the Government Entities assert are false. The claims that are at issue here relate to prescriptions for Lotrel, Diovan, Diovan HCT, Tektuma, Tekturna HCT, Exforge, Exforge HCT, Valturna, Tekamlo, and Starlix that (1) were written by doctors between January 2002 and 2011; (2) were written after these doctors had attended or. received honoraria for “speaking” at Novartis sham speáker events, and (3) resulted in claims for reimbursement to Medicare, Medicaid, TRICARE, and the Veterans Administration health care program (as to the Government’s Amended Complaint) or New York Medicaid (as to the New York Complaint).
The cases Novartis cites in support of its argument that the Government Entities have not sufficiently pled false claims are unpersuasive. In most of these cases, no particular false claims were alleged. See Mooney,
Here, the pleadings explain in detail why the speaker events were shams and how they served as a vehicle for kickbacks. The pleadings also tie particular claims to particular doctors during the time period that the doctors were attending sham speaker events. Novartis has cited no case demonstrating that the Government Entities’ pleading of particular false claims is deficient.
b. Examples of False Claims Are Pled With Sufficient Particularity to Allege the Large Fraud Scheme
Novartis also argues that the examples of false claims pled in the Government’s Amended Complaint and in the New York Complaint are “insufficient ... to extrapolate a [nationwide or statewide] scheme.” (Def. MTD-U.S. Br. (Dkt. No. 80) at 19-20; Def. MTD-N.Y. (Dkt. No. 82) at 15-16)
“In cases where the alleged fraudulent scheme is extensive and involves ‘numerous transactions that occurred over a long period of time, courts have found it impractical to require the plaintiff to plead the specifics with respect to each and every instance of fraudulent' conduct.’ ... Instead, the complaint must provide the defendant with enough details to be able to reasonably discern which of the claims it submitted are at issue. In cases with ex-' tensive schemes, plaintiffs can satisfy this requirement [by] ... providing example false claims.” See Kester,
As discussed above, the Government Entities have identified specific false reimbursement claims for prescriptions for Novartis cardiovascular division drags that were submitted to federal healthcare programs and the New York Medicaid program during the period that the doctors who wrote the prescriptions were receiving remuneration from Novartis through sham speaker events. The doctors are identified by name and geographic location, and the pleadings particularize the nature of the speaker events that they attended, the time frame in which they attended or were chosen as speakers for the events, their increased-prescription-writing for particular Novartis cardiovascular division drugs during that time frame, and the specific claims that were submitted for the prescriptions they wrote, These claims are sufficiently representative of the larger scheme to satisfy the pleading standard of Rule 9(b).
Novartis argues that the Government Entities’ complaints must be dismissed because (1) not all of the doctors identified in the pleadings are alleged to have increased their prescriptions for the specific drugs that were the announced topic of speaker events they attended or were speakers for; and (2) not all of the drugs for which false claims were allegedly submitted were the topic of alleged speaker events. (Def. MTD-U.S. Br. (Dkt. No. 80) at 15-17; Def. MTD-N.Y. Br. (Dkt. No. 82) at 13-14) These arguments misapprehend the Government Entities’ theory of liability here.
The Government Entities claim that the speaker events were “shams” hosted by Novartis’s cardiovascular division to induce doctors to prescribe the division’s drags more frequently. From the perspective of the Government Entities, the announced topics for the sham speaker events are largely irrelevant, because no substantive presentation or discussion about Novartis’s drugs took place at these sham events. What the Government is alleging is bribery without a fig leaf.
Given that no substantive discussion concerning any Novartis drug took place at the sham speaker events, it is not surprising — from the perspective of the Government Entities — that the announced topic for Novartis speaker events has little or
Novartis also points out that not all of the cardiovascular division drugs named in the pleadings are alleged to have been the subject of increased prescribing by the doctors identified in the Government Entities’ complaints. As discussed above, given the magnitude of the scheme alleged here, Plaintiffs are permitted to plead through representative examples. Moreover, given that Plaintiffs’ theory is that speaker events hosted by Novartis’s cardiovascular division induced doctors to write more prescriptions for the division’s drugs as a whole, the specific examples of increased prescription-writing — even though they do not include examples of all the drugs listed in the complaints — are sufficiently representative to satisfy the pleading requirements of Rule 9(b).
d. The Government Entities Have Adequately Pled Scienter for the FCA Claims
“[T]he text of the FCA expressly states that it does not require ‘proof of specific intent to defraud.’ ” New York Soc.,
For the same reasons discussed above in connection with the underlying anti-kickback violations, the pleadings sufficiently allege Novartis’s scienter as to the FCA claims. Considered together, the allegations raise a strong inference that Novartis caused the submission of false claims to federal and New York healthcare programs and that it acted with actual knowledge in doing so or, at the very least, in deliberate ignorance or reckless disregard of that fact. This strong inference arises from the abundant evidence — as pled in the complaints — that the purpose of the speaker program was not to disseminate medical or scientific information to doctors, but rather to reward those who prescribed large quantities of Novartis drugs,
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For the reasons stated above, Novartis’s motion to dismiss the Government Entities’ kickback claims for failure to comply with Rule 9(b) will be denied.
C. Falsity of Medicaid Claims Submitted Prior to the Affordable Care Act
Novartis has moved to dismiss the FCA and New York FCA claims related to alleged false or fraudulent claims that were submitted to Medicaid programs prior to the 2010 amendments to the Anti-Kickback Statute. Novartis argues that those Medicaid claims are not “false” or “fraudulent” within the meaning of the FCA. (See Def. MTD-U.S. Br. (Dkt. No. 80) at 22-24; Def. MTD-N.Y. Br. (Dkt. No. 82) at 18-20)
“[T]he Anti-Kickback Statute was ... amended [in 2010] to explicitly state that a violation of its terms is actionable under the FCA.”
Novartis argues that “prior to the 2010 enactment of [the Affordable Care Act], a violation of the [Anti-Kickback Statute] was not a per se violation of the FCA” (Def. MTD-U.S. Br. (Dkt. No. 80) at 23 n. 13; Def. MTD-N.Y. Br. (Dkt. No. 82) at 19 n. 11), and that accordingly — in order to allege the falsity of pre-amendment claims — Plaintiffs must plead that those who submitted claims to Medicaid did so with “an express or implied certification of compliance with anti-kickback statutes” as a pre-condition to payment, as described by the Second Circuit in Mikes v. Straus,
1. The Government Entities’ Pleading of Falsity as to the Medicaid Claims
The Government’s Amended Complaint contains the following allegations regard
41. Claims arising from illegal kickbacks are not authorized to be paid under state regulatory regimes. For example, the New York regulatory regime provides that an “overpayment includes any amount not authorized to be paid under the medical assistance program, whether paid as the result of inaccurate or improper cost reporting, improper claiming, unacceptable practices, fraud, abuse or mistake.” N.Y. Comp.Codes R. & Regs. Title 18 § 518.1(c). “Unacceptable practice” is defined to include “[b]ribes and kickbacks,” id. § 515.2(b)(5), and lists within this category both “soliciting or receiving,” id. § 515.2(b)(5)(h), and “offering or paying,” id. § 515.2(b)(5)(iv), “either directly or indirectly any payment (including any kickback, bribe, referral fee, rebate or discount), whether in cash or in kind, in return for purchasing, leasing, ordering or recommending any medical care, services or supplies for which payment is claimed under the program,” id. § 515.2(b)(5)(h), (iv). New York’s anti-kickback statute forbids kickbacks in similar terms. See NY. Soc. Serv. Law §§ 366-d-f.
