Genentech & Escobar: Using Materiality to Escape False Claims Liability

In constructively bringing an end to a False Claims Act (“FCA”) whistleblower suit alleging Genentech, Inc. (“Genentech”) of defrauding Medicare by way of concealing substantive health care analytics data involving purported side effects of the company’s cancer drug Avastin, the Third Circuit of Appeals in a recent decision determined that the Plaintiff in this matter had failed to demonstrate that any noncompliance had an impact on government payments. Specifically, the Court applied the prevailing standard in Escobar that an FCA lawsuit must demonstrate that any misrepresentation is “material” to the government’s payment decision. In dismissing this suit and invoking this heightened standard of materiality, the Third Circuit not only reinforces Escobar but places the now clear burden on FCA Plaintiffs to demonstrate that any noncompliance was material to alleged fraudulent payments.

Back in August 2016, we highlighted the widely watched and reported U.S. Supreme Court decision in Universal Health Services, Inc. v. United States ex rel. Escobar (“Escobar”). The case “reaffirmed that the government and realtors via qui tam suits can pursue False Claim Act liability against life science and healthcare companies” while adding “a requirement that such parties must also demonstrate any misrepresentations were “material” on statutory, regulatory, or contractual requirements that make such representations misleading on those goods and services.”