James Burnham, the Deputy Assistant Attorney General for the Consumer Protection Branch (“CPB”), addressed the annual Food and Drug Law Institute Conference (“FDLI”) on December 13, 2018 about DOJ’s enforcement priorities and tools in the FDA-regulated space. As head of the branch within DOJ that has responsibility for bringing civil and criminal actions for violations of the Federal Food, Drug, and Cosmetic Act (“FDCA”), and that works with DOJ Civil Frauds to bring actions based on those violations under the False Claims Act (“FCA”), Burnham outlined the principles that motivate enforcement action, the CPB’s current enforcement priorities, and some of the “new” enforcement tools CPB has at its disposal with respect to opioids. (more…)
In a variety of matters, DOJ and relators have attempted to base claims under the FCA on alleged violations of the FDCA or FDA regulations, by arguing that such violations constitute “fraud on the FDA,” and that the resulting claims for payment to other agencies for associated products are false. As we have discussed (here, here, and here), so far plaintiffs have had little success with this theory, including in the First and Fourth Circuit Courts of Appeal. Last week, a panel of the Ninth Circuit heard oral arguments in United States ex rel. Campie v. Gilead Sciences, Inc., and the government and the plaintiff’s bar no doubt have pinned their hopes on that court reversing the trend.
Posted by Jaime L.M. Jones and Brenna Jenny
On Friday, the Northern District of California dismissed with prejudice claims alleging that a failure to obtain supplemental approval for major changes in manufacturing processes created FCA liability. U.S. ex rel. Campie v. Gilead Sciences, Inc., No. 11-0941 (N.D. Cal. June 12, 2015). The court also adopted a narrow reading of “worthless services” in the context of pharmaceutical products. Together, these holdings deal a significant blow to those seeking to premise FCA suits on violations of current Good Manufacturing Practices (“cGMPs”).
Posted by Jaime L.M. Jones and Brenna Jenny
In a remarkable opinion sure to be cited by FCA defendants facing FCA claims premised on alleged regulatory non-compliance, on January 7 the Northern District of California granted defendant Gilead’s motion to dismiss FCA claims premised on alleged violations of current Good Manufacturing Practices regulations (“cGMPs”), holding that fraudulent conduct directed at FDA standing alone cannot render subsequent Medicare or Medicaid reimbursement requests false under the FCA. See U.S. ex rel. Campie v. Gilead Sciences, Inc., No. 11-cv-00941 (N.D. Cal. Jan. 7, 2015). The ruling expands on the reasoning of the Fourth Circuit’s decision last year in Rostholder (as reported here) and reiterates the judiciary’s hesitancy to permit the FCA to displace FDA’s institutional capacity to enforce its own regulatory scheme.
Two former Gilead employees with quality control responsibilities filed a qui tam suit against their previous employer, alleging various violations of cGMP requirements. The relators asserted these regulatory issues gave rise to FCA liability because had FDA been aware of the them it would not have approved the affected drugs or would have withdrawn approval; as a result, relators claimed that all claims for payment submitted to Medicare and Medicaid for these drugs were false under the FCA. The government declined to intervene in the suit but did file a statement of interest on these issues, which the court cites in its opinion.
The court first dispensed with relators’ claim that allegedly false certifications to FDA or other allegedly fraudulent conduct during the drug approval process could give rise to FCA liability. Although FDA’s New Drug Application (“NDA”) form requires manufacturers to certify compliance with cGMP regulations, the court found the fact that manufacturers make this statement to FDA, and not to CMS for the purpose of securing payment, to be critical to the viability of relators’ claims. The court ruled that “FCA liability cannot be based on fraudulent statements made before one regulatory agency and from that implying a certification putatively made to the payor agency where there is neither an express certification nor condition of payment.” As even relators conceded during a hearing, Gilead never made any direct misrepresentations to a payor.
In an attempt to avoid this result, relators had argued in supplemental briefing that FDA served as a “gatekeeper” for CMS, with both entities standing as “two arms of the same federal department,” and thus fraudulent conduct directed toward one arm and a request for payment directed toward another arm could be synthesized so as to have a sufficiently direct nexus. The court disagreed, distinguishing between “Gilead’s non-disclosure and misrepresentations . . . [made] during the FDA approval process” and the “subsequent reimbursement requests to CMS,” and rejecting relators’ invitation to rule that a false statement to one regulatory agency “can form the basis of FCA liability simply because the fraudulently induced action of that agency was part of a causal chain that ultimately led to eligibility for payment from the payor agency.”