42. Providers who participate in the Medicaid program must sign enrollment agreements with their states that certify compliance with the state and federal Medicaid requirements, including the [Anti-Kickback Statute]. Although there are variations among the states, the agreement typically requires the prospective Medicaid provider to agree that he or she will comply with all state and federal laws and Medicaid regulations in billing the state Medicaid program for services or supplies furnished.
43. Furthermore, in many states, Medicaid providers, including both physicians and pharmacies, must affirmatively certify, as a condition of payment of the claims submitted for reimbursement by Medicaid, compliance with applicable federal and state laws and regulations.
44.In New York, for example, physicians and pharmacies must periodically sign a “Certification Statement for Provider Billing Medicaid,” in which the provider certifies that claims submitted “to the State’s Medicaid fiscal agent, for services or supplies furnished,” “will be subject to the following certification.... I (or the entity) have furnished or caused to be furnished the care, services, and supplies itemized and done so in accordance with applicable federal and state laws and regulations.”
(U.S. Am. Cmplt. (Dkt. No. 62) ¶¶ 41^14)
As to the falsity of the Medicaid claims alleged in its Complaint, New York states:
29. Pursuant to 18 NYCRR § 504.1, “Any person who furnishes medical care, services or supplies for which payments under the [Medicaid] program are to be claimed; or who arranges the furnishing of such care, services or supplies; or who submits claims for or on behalf of any person furnishing or arranging for the furnishing of such care, services or supplies must enroll as a provider of services prior to being eligible to receive such payments, to arrange for such care, services or supplies or to submit claims for such care or supplies.” 18 NYCRR § 504.1(b)(1).
30. Before submitting claims for payment to the New York State Medicaid program, whether in paper or electronic form, providers, including physicians and pharmacies, are required to first sign a Certification Statement for Provider Billing Medicaid (hereinafter, “Certification Statement”). See EMed-NY New York State Medicaid General Billing Guidelines-Professional, Version2013-01, at p. 5; New York State EM-edNY Billing Guidelines-Pharmaey, Version 2013-01 at p. 5. In the Certification Statement, the provider certifies that, for all claims submitted to Medicaid, “I (or the entity) have furnished or caused to be furnished the care, services, and supplies itemized and done so in accordance with applicable federal and state laws and regulations.”
31. Accordingly, providers must affirmatively certify, as a condition of payment of the claims submitted for reimbursement by Medicaid, compliance with applicable federal and state laws and regulations.
32. A provider must renew her Certification Statement periodically by signing a new Certification Statement. The Certification Statement last signed by the provider remains in effect for all claims until a new Certification Statement is signed by the provider.
33. Since in or about 2007, the Certification Statement has applied to all claims submitted to Medicaid, whether submitted electronically or on paper. Prior to 2007, for paper claims the provider’s certification statement was included on the paper claim form submitted to Medicaid, and the provider certified that the care, services or supplies listed on the claim form were “furnished in accordance with applicable Federal and State laws and regulations” when submitting the claim form for payment.
34. 18 N.Y.C.R.R. § 515.2(b) specifically prohibits as an “unacceptable practice”:
(5) Bribes and Kickbacks ...
(ii) soliciting or receiving either directly or indirectly any payment (including any kickback, bribe, referral fee, rebate or discount), whether in cash or in kind, in return for purchasing, leasing, ordering or recommending any medical care, services or supplies for which payment is claimed under the [Medicaid] program;
(iv) offering or paying either directly or indirectly any payment (including any kickback, bribe, referral fee, rebate or discount), whether in cash or in kind, in return for purchasing, leasing, ordering or recommending any medical care, services or supplies for which payment is claimed under the [Medicaid] program
35. 18 N.Y.C.R.R. § 515.2(a) also specifically prohibits as an “unacceptable practice” conduct that is contrary to:
(3) the official rules and regulations of the Departments of Health, Education and Mental Hygiene, including the latter department’s offices and division, relating to standards for medical care and services under the [Medicaid] program; or
(4) the regulations of the Federal Department of Health and Human Services promulgated under title XIX of the Federal Social Security Act.
36. Pursuant to 18 N.Y.C.R.R. § 518.1(c) “overpayment includes any amount not authorized to be paid under the medical assistance program, whether paid as the result of inaccurate or improper cost reporting, improper claiming, unacceptable practices, fraud, abuse or mistake.”
37. Title 18 provides further that “[n]o payments will be made to or on behalf of any person for the medical care, services or supplies furnished ... in violation of any condition of participation in the program,” nor will payments be made [] “for any medical care, services or supplies ordered or prescribed in violationof any condition of participation in the program.” 18 N.Y.C.R.R. § 515.5(a), (b). Accordingly, all claims for payment to Medicaid resulting from kickbacks are in violation of a material condition of payment of the New York State Medicaid Program.
(N.Y. Cmplt. (Dkt. No. 61) ¶¶ 29-37)
2. Certification Theories Under Mikes v. Straus
The Second Circuit addressed the issue of whether a claim is “false or fraudulent” within the meaning of the FCA in the seminal case of Mikes v. Straus,
The plaintiff in Mikes premised the falsity of the alleged claims on “the ‘certification theory’ of liability, which is predicated upon a false representation of compliance with a federal statute or regulation or a prescribed contractual term ... [and] has also been called ‘legally false’ certification.” Id. This theory “differs from ‘factually false’ certification, which involves an incorrect description of goods or services provided or a request for reimbursement for goods or services never provided.” Id. at 697. The Second Circuit found that legally false certification could present a basis for falsity under the FCA, observing that “[although the False Claims Act is ‘not designed to reach every kind of fraud practiced on the Government,’ it was intended to embrace at least some claims that suffer from legal falsehood.” Id. (quoting United States v. McNinch,
The Second Circuit noted, however, that “a claim for reimbursement made to the government is not legally false simply because the particular service furnished failed to comply with the mandates of a statute, regulation or contractual term that is only tangential to the service for which reimbursement is sought.” Id. “[W]hile the Act is ‘intended to reach all types of fraud, without qualification, that might result in financial loss to the Government,’ it does not encompass those instances of regulatory noncompliance that are irrelevant to the government’s disbursement decisions.” Id. (quoting United States v. Neifert-White Co.,
The court found that legal falsity could be premised on two certification theories: (1) expressly false certification or (2) impliedly false certification. See id. at 697-700.
