Qui tam is short for qui tam pro domino rege quam pro se ipso in hac parte 1

sequitur (“who brings the action for the King as well as for himself.”) United States ex

rel. Eunice Matthews v. Bank of Farmington, 166 F.3d 853, 857 (7th Cir. 1999). 

1

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

UNITED STATES OF AMERICA ex rel. )

KATY KENNEDY and FRANK A. MATOS, )

THE STATE OF ILLINOIS ex rel. KATY )

KENNEDY and FRANK A. MATOS, and )

KATY KENNEDY, individually, )

)

) Case No. 03 C 2750

Plaintiffs, )

)

vs. )

)

AVENTIS PHARMACEUTICALS, INC., )

and PHARMANETICS, INC., )

)

Defendants. )

MEMORANDUM OPINION AND ORDER

MATTHEW F. KENNELLY, District Judge:

Relators Katy Kennedy and Frank Matos have brought qui tam claims on behalf 1

of the United States and the State of Illinois under the False Claims Act, 31 U.S.C. §

3730(b) (FCA), and the Illinois Whistleblower Reward and Protection Act, 740 ILCS

175/4(b) (IWRPA), against Aventis Pharmaceuticals, Inc. Kennedy has also brought a

claim on her own behalf against Aventis, claiming retaliation in violation of the Illinois

Whistleblower Act, 740 ILCS 174/20 (IWA). Aventis has moved to dismiss the qui tam

claims in relators’ third amended complaint (Counts 1-6) pursuant to Federal Rules of
2

Civil Procedure 9(b) and 12(b)(6). For the following reasons, the Court grants Aventis’s

motion. 

Facts

When considering a motion to dismiss a complaint, the Court accepts all the

facts stated in the complaint as true and draws all reasonable inferences in favor of the

plaintiff. Newell Operating Co. v. Int’l Union of United Auto., Aerospace, and Agr.

Implement Workers of Am., 538 F.3d 583, 587 (7th Cir. 2008).

Relators are former Aventis sales representatives. While at Aventis, relators

promoted the prescription drug Lovenox, an anticoagulant used almost exclusively for

inpatient hospital care. The Food and Drug Administration (FDA) approved Lovenox for

seven indications. See United States ex rel. Kennedy v. Aventis Pharms., Inc., 512 F.

Supp. 2d 1158, 1162 (N.D. Ill. 2007).

Relators allege that Aventis marketed Lovenox for off-label uses and thereby

induced doctors and hospitals to submit fraudulent Medicare reimbursement claims to

the government. Relators allege that this marketing strategy caused doctors to

prescribe Lovenox for atrial fribillation, acute myocardial infarction, mechanical heart

valve replacement, coronary artery bypass graft surgery, ST-elevation myocardial

infarction, bariatric surgery, arthroscopic-assisted surgery, hemodialysis patients, hip

fracture surgery, trauma, lower or upper extremity fractures, neurosurgery, spinal cord

injuries, acute ischemic stroke, stroke, percutaneous coronary intervention, general

surgery, heparin-induced thrombocytopenia, IV dosing, and cardiac catheterization. 

Lovenox is not approved by the FDA for any of these indications.
3

Relators allege that Aventis provided things of value to doctors and hospitals to

induce them to prescribe Lovenox for off-label indications. Specifically, they allege

Aventis paid $34,000 to Ben Muoghalu, a pharmacist, for several speaking

engagements. Relators contend that Aventis hired Muoghalu to induce him to keep

Lovenox on hospital formularies under his control. In addition, Aventis gave various

organizations grants ranging from $5,000 to $30,000. Relators contend that Aventis

made the grants intending to induce those organizations to use or promote Lovenox for

off-label indications.

