Government Contracts Legal Forum
What will they think of next? Qui tam relator alleges False Claims Act violation for "fraud-on-the-FDA"
Both Jonathan Cone and Rob Sneckenberg contributed to this blog post.
A recent case from the District of Massachusetts illustrates how the False Claims Act may be stretched to cover companies that do not even submit claims to the government. In U.S. ex rel. Ge v. Takeda Pharmaceutical Co., Nos. 10-11043-FDS, 11-10343-FDS (D. Mass. Nov. 1, 2012), the relator alleged that Takeda Pharmaceuticals violated the FCA not by submitting false claims for payment, but by failing to report to the FDA adverse events associated with four of its drugs.
How is this a false claim?
The FCA imposes liability on any person who "knowingly presents to the government, or causes to be presented, a false or fraudulent claim for payment or approval." 31 U.S.C. § 3729(a)(1)(A). Under the "implied certification" theory of liability, as recognized by the First Circuit, a claim may be found false if submission of the claim impliedly represents compliance with a requirement that is a material precondition of payment. See U.S. ex rel. Hutcheson v. Blackstone Med., Inc., 647 F.3d 377, 387 (1st Cir. 2011). Here, the relator's basic argument was that every claim submitted by a medical provider to the federal government for reimbursement for the four Takeda drugs at issue impliedly certified Takeda's continuing compliance with FDA reporting requirements. Takeda's failure to properly report to the FDA a number of post-marketing adverse events rendered every one of those claims "false," she alleged, because the FDA might have withdrawn approval for the drugs.
Dismissal under Rules 9(b) and 12(b)(6)
Despite the relator's assertion that there were billions of dollars in false claims, for one drug alone, the district court dismissed the allegations both for failure to plead with particularity and failure to state a claim. First, the Court noted that while the relator had sufficiently alleged "fraud-on-the-FDA"-i.e., that Takeda allegedly underreported adverse events-she had failed to allege the specific details of any claims that were allegedly rendered "false" as a result. The relator provided only aggregate data regarding one of the four drugs, and she failed to identify any specific claimants or government program payors. As such, she could not meet Rule 9(b)'s heightened pleading requirement.
Second, the Court held that the allegations failed to state a claim under Rule 12(b)(6). The Court found that the relator adequately alleged that Takeda knowingly caused the claims at issue to be submitted, and it generously assumed that medical providers' claims for reimbursement impliedly certified Takeda's continuing compliance with FDA reporting requirements. Even after gifting the relator that much, though, the Court still held that compliance with the FDA reporting requirements was not a material precondition of payment. The Court noted the FDA's discretion to take a variety of actions to combat reporting violations and highlighted that the FDA is in no way required to, nor does it often, impose its harshest penalty of withdrawing drug approval. The relator simply could not establish that compliance with the FDA reporting requirements was a material precondition of payment, and therefore did not state a claim upon which relief could be granted.
Causing false claims
Takeda illustrates how qui tam relators may use the FCA to reach companies that do not even submit claims to the government, so long as their actions may cause others to do so. To survive dismissal, however, relators alleging FCA violations by parties that do not directly submit claims will have to plead specific details identifying claimants and government program payors. And basic fraud-on-the-agency allegations will not suffice where agencies enjoy discretion to enforce their regulations and where those regulations do not directly condition the government's obligation to pay on compliance.