Two years ago, Cell Therapeutics Inc. doled out $10.6 million to the federal government to resolve allegations it marketed its former leukemia drug Trisenox (arsenic trioxide) for unapproved uses. The company now has a chance to recoup its losses.

A federal court ruled that CTI can proceed with a lawsuit against the company that advised it to seek Medicare reimbursement for off-label uses of Trisenox, which it sold to Cephalon in 2005. The case raises a rare question in pharmaceutical False Claims Act litigation: can the defendant in a whistleblower suit settle with the government and the relator and then seek recovery from a third party for contractual indemnity and independent claims?

The U.S. Court of Appeals for the Ninth Circuit concluded in a Nov. 18 decision that a defendant in CTI's situation could.

It's unclear what impact the case might have on qui tam suits against drug makers. Almost every major pharma company is the subject of government investigations arising out of FCA qui tam suits (¹ Also see "Health Care Fraud Investigations Bedevil Pharma Industry: If You're Not Under Investigation, It's Only Because You've Recently Settled" - Pink Sheet, 16 November, 2009.). But it's unknown how many companies may have relied on reimbursement consultants to help them with Medicare claims.

"I don't know if the landscape is changing that much for pharmaceutical companies," said CTI's attorney Daniel Dunne, a partner at Orrick, Herrington & Sutcliffe. He said other industries, such as construction and military supply, appear to use billing consultants more frequently.

CTI Blames Consultant for Off-Label Actions

Trisenox received FDA approval for treatment of a virulent form of leukemia in 2000. Reimbursement consultant Documedics Acquisition Co., now the Lash Group, advised CTI that off-label uses to treat other cancers were reimbursable by Medicare. The Ninth Circuit said that as a result, carriers and providers submitted reimbursement claims to Medicare and CTI stopped pursuing further research and publications that would have supported Medicare reimbursement.

In 2004 the government began investigating CTI and the Lash Group. A CTI employee filed a qui tam action against CTI and Lash two years later. The government intervened in the suit against CTI but not Lash and in 2008 Lash settled with the relator for an undisclosed amount. CTI sued Lash, claiming its bad advice cost it $12.3 million in damages in addition to the $10.5 million settlement with the government.

The district court concluded that qui tam defendants may not seek indemnification or contribution from co-participants in a scheme to defraud the government and thus found CTI's claims against Lash were barred since the damages were "incidental to and dependent upon its payments" to settle the FCA claims.

Settlement Does Not Establish Liability

But the Ninth Circuit said CTI could state a claim for damages independent of the question of its liability under the False Claims Act. The Ninth Circuit further said that the district court erred in characterizing CTI's settlement as effectively establishing FCA liability and thus barring the claims against Lash. CTI had not been found liable. The Ninth Circuit said settlements generally do not bar claims against non-parties or halt subsequent litigation of issues not expressly resolved in the settlement.

"Treating a qui tam settlement as a de facto finding of liability would inevitably chill the settlement spirit," the Ninth Circuit stated. "Expanding the effect of a settlement to bar independent claims against third parties or claims for indemnification or contribution apart from FCA liability would inevitably tip the equation toward trial rather than settlement, even where settlement would ordinarily be in the best interest of the parties.

"The bottom line is that a settlement agreement under the FCA should not, absent specific and clearly identified intent to the contrary, be viewed as an admission of liability that precludes non-FCA claims against third parties," the court stated.

The Ninth Circuit sent the case back to the district court to reconsider whether the claims against Lash are independent and, for third party claims that are not independent, assess how to proceed given that CTI's settlement agreement does not constitute a finding of liability.

- Brenda Sandburg ( ² b.sandburg@elsevier.com )

Cell Therapeutics Can Sue Consultant For Advice On Off-Label Reimbursement

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