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We do this blog not just to tout good results, slam bad decisions, and relay our likes and dislikes on various subjects, but to provide information that can help drug and device manufacturer defendants get better results in the litigations they face.  We do not presume, except facetiously, that our posts really do move the needle much on how courts decide the issues we tend to highlight in our posts. Courts pay attention to what other courts have done, though, so we like to do our part in passing on good decisions to use and ways to work around bad decisions.  When it comes to yesterday’s decision from the Arkansas Supreme Court in Ortho-McNeil-Janssen Pharms., Inc. v. State, 2014 Ark. 124 (Ark. 2014), slip op., there is not much need for us to publicize the result.  A verdict for $1.2 billion going away will get some attention on its own.  We look at the decision, however, with an eye or two toward what it means for other cases. While the reversal is clearly the right result and spells the end of actions against drug and device companies based on the Arkansas Medicaid Fraud False Claims Act (“MFFCA”), the bases for the decision may be too sui generis (or “sooie” generis) to have as broad of implications as we had hoped.

The case started with “outside law firms and other states’ Attorney General offices” approaching the Arkansas AG about suing the manufacturers of second-generation antipsychotics, which had been the subject of FDA-mandated labeling changes and Dear Doctor Letters about the risk of hyperglycemia and diabetes back in 2003.  Slip. Op at 2-3 & 7.  The letters that were sent out on Risperdal included language discussing how its risk of diabetes compared with the risk of diabetes with conventional psychotics and other atypical antipsychotics, which DDMAC deemed “false and misleading” in a Warning Letter it sent five months later.  Id. at 3-4.  The Warning Letter led to a correction being sent out three months later, which DDMAC accepted as fully addressing the issue.  Id. at 4-7.  Based on this basic fact pattern, the Arkansas AG sued Risperdal’s manufacturer under the theories that:  1) the MFFCA was violated by every Risperdal prescription filled in the State and submitted to Arkansas Medicaid for payment over a 43 month period when the drug’s labeling allegedly failed to comply with FDA’s prescription drug labeling requirements; and 2) the Arkansas Deceptive Trade Practices Act (“DTPA”) was violated by every copy of the first Dear Doctor Letter sent to a healthcare provider in the state.  Id. at 7-8.  Based on the plaintiff verdict at trial, the results of a civil penalties hearing, and the denial of all the expected defense motions, the result was $1,194,370,000 on the first theory ($5000 times 238,874 prescriptions) and $11,422,500 on the second theory ($2500 times 4,569 letters).  Id. at 8.

The appeal challenged both theories, but according to the court’s opinion, did not raise some of the fundamental problems with them addressed in some of our prior posts on this sort of case.  Because the court reversed on the first argument it considered as to each theory, potentially broader issues were not resolved.  For instance, we would certainly question how a link between inadequate labeling, the writing/filling of prescriptions, and the submission of false claims could be presumed.  We would also wonder how a cause of action expressly based on a violation of the FDCA and an FDA regulation could escape preemption and how the mere sending of a letter, even if misleading in the abstract, could create liability without some proof that some relevant readers of the letter were misled by it.  Those questions were not answered in O-M-J.

The question that was answered as to the MFFCA was whether the trial court’s interpretation of it was “erroneous, overbroad, and untenable” in allowing it to be the basis of liability for claims for payment of a prescription drug with labeling allegedly in non-compliance with federal law.  In coming up with a resounding “hell yes” to that question, the court did something we do not think we have ever seen before:  it found the law had been miscodified by the Arkansas Code Revision Committee after it had been passed by the Arkansas General Assembly.  Id. at 13-15.  Essentially, a subsection of the Act the legislature passed that was clearly about statements in connection with (re)certifying hospitals and other healthcare facilities was later broken up into two subsections, with the latter reading “information required pursuant to applicable federal and state law, rules, regulations, and provider agreements” without a mention of certification. The State, represented by outside contingent fee counsel more interested in big bucks than in what Arkansas statutes really meant, sued under this subsection and claimed it could impose broad liability for claims for the cost of prescriptions of drugs with allegedly bad labeling.  Looking past the miscodification (and applying a strict construction in favor of the party to be penalized), the court interpreted the provision of the MFFCA under which the State had sued as only creating liability for false statements made in connection with (re)certification of hospitals and other healthcare facilities. Id. at 15-16.  In other words, this provision did not cover drugs or drug labeling at all.

