District Court in the Seventh Circuit Distinguishes Sanford-Brown, Finds Room for Implied Certification Claims Against Pharmaceutical Manufacturers

Although the Seventh Circuit last year became the first circuit court clearly to reject the “implied certification” doctrine of FCA liability, a district court in that circuit recently sought to cabin the impact of the ruling.  See United States ex rel. Kroening v. Forest Pharm., No. 12-cv-00366 (E.D. Wisc. Jan. 6, 2016).  As reported here, the Supreme Court will review the viability of the implied certification theory later this year.  While the Kroening court ultimately dismissed the relator’s claims under Rule 9(b), the opinion highlights the divergence of the viewpoints around the implied certification theory that the Supreme Court has been asked to help resolve.

The relator, a former sales rep, alleged that the defendant used its speaker programs to reward high prescribers and punish physicians who did not at least maintain pre-existing prescription volumes.  Under this theory, the claims attributable to prescriptions by the speaker physicians were false because they were tainted by kickbacks.  Part of the alleged misconduct occurred prior to the passage of the Patient Protection and Affordable Care Act, which amended the Anti-Kickback Statute (“AKS”) to state that “a claim that includes items or services resulting from a violation of [the AKS] constitutes a false or fraudulent claim for purposes of” the FCA.  Because this amendment has not been interpreted to apply retroactively, the district court had to determine whether the relator’s allegations were viable prior to the effective date of the amendment (March 23, 2010).  The defendant argued that with respect to the pre-amendment time period, any claims premised on AKS violations by an entity that had not expressly certified to compliance with the AKS could only survive under an implied certification framework.   In light of the binding precedent from the Seventh Circuit rejecting the implied certification theory, the defendant maintained that the relator’s allegations must be limited to the post-March 23, 2010 timeframe.

The district court found the Seventh Circuit’s opinion in Sanford-Brown to be distinguishable from the case before it.  Sanford-Brown involved a defendant that had sought direct reimbursement from the government.  In contrast, as a pharmaceutical manufacturer Forest did not directly apply for reimbursement from the government and therefore “there was no equivalent occasion for [Forest] to certify its compliance with the [AKS].”  In spite of the Seventh Circuit’s concerns that the implied certification theory threatens broadly to impose FCA liability for technical regulatory violations, the district court gave greater weight to the feared consequences of limiting FCA liability to express certifications, namely that entities not directly applying for reimbursement could evade liability.  The district court insisted that its ruling made it “unnecessary to opine as to whether [its] conclusion can be characterized as accepting the implied certification theory under the circumstances presented in this case.”

Nonetheless, the court agreed with the defendant that the complaint should be dismissed under Rule 9(b).  The complaint failed to connect specific kickbacks to specific prescriptions, and the court found this particularly inconsistent with the relator’s claims to have conducted return on investment analyses to determine which providers should be rewarded with speaking engagements.  The court gave the relator leave to amend.

A copy of the court’s opinion can be found here.