Photo of Bexis
This post is a joint effort by Melissa Wojtylak and Bexis, both of Reed Smith.  Bexis came up with the idea.  Melissa did the real work.  Then Bexis edited it.
The blog has discussed significant rulings in False Claims Act (“FCA”) qui tam cases in the past – including the recent past.  Since we’re mostly product liability lawyers, the qui tam cases that we’ve covered
typically involved claims of off-label use of drugs or medical devices.  Today, though, we’re reporting on a ruling in a qui tam case involving alleged fraud on the FDA – specifically, purported failure to report adverse drug events (“ADEs”) to the agency.
Fraud on the FDA?  Isn’t that preempted, you ask?  Well … not in the FCA context, since that’s a federal claim, not a state law claim.  Preemption only applies to state-law claims.  And that’s the chief reason why this case – which throws out the would-be fraud-on-the-FDA claim as a matter of law − is important.
The ruling comes from the District of Massachusetts – a jurisdiction that, in the context of qui tam actions, the blog has previously recognized as one whose popular nickname we’re no longer allowed to use, but that if we were in elementary school, we might spell by including a reference to double hockey sticks.  (Remember hockey?)  However, not in U.S. ex rel. Ge v. Takeda Pharmaceutical Co. Ltd., 2012 U.S. Dist. Lexis 156752 (D. Mass. Nov. 1, 2012).  Rather, in Ge, the court dismissed two qui tam complaints brought by the same relator, holding that the complaints were deficient under both Rule 12(b)(6) and Rule 9(b).
So, what happened?   The relator worked for one of the defendants for about 16 months.  She alleged that the defendant either didn’t report ADEs at all, or fraudulently misclassified them as non-serious.  To make a case under the FCA (and similar laws in 23 states), the relator claimed that this mis/non-reporting resulted in false claims being made to various government programs, including Medicare and
How so?  Her theory was classic fraud on the FDA:  if these ADEs had been reported (or reported properly), the FDA either:  (1) might not have approved the drugs at all, or (2) might have withdrawn approval, or (3) might have required label changes that in turn might have caused doctors to prescribe the drugs less often, thus resulting in fewer government reimbursements.  Sounds like a lot of “might haves,” which of course immediately gets us thinking of Rule 12(b)(6).
But that first claim simply stumps us.  It’s impossible for post-marketing ADEs to have any effect at all on the initial FDA approval, since by definition “post-” means “after.”  (Parenthetically, we wonder if this sort of obvious impossibility would support Rule 11 sanctions.)
Anyway, defendants moved to dismiss under Rule 12(b)(6) and Rule 9(b).  We’re interested in the Rule 9(b) decision, since that’s where the valuable principle of law is stated.  The relator apparently didn’t want to do any heavy lifting, so she argued that all reimbursement claims for the four drugs were automatically “false” because of the alleged fraud on the FDA.  The court didn’t buy it, noting that this required the court to assume that FDA “would have withdrawn approval from all four drugs immediately upon receiving the proper adverse reports.”  2012 U.S. Dist. Lexis 156752 at * 16.  The court also criticized the relator for not explaining how the alleged reporting irregularities would have rendered “false” any claims that had been made before the supposed reporting failures.  There’s that pesky physical impossibility problem again.
Looking at the claims through the 12(b)(6) lens, the court noted that a qui tam relator has to do two things to survive a motion to dismiss:  (1) show that the claims misrepresented compliance with a material precondition of Medicaid payment, such that they were false or fraudulent, and (2) show that the defendants knowingly caused the submission of the false or fraudulent claims.   Peculiarly, the court held that the complaints had adequately alleged that the defendants had knowingly caused the claims at issue to be submitted, and that the question was whether the claims were false or fraudulent – i.e., misrepresented compliance with a “material” precondition of payment.  2012 U.S. Dist. Lexis 156752 at *17.  We respectfully disagree with the court on giving the relator that kind of a pass.  There are some major missing links in the chain.   Since the court already recognized that there’s no basis to assume the FDA would have imposed its most severe penalty (a persistent problem with all fraud-on-the-FDA claims) and taken any of the drugs off the market, then how can we assume that proper reporting of ADEs would have changed every (or even any) particular prescriber’s decision to prescribe?  That’s the minimum needed to find “knowing” causation.
Nevertheless . . . .
