The billion-dollar-plus verdict in United States ex rel. Penelow v. Janssen Products, LP, 2025 WL 937504 (D.N.J. March 28, 2025), epitomizes everything that is wrong about the False Claims Act – and that’s just about everything.  A private plaintiff (“relator”), purporting to act as a self-appointed agent of the United States government, claimed that the defendant engaged in “off-label promotion” of a drug in violation of the FDCA.  There is no indication that any patient was harmed or that the drug was ineffective for the off-label use at issue.

Yet the relator, claiming to wield unconstitutionally diverted federal enforcement power, was allowed to recover an identical amount for each of almost 160,000 supposedly “false” claims.  That the off-label prescriptions provided the recipients with “effective treatment for patients with HIV,” was simply ignored as “an alleged benefit [that] is intangible and impossible to calculate.”  Penelow, 2025 WL 937504, at *9.  But “the Government [not the patients] did not receive any tangible or measurable benefit,” so the relator was allowed to recover “the full amount” that the government paid for all of the nearly 160,000 claims.  Id.  If that is the law, then the law is an ass – effective treatment is precisely what government health programs are supposed to provide.

That already inflated “damages” number was then trebled, and on top of that a uniform penalty of $8000 each was imposed on every claim that “those physicians and Plan Sponsors ultimately made to healthcare programs.”  Id. at *15-16.  That led to an astronomical $1.2 billion award that, in itself, seems unconstitutional as an excessive fine.

We’ve already discussed in other posts the constitutional issues involving diversion of executive branch enforcement power to private FCA relators and the excessive nature of statutory penalties rotely multiplied over huge numbers of ostensibly separate claims.  This post discusses that part of the government’s brief “as intervenor and amicus in support of neither party” that concedes that the trial court made a mistake when it held that any submission of a claim involving an off-label use qualified as a “false” claim under the FCA.  The government admits that this aspect of the opinion misstated the law:

Most notably, the district court stated that relators had “introduced evidence that demonstrated [defendant’s] marketing of [the drugs at issue] were [off-label], and that this [off-label] marketing violated an express condition of payment for reimbursement under Medicare, Medicaid, or ADAP [AIDS Drug Assistance Program].”  “Taken together” with other evidence, the court determined, this evidence would have allowed “a reasonable jury” to find “that claims for [the drugs] submitted to Medicare, Medicaid, or ADAP were [off-label] and ineligible for reimbursement.”

DoJ br. at 36 (citations omitted).

We agree 100% with the government’s  smack-down of that language.  The Medicare statute makes it crystal clear that, for purposes of government programs, reimbursability exists either for a labeled drug indication or alternatively an off-label use listed as accepted in one of several medical compendia.  “The term ‘medically accepted indication’ means any use for a covered outpatient drug which is approved under the [FDCA] or the use of which is supported by one or more citations included or approved for inclusion in any of the compendia described in subsection (g)(1)(B)(i).”  42 U.S.C. §1396r-8(k)(6).  Want more authority?  Bexis has it compiled.  See James M. Beck, “Off-Label Use in The Twenty-First Century: Most Myths & Misconceptions Mitigated,” 54 UIC J. Marshall L. Rev. 1, 32-35 & nn. 151-63 (2021).  The law hasn’t changed since then.

This flat-out error similarly manifested itself in the jury instructions that led to the initial verdict (then trebled and assessed penalties).  As the DoJ brief puts it:

The district court also erred when it instructed the jury that federal healthcare programs “will cover and pay for a drug that is used for a ‘medically accepted indication,’ which means any FDA-approved use on the label that is supported by one or more citations in certain drug compendia.”  An indication for the use of a drug is medically accepted if the drug is FDA-approved for that indication or if the use of that drug for that indication is supported by drug compendia. . . .  [H]ad [the district court] included the words “or one” after “FDA-approved use on the label,” its instruction would have been correct.  But the omission of those words suggested incorrectly that FDA approval of a drug for a particular indication is necessary for the drug to be medically accepted for that indication.

DoJ br. at 38-39 (citations omitted) (emphasis added).  This discussion further demonstrates why it’s a terrible idea to delegate executive enforcement authority to private parties with dollar signs in their eyes who don’t give a damn about federal law being misapplied if it helps them recover.

Of potentially greater long-term impact is the government’s nuanced view of the relationship between off-label promotion and the FCA.  “[T]he FDCA’s misbranding provisions govern how drugs may be marketed; they do not govern whether federal healthcare programs will reimburse for the drugs, as prescribed for particular patients.”  DoJ br. at 36.  The test is not off-label use, but whether the prescription itself is “reasonable and necessary.”  Id. Thus, the government will reimburse off-label use when it meets that standard, but it will not reimburse even on-label use that does not.

In other words, compliance with the FDCA is not a condition of Medicare reimbursement. . . .  The district court was therefore incorrect to the extent its post-trial opinion suggested that off-label marketing by [defendant], in and of itself, “violated an express condition of payment for reimbursement under Medicare, Medicaid, or ADAP,”  A finding that a company has marketed its drugs for off-label uses is not, without more, sufficient to find that subsequent claims for the marketed drugs are false within the meaning of the False Claims Act.

DoJ br. at 37.  Given that the same judicial error infected both the jury instruction and the court’s later opinion, the error plainly was not an accident, but rather reflected judicial misunderstanding of both Medicare standards and FCA liability.

But we think that there is more to it than that.  The standard that DoJ cites for reimbursement of off-label use – whether “use of that drug is . . . reasonable and necessary for the patient,” id.at 36 – is patient and physician specific.  Given an individualized standard for whether off-label use (promoted or otherwise) is reimbursable, then it is not possible to assess damages or statutory penalties in gross.  In Penelow there was no individualized assessment of either liability or damages.  All the nearly 160,000 supposed mass claims were analyzed in one fell swoop.  The discussion of whether “false” claims existed in Penelow totally ignored whether any prescription, on- or off-label, was “reasonable and necessary for the patient.”  While not a single prescribing physician testified, the district court ruled that the relators had provided evidence sufficient to prove liability anyway.

[Defendant] contends that . . . the record is insufficient to demonstrate causation because Relators did not present any “doctor-[specific] or patient-specific evidence to demonstrate the alleged off-label marketing effect on prescribing in any individual doctor’s office.”  [Defendant] raised this same argument at summary judgment and the Court squarely rejected [that] contention.

Here . . . the Court finds that Relators produced sufficient evidence from which the jury could reasonably adduce that [defendant’s] OL [off-label] marketing was a substantial factor in causing physicians to submit claims for reimbursement to Government payors.

2025 WL 937504, at *4 (citations omitted).

As the government now concedes, in “squarely rejecting” the defendant’s argument that some (probably the great majority) of the off-label use was considered proper medical care by the treating physicians, the trial court was just as squarely wrong.  The DoJ informed the Third Circuit:

• FDCA violations do not make claims “false” under the FCA by themselves.  While the FDCA governs how drugs may be marketed; federal healthcare programs decide what’s reimbursable.  FDCA compliance is not a condition of payment.
• FDA drug (or device) approval is not a prerequisite to reimbursement.  Medicare Part D covers drugs used for “medically accepted” indications, which include both FDA-approved uses and compendia-supported uses.  What matters is for the treatment to be reasonable and necessary for the individual patient.  42 U.S.C. §§1395w-102(e)(3)(A); 1395y(a)(1)(A).
• Off-label can be reimbursable, and on-label can be non-reimbursable, depending on whether the particular use is reasonable and necessary for a particular patient.
• What is “reasonable and necessary” is an individualized determination made in the first instance by the prescribing physician following accepted standards of medical practice and patient-specific medical circumstances of the individual case.

Thus, the jury’s verdict, and the in gross legal reasoning that allowed it, that some 160.000 claims were “false” with no individualized assessment whatever, is not how the government currently (or probably ever) understands the False Claims Act to operate.  The Medicare Benefit Policy Manual, for one, states:

Determinations as to whether medication is reasonable and necessary for an individual patient should be made on the same basis as all other such determinations (i.e., with the advice of medical consultants and with reference to accepted standards of medical practice and the medical circumstances of the individual case).

Policy Manual §50.4.3, at unnumbered p. 56.

Unfortunately, while it’s not the law, it’s a well-worn plaintiffs’ strategy in drug and device FCA cases to collapse the FDCA into the FCA and proclaim that alleged misbranding or off-label promotion automatically makes every resulting reimbursement claim “false.”  Reimbursements  are not “false” merely because they may have been influenced by off-label promotion.  They are “false” only if the government would not have paid for the treatment as “reasonable and necessary” medical treatment.  The DOJ’s Penelow brief is a clear, official governmental statement that FCA falsity in drug cases turns on the payor’s reimbursement standards, not the FDCA, and that “reasonable and necessary” is an individualized, patient-and-physician-driven determination.  FCA defendants will want to use it to demand claim-by-claim, patient-specific proof and to defeat efforts to convert marketing allegations into blanket FCA liability.

That’s the key takeaway we see from the DoJ brief in Penelow – that in gross calculations that led to the absurdly large award in that case are entirely improper in off-label use-related FCA litigation.  The mindless multiplication of damages and penalties that occurred in cases like Penelow represents an erroneous expansion of liability created by courts that let financially driven FCA private relators run wild with their ill-gotten government enforcement powers.