Third Circuit Affirms Dismissal of FCA Suit Against Genentech

On May 1, the U.S. Court of Appeals for the Third Circuit affirmed the dismissal of Petratos v. Genentech, 855 F.3d 481 (3d Cir. 2017) (Petratos), and joined several other circuits in recognizing the heightened False Claims Act (FCA) materiality standard set forth in last year's landmark Supreme Court case, Universal Health Services v. Escobar, 136 S. Ct. 1989, 195 L. Ed. 2d 348 (2016) (Escobar). On appeal from the U.S. District Court for the District of New Jersey, the Third Circuit nixed an FCA suit accusing Genentech, Inc. of defrauding Medicare by concealing side effects of its multibillion dollar cancer drug, Avastin, because the relator-whistleblower did not show that Genentech's alleged failure to report safety information was relevant to government reimbursement for the medication.

The relator-whistleblower, Gerasimos Petratos, was the former head of health care data analytics at Genentech. After leaving the company in 2011, Petratos filed a qui tam action alleging that Genentech concealed information about Avastin's health risks. Specifically, Petratos alleged that Genentech ignored and suppressed data that would have shown that Avastin's side effects were more common and severe than reported, that the data would have required the company to file adverse-event reports with the FDA, and that the data could have resulted in changes to Avastin's label.

Petratos claimed that Genentech's failure to disclose the adverse data caused doctors to incorrectly certify Avastin as “reasonable and necessary” for certain at-risk Medicare patients. The Medicare statute provides, in relevant part, that “no payment may be made” for items and services that “are not reasonable and necessary for the diagnosis and treatment of illness or injury,” 42 U.S.C. Section 1395y(a)(1)(A). As a result, according to Petratos, Genentech submitted false claims for payment to the Medicare program because the doses of Avastin prescribed were not “reasonable and necessary” and therefore failed to comply with a statutory condition for payment.