The court killed the complaints – and the fraud-on-the-FDA theory – anyway.  There was (and could be) no allegation that the claims at issue were false because they misrepresented compliance with a material precondition of payment.  First, the court rejected the relator’s argument that compliance with ADE reporting requirements was an “implied condition of continued FDA approval” of the four drugs, and that therefore every claim for reimbursement contained an implied representation that the defendants had complied with these reporting requirements.  2012 U.S. Dist. Lexis 156752 at *18.  Instead, the court held that even assuming the claims did include such an implied representation (and the court didn’t sound particularly convinced that they did), the relator was still required to demonstrate that compliance with the ADE reporting requirements was a material precondition to payment in for her claims to be viable.  Id.  However, “that is simply not the case.” Id. at *18-19.  Then came the death blow.  The FDA has discretion to decide whether and how to punish violations of ADE reporting requirements, and is not required to take any particular action.  Id. at *19.  Thus, the court found, compliance with the reporting requirements could not be a material precondition to payment of claims, at least where the FDA had not acted.  (The FDA rarely shares a plaintiff’s apocalyptic vision of fraud on the FDA.) Finally, the court noted that if the relator was so badly aggrieved by the purported misreporting, she should have petitioned the FDA.  Id.  Ouch.  This FDA-discretion rationale (something we’ve discussed before, see here for example) precludes any and all fraud-on-the-FDA-based attempts to invoke the FCA.  It’s not preemption, but it’s the same practical rationale that the Supreme Court invoked in Buckman Co. v. Plaintiffs Legal Committee, 531 U.S. 341, 349 (2001) (recognizing the prosecutorial options available to the FDA).
Finally, the court dismissed the various state law claims, noting that many of the state statutes contain language identical to the FCA, and that because the relator lost under the federal statute, she failed to state claims under the states’ laws, too.  However, the court also noted that even if the sketchy information in the complaints was sufficient to allege that any state considered compliance with ADE reporting requirements to be a material precondition to payment, dismissal was still appropriate, given the lack of details on any claim for payment made to any state.  2012 U.S. Dist. Lexis 156752 at *20-21.  Practice note: Buckman preemption of fraud on the FDA claims should also defeat the parallel state law counts.
We like Ge.  The fraud-on-the-FDA theory is just as antithetical to FDA regulation when packaged as an FCA claim as when it’s asserted under state law.  The fundamental flaw is the same:  plaintiffs should not be able to ignore in-place and never-rescinded FDA regulatory decisions.  The rank speculation that on some other version of the facts the FDA might have done something different (and extremely severe) is the same.
We dug a little deeper and found out that Ge is one of at least three recently-filed cases (all in the District of Massachusetts, of course) where a relator has tried to transmute alleged ADE reporting irregularities into FCA violations using a fraud-on-the-FDA theory.  The same attorneys have peddled the theory in each instance.  See U.S. v. Infomedics, Inc., No. 08-11775-NMG; U.S. v. AngioscoreInc., No. 09-12176-RGS.  So far, they’ve failed.
In a ruling on the defendant’s motion to dismiss in the Infomedics case (where the government chose not to intervene) the relator claimed that if the defendant had told the FDA that it was not going to comply with its reporting obligations, the drug in question would never have been approved in the first place, or supplemental NDA’s would not have been approved.  In short, the plaintiff both made up the “offense” (an “unsubstantiated” claim concerning “7,000 adverse reports”) and then sued the defendant for not confessing to it.  U.S. v. Infomedics, Inc., 847 F.Supp.2d 256 (D. Mass. 2012),  The relator’s “alternative” argument, that if the defendant had timely reported the ADEs, some incredibly restrictive labeling change would have resulted in fewer prescriptions being written, and therefore, fewer reimbursement claims also failed as a matter of law.  The court noted the complete failure to describe any particular adverse event report (a defect shared in all of these cases) that was not made to FDA, and pointed out that this also meant there was no information on how any particular report would have compelled the FDA to require a labeling change.  847 F.Supp.2d at 265.
In Buckman, the Supreme Court held that fraud on the FDA claims inherently conflicted with the FDA’s administration of its regulatory scheme because the FDA had lots of prosecutorial options and had the discretion to pick the right one for the job in any given case.  531 U.S. at 349.   That’s an inherent flaw in all fraud on the FDA claims, no matter what the purported legal basis on which these allegations rest.  But, as Ge and numerous other cases have held, the FDA has complete prosecutorial discretion, and private plaintiffs have no right to enforce the FDCA, particularly when flying in the face of what the FDA has actually done, and is continuing to do.  Thus, even putting preemption aside, fraud-on-the-FDA claims are not viable under the statutory scheme that the FDA administers.  That’s true, as Ge demonstrates, even in the District of Massachusetts.
Let’s hope the trend continues of courts rejecting legally bankrupt and factually bogus fraud on the FDA theories, no matter in what guise they are brought.