POSTED BY Sardiaa Leney
Recently, whistleblowers in ‘qui tam’ actions have claimed that medical devices and drugs with defects in manufacturing or compliance with applicable regulations supplied into government-funded health care programs are actionable under the Federal False Claims Act (FCA). A recent judgment in a long-running medical device suit in the District of Massachusetts highlights a number of important requirements for bringing a successful ‘qui tam’ action under this statute, but concludes that the FCA may not be used to police areas in which Congress specifically delegated regulation.
State and Federal False Claims Acts reward whistleblowers using original information to bring suit on behalf of the government (a so called ‘qui tam’ action showing that a defendant has knowingly submitted or caused to be submitted false claims for payment to the government). In a recent ruling , Judge Richard Stearns (District of Massachusetts) dismissed a long running qui tam case alleging that companies EV3 and MicroTherapeutics, now part of Covidien (and presumably soon to be part of Medtronic ), had violated the FCA by misleading the Food and Drug Administration (FDA) during the approval of a medical device, marketing devices for purposes other than the indication approved by the FDA (“off-label” marketing), supplying medical devices into the market place with manufacturing defects, and failing to report problems appropriately to the FDA. United States ex rel. D’Agostino v. EV3, Inc., 2014 U.S. Dist. LEXIS 138266 (D. Mass. Sept. 30, 2014).
Both of the devices implicated, the Axium Detachable Coil and the Onyx Liquid Embolic System are devices intended to provide neurosurgeons and interventional neuroradiologists with means to manage bleeding in and around the brain, so both the risks and benefits to patients are extreme. In the Axium/Onyx suit, a former sales representative sought remedy under the FCA because some of these patients were treated under Medicare or other state and federally funded programs.
The Axium/Onyx suit failed on a number of grounds. Firstly, some claims were excluded under the statutory public disclosure bar that requires that a qui tam action be filed by the person who brought the evidence into the public domain. Secondly, the court found that none of the allegations were pled with specificity and particularity required under Rule 9(b) of the Federal Rules of Civil Procedure. Because the suit failed to detail any specific instances or details of fraud, but rather rested on a theory that the FDA would not have approved the product had the defendants not deceived it, none of the residual allegations survived the motion for dismissal. Going further, the court also noted that the allegations also failed to state a claim for which relief could be granted, in that the suit sought to use the FCA to substitute the court’s judgment for the discretionary regulatory and enforcement powers that are properly entrusted to the FDA by Congress.
It is important to note, however, that Medicare only requires a medical device be approved by the FDA for reimbursement. Medicare still reimburses for off-label use as long as the device is approved for some indication, provided that the clinician certifies that it is medically necessary and reasonable. This represents a pretty low bar for device manufacturers. To even fall within the orbit of the FCA, a company would have to knowingly cause the clinician to submit claims for unreasonable or unnecessary device use, or cause claims for unapproved devices, no matter how egregious the off-label marketing or compliance issues were, because these are subject to FDA regulation.
The Axium/Onyx case may yet be appealed, but the public disclosure bar and Rule 9(b) shortcomings of the original case might leave First Circuit jurisprudence on the extent of the FCA unsettled. This is also the case in the Fourth Circuit, where a long running case seeking to impose FCA liability for breaches of the Food Drug and Cosmetic Act, United States ex rel. Rostholder v. Omnicare, Inc., 745 F.3d 694 (2014), was dismissed earlier this year because actual false claims were not specifically alleged. In dicta, the Fourth Circuit made a policy argument similar to Judge Stearns, concluding, “Congress did not intend that the FCA be used as a regulatory-compliance mechanism.” Rostholder, 745 F.3d 702-03. The Supreme Court recently denied certiorari in Rostholder. While some have been quick to declare this qui tam strategy dead, it may not be that clear. Until a qui tam plaintiff manages to competently plead at least a specimen example of a specific claim with the requisite particularity, alleging it to be false by reason of a breach of the drug or medical device manufacturing regulations (the so-called current Good Manufacturing Practices or cGMPs), it is unlikely that the Supreme Court will take up the issue.
An FCA action against Novartis appears to have more legs, although most of the allegations were tossed on the same 9(b) grounds that felled the Axium/Onyx suit. In United States ex rel. Kester v. Novartis Pharmaceuticals , qui tam plaintiff/whistleblower Kester alleges that Novartis operated a kickback scheme to persuade pharmacies to switch Medicare patients to their drugs, and this was sufficiently compelling to persuade the government to step in and take over the case. In substantiating individual claims with actual Medicare claims data, the complaints supported by the government survived summary judgment and will go to trial. It may be a rare private plaintiff who has first hand knowledge of the fraudulent scheme and access to the specific Medicare claim information, but Kester illustrates that recruiting the U.S. Attorney General may be the secret to success.
A final cautionary note to high-tech manufacturers emphasizes once more that it is all about what you have actually promised the government. While Medicare simply requires an FDA approval to reimburse off-label use, other government programs may have more specific compliance certifications bundled with their supply agreements. British medical device manufacturer Smith and Nephew recently settled a qui tam suit charging that they had defrauded the government by supplying the Department of Veterans Affairs with orthopedic devices accompanied by a certification that they were compliant with Trade Agreement Act (TAA), while the devices were manufactured in Malaysia- a state not designated under the TAA.
The bottom line is that the government and would-be whistle-blowers have a significant tool in the FCA. Congress loves to load compliance requirements into government contracting. Caveat Vendor.