In August 2000, Aventis entered into an agreement with PharmaNetics

(PharmaNetics was previously a defendant in this case but was dismissed by stipulation

with relators). According to the agreement, PharmaNetics developed a test, called the

ENOX test, to detect the anticoagulant effects of Lovenox on patients with unstable

angina. Relators contend that the purpose of the test was to convince unwilling doctors

to perform interventional procedures on patients with unstable angina who receive

Lovenox. Because the FDA did not approve Lovenox for use in such invasive

procedures, relators contend that the development of the test was part of a scheme to

create a new marketing tool designed to market Lovenox for an unapproved use. 

Relators allege that Aventis purposely ordered its personnel to mislead doctors

regarding the approved and safe uses of Lovenox. As a result, prescriptions for

Lovenox increased, including prescriptions reimbursed through government health

programs.
4

Relators identify two specific instances in which a hospital prescribed Lovenox

for allegedly off-label indications due to Aventis’ marketing tactics and then billed the

government for reimbursement. First, relators contend that Lutheran General Hospital

made a false claim to the government when, on January 5, 2002, it submitted a claim

for Lovenox as a covered expense for atrial fribillation, an off-label use. Second,

relators contend that Alexian Brothers Hospital made a false claim to the government in

2002 when it submitted a claim for Lovenox as a covered expense for atrial fribillation. 

Relators also attached two charts to their third amended complaint detailing other

allegedly off-label uses of Lovenox in connection with which hospitals submitted claims

to the government for payment. Finally, relators allege that the hospitals used false

records or statements to get false or fraudulent claims paid or approved by the

government when they included Lovenox, as prescribed for the off-label uses, in “cost

report[s] and/or Medicare Cost Reconciliation[s].” 3d Am. Comp. ¶¶ 56, 58. 

Relators filed their first complaint, under seal pursuant to the FCA, on April 24,

2003. The government declined to intervene in December 2006. After the Court

unsealed the complaint, relators served it on Aventis and PharmaNetics. 

Aventis has twice moved the Court to dismiss relators’ claims. First, in March

2007, Aventis moved the Court to dismiss relators’ first amended complaint on multiple

grounds. The Court granted Aventis’s motion in part, dismissing Kennedy’s

whistleblower retaliation claims, but declining to dismiss relators’ qui tam claims. 

Aventis Pharms., 512 F. Supp. 2d at 1169. Kennedy amended her retaliation claims,

and Aventis again moved to dismiss. On February 11, 2008, the Court granted
5

Aventis’s motion as to Kennedy’s FFA and IWPRA claims but declined to dismiss

Kennedy’s IWA claim. United States ex rel. Kennedy v. Aventis Pharms. Inc., No. 03 C

2750, 2008 WL 4371323 (N.D. Ill. Feb. 11, 2008).

On November 13, 2007, the Court bifurcated discovery into two phases and set

deadlines for the completion of each. The purpose of the first phase was to allow

relators to attempt to identify specific allegedly false claims. The deadline for

completing that phase was extended by approximately three months at relators’

request. Following completion of the first phase, relators filed a third amended

complaint.

Discussion

The FCA imposes civil liability on “[a]ny person” who “knowingly presents, or

causes to be presented, to . . . the United States . . . a false or fraudulent claim for

payment or approval.” 31 U.S.C. § 3729(a)(1). In addition, a person violates the FCA if

she “knowingly makes, uses, or causes to be made or used, a false record or statement

to get a false or fraudulent claim paid or approved.” Id. § 3729(a)(2). For liability to

attach, the fraudulent claim, statement, record must be material to the government’s

decision to pay. See United States ex rel. Gross v. AIDS Research Alliance-Chicago,

415 F.3d 601, 604 (7th Cir. 2005); Luckey v. Baxter Healthcare Corp., 183 F.3d 730,

732-33 (7th Cir. 1999) (“plaintiff must show . . . that the omitted facts were material to

the listener’s decision”). 
6

A. Materiality of false claims

Relators allege that Aventis violated the FCA and parallel Illinois statutes by

marketing off-label uses of Lovenox. They contend that Aventis’s marketing scheme

caused hospitals to submit false claims to the United States and the State of Illinois for

reimbursement of off-label uses of Lovenox. Relators have identified several specific

prescriptions for off-label uses of Lovenox at Lutheran General and Alexian Brothers as

the subjects of false claims submitted to the government for payment.