“An expressly false claim is, as the term suggests, a claim that falsely certifies compliance with a particular statute, regulation or contractual term, where compliance is a prerequisite to payment.” Id. at 698. To demonstrate that a claim is false on an express certification theory, a plaintiff must show that “defendants certified they would comply with the terms [of the statute, regulation, or contract],” “that such compliance was a precondition of governmental payment,” and that the conduct alleged “implicated the standard” that de
In support of her express certification theory, plaintiff argued that defendants
submit[ted] claims for Medicare reimbursement on HCFA-1500 forms ... [which] expressly say: “I certify that the services shown on this form were medically indicated and necessary for the health of the patient and were personally furnished by me or were furnished incident to my professional service by my employee under my immediate personal supervision.” Both the form, which further provides [that] “[n]o Part B Medicare benefits may be paid unless this form is received as required by existing law and regulations,” and the Medicare Regulations, see 42 C.F.R. § 424.32, state that certification is a precondition to Medicare reimbursement.
Id. at 698.
Although the Second Circuit “agree[d] that defendants certified they would comply with the terms on the form and that such compliance was a precondition of governmental payment,” the court concluded that plaintiff had not sufficiently demonstrated the falsity of the alleged claims under an express certification theory because “[t]he term ‘medical necessity’ [as used in the certifications] d[id] not impart a qualitative element mandating a particular standard of medical care” for the procedures that were performed, and therefore did not support plaintiffs contention that the claims defendants submitted were “false” — that is, submitted for services that “were not medically necessary.” Id. at 698-99. The fact that the machine was not calibrated in accordance with industry guidelines did not demonstrate that the services defendants provided were not medically necessary. See id.
The court then considered whether plaintiff had demonstrated falsity under the implied certification theory. “An implied false certification claim is based on the notion that the act of submitting a claim for reimbursement itself implies compliance with governing federal rules that are a precondition to payment.” Id. at 699. Although the Second Circuit found “[Qoundational support” for this theory as to “at least some kinds of legally false claims,” the court cautioned that this theory should not be read “expansively and out of context.” Id. “[A] medical provider should be found to have implicitly certified compliance with a particular rule as a condition of reimbursement ... only when the underlying statute or regulation upon which the plaintiff relies expressly states the provider must comply in order to be paid.” Id. at 700 (emphasis in original). If this requirement is satisfied, then “[liability under the Act may properly be found ... when a defendant submits a claim for reimbursement while knowing — as that term is defined by the Act — that payment expressly is precluded because of some noncompliance by the defendant.” Id. (citation omitted). The Mikes court found that the plaintiffs claims failed under this theory as well, because the statutory provision plaintiff relied upon for her implied certification theory expressly conditioned “participation” in the Medicare program— rather than reimbursement, ie., “payment,” from that program — on compliance with the statute’s terms. Id. at 701-02.
3. The Government Entities’ Argument that Pleading Falsity Under a Certification Theory is Not Required
As an initial matter, the Government claims that it need not rely on the certifi
The force of these arguments is questionable. When considering whether a claim is false or fraudulent under the FCA, courts in this Circuit focus their analysis on the falsity theories described in Mikes. See U.S. ex rel. Qazi v. Bushwick United Hous. Dev. Fund Corp.,
Courts in this district have also applied the Mikes analysis to FCA claims premised on violations of anti-kickback statutes, such as the claims at issue here. See New York Soc.,
The Government Entities argue, however, that “[a] claim [is] ‘false’ under the FCA ... so long as the claim [for reimbursement] is ineligible for payment, such as a claim resulting from illegal kickbacks.” {See U.S. Br. (Dkt. No. 90) at 20) Submitting an ineligible claim for reimbursement under the circumstances here, however, is the other side of the coin of “submitting a claim for reimbursement ... impl[ying] compliance with [the anti-kickback statutes] ... that [is] a .precondition to payment.” Mikes,
It is not necessary to resolve this issue here because^as set forth below- — the Court concludes that the Government Entities have adequately pled the falsity of the Medicaid claims based on the implied certification theory set forth in Mikes.
4. Plaintiffs’ Certification Theories
The Government Entities argue that falsity has been properly pleaded under both the express and implied legal falsity theories.
a. Express Certification
The Government Entities have alleged that doctors who submitted claims to Medicaid were required to submit certification statements in order for those claims to be eligible for reimbursement from Medicaid. According to Plaintiffs, in signing those statements, the doctors certified that they were acting in compliance with applicable federal and state laws. In support of their contention that the doctors were certifying compliance with the anti-kickback laws in signing their certification statements, the Government Entities cite regulations that prohibit reimbursement for claims submitted in violation of the anti-kickback laws. This combination of express language in the certification statements and provisions in the underlying regulations indicating that doctors who sign such statements are certifying that they are complying with the anti-kickback laws- — such compliance being a pre-condition of government payment— provides a basis for an express certification argument here. See Mikes,
It is not clear from either of the Government Entities’ complaints when the certifi
“[T]he problem here is not necessarily the ‘forward-looking’ language of the certification[s] or that the certification[s] [are] contained in ... enrollment form[s] instead of a claim form, but rather that the Plaintiffs have not alleged that providers expressly made such statements knowing their falsity. The Plaintiffs do not allege that when the providers signed the enrollment forms, they knew that they would be accepting kickbacks from the Defendants in violation of the anti-kickback statute. Without such pleading, there can be no ‘false claim’ ... under the express certification theory.”
See Dialysis Clinic, Inc.,
b. Implied Certification
The Government Entities allege that the statutes, rules, and regulations governing Medicaid “expressly state[ ] [that] the provider must comply [with the anti-kickback laws] in order to be paid.” Mikes,
New York Medicaid regulations — which are cited by the United States and New York in their pleadings- — require compliance with federal and state anti-kickback statutes as a precondition to the payment of claims submitted to Medicaid. Under these regulations, “[b]y enrolling [in Medicaid] the provider agrees[ ] ... to submit claims for payment only for services actually furnished and which were medically necessary or otherwise authorized under the Social Services Law when furnished and which were provided to eligible persons.” N.Y. Comp.Codes R. & Regs. tit. 18, § 504.3(e). The Social Services Law— which contains New York’s Anti-Kickback Statute — states that “[n]o medical assistance provider shall ... solicit, receive, accept or agree to receive or accept any payment or other consideration in any form from another person to the extent such payment or other consideration is given ... to purchase, lease or order any good, facility, service or item for which payment is made under title eleven of article five of this chapter.” N.Y. Soc. Serv. Law § 366-d(2)(a).
