Federal Court Dismisses FCA Complaint Against Drug Companies, Holding That Underlying Facts Were Publicly Disclosed

Posted by Scott D. Stein and Allison W. Reimann

In a February 25, 2013 opinion, a federal district court in Massachusetts dismissed a complaint against twenty-four drug manufacturers, distributors, and labelers, holding that the court lacked subject matter jurisdiction because the facts on which the relator’s claims were based were “publicly disclosed” in drug reimbursement data files and similar documents.

The case concerned the requirement that drug manufacturers file a list of “covered outpatient drugs” they market with the Centers for Medicare and Medicaid Services (“CMS”) and inform CMS whether any of these drugs (or drugs that are identical, related or similar) were subject to review under the Drug Efficacy Study Implementation (“DESI”) program. The relator alleged that the defendants fraudulently misrepresented that their products were covered outpatient drugs eligible for Medicaid reimbursement by listing with CMS unapproved drugs, false DESI codes, and non-drug products. The relator claimed that the federal government thus had erroneously reimbursed over $500 million for the defendants’ products.

The defendants moved to dismiss on public disclosure grounds because both the “true” facts and the facts that the defendants allegedly misrepresented all were publicly disclosed. First, the defendants argued that the allegedly misrepresented facts were disclosed in two places: (1) lists of covered outpatient drugs and associated DESI codes that are published quarterly by CMS (which would show any false statements that the defendants’ products were covered outpatient drugs); and (2) lists of the products and the amounts that the federal government reimbursed to states, also published by CMS (which would show that state Medicaid programs relied on such misrepresentations). Second, the defendants asserted that the “true” facts would be disclosed by three other sources: (1) FDA’s Orange Book (which lists all FDA-approved drugs, making any unapproved drugs listed by defendants conspicuous by their absence); (2) Federal Register notices (which notify the public of FDA’s DESI determinations); and (3) FDA’s National Drug Code Directory (which provides information necessary to show that two drugs are identical, related, or similar).

The court agreed that, read together, these sources created a plausible inference of fraud sufficient to trigger the public disclosure bar – even if substantial expertise would be required to identify the alleged discrepancies. The court explained that “the only question is whether the material facts exposing the alleged fraud are already in the public domain, not whether they are difficult to recognize.” Slip. Op. at 8. The court also rejected the relator’s contention that CMS data lists could not be considered “administrative reports” for purposes of the public disclosure bar, reasoning that the agency engages in at least minimal preparation and synthesis in compiling the data into a usable format for the public.

This case is significant in that it affirmatively holds that information contained in government data files, such as CMS’s state drug utilization data, can qualify as a public disclosure, even where understanding and interpreting the data requires specialized expertise. This holding could be significant in a number of pricing-related contexts where pricing to federal health care programs and other customers may be in the public domain. The decision confirms that relators cannot bring whistleblower actions where their contribution consists of nothing more than drawing inferences from publicly available information.