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What follows is a guest post from Joe Metro and Andy Bernasconi of Reed Smith. Andy has some experience with the guest post gig (here and here), and Joe has finally heeded the call to share his fraud and abuse expertise with our readers. That particular expertise is not in abusing the legal process like the plaintiffs discussed below. Joe and Andy deserve any praise or blame for their post.

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The U.S. Department of Justice (DOJ) recently took the relatively unusual step of seeking the dismissal of eleven pending False Claims Act (FCA) cases that had been filed throughout the country by relators under the qui tam provisions of the FCA against 38 pharmaceutical manufacturer defendants. DOJ filed motions to dismiss in each action on December 17, 2018, asserting the government’s investigation revealed that the cases “lack sufficient merit to justify the cost of investigation and prosecution, and otherwise [are] contrary to the public interest.” United States’ Motion to Dismiss at 1-2, 14 (Dec. 17, 2018) (hereafter, “DOJ MTD”). A copy of the motion to dismiss, as filed in a case in Texas, can be found here.

Significant to DOJ’s analysis was the fact that the qui tam relators used “false pretenses” to obtain information from witnesses. DOJ MTD at 6. According to the government, the actions all were filed by a “professional relator” entity that sought to develop contacts and inside information under the guise of conducting a research study of the pharmaceutical industry, id. at 1, 5, and offering to pay individuals for information provided in a purported “qualitative research study,” even though the information was “actually being collected for use in qui tam complaints filed by [the professional relator] through its pseudonymous limited liability companies.” Id. at 5. At no time were witnesses told that the interviewer was acting at the direction of attorneys to collect information for use in lawsuits, or that the interviewees would be named as corroborating witnesses in those lawsuits. Id. at 6.

This alleged scheme of using false pretenses to obtain information to be used as the basis for qui tam FCA suits may sound familiar to you: we previously wrote here and here about a similar case against a pharmaceutical company, involving the same “professional relator” and the same alleged scheme to obtain information as the basis for a qui tam FCA suit. As detailed in our prior discussion, the District of Massachusetts ultimately dismissed that prior case after finding that the means used to obtain information for use in that lawsuit violated ethical rules, and ruling that the remaining allegations of the complaint—when stripped of the information obtained through improper means—could not satisfy the pleading standards to survive a motion to dismiss.

That decision is perhaps one reason why a judge in one of the 11 cases in which DOJ filed motions to dismiss, the same District of Massachusetts, issued an order on December 18, 2018 (i.e., the day after DOJ filed its Motion to Dismiss), directing relators’ counsel to show cause by January 2, 2018, why their pro hac vice status should not be revoked for “prosecuting an action without sufficient factual and legal support, as charged” in DOJ’s Motion to Dismiss and supporting documentation. See U.S. ex rel. SMSF, LLC v. Biogen, Inc., No. 1:16-cv-11379-IT (D. Mass.), Electronic Order, Dkt. No. 55 (Dec. 18, 2018).

Indeed, it would be awkward for DOJ to sit idly by and allow qui tam cases to proceed, in the government’s name—which is how the qui tam system works—when those cases are purportedly premised on a scheme one district court already described as involving ethical violations and “an elaborate series of falsehoods, misrepresentation, and deceptive conduct.”    Some commentators have suggested that DOJ’s efforts to seek dismissal in these cases is a natural consequence of the so-called “Granston Memo,” an internal DOJ memo originally dated January 10, 2018, that has since been incorporated into the Justice Manual  (formerly known as the U.S. Attorneys’ Manual), which provides guidelines for DOJ attorneys to consider in evaluating whether to dismiss qui tam cases for lack of merit. While DOJ’s Motion to Dismiss relies on various factors for seeking dismissal, including the “substantial costs in monitoring the litigation and responding to discovery requests” and the “substantial litigation burdens for the United States,” DOJ MTD at 15, it is at least as likely—if not more so—that DOJ’s decision to seek dismissal of these 11 cases was driven by the relator’s scheme to collect information for use in qui tam cases, as characterized in DOJ’s Motion to Dismiss. Indeed, the litigation burdens for the government have existed since those cases were filed under seal and investigated by the government, 31 U.S.C. § 3730(b)(2), and DOJ easily could have exercised its authority to seek dismissal of the cases long before its December 17 filings. Thus, we are skeptical that DOJ’s exercise of its dismissal authority should be portrayed as a sign that DOJ will readily dismiss burdensome cases, particularly in the absence of other significant (if not egregious) considerations.

