A federal appeals panel has reaffirmed its earlier decision a federal judge wrongly dismissed a Medicare/Medicaid fraud lawsuit against drug-maker Valeant, saying a lawyer who has represented a generic drugmaker did enough original work to "stitch together" a potentially viable fraud claim to allow his lawsuit on behalf of federal and state governments to move forward.
The Jan. 5 opinion from the U.S. Ninth Circuit Court of Appeals amended an Aug. 3 ruling, further explaining the reasons for allowing plaintiff Zachary Silbersher to press his allegations Valeant overcharged for Apriso, which is used to treat inflammatory bowel symptoms. The panel also denied requests for reconsidering and rehearing the case before a full Ninth Circuit panel.
Ninth Circuit Judge Gabriel Sanchez wrote the opinion. Circuit Judge Mary Schroeder concurred, along with John Antoon, a U.S. district judge for the Middle District of Florida, sitting by designation.
Court records show a one-month supply of Apriso retailed for $600 and Valeant earned more than $200 million per year through sales. Silbersher alleged Medicare and Medicaid paid nearly $250 million for Apriso alone from 2011 through 2016, and said that sum could have dropped by 80 percent if generic alternatives were on the market.
According to court records, Silbersher sued Valeant and Dr. Falk Pharma, alleging Valeant falsely obtained two sets of patents, which it allegedly asserted to stifle competition from makers of generic drugs. Central to the argument is when and how the company new the drug’s main ingredient would be effective even when taken without food.
Silbersher, a lawyer who has represented GeneriCo, a maker of generic drugs, also alleged the companies artificially inflated the price dozens of states and the federal government paid while falsely issuing certifications the Apriso price was reasonable. As a qui tam litigant, he stands to receive a significant share of the financial penalties awarded to government plaintiffs.
U.S. District Judge James Donato, of the Northern District of California, dismissed Silbersher’s complaint under the public disclosure bar to the False Claims Act. That clause prohibits a private litigant from pressing a lawsuit relying on publicly disclosed facts. According to Sanchez, the panel analyzed the situation in light of 2010 Congressional amendments to that law — which dates to President Lincoln attempting to defeat fraud on the part of Civil War defense contractors in the 1860s — specifically addressing public disclosure criteria.
“The promise of bounty has sometimes incentivized relators to bring dubious claims,” Sanchez wrote, detailing the history behind the initial public disclosure bar enacted in 1986 and the 2010 amendment. Under the present law, False Claim Act litigation based on publicly disclosed information can come only from the U.S. Attorney General or someone who is the “original source of the information.”
Sanchez said the court “recently wrestled with certain parts of the FCA in another case brought by” Silbersher against Allergan, during which it concluded a three-part public disclosure bar test “remains good law after the 2010 amendments.”
He noted Judge Donato’s dismissal rested on a finding Silbersher’s allegations were all disclosed during a review process that ultimately invalidated Valeant’s initial patent. The question on appeal was whether that disclosure met the False Claim Act’s definition of public and, if so, if the information was substantially the same as in Silbersher’s lawsuit.
The panel rejected Valeant’s argument the government was a party to the patent review because the Patent and Trademark Office director determines if the review proceeds and can participate in an appeal of a Patent Trial and Appeal Board decision. But that does not make the office a litigant, Sanchez wrote, nor is the patent review process a federal hearing but an adversarial proceeding between Valeant and GeneriCo.
Valeant also pointed to a news article and published studies as public disclosures. Silbersher didn’t “meaningfully challenge” that argument, Sanchez wrote, but it did not resolve that contention because it found the contest information distinct from the claims in Silbersher’s lawsuit.
“In the previous version of the Act, the public disclosure bar applied when a relator’s allegations were ‘based upon’ a prior public disclosure,” Sanchez wrote. “Ordinarily, Congress’s decision to change ‘based upon’ to ‘substantially the same as’ would indicate the two phrases have different meanings. Here, however, the change aligns with our caselaw interpreting the previous version of the Act.”
Sanchez the parties agreed the record shows no public disclosure claiming fraud on Valeant’s part. The panel considered whether the disclosures instead enabled an inference of fraud, determining that was not the case. While “scattered disclosures when viewed together possibly reveal some of these true and misrepresented facts,” Sanchez wrote, the critical distinction is Silbersher’s allegations that “Falk and Valeant took conflicting positions” in different patent prosecutions.
“The scattered qualifying public disclosures may each contain a piece of the puzzle, but when pieced together, they fail to present the full picture of fraud,” Sanchez wrote. “In his qui tam action, Silbersher filled the gaps by stitching together the material elements of the allegedly fraudulent scheme.”
The panel remanded the complaint for further proceedings to determine if Silbersher’s allegations are adequately particular to support his fraud allegations.
Silbersher is represented by Sparacino PLLC, of Washington, D.C.; Herrera Kennedy, of Burbank and Oakland; and Burns Charest of Washington, D.C., and Dallas.
The government plaintiffs are represented by Michelle Lo, an assistant U.S. Attorney in San Francisco.
Valeant is represented by Hueston Hennigan, of Los Angeles.
A spokesperson for Bausch Health, which acquired Valeant in 2018, did not respond to a request from the Northern California Record for comment on the latest decision.
Falk is represented by Womble Bond Dickinson, of San Francisco and Wilmington, Delaware.