In similarly dismissing relators’ claims that Gilead had also made false implied certifications of compliance to CMS, the court then adopted the reasoning of the Fourth Circuit in Rostholder that the mere assertion of drugs being adulterated or misbranded as a result of a manufacturer violating cGMP requirements falls short of articulating a claim under the FCA, because Medicare and Medicaid do not condition reimbursement on compliance with cGMP regulations. Instead, payment is conditioned on a drug receiving FDA approval, which Gilead’s products had undisputedly obtained. Accordingly, the relators’ claims were held to be fundamentally flawed.
The court’s opinion generally addresses the heightened policy concerns generated by the proposition that regulatory non-compliance, particularly within the complex FDA regime, can trigger a cognizable FCA claim. If false statements made during the FDA approval process could serve as the basis for FCA liability, then courts would have to determine whether, but for the fraudulent conduct, the agency would have denied approval of the drug. Delving into the nuances of the FDA approval process, the court explained, would be a task the courts lack the expertise to execute. The court also echoed Rostholder‘s concern with using the FCA to short-circuit FDA’s own enforcement powers. Notably, however, the language and the logic of the Campie court’s opinion sweeps much broader than allegations focused on compliance with FDA regulations, and bear relevance on all FCA claims premised on alleged fraudulent conduct directed at a regulatory agency other than the one which pays the affected claims.
Finally, the court addressed the relators’ alternative theory of FCA liability, namely that the manufacturing defects were so significant they rendered the resulting product “worthless.” As we previously reported here, and as the Campie court observed, the Seventh Circuit recently constrained the viability of FCA suits premised on a theory of “worthless services,” ruling that a product or service’s diminished value must not be simply “worth less,” but rather must be truly “worthless.” Although the government has argued through statements of interest in both this case and Rostholder that some cGMP violations may so affect a drug “that the drug is essentially ‘worthless’ and not eligible for payment by the government,” the court ruled that the Campie relators had not alleged facts meeting the requirements of “the narrow ‘worthless services’ theory.”
The court granted the relators an opportunity to amend their complaint and either articulate a worthless services theory or a direct misrepresentation made during the payment process. We will continue to monitor any developments in this case, which is sure to be cited by defendants facing a broad range of FCA claims based on alleged regulatory non-compliance, and not just by defendants in FCA cases premised on alleged violations of cGMP and other FDA requirements. A copy of the district court’s opinion can be found here.
Posted by Jaime Jones and Jessica Rothenberg
On February 21, 2014, the Fourth Circuit upheld the dismissal of a former employee’s False Claims Act suit against Omnicare, Inc. (“Omnicare”), holding that while the relator alleged violations of certain Food and Drug Administration (“FDA”) regulations by Omnicare’s subsidiary, Heartland Repack, his failure “to allege that the defendants made a false statement or that they acted with the necessary scienter” was fatal to his claim. Relator Barry Rostholder alleged that Heartland Repack violated drug GMP regulations that require penicillin and non-penicillin drugs be packaged in isolation from each other so as to avoid cross-contamination, by repackaging penicillin in facilities also used for non-penicillin drug packaging operations. In his suit, which was first filed in 2007, Rostholder alleged that as a result of this violation, the drugs were adulterated and ineligible for Medicare or Medicaid reimbursement, and that any claims presented to the government for reimbursement were false under the FCA. The government declined to intervene in 2009. The district court granted Omnicare’s motion to dismiss and denied relator’s request to file an amended complaint.
The Fourth Circuit held that whatever Rostholder had alleged, he had not identified any false statement or other fraudulent misrepresentation made by Heartland Repack to the government, as required under the FCA. The court first held that a drug must be merely FDA-approved to qualify for reimbursement, and that the Medicare and Medicaid statutes do not prohibit reimbursement for adulterated drugs and do not require compliance with FDA safety regulations as a precondition to reimbursement. Therefore, “the submission of a reimbursement request for [an FDA-approved] drug cannot constitute a ‘false’ claim under the FCA on the sole basis that the drug has been adulterated . . . in violation of FDA safety regulations.” Because Rostholder failed to plead the existence of any false statement or fraudulent course of conduct, his FCA claims failed. The court summarily dismissed Rostholder’s attempt to proceed under implied certification or worthless services theories of FCA liability. Holding that any amendment would be futile in light of its holding, the Fourth Circuit also upheld the lower court’s decision to deny Rostholder leave to file a third amended complaint.
In arriving at its decision, the Fourth Circuit declined to sanction the use of the False Claims Act as a tool to ensure regulatory compliance, particularly where an agency such as the FDA has the power to enforce its own regulations. As Judge Barbara Milano Keenan, writing for the panel, noted, “[T]he correction of regulatory problems is a worthy goal, but is ‘not actionable under the FCA in the absence of actual fraudulent conduct.'” This case is significant in particular in light of numerous recent statements by various government lawyers signaling DOJ’s intent to pursue FCA actions based on GMP violations, and is sure to be frequently cited in defense of such claims.