New York Medicaid regulations further provide that
[n]o payments will be made to or on behalf of any person for the medical care, services or supplies furnished by or under the supervision of the person ... in violation of any condition of participation in the program.... [and]
[n]o payment will be made ... for any medical care, services or supplies ordered or prescribed in violation of any condition of participation in the program.
N.Y. Comp.Codes R. & Regs. tit. 18, § 515.5(a)-(b) (emphasis added). These provisions together indicate that compliance with anti-kickback statutes is a condition for payment of claims that medical providers submit to Medicaid. Under these provisions, medical providers in New York not only agree to comply with the anti-kickback statute as a condition of participation in the Medicaid program; payments from that program are also expressly premised on compliance with this condition.
New York regulations governing Medicaid’s recovery of overpayments support this conclusion. Those regulations provide that “[w]hen the department has determined that any person has submitted or caused to be submitted claims for medical care, services or supplies for which payment should not have been made, it may require repayment of the amount determined to have been overpaid. ... An overpayment includes any amount not authorized to be paid under the medical assistance program, whether paid as the result of ... improper claiming, unacceptable practices, fraud, [or] abuse ...” Id. § 518.1(b)-(c) (emphasis added). “Unacceptable practices” are defined as
conduct by a person which is contrary to:
(3) the official rules and regulations of the Departments of Health, Education and Mental Hygiene, including the latter department’s offices and divisions, relating to standards for medical care and services under the program; or
(4) the regulations of the Federal Department of Health and Human Services
promulgated under title XIX of the Federal Social Security Act.
[and] conduct which constitutes fraud or abuse [including:]
(11) soliciting or receiving either directly or indirectly any payment (including any kickback, bribe, referral fee, rebate or discount), whether in cash or in kind, in return for purchasing, leasing, • ordering or recommending any medical care, services or supplies for which payment is claimed under the program;
(iv) offering or paying either directly or indirectly any payment (including any kickback, bribe, referral fee, rebate or discount), whether in cash or in kind, in return for purchasing, leasing, ordering or recommending any medical care, services or supplies for which payment is claimed under the program.
Id. § 515.2(a)(3)-(4), (b)(5)(h), (iv).
Viewed together, the statutes and regulations cited by the Government Entities expressly state that healthcare providers must comply with the anti-kickback laws in order for claims that they cause to be submitted to Medicaid to be reimbursed. Because Plaintiffs have alleged that the claims submitted to the Medicaid program here violate the anti-kickback statutes in that these claims stemmed from prescriptions written by doctors in exchange for bribes — knowing that claims for reimbursement would be submitted to the Medicaid program as a result — Plaintiffs have sufficiently pled that those claims were false under an implied certification theory. See Mikes,
In addition to falsely certifying compliance with the anti-kickback laws, the Government Entities have also alleged that the doctors falsely certified that they were
[providers who participate in the Medicaid program must sign enrollment agreements with their states that certify compliance with the state and federal Medicaid requirements, including the [Anti-Kickback Statute]. Although there are variations among the states, the agreement typically requires the prospective Medicaid provider to agree that he or she will comply with all state and federal laws and Medicaid regulations in billing the state Medicaid program for services or supplies furnished. [ ] Furthermore, in many states, Medicaid providers, including both physicians and pharmacies, must affirmatively certify, as a condition of payment of the claims submitted for reimbursement by Medicaid, compliance with applicable federal and state laws and regulations.
(U.S. Am. Cmplt. (Dkt. No. 62) ¶¶ 42-43 (emphasis added)).
New York similarly alleges that “[b]e-fore submitting claims for payment to the New York State Medicaid program ... physicians ... are required to first sign a Certification Statement for Provider Billing Medicaid ... [in which they] must affirmatively certify, as a condition of payment of the claims submitted for reimbursement by Medicaid, compliance with applicable federal and state laws and regulations,” and that a physician “must renew her Certification Statement periodically by signing a new Certification Statement ... [which] remains in effect for all claims until a new Certification Statement is signed by the provider,” (N.Y. Cmplt. (Dkt. No. 61) ¶¶ 30-32 (emphasis added)).
These certifications, therefore, are part of doctors’ agreements with Medicaid that permit them to submit claims for payment. See also N.Y. Comp.Codes R. & Regs. tit. 18, § 504.1(b)(1) (“Any person who furnishes medical care, services or supplies for which payments under the medical assistance program are to be claimed; or who arranges the furnishing of such care, services or supplies; or who submits claims for or on behalf of any person furnishing or arranging for the furnishing of such care, services or supplies must enroll as a provider of services prior to being eligible to receive such payments, to arrange for such care, services or supplies or to submit claims for such care or supplies.”).
Furthermore, the New York Certification Statement — which is cited by both Government Entities, and which is attached to the New York Complaint
I ... have furnished or caused to be furnished the care, services, and sup-, plies itemized and done so in accordancewith applicable federal and state laws and regulations.... In submitting claims under this agreement I understand and agree that I ... shall be subject to and bound by all rules, regulations, policies, standards, fee codes, and procedures of the New York State Department of Social Services as set forth in title 18 of the Official Complication of Codes, Rules and Regulations of New York State [which includes New York’s Medicaid regulations].
Doctors participating in New York’s Medicaid program also certify:
I UNDERSTAND THAT MY SIGNATURE HEREON GUARANTEES THE ABOVE CERTIFICATION WILL APPLY TO ALL ELECTRONIC CLAIMS. SUBMITTED, USING MY ... MEDICAID PROVIDER IDENTIFICATION NUMBER. THIS CERTIFICATION REMAINS IN EFFECT AND APPLIES TO ALL CLAIMS UNTIL SUPERSEDED BY ANOTHER PROPERLY EXECUTED CERTIFICATION STATEMENT.
(N.Y. Cmplt. (Dkt. No. 61), Ex. B).
Accordingly, by causing claims to be submitted in violation of applicable federal and state laws and regulations, doctors violate their express agreement with Medicaid that they will only bill for, or cause Medicaid to be billed for, “care, services and supplies” provided lawfully. The breach of this certification to Medicaid when claims are later submitted in violation of anti-kickback laws therefore provides another ground for concluding that such claims are false under an implied certification theory.