Aventis contends that none of the charges for Lovenox prescriptions referenced

in relators’ complaint qualifies as a false claim because, it argues, individual

prescriptions are immaterial to the amount paid by the government for the treatment of

a given patient. Medicare and Illinois Medicaid both reimburse hospitals for inpatient

services under a prospective payment system that provides fixed payments based on

the diagnosis related group code (“DRG”) assigned to each patient. 42 U.S.C. §

1395ww(d). A patient’s DRG is based on her diagnosis and age, not on the particular

care or services she receives. 42 C.F.R. § 412.60. The Centers for Medicare and

Medicaid Services (“CMS”), the federal agency that administers Medicare and

Medicaid, sets DRGs according to national averages for the costs of treating particular

illnesses. 42 U.S.C. § 1395ww(d)(1)(D). In most cases, the DRG rate constitutes full

payment for all items and services provided by the hospital, including prescription

drugs. 42 C.F.R. § 412.60(c)(2). CMS and Illinois Medicaid reimburse outpatient

services in a similar way; pharmaceuticals are included in a prospective payment rate
 Aventis contends that the district court’s decision in Schell was reversed by the 2

Sixth Circuit on grounds not related to the materiality of individual charges to the

amount actually paid by the government for inpatient care. Relators contest that

characterization of the case. A careful reading uncovers that the Sixth Circuit left intact

the lower court’s determination of the inpatient issue because that ruling was not

appealed. Schell, 419 F.3d at 537 n.1.

7

for the primary procedure. 42 C.F.R. § 419.2; Ill. Admin. Code tit. 89, §§ 148.140(a),

(b). 

Several other courts have recognized that individual charges on a patient bill are

immaterial to the government’s Medicare/Medicaid reimbursement decisions and,

therefore, cannot serve as the basis of FCA liability. United States ex rel. DiGiovanni v.

St. Joseph’s Candler Health System, Inc., No. CV404-190, 2008 WL 395012, *6 (S.D.

Ala. Feb. 8, 2008); United States ex rel. Magid v. Wilderman, No. Civ. A. 96-CV-4346,

2004 WL 945153, *9 (E.D. Pa. April 29, 2004); United States ex rel. Schell v. Battle

Creek Health Systems, No. 1:00-CV-143, 2004 WL 784978 *4 (W.D. Mich. Feb. 25,

2004), rev’d on other grounds, 419 F.3d 535 (6th Cir. 2005). Although these case are 2

not controlling, they are based on a materiality requirement similar to that articulated by

the Seventh Circuit. Gross, 415 F.3d at 604. 

The off-label uses of Lovenox charged on a patient’s bill did not cause the

government to pay any more money than it would have paid had the charges not been

included in the bill. Under the applicable law and regulations, the government paid the

hospitals according to the previously determined PRG rate, which has nothing to do

with the particular drugs prescribed or used in the patient’s treatment. Under the

circumstances, the allegedly false claims do not meet of the Seventh Circuit’s
 Relators also contend that Medicare adjusts compensation by factoring a 3

hospital-specific rate into the reimbursement calculus. The regulations cited by relators,

however, refer to adjustments for capital costs. 42 C.F.R. § 412.328. Expenditures for

pharmaceuticals are operating costs, not capital costs. See id. § 412.2(c).

8

materiality requirement, because there is no causal relationship between the alleged

falsehood and amount the government paid. See id. (claim must be “knowingly and

falsely made in order to deceive the government”); Luckey, 183 F.3d at 732-33 (false

statement must be material to government’s decision to pay the claim). Because

relators cannot show that individual patient bills were material to the government’s

decision to pay, they cannot prove an essential element of their claim.