Finally, the government’s motion is atypical, and significant, with respect to its comments on the substantive merits of the relator’s allegations. The relators’ complaints made sweeping allegations that various types of common manufacturer product support programs – ranging from nurse training or hotlines, disease education, and reimbursement support – amounted to violations of the anti-kickback statute. In seeking dismissal, the DOJ not only acknowledged that government enforcement agencies had indicated that the practices in question were not kickbacks, but also emphasized that the practices supported federal policy interests in appropriate product utilization.

The former principle should seem an unremarkable basis for the government to seek dismissal of whistleblower litigation, but the more common approach seems to have been to ignore, dismiss, or distinguish enforcement agencies’ prior guidance to industry. Given the other unusual aspects of the cases discussed above, one would be hard-pressed to declare this approach to the merits to be a “new trend.” But at the least, it is a useful reminder of the potential value of early engagement with the government on the regulatory merits of relators’ theories. Indeed, while the government’s motion cited a recent safe harbor regulation preamble, there is a wealth of other guidance that may prove useful, including the OIG’s Compliance Program Guidance documents, safe harbor regulations, special advisory bulletins, and advisory opinions.

The latter point noted by the government – that manufacturer product support programs are often actually aligned with federal health care programs’ interests – is equally significant. Simply stated, in an age where emerging genetic therapies are more precise and more complicated, and in an age where the government is increasingly focused on outcomes-based health care delivery and payment systems, the government’s acknowledgement that manufacturers have a legitimate role to play in facilitating appropriate product use is important not only from the perspective of False Claims and anti-kickback defense, but also when counseling on such arrangement.

What should not be lost here, particularly for readers of the Blog’s usual fare, is that the economic incentives in place for generating and pursuing litigation against drug manufacturers sometimes lead to egregious conduct by putative plaintiffs and their lawyers. The conduct can be so bad that even DOJ, which is often aligned against the drug manufacturers, cannot stomach it. Whether that dyspepsia affects DOJ’s position on other types of litigation against medical product companies remains to be seen.

 

 

Private plaintiffs love to scream “fraud on the FDA”!  Agency fraud is their magic potion for dissolving any FDA action that they don’t like.  Just assert that the FDA was bamboozled and invite some jury somewhere to ignore what the FDA actually did.  Unfortunately for the other side, Buckman Co. v. Plaintiffs Legal Committee, 531 U.S. 341 (2001), precludes private plaintiffs from bringing such allegations bases on state tort law.  The FDCA is quite clear, in 21 U.S.C. §337(a), that only the government – not private plaintiffs – may seek to enforce the Act.

In Buckman, the Court held (unanimously), first, that “fraud-on-the-FDA claims inevitably conflict with the FDA’s responsibility to police fraud consistently with the Administration’s judgment and objectives.”  Id. at 350.  That’s rather obvious, because the logic of any agency fraud claim is that “fraud” allows a factfinder to conclude that, if not defrauded, the agency wouldn’t have done what it did.  That presents a rather raw conflict with whatever the agency actually did, which (unless revoked by the affected agency) is a federal decision presumably still in effect.

Second, in the context of the FDCA specifically, the Court recognized that Congress did not want private individuals running around purporting to enforce any of the many requirements imposed by the FDA under the Act.  That’s the §337(a) aspect:  “The FDCA leaves no doubt that it is the Federal Government rather than private litigants who are authorized to file suit for noncompliance with the medical device provisions:  ‘[A]ll such proceedings for the enforcement, or to restrain violations, of this chapter shall be by and in the name of the United States.’”  531 U.S. at 349 n.4 (quoting §337(a)). “[W]e have clear evidence that Congress intended that the MDA be enforced exclusively by the Federal Government.”  Id. at 352 (again citing §337(a)).