‡ ‡ ^
The Government Entities have sufficiently pled that the claims allegedly submitted to Medicaid are “false” within the meaning of the FCA and the New York FCA. Defendants’ motion to dismiss the causes of action related to Medicaid claims submitted prior to the 2010 amendments to the Anti-Kickback Statute will be denied.
c. The Government’s Common Law Unjust Enrichment Claim
Novartis’s argument for dismissal of the Government’s common law unjust enrichment claim is premised on this Court’s dismissal of the Government’s anti-kickback claims. (Def. MTD-U.S. Br. (Dkt. No. 80) at 24-25) Because this Court has rejected Novartis’s arguments concerning the Government’s anti-kickback claims, Novartis’s motion to dismiss the Government’s unjust enrichment claim will be denied.
d. New York’s State Law Claims Related to Kickbacks
1. Claims for Violations of Social Services Law § 145-b and Executive Law §§ 63(12) and 63-c, and for Unjust Enrichment
Novartis argues that “Mounts three through six of the [New York] Complaint should be dismissed because they do not sufficiently allege that [Novartis] engaged in and benefitted from a fraudulent action.” (Def. MTD-N.Y. Br. (Dkt. No. 82) at 20-21) Those counts allege violations of New York’s Social Services Law § 145-b and Executive Law §§ 63(12) and 63-c and include a claim for unjust enrichment. (N.Y. Cmplt. (Dkt. No. 61) ¶¶ 154-67) Novartis’s argument for dismissal of these claims is premised on this Court’s dismissal of the Government’s anti-kickback claims. (Def. MTD-N.Y. Br. (Dkt. No. 82) at 20) Having found Novartis’s arguments regarding the sufficiency of the pleading of the underlying kickback scheme to be without merit, its motion to dismiss these claims on this grounds will be denied.
Novartis argues that to the extent New York’s claims under the New York FCA are based on claims submitted prior to the April 9, 2007 enactment of the New York FCA, they must be dismissed because recovery for such claims would violate the Ex Post Facto clause of the United States Constitution. (Def. MTD-N.Y. Br. (Dkt. No. 82) at 21-23)
Under the Ex Post Facto Clause, the government may not “enact a law that punishes an act that was innocent prior to the enactment....” Hobbs v. County of Westchester,
“To determine whether the Clause applies, the court must determine whether (1) the law is retrospective and applies to conduct that occurred before its enactment;, and (2) the law disadvantages affected parties.” Id. (citing United States v. Kilkenny,
ascertain whether the legislature meant the statute to establish “civil” proceedings. If the intention of the legislature was to impose punishment, that ends the inquiry. If, however, the intention was to enact a regulatory scheme that is civil and nonpunitive, [the court] must further examine whether the statutory scheme is so punitive either in purpose or effect as to negate the State’s intention to deem it “civil.” Because we ordinarily defer to the legislature’s stated intent, only the clearest proof will suffice to override legislative intent and transform what has been denominated a civil remedy into a criminal penalty.
Id. (quoting Smith v. Doe,
The inquiry therefore begins with an analysis of whether the New York FCA applies retroactively. In enacting the New York FCA, the New York legislature provided that “section thirty-nine of this act [which amended the New York Finance Law to add the New York FCA] shall apply to claims filed or presented prior to, on or after April 1, 2007.” New York Public Health Care Reform Act, 2007 Sess. Law News of N.Y. Ch. 58, §§ 39, 93(5) (S.2108-C) (McKinney’s) (emphasis added). Such language expressly provides for retroactive application of the Act. See Kuhali v. Reno,
Having concluded that the New York FCA has retroactive application, the next step of the analysis is easily disposed of: Novartis would be disadvantaged by retroactive application of the statute here because it will be exposed to liability for conduct that occurred prior to April 1, 2007. This Court therefore turns to an analysis of whether application of the New York FCA to pre-April .1, 2007 claims would violate the Ex Post Facto Clause.
In conducting an Ex Post Facto Clause analysis, this Court must determine whether the legislature intended the New York FCA “to establish ‘civil’ proceedings” and — if so — whether the Act is “so punitive either in purpose or effect as to negate the State’s intention to deem it ‘civil.’ ” Smith,
In People ex rel. Schneiderman v. Sprint Nextel Corp.,
While this Court has considered the state court opinions, it must, of course, undertake its own analysis of this constitutional question. See Warburton v. Underwood,
This Court agrees that the New York legislature intended the New York FCA to be civil in nature. The Act states that “any person who[ ] [violates its provisions] ... shall be liable to the state or a local government, as applicable, for a civil pen-alty_” N.Y. State Fin. Law § 189(1) (emphasis added). The Act further states that “[a] person who violates this section shall also be liable for the costs, including attorneys’ fees, of a civil action brought to recover any such penalty or damages.” Id. § 189(3) (emphasis added). Accordingly, “[t]he express language used indicates the legislature’s preference for a civil label.” Schneiderman,
Novartis argues, however, that the statutory scheme is “so punitive either in purpose or effect as to negate the State’s intention to deem it ‘civil.’ ” Smith,
In Grupp, however, the New York Court of Appeals was not addressing an Ex Post Facto challenge. Rather, the court was considering “whether plaintiffs’ claims on behalf of the State of New York, pursuant to the New York False Claims Act[,] ... [were] federally preempted by the Airline Deregulation Act of 1978 ... and the Federal Aviation Administration Authorization Act.” Grupp,
“[W]hether a sanction intended as regulatory or nonpunitive is ‘so punitive in fact’ as to violate the ex post facto prohibition is' a highly context specific matter.” Doe v. Pataki,
In the context of the federal FCA— which “New York courts rely on ... when interpreting the NYFCA,” New York Soc.,
The Supreme Court has identified seven factors “traditionally applied to determine whether a[ ] [statute] is penal or regulatory in character.” Kennedy v. Mendoza-Martinez,
[w]hether the sanction involves an affirmative disability or restraint, whether it has historically been regarded as a punishment, whether it comes into play only on a finding of scienter, whether its operation will promote the traditional aims of punishment — retribution and deterrence, whether the behavior to which it applies is already a crime, whether an alternative purpose to which it may rationally be connected is assignable for it, and whether it appears excessive in relation to the alternative purpose assigned ....
Id. at 168-69,
Here, the first factor — “[wjhether the sanction involves an affirmative disability or restraint,” Kennedy,
Under the second Kennedy factor, the Court must consider whether the New York FCA’s penalties have “historically been regarded as a punishment.” Kennedy,
The third factor — whether the Act comes into play only on a finding of scien-ter — also weighs against a finding that the New York FCA is punitive. The New York FCA provides that a person is liable if he or she “knowingly presents, or causes to be presented a false or fraudulent claim for payment or approval,” or “knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim.” N.Y. State Fin. Law § 189(l)(a)-(b). The New York FCA defines “knowingly” as “meaning] that a person, with respect to information: (i) has actual knowledge of the information; (ii) acts in deliberate ignorance of the truth or falsity of the information; or (iii) acts in reckless disregard of the truth or falsity of the information.” Id. § 188(3) (emphasis added). The New York FCA, therefore, “can be violated upon either a finding of scienter (‘knowingly’) or recklessness. Because the current act can be violated by a lower mens rea than knowingly, this factor does not weigh in favor of finding that the effect of the act is to punish.” See Sanders,
As to the fourth factor — whether the operation of the statute will promote the traditional aims of punishment, retribution and deterrence — the enhanced penalties of the New York FCA, which include treble and consequential damages, appear to serve these purposes, as the Grupp court acknowledged. See Grupp,
In discussing the federal FCA, however — which also provides for treble damages — the United States Supreme Court has noted that a treble damages remedy has both punitive and compensatory components. In Cook Cnty., Ill. v. U.S. ex rel. Chandler,
There is no question that some liability beyond the amount of the fraud is usually necessary to compensate the Government completely for the costs, delays, and inconveniences occasioned by fraudulent claims. The most obvious indication that the treble damages ceiling has a remedial place under this statute is its qui tarn feature with its possibility of diverting as much as 30 percent of theGovernment’s recovery to a private relator who began the action. In qui tam cases the rough difference between double and triple damages may well serve not to punish, but to quicken the self-interest of some private plaintiff who can spot violations and start litigating to compensate the Government, while benefiting himself as well. The treble feature thus leaves the remaining double damages to provide elements of make-whole recovery beyond mere recoupment of the fraud.... [In addition,] [t]he FCA has no separate provision for prejudgment interest, which is usually thought essential to compensation, and might well be substantial given the FCA’s long statute of limitations. Nor does the FCA expressly provide for the consequential damages that typically come with recovery for fraud.
