Violation of Federal Requirement Not a Condition of Payment Where Government Has Options Other Than Denial of Claims

Posted by Scott Stein and Brad Robertson

Under the “implied certification” theory of FCA liability, relators assert that violation of some federal law or rule renders all claims submitted “false” because, they allege, compliance with that federal law or rule is a condition of the government’s payment of the claims. While compliance with certain laws, such as the Anti-Kickback Statute, is generally considered to be a condition of payment, it is often a key contested issue in implied certification cases whether compliance with the law allegedly violated is a condition of payment—i.e., whether the government would have denied the claim had it known of the defendant’s non-compliance—or not.

At least one court has now found that violation of a law or regulation cannot be deemed a condition of government payment where the government has discretion to take several different actions in response, not all of which would deny payment of claims submitted when the defendant was not in compliance with the law.

In United States ex rel. Ge v. Takeda Pharmaceutical Co. Ltd., Case No. 10-cv-11043 (D. Mass, Nov. 1, 2012), a federal district court in Massachusetts dismissed a relator’s complaint on Rule 9(b) and 12(b)(6) grounds for failure to either plead specific false claims with particularity or to plead sufficiently that all claims submitted in violation of FDA requirements could be deemed false under an implied certification theory.

The relator alleged that the defendant manufacturer misrepresented and misclassified adverse events for four of its products to avoid reporting them to the FDA. Had the adverse events been reported, the relator alleged, the FDA may have required amendments to the products’ approved labeling or additional entries in FDA databases that may have resulted in physicians disfavoring and decreasing prescription of the products. Furthermore, relator alleged, had the defendant reported the adverse events, the FDA may have withdrawn approval for the products, rendering all claims for reimbursement of the product ineligible for reimbursement under federal healthcare programs.

The court dismissed the complaint under Rule 12(b)(6), holding that the relator could not prove that compliance with the FDA’s adverse event reporting requirements is a material precondition of payment under federal healthcare programs. The court explained that the FDA not only has the discretion to determine when to prosecute violations of adverse event reporting requirements, but also has a range of potential civil and criminal fines to impose when it decides to pursue violators, including withdrawal of the product’s approval, injunctive orders, monetary fines and imprisonment for individual defendants, and that not all of these potential remedies would lead to the denial of claims for the manufacturer’s drug.

The court also held that the complaint did not satisfy Rule 9(b) because the relator produced only aggregate government expenditure data on the defendant’s drugs, rather than information about any specific false claims. The court stated, “relator apparently suggests that all of the claims for these particular drugs in the relevant years were rendered false by Takeda’s failure to properly report adverse events. Relator, however, has failed to provide the specific factual allegations necessary to support the inference that the FDA would have withdrawn approval from all four drugs immediately upon receiving the proper adverse reports.”

The opinion is sure to be useful for anyone defending an FCA case based on an implied certification theory. It demonstrates the importance in an implied certification case of understanding how violations of the federal law or regulation alleged to be violated are enforced, and being able to explain that enforcement scheme to the court. This is particularly important in the healthcare context, where the agencies charged with enforcing the laws that are most frequently cited as the bases for implied certification claims—FDA, CMS, and OIG—have a broad range of enforcement tools, not all of which necessarily require denial of claims.