But Buckman involved only state-law claims and thus preemption was easily invoked to prevent both the inherent conflict and the private enforcement problems identified by the Court.  So Buckman does not directly prohibit private litigants from using a federal statute to assert purported fraud-on-the-FDA claims.  One federal statute does not preempt another.  POM Wonderful LLC v. Coca-Cola Co., 573 U.S. 102, ___, 134 S. Ct. 2228, 2236 (2014) (“the alleged preclusion of a cause of action under one federal statute by the provisions of another federal statute” “is not a pre-emption case”).  There are at least four types of federal statutes that we expect plaintiffs to use to attempt private enforcement of fraud-on-the-FDA claims:  the False Claims Act (“FCA”), the Lanham Act, RICO, and antitrust statutes.  Most of the action, particularly recently, has involved the FCA.

There are other types of wanna-be private FDCA enforcement than fraud on the FDA – that’s what POM Wonderful was about (FDA-permitted food labels that allegedly deceived the public, not the FDA) – but we’re more interested in Buckman than anything else, so we wanted to see how fraud-on-the-FDA claims specifically have fared, when asserted under these other federal statutes.

Most recently, in a FCA decision that we discussed here, the First Circuit rejected allegations that were little different, substantively, from those that had produced Buckman itself.  Plaintiff alleged that the defendant “made a series of false statements to the FDA . . ., but for which the FDA would not have approved the [product] or would have withdrawn that approval.”  United States ex rel. Nargol v. DePuy Orthopaedics, Inc., 865 F.3d 29, 31 (1st Cir. 2017).  Based on those allegations, the Nargol plaintiffs claimed the every use of the product was as false claim – without the FDA’s (allegedly fraudulently obtained) approval, “doctors would not have certified the devices for government reimbursement.”  Id.  The First Circuit held, in effect, “hell, no.” The FDA was aware of all the mud the plaintiffs threw against the wall and did not rescind its decision:

Such very strong evidence [of immateriality] becomes compelling when an agency armed with robust investigatory powers to protect public health and safety is told what Relators have to say, yet sees no reason to change its position.  In such a case, it is not plausible that the conduct of the manufacturer in securing FDA approval constituted a material falsehood capable of proximately causing the payment of a claim by the government.  Ruling otherwise would “turn the FCA into a tool with which a jury of six people could retroactively eliminate the value of FDA approval and effectively require that a product largely be withdrawn from the market even when the FDA itself sees no reason to do so.”  [T]here is no allegation that the FDA withdrew or even suspended product approval upon learning of the alleged misrepresentations.

Id. at 35 (citations omitted).  Thus, “the FDA was paying attention,” but the Agency “viewed the information . . . differently than [plaintiffs] do.”  Id.

The government, having heard what [plaintiffs] had to say, was still paying claims not because of what was said to or by the doctors, but because the government through the FDA affirmatively deemed the product safe and effective.  And, absent some action by the FDA, we can see no plausible way to prove to a jury that FDA approval was fraudulently procured.

Id. at 36.  So, rather than preemption, Nargol disposed of fraud on the FDA-based FCA claims on materiality grounds, as long as the FDA (as is 95%+ the case) did not act on the purported fraud.  That’s basically Buckman modified by that decision’s two-justice concurrence that a different result might occur had the FDA itself found fraud.  531 U.S. at 353-55 (Stevens & Thomas, JJ. concurring).

The omitted citations in our quote from Nargol were to an earlier First Circuit decision that reached a similar result, D’Agostino v. ev3, Inc., 845 F.3d 1 (1st Cir. 2016).  In D’Agostino (which we previously discussed here), the First Circuit saw FCA-based fraud-on-the-FDA claims for what they really were, an attempt to hijack the FCA and turn it into a vehicle for second-guessing FDA decisions:

To rule otherwise would be to turn the FCA into a tool with which a jury of six people could retroactively eliminate the value of FDA approval and effectively require that a product largely be withdrawn from the market even when the FDA itself sees no reason to do so.  The FCA exists to protect the government from paying fraudulent claims, not to second-guess agencies’ judgments about whether to rescind regulatory rulings.

Id. at 8 (citation omitted).  Thus, the same policy reasons the Supreme Court gave for preemption in Buckman all counseled against recognizing agency fraud claims under a federal statute:

The collateral effects of allowing juries in qui tam actions to find causation by determining the judgment of the FDA when the FDA itself has not spoken are akin to those