Id. at 130-31,
Accordingly, although the New York “FCA does have deterrent effects, ... those effects are not dispositive in determining whether [the] statute’s penalties serve both civil and criminal goals.” Bergman,
The fifth Kennedy factor is whether the behavior to which the New York FCA applies is already a crime. The New York anti-kickback statute makes the type of conduct alleged here punishable as a crime. See N.Y. Soc. Serv. Law § 366 — d(3) (“Any medical assistance provider who violates the provisions of this section is guilty of a misdemeanor.”). While this factor thus weighs in favor of finding that the New York FCA is punitive, U.S. Supreme Court decisions indicate that this factor should be given little weight. See United States v. One Assortment of 89 Firearms,
The sixth factor asks whether the New York FCA’s penalties may be rationally connected to an alternative, non-punitive purpose. As the Supreme Court observed in Chandler, treble damages — particularly in the qui tarn contexts — may serve non-punitive purposes such as compensating the “private relator who began the action” while still allowing the Government to be made whole, and “quickenftng] the self-interest of some private plaintiff who can spot violations and start litigating,”
Consideration of the seventh factor— whether the FCA’s penalties appear excessive in relation to the alternative purpose assigned — does not yield a clear answer. As the Chandler court noted, in the qui tam context, a treble damage remedy both permits governments to handsomely compensate the relator — thus incentivizing others to bring lawsuits disclosing fraud in government programs — and provides a mechanism to make the government whole.
Analysis of the Kennedy factors — while providing some support for the notion that the New York FCA is punitive — does not meet the U.S. Supreme Court standard for overriding a legislature’s stated intent. The Supreme Court has stated that “only the ‘clearest proof will suffice’ ” to “transform what has been denominated a civil remedy into a criminal penalty.” Smith,
3. Executive Law § 63(12) and Social Services Law § 145-b Claims Related to Conduct Prior to August 2010 Are Time-Barred
Novartis argues that New York’s claims under Social Services Law § 145-b and Executive Law § 63(12) must be dismissed to the extent they relate to violations that occurred prior to August 2010, because such claims are barred by the applicable statute of limitations. (Def. MTD-N.Y. Br. (Dkt. No. 82) at 23) Neither statute sets forth a limitations period, but Novartis argues (id.) that claims under these
The New York Court of Appeals has held that “CPLR 214[ (2) ] is ... applicable to actions for wrongs not recognized in the common or decisional law.” State v. Cortelle Corp.,
A cause of action falls within C.P.L.R. § 213 when “analysis of the challenged causes of action reveals that they seek essentially to redress wrongs previously known to the law, ... before the enactment of the statutes discussed.” Cortelle Corp.,
In explaining the distinction, the New York Court of Appeals has contrasted
“(1) claims which, although provided for in a statute, merely codify or implement an existing common-law liability, which are not governed by CPLR 214(2) but by the Statute of Limitations applicable to their common-law sources; with (2) claims which, although akin to common-law causes, would not exist but for the statute ... in which case CPLR 214(2) applies.”
Gaidon v. Guardian Life Ins. Co. of Am.,
Executive Law § 63(12) provides that
[wjhenever any person shall engage in repeated fraudulent or illegal acts or otherwise demonstrate persistent fraud or illegality in the carrying on, conducting or transaction of business, the attorney general may apply, in the name of the people of the state of New York, to the supreme court of the state of New York, on notice of five days, for an order enjoining the continuance of such business activity or of any fraudulent or illegal acts, directing restitution and damages and, in an appropriate case, cancelling any certificate filed under and by virtue of the provisions of section four hundred forty of the former penal law or section one hundred thirty of the general business law, and the court may award the relief applied for or so much thereof as it may deem proper....
N.Y. Exec. Law § 63(12).
Social Services Law § 145-b makes it
unlawful for any person, firm or corporation knowingly by means of a false statement or representation, or by deliberate concealment of any material fact, or other fraudulent scheme or device, onbehalf of himself or others, to attempt to obtain or to obtain payment from public funds for services or supplies furnished or purportedly furnished pursuant to [the Social Services Law].
N.Y. Social Services Law § 145 — b(l).
“In applying a Statute of Limitations[,] it is basic that one look to the essence of plaintiffs claim and not to the form in which it is pleaded.” Cortelle Corp.,
In Cortelle, the New York Court of Appeals concluded that C.P.L.R. § 213 applied to the Executive Law § 63(12) claim brought in that case. See Cortelle Corp.,
In Cortelle, plaintiff alleged that defendants had induced distressed owners of residences whose mortgages were about to be foreclosed to enter into sale-leaseback agreements by making “representations [that] were willfully false and part of a scheme to obtain the permanent ownership of distressed properties by fraud.” Id. at 85-86, 89,
Here, New York argues that the six-year statute of limitations of C.P.L.R. § 213 applies to its claims under Executive Law § 63(12) and Social Services Law § 145-b, because “claims brought under [Section 62(12) ] are grounded in fraud” and claims under Section 145-b “against a defendant for wrongfully obtaining Medicaid reimbursement ... are actionable under common law doctrines, including fraud.” (See N.Y. Br. (Dkt. No. 89) at 19-21) While it may be true that these statutes “incorporate! ] already existing standards applied to fraudulent behavior al
Here, New York alleges- — in essence— that Novartis violated Executive Law § 63(12) and Social Services Law § 145-b by knowingly bribing doctors to cause claims for reimbursement to be submitted to Medicaid in violation of law. (See N.Y. Cmplt. (Dkt. No. 61) ¶¶ 154-58, 161) Unlike the facts in Cortelle, these allegations do not sound in common law fraud.
Under New York law,
[i]n order to sustain a cause of action for common law fraud, the plaintiff must establish with sufficient particularity that the defendant “(1) made a material false statement; (2) knowing that the statement was false; (3) acting with intent to defraud; that plaintiff (4) reasonably relied on the false representation and (5) suffered damage proximately caused by the defendant’s actions.”
