27 April 2017

Ninth Circuit Urged to Reverse District Court Dismissal of “Fraud on the FDA” Claims

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.

The district court dismissed this case in 2015 reasoning that, regardless of the alleged changes Gilead had made to its manufacturing processes without disclosing to FDA, the drugs at issue continued to have FDA approval, which was the only relevant condition of payment.  See our prior posts here and here.  The dismissal was prior to the Supreme Court’s decision in Escobar, and the impact of Escobar played a major role in oral arguments.

As we discussed here, historical government payment practices have gained new importance post-Escobar, in light of the Court’s advisement that government payment with knowledge of regulatory violations significantly undercuts assertions that those regulations are material.  The panel pressed relators’ counsel on whether the case should be allowed to proceed given that the government had always continued to pay for Gilead’s drugs, even in the face of the relators’ allegations.  The relators emphasized that the timing of the filing of the complaint, the government’s investigation, and when the company stopped the alleged undisclosed changes to its manufacturing processes would have made it difficult for the government to halt payment.  DOJ participated in oral arguments and also underscored that there “may be all sorts of reasons why the government may continue to pay” for products against the backdrop of alleged regulatory noncompliance, even if compliance is material.  As the government argued, such questions are matters of fact to be proven at trial “but not a legal ground to dismiss the complaint.”

The attorney for the defendant, in contrast, explained that not only had the government continued to pay, but FDA had never fully exercised its own “enforcement weapons.”  A major defense theme was the risk inherent in courts engaging in the business of second-guessing whether regulations are material to payment decisions, even where the enforcing agency did not take steps to fully resolve the matter.  Courts that have rejected fraud on the FDA cases have consistently expressed deep discomfort at the idea of judges substituting themselves for government agencies, and such concerns have proven to be a major obstacle for the viability of this theory.  Relators’ counsel attempted to assuage these concerns by assuring the court that there is “virtually no risk” in ruling in plaintiffs’ favor “because if the government really doesn’t like a lawsuit under the FCA, it can always spike the lawsuit”—an argument in some tension with relators’ position that government inertia can prevent the government from acting to halt payment.

A recording of oral arguments can be found here.

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