B. Outlier claims

In their response to Aventis’s motion, relators propose an alternate theory of

liability under the FCA. They contend that hospitals can claim compensation from the 3

government for inpatient care above the DRG rate for a particular patients whose

conditions are “extraordinarily costly to treat.” Relators’ Resp. at 9. Relators contend

that because Lovenox prevents clotting, patients on Lovenox who undergo invasive

procedures are more likely to require additional treatment due to complications like

excessive bleeding. Relators contend that such complications likely lead to claims for

additional payment above and beyond the DRG rate, also known as outlier claims.

A hospital may submit outlier claims to receive additional payments from

Medicare for inpatient hospital services when its operating and capital costs exceed the

DRG payment by a specified amount. 42 C.F.R. §§ 412.80(a)(1)(ii) & 412.84(a). In

such cases, a hospital must specifically request the additional payment and submit
9

itemized charges to verify the necessity and appropriateness of the course of treatment.

Id. § 412.84(f). 

Though an outlier claim based on off-label use of Lovenox could constitute an

actionable false claim, relators have failed to allege this with the particularity needed to

satisfy Federal Rule of Civil Procedure 9(b). In their third amended complaint, relators

included several instances of alleged off-label uses of Lovenox that were submitted in

claims to the government. Relators have, however, failed to identify any particular

instance of an outlier claim that included a Lovenox prescription, much less an off-label

use of Lovenox. 

Although the Court relaxed the particularity requirement of Rule 9(b) in

considering Aventis’s first motion to dismiss, the reasoning behind that decision no

longer applies. In its September 13, 2007 ruling, the Court noted that “the requirements

of Rule 9(b) are relaxed when the plaintiff lacks access to all facts necessary to detail

his claim.” Aventis, 512 F. Supp. 2d at 1167. Because the facts regarding particular

claims were under the control of third parties, the Court allowed relators’ complaint to

stand because their allegations, though not identifying any particular claim, gave rise to

a reasonable inference that false claims had been made. Id. 

This is no longer the case. After nine months of discovery, relators have had

ample opportunity to discover and present to the Court outlier claims that list Lovenox

as itemized charges. They have not done so. Instead, relators are asking the Court to

infer that hospitals must have submitted such outlier claims due to the nature to the

drug. They have offered, however, no basis for such an inference on the present
10

record. After months of discovery, this fails to meet the particularity requirements of

Rule 9(b).

C. Cost reports as false statements in support of a claim

Relators allege that Aventis induced hospitals to submit cost reports, as required

by Medicare, itemizing off-label uses of Lovenox in support of claims for Medicare

reimbursement. Relators contend that the cost reports amount to records or

statements used to get a false claim paid in violation of the FCA. See 31 U.S.C. §

3729(a)(2). 

CMS requires hospitals to submit annual cost reports. 42 C.F.R. § 413.20(b). 

The cost report data is part of the overall Medicare reimbursement calculus, but the

parties dispute the way in which it is used. Relators contend that CMS uses the cost

reports to determine DRG rates. Aventis contends that the cost reports are used only

to compute cost-to-charge ratios for use in outlier claim calculations. The dispute

centers around 42 C.F.R. § 413.64(a). Aventis argues that relators misread section

412.64(a) to state that DRGs are based on hospital operating costs. Instead, the

regulation states that DRGs are set “for inpatient operating costs.” Id. § 413.64(a)

(emphasis added). 

Even if, as relators assert, the cost reports directly affect the DRG rates, the

connection between the allegedly false items in a particular cost report and the

government’s decision to pay is too attenuated to sustain a claim of materiality. As an

initial matter, a DRG is, by definition, a prospective rate. That is, the DRG rate is an

estimate of the average cost of treating the illness during the following year. Thus, a
 In A+ Homecare, the court found that a false statement on a cost report 4

submitted by a home health agency to a Medicare intermediary was material to the

government’s decision to pay. A+ Homecare, 400 F.3d at 447. The regulations

governing Medicare reimbursement for home health care provide that home health

agencies are reimbursed according to “costs actually incurred” by the agency. 42

U.S.C. § 1395x(v)(1)(A); 42 C.F.R. § 413.9(c)(3). This is, of course, quite different from

the regulations at issue in this case, which provide for reimbursement on the basis of

the PRG rate.