N.B. Garments (PVT), Ltd. v. Kids Int’l Corp., No. 03 Civ. 8041(HB),
Here, the theory of New York’s Complaint is not that Novartis made false statements. Instead, New York contends that Novartis bribed doctors to cause claims to be submitted to Medicaid that were not eligible for reimbursement. Assuming arguendo that such conduct provides the basis for a claim under Executive Law § 63(12) .or Social Services Law § 145-b, such a claim does not sound in common law fraud. See People, ex rel. Spitzer v. Pharmacia Corp.,
New York argues, however, that “[c]laims brought pursuant to N.Y. Soc. Serv. Law § 145-b against a defendant for wrongfully obtained Medicaid reimbursement also are “actionable under [other] common law doctrines, including ... unjust enrichment! ] and payment by mistake of fact.” (See NY. Br. (Dkt. No. 89) at 20) These argument are unavailing. To the extent that New York argues that its claims sound in unjust enrichment, “New York courts have held that [unjust enrichment] claims are governed by ... a three-year statute of limitations when monetary relief is sought.” Grynberg v. Eni S.p.A., No. 06 Civ. 6495(RLC),
As to payment by mistake of fact, the “essence” of the action here is not equitable recovery of amounts that New York paid to Novartis by mistake. Cf. Island Fed. Credit Union v. Smith,
Accordingly, the three-year statute of limitations under C.P.L.R. § 214(2) applies to New York’s Executive Law § 63(12) and Social Services Law § 145-b claims. Defendants’ motion to dismiss these claims is granted to the extent that these claims are premised on conduct that occurred pri- or to August 26, 2010.
Novartis has moved to dismiss the off-label promotion claims alleged in Relator’s Third Amended Complaint. Novartis argues, inter alia, that Relator has not pled these false claims with the particularity required by Fed.R.Civ.P. 9(b). (Def. MTD-Relator Br. (Dkt. No. 99) at 19-22)
As discussed above, in order to sufficiently plead a violation of the FCA, Relator is required to allege false claims with sufficient particularity. See New York Soc.,
In response to Novartis’s argument that his off-label promotion claims should be dismissed for failing to plead the alleged false claims with sufficient particularity, Relator relies on Grubbs and similar authority from outside the Second Circuit. (Relator Br. (Dkt. No. 105) at 23-24) Given that (1) this Court has found that Grubbs is not persuasive in light of contrary authority from courts in this Circuit, and (2) Relator has not pled the false claims that were submitted in connection with the alleged off-label promotion scheme with sufficient particularity, Relator’s off-label promotion claims under the federal FCA will be dismissed.
V. RELATOR’S STATE LAW CLAIMS
A. Off-Label Promotion Claims
Under 28 U.S.C. § 1367(c), a district court may decline to exercise supplemental jurisdiction if it has dismissed all claims over which it has original jurisdiction. See Schaefer v. Town of Victor,
B. Kickback Claims
The parties have not addressed the effect of the United States’ intervention on Relator’s state law claims related to the kickback allegations. Novartis contends that the United States’ intervention on the federal FCA kickback claim supersedes all claims related to the kickback scheme. {See Def. MTD-Relator Br. (Dkt. No. 99) at 7 (“Relator may proceed only with allegations relating to off-label promotion of Valturna.”)) Relator argues that Novartis’s argument “pertains only to the federal kickback allegations,” however. (Relator Br. (Dkt. No. 105) at 6 (emphasis added)) The parties have not briefed this issue. Accordingly, Defendant’s motion to dismiss Relator’s state law claims arising out of the alleged kickback scheme is denied without prejudice.
VI.RELATOR’S REQUEST FOR LEAVE TO AMEND
Relator requests that — should the Court dismiss any of his claims — he be granted leave to amend the TAC. (Relator Br. (Dkt. No. 105) at 25 n. 17) This application is denied. Relator has already filed four complaints in this action. Moreover, Rela
CONCLUSION
For the reasons set forth above, Novartis’s motion to dismiss the United States’ Amended Complaint is denied.
Novartis’s motion to dismiss New York’s Complaint is granted as to New York’s claims under Social Services Law § 145-b and Executive Law § 63(12), to the extent that they relate to conduct occurring prior to August 26, 2010. In all other respects, Novartis’s motion to dismiss New York’s Complaint is denied.
Novartis’s motion to dismiss Relator’s (1) federal FCA kickback claims in the Third Amended Complaint is denied as moot; (2) state law kickback claims is denied without prejudice; (3) federal off-label promotion claim under the FCA is granted with prejudice; and (4) state law off-label promotion claim is granted.
The Clerk of the Court is directed to terminate the motions (Dkt. Nos. 79, 81, 98).
SO ORDERED.
Notes
. Bilotta is a former Novartis sales representative. (See Relator’s Third Am. Cmplt. ("TAC”) (Dkt. No. 50) ¶ 9; Relator Br. (Dkt. No. 105) at 1)
. The Court’s factual statement is drawn from the Relator's Third Amended Complaint (Dkt. No. 50), the Government's Amended Complaint-in-Intervention (Dkt. No. 62), and New York's Complaint-in-Intervention (Dkt. No. 61). The facts alleged in these pleadings are presumed true for purposes of resolving Defendant’s motion to dismiss. See Kassner v. 2nd Ave. Delicatessen, Inc.,
. A 2010 settlement between Novartis, the Department of Justice, and several states released claims relating to Diovan, Tekturna, and Exforge through December 31, 2009. (U.S. Am. Cmplt. (Dkt. No. 62) ¶¶ 63, 172; N.Y. Cmplt. (Dkt. No. 61) ¶¶ 54, 133) Accordingly, the only claims related to those drugs here are those that arise from conduct that occurred after December 31, 2009. (See U.S. Am. Cmplt. (Dkt. No. 62) ¶ 173; N.Y. Cmplt. (Dkt. No. 61) ¶ 134)
. Novartis argues that the Government’s intervention in this action warrants dismissal of all of Relators' kickback claims, both federal and state. (See Def. MTD-Relator Br. (Dkt. No. 99) at 6-7; Def. MTD-Relator Reply Br. (Dkt. No. 102) at 2-3 ("NPC’s present motion ... relates to whether the Relator has standing to maintain, separate from the Government, any kickback claims alleged in his Complaint.”)) Relator concedes that — with the filing of the Government’s Complaint-in-Intervention — .the Government’s “federal kickback claims [became] ... the only opera-five [federal kickback] claims.” (Relator Br. (Dkt. No. 105) at 7) This Court concludes' — for the reasons discussed below — that Relator’s kickback claims under the federal FCA have been superseded by the Government’s Amended Complaint. The parties have not briefed the issue of whether the Government’s Complaint-m-Intervention has any effect on Relator's state law kickback claims. Accordingly, Novartis's motion to dismiss Relator’s state law kickback claims will be denied without prejudice.