We sometimes think of the state versions of the (federal) False Claims Act as being the same.  The False Claims Act is sometimes referred to as the Lincoln Law, because it was enacted during the Civil War to deal with contractors gouging the Union when it was busy with more important things.  Over the years, the False Claims Act has been used with regard to a range of claims for payment to the federal Government, not just the Medicare and Medicaid claims we have posted on before.  State versions of the False Claims Act do not all look the same and are not always addressed solely to preventing (and recouping for) Medicaid fraud. We do not know why the MFFCA—at least the part of it that the AG sued under here—was so focused on the part of the Medicaid world relating to certifying healthcare facilities, but it was. So, the main part of the AG’s case was never even conceivably tenable—it should have gone away on motion to dismiss—and $1,194,370,000 of the judgment for the State vanishes.  (With remand of the companion case on $480,000 attorney’s fees and costs, in light of the defendant’s win on appeal, the State may even end up in the hole.)  The result should mean that MFFCA suits against manufacturers are gone – the court did make sure the AG’s office could not do this again − but it is hard to project the highly specific nature of the decision outside of The Natural State. By contrast, the decision in Caldwell has broader implications.

The decision on the DTPA claim also involved a rarity and may not affect similar cases in other states.  The reversal was based solely the finding that the trial court abused its discretion in admitting a single document, the DDMAC Warning letter.  The ASC held that letter was inadmissible hearsay because Arkansas’s version of the public records exception, unlike Fed. R. Evid. 803(8), expressly carves out “factual findings resulting from special investigation of a particular complaint, case, or incident” from the exception to hearsay.  Id. at 19.  Thus, the inquiry under Ark. R. Evid. 803(8), which we think is fairly distinctive, was whether the DDMAC Warning Letter was the result of a “routine investigation” or “special investigation.”  As you would expect, the Warning Letter said it was because of the original Dear Doctor Letter, the AG’s expert (the pliable Laura Plunkett) testified that it was because of the original Dear Doctor Letter, and the close out letter from DDMAC said the Warning Letter was because of the original Dear Doctor Letter.  This was enough for a majority of the panel to conclude this was not sort of routine document that counts as an admissible public record under Arkansas law.  Id. at 24-27.  It is easy to see that just about every DDMAC letter that criticizes Dear Doctor Letters or promotional materials would be inadmissible hearsay under this particular standard.  So the heart of the AG’s case was inadmissible.

As an additional ground for excluding the Warning Letter, the majority of the panel also concluded that it was unduly prejudicial (and admitted in an abuse of discretion).  Id. at 26.  Part of its prejudice was because it was “referred to repeatedly throughout trial” and “was mentioned at least fifteen times” in closings.  In addition, “Reports issued by government agencies, because of their ‘official’ nature, may well carry inordinate weight in the minds of jurors.”  Id. (quoting Boude v. Union Pac. R. Co., 277 P.3d 1221, 1225 (Mont. 2012)).  This analysis, while brief, can certainly apply beyond Arkansas.  It also gives a hint about what may happen next in this case.  The remaining $11,422,500 of the verdict was knocked out, but the DTPA claim (unlike the MFFCA claim) was not dismissed.  Maybe the AG (or rather those outside law firms who started the whole thing) will re-try the case without the key piece of evidence used in the first case.  Then again, maybe the AG will look at the somewhat extraneous comments in the decision about the drug being “highly beneficial,” “a tremendous breakthrough,” and a “miracle drug”—the last is a quote from the State’s expert—as suggesting what the Arkansas Supreme Court might do if it tackles preemption or another unresolved issue on the DTPA claim down the road.