11

cost report may only affect future DRGs. Second, a single hospital’s cost report, or

even several hospitals’ reports, amount to a small portion of the data that inform the

decision to increase or decrease DRGs. The FCA imposes liability only when a false

statement or record is used “to get a false or fraudulent claim paid by the Government.” 

31 U.S.C. § 3729(a)(2). In a false statement or record case, “liability is imposed based

on the use of a false statement in relation to the fraudulent claim, rather than simply

because a false statement was made.” United States ex rel. A+ Homecare, Inc. v.

Medshares Mgmt. Co., 400 F.3d 428, 443-44 (6th Cir. 2005). Thus, the mere 4

existence of a false statement is insufficient. Instead, the false statement or record

must be used to support a particular claim. Because relators have not tied the cost

reports to particular claims, they have failed to allege that an individual hospital’s cost

reports are material to the payment of any given claim.

In any event, relators have failed to identify any particular cost report submitted

to CMS that contains a claim for an off-label use of Lovenox as a covered expense. At

this stage, given relators’ ample opportunity to take claims-related discovery, this is

simply insufficient to meet the requirements of Rule 9(b).
 Relators do not specifically allege that a certification of compliance with the 5

Anti-Kickback Statute is a prerequisite for payment. Avetnis, however, does not contest

this point.

12

D. Anti-kickback statute

Relators’ failure to produce a single false claim similarly dooms their claims

premised on violations of the anti-kickback statute, 42 U.S.C. § 1320a-7b(b). An

allegedly false certification of compliance with statutory or regulatory requirements can

serve as the basis for a claim under the FCA so long as “the certification of compliance

[with the statute or regulation is] a condition or prerequisite to government payment.”5

Gross, 415 F.3d at 604. The particularity requirements of Rule 9(b) apply to FCA

claims based on an allegedly false certification of compliance. Id. Thus, under Rule

9(b), relators must allege a link between the government’s decision to pay and an

allegedly false certification. See id. (noting that Rule 9(b) applies to FCA claims,

including the requirement that the certification of compliance be a prerequisite to

payment).

Relators have not alleged any link between payments or grants made by Aventis

and an actual claim submitted by a hospital. They allege that Aventis’s payments and

grants caused hospitals to falsely certify compliance with the anti-kickback statute. Just

as relators have failed to identify a material false claim, however, they have failed to

identify any particular allegedly false certification of compliance. Although relators list

several organizations to which Aventis allegedly gave “unrestricted grants,” Alexian

Brothers and Lutheran General do not appear on the list. Relators also allege that

Aventis paid Ben Muoghalu, a pharmacist, for several speaking engagements to induce
13

him to keep Lovenox on hospital formularies under his control. Relators, however, fail

to allege that Muoghalu was in any way connected with either Alexian Brothers or

Lutheran General. Because those are the only two hospitals that relators have

specifically identified as having made false claims, relators have failed to allege with

particularity that Aventis “cause[d] [a false claim] to be presented” or “cause[d] [a false

record or statement] to be made.” 31 U.S.C. § 3729(a)(1), (2). As a result, their antikickback statute claims fail to meet the particularity standard of Rule 9(b).

Conclusion

For the foregoing reasons, the Court grants Aventis’s motion to dismiss [# 156]. 

Counts 1 through 6 of relators’ third amended complaint are dismissed pursuant to Rule

9(b) and 12(b)(6). The dismissal will be converted to a dismissal with prejudice unless

relators file, within twenty-one days of this decision, a proposed fourth amended

complaint that satisfies Rules 9(b) and 12(b)(6). Aventis’s request that the Court take

judicial notice of certain facts is denied as moot, and its motion for excess pages is

terminated [# 155]. The case is set for a status hearing on January 8, 2009 at 9:30

a.m. Counsel should be prepared to discuss resetting the deadlines for the remainder

of the discovery schedule.

________________________________

MATTHEW F. KENNELLY

 United States District Judge

Date: December 10, 2008