. This determination is consistent with the "well established [principle] that an amended complaint ordinarily supersedes the original and renders it of no legal effect.” Int’l Controls Corp. v. Vesco,
. While the federal Anti-Kickback Statute states that violations must be committed “knowingly and willfully/' see 42 U.S.C. § 1320a-7b(b), courts have observed that “[interpreting the mens rea requirement of the Anti-Kickback Statute has yielded different results.” U.S. ex rel. Bartlett v. Ashcroft, No. Civ. A. 3:04-57,
It is not necessary to decide this issue here, however. As discussed below, both the United States and New York have alleged that Novartis and the doctors involved in the alleged kickback scheme were aware of the anti-kickback laws and nevertheless engaged in conduct violating those laws. Accordingly, the Amended Complaint and the New York Complaint allege that Defendant engaged in activity that would satisfy even the stricter scienter standard.
. The Government Entities identify these doctors by their initials in the pleadings. However, both the United States and New York have provided a list to the Court and to Novartis that identifies the doctors by first and last name. (Aug. 26, 2013 U.S. Ltr.; Aug. 26, 2013 N.Y. Ltr.) Plaintiffs request that the names of the doctors remain under seal pursuant to Lugosch v. Pyramid Co. of Onondaga,
. The Government’s Amended Complaint identifies fifteen doctors who allegedly wrote Novartis prescriptions in exchange for kickbacks. As to two of these doctors (S.D.2 and L.M.), however, the Government has not pled what sham speaker events they attended as "speakers.” (See U.S. Am. Cmplt. (Dkt. No. 62) ¶¶ 151-52, 155-56, 176) Accordingly, this Court has not considered these two doctors in determining the sufficiency of the Government’s Amended Complaint.
Novartis argues that claims relating to prescriptions written by Doctor T.M. should not be considered in evaluating the sufficiency of the Amended Complaint, because claims against Novartis relating to T.M.'s prescription-writing were released in the 2010 settlement agreement. (Def. MTD-U.S. Br. (Dkt. No. 80) at 18 n. 12) The Government responds that "[t]he fact that Dr. T.M. was also identified as a recipient of kickbacks in a case that Novartis previously settled ... is of no consequence here, as the Government’s current claims are based on kickbacks to Dr. T.M. that resulted in tainted claims for drugs that were not at issue in the prior settlement, or for time periods that were not covered by that settlement.” (U.S. Br. (Dkt. No. 90) at 13 n. 4) This Court need not resolve this issue. As described below, even if claims pertaining to Dr. T.M. are disregarded, the Amended Complaint pleads sufficient representative examples with requisite particularity to survive a motion to dismiss.
. New York identifies one additional doctor— E.C. — who increased the number of prescriptions he wrote for Novartis drugs during the period he was receiving honoraria from Novartis. (See N.Y. Cmplt. (Dkt. No. 61) ¶¶ 117— 21) The Amended Complaint does not plead, however, that the events E.C. spoke at were sham events. (See id.) Accordingly, this Court has not relied on E.C. in evaluating the sufficiency of the New York Complaint.
. Novartis argues that the false claims identified in the Government's Amended Complaint are “no more informative than the chart of prescribing data included in the Initial Complaint." (Def. MTD-U.S. Br. (Dkt. No. 80) at 17-18) To the contrary, in its initial complaint, the United States did not identify particular false claims or offer any details about individual claims. Instead, the Government merely summarized the number of al
. Novartis’s reliance on U.S. ex rel. Sasaki v. New York Univ. Med. Ctr., No. 05 Civ. 6163(LMM)(HBP),
. Novartis cites U.S. ex rel. Thomas v. Bailey, No. 4:06CV00465 (JLH),
Contrary to Novartis’s characterization, the court in Thomas did not merely ''dismiss [] the allegation of a national corporate policy of kickbacks because the complaint only offered five anecdotal examples.” (Def. MTD-U.S. Br. (Dkt. No. 80) at 19) Instead, the Thomas court found that the complaint was not pled with sufficient particularity because it did not allege the "who, what, where, when, and how” of th[e] alleged nationwide corporate policy. The second amended complaint d[id] not identify who at [the defendant company] initiated, discussed, or adopted this alleged corporate policy; what the corporate policy was; where the corporate policy was adopted or in what documents it was reflected; when the corporate policy came into being or under what circumstances; or how the corporate policy was adopted or proposed to be communicated to salesmen and implemented throughout the country. Instead, the second amended complaint allege[d] five episodes, anecdotal in nature, based on hearsay — in some instances from other salesmen who competed against Blackstone — reporting that Blackstone or Bailey offered kickbacks or hired a family member or friend of a physician. One of these anecdotes involved a physician in Jackson, Mississippi; one involved physicians in Springfield, Missouri; and three involved physicians in different cities in Arkansas. The second amended complaint specifie[d] allegedly false claims with respect to only one physician other than [a physician as to whom the court determined the alleged false claims were sufficiently plead].
Thomas,
Here, as previously discussed, the Government Entities have described in significant detail how Novartis encouraged sham speaker programs, how it overlooked misconduct by sales representatives, how doctors were induced by the sham speaker programs to write prescriptions for Novartis drugs, and how the false claims specifically identified in the pleadings are connected to doctors who received remuneration in connection with the sham speaker events. In short, the pleadings in the instant cases contain substantially more particularity than the complaint in Thomas. Likewise, in Dhawan,
In Pox Rx,
. Courts in this District have noted that the amendment does not provide for retroactive application. See New York Soc.,
. Although the United States has not attached the New York "Certification Statement for Provider Utilizing Electronic Building” to its Amended Complaint, the form is incorporated by reference. (See U.S. Am. Cmplt. (Dkt. No. 62) ¶ 44 ("In New York, for example, physicians and pharmacies must periodically sign a “Certification Statement for Provider Billing Medicaid...."”)) The Court will therefore take judicial notice of the certification statement in deciding the motion to dismiss the Government’s Amended Complaint. See Bldg. Indus. Elec. Contractors Ass’n v. City of New York,
. Novartis's reliance on U.S. ex rel. Romano v. New York-Presbyterian Hosp., No. 00 Civ. 8792(LLS),
. The Drake court concluded — in the context of the federal FCA — that "[sjcienter is an element of an FCA violation.” Drake,
. This Court acknowledges that the New York FCA provides for consequential damages, and that pre-judgment interest may be an available remedy under New York law. Novartis has not demonstrated, however, that these remedies are "so punitive” as to trigger application of the Ex Post Facto Clause.
. New York has not challenged Novartis’s contention that the relevant date for determining the expiration of the statute of limitations is the date that New York filed its Complaint-in-Intervention — August 26, 2013 (Dkt. No. 61). (See N.Y. Br. (Dkt. No. 89) 19-21)