Justices void Risperdal fine of $1.2 billion

Johnson & Johnson shakes state’s Medicaid-fraud case

The Arkansas Supreme Court on Thursday threw out a $1.2 billion fine against Johnson & Johnson and a subsidiary, ruling that the claims against the company by the state were not covered under its Medicaid-fraud statute.

The decision overturned one of the largest awards in the state’s history. Pulaski County Circuit Judge Tim Fox issued the fine after a jury found that the company - through its Janssen Pharmaceuticals subsidiary - put patients in danger by improperly exposing them to side effects of the antipsychotic drug Risperdal. The billion-dollar award represented a $5,000 fine for each of the 238,874 prescriptions filled for the drug that were reimbursed by the state Medicaid program.

The court agreed with the company’s view that the conduct by the company did not fall within the bounds of the state Medicaid-fraud statute, Arkansas Code Annotated 20-77-902. The statute cannot be applied in the case because it only applies to health-care facilities seeking certification of a “nursing home or similar facility,” Justice Karen Baker wrote.

“[W]e reverse the circuit court’s order denying Janssen’s motion for directed verdict and dismiss the state’s claim under the [Medicaid Fraud False Claims Act] as Janssen is indisputably not a healthcare facility and applying for certification or re-certification as described in the statute. Hence, the statutory provision is not applicable,” Baker wrote in the 27-page opinion.

The state filed a lawsuit against the company in November 2007, arguing that Janssen benefited from sales of the drug while downplaying its side effects, including an increased risk of stroke or diabetes. Attorneys for the state also argued that the company was aware of the risks but did not include warnings on its labels.

In April 2012, a Pulaski County jury ruled against the company, finding it had violated the state Medicaid Fraud False Claims Act and the state Deceptive Trade Practices Act through its labeling and improper direct-marketing.

Fox calculated the fraud fine on the basis of the number of prescriptions, and the deceptive-trade fine - $11.4 million - on the basis of the 4,569 letters the company sent to Arkansas doctors in November 2003 that falsely stated Risperdal had no significant link to diabetes.

In February 2013, Fox also ordered the company to pay $181 million in attorney’s fees accrued by outside counsel who represented the state.

The court unanimously supported reversing the Medicaid-fraud claim. A majority also ruled that Fox had erred by allowing jurors to see a letter from the U.S. Food and Drug Administration.

The 2004 “warning letter” instructed the company to stop using promotional materials that contained misleading claims about the drug and to send out accurate information.

Justices Baker, Courtney Hudson Goodson, Jo Hart and Cliff Hoofman found that the letter was “hearsay,” according to the Rules of Evidence, because it was part of the FDA’s investigation into the drug and was “highly prejudicial.”

Hearsay is defined by the court as “a statement, other than one made by the declarant while testifying at the trial or hearing, offered in evidence to prove the truth of the matter asserted.” It is generally not admissible unless it meets one of about two dozen exceptions defined by court rules.

“The ‘warning letter’ was part of a special investigation of a particular complaint, case or incident and falls directly within the parameters of the prohibited hearsay … and it is also more prejudicial than probative,” Baker wrote.

Danielson wrote in the dissenting opinion - joined by Chief Justice Jim Hannah and Justice Donald Corbin - that the letter was part of routine record keeping by the FDA and admissible under the court’s rules. Even if the letter was hearsay, Danielson wrote, it would be admissible under an exception for public records.

“Nothing at all in the record before us evidences that the letter resulted from any special investigation of a ‘particular complaint, case or incident.’ To the contrary, it appears that the warning letter was merely the result of the agency’s routine duties of reviewing and regulating the information on, and advertising of, drugs such as Risperdal,” Danielson wrote.

The court reversed Fox’s ruling on the Deceptive Trade Practices Act claim on the basis of the letter’s prejudicial effect and remanded the case for further proceedings.

Attorney General Dustin McDaniel said in a statement that he was disappointed by the court’s decision.

“We pursued this case based on the belief we continue to hold, which is that the General Assembly intended to give the attorney general’s office the authority to pursue penalties against those that would enter our state and blatantly deceive the public. … Nevertheless, I will keep working to protect consumers against fraud and the kinds of irresponsible and greedy actions shown by Johnson & Johnson and Janssen Pharmaceuticals in their marketing of the drug Risperdal,” McDaniel said.

The company said in a statement it was pleased with the court’s ruling.

“Janssen remains strongly committed to ethical business practices. Risperdal continues to help patients around the world who suffer from the debilitating effects of schizophrenia and bipolar mania,” the company said.

The court also reversed and remanded Fox’s award of $181 million in attorney’s fees, an amount equal to 15 percent of the $1.2 billion ruling.

Arkansas was represented primarily by Houston-based Bailey Peavy and Bailey.

The Louisiana Supreme Court reversed a similar $330 million ruling against the company in that state in January.

An appeal of a $327 million ruling against the company is pending at the South Carolina Supreme Court.

Front Section, Pages 1 on 03/21/2014

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