The question every false claims defendant must face is whether to pursue litigation or simply concede and settle.  While many shy away from litigation, opting for an expensive but certain resolution, for Johnson & Johnson and its subsidiary Janssen Pharmaceuticals, Inc., the decision to pursue their day in court has saved J&J over $330 million.

It’s been nearly a decade since the original case was filed, but in Caldwell ex rel State of Louisiana v. Janssen Pharmaceutica, Inc., (No. 2012-C-2447, No. 2012-C-2466), the Louisiana Supreme Court finally struck down a $330 million verdict against the drugmaker, finding the state failed to provide evidence that Janssen attempted to defraud the state’s medical assistance program.

In Caldwell, a split Court  found that even if Janssen engaged in deceptive marketing, its alleged actions did not constitute a violation of the Louisiana Medical Assistance Programs Integrity Law (“MAPIL”), the state’s version of the federal False Claims Act.

In 2003, the FDA required manufacturers of certain antipsychotic drugs to provide specific warnings regarding side effects on their labels and to send a letter to all health care providers (referred to as a “Dear Health Care Provider” letter (herein, a “DHCP Letter”)) informing them of the side effects.  Janssen, manufacturer of the antipsychotic drug Risperdal, sent its DHCP Letter with an additional, unapproved caveat indicating that Risperdal presented a lower risk of side effects than other antipsychotic drugs.  Thereafter, the FDA forced Janssen to send a correction letter stating that any claim that Risperdal was safer than other antipsychotic drug was unsubstantiated.  Though the FDA closed the matter, Louisiana’s Attorney General filed suit against Janssen for violating MAPIL.

It is a violation of MAPIL to make any misrepresentation with regard to a prescription drug.  The definition of “misrepresentation” under MAPIL includes “the knowing failure to truthfully or fully disclose any information required[.]”  The Attorney General claimed that Janssen failed to truthfully disclose the full extent of the side effects in their original DHCP Letter, making each of the (1) 7,604 copies of the DHCP Letter sent and (2) 27,542 marketing calls made prior to the correction letter, separate violations of MAPIL.  Janssen argued that a “misrepresentation” can only be a violation of MAPIL if there was evidence that Janssen made or attempted to make a fraudulent claim of payment against any Louisiana medical assistance program.

The Supreme Court sided with Janssen and, in so doing, declined to endorse the Attorney General’s expansive theory that any deceptive statement made about a drug that might be reimbursed by the state’s medical assistance program constitutes an “attempt” to defraud the state.  Instead, the Court found that MAPIL’s scope was limited to scenarios where a defendant causes a health care provider to knowingly present a claim for payment that is false or misleading.  The Court rejected the notion that MAPIL regulated all communications about medical products, finding that a violation can only occur when a misrepresentation is made on a claim or provider agreement, or in direct communication with an agency administering the medical assistance program.  Specifically, the Court stated:

“Even if the defendants misrepresented the efficacy or safety of their product to Louisiana doctors, there is simply no evidence in this record, and moreover no allegation, that this misrepresentation in fact caused any health care provider or his billing agent to knowingly present a claim for payment that is false, fictitious, untrue or misleading in regard to any material information.”

Ultimately, the ruling should provide some much-needed predictability with regard to the application of MAPIL and many hope it will serve as a model for other states in determining the scope of their own false claims statutes.  The ruling should also provide support to companies considering whether the costs of litigation, monetary and other, are worth the benefit of an early but expensive settlement.

In a related case filed in Arkansas, Arkansas v. Ortho-McNeil-Janssen Pharmaceuticals Inc., CV07-15345, the companies seek to overturn a $1 billion verdict based on similar allegations of violations of the state’s Medicaid fraud law.  The Arkansas Supreme Court has scheduled oral arguments for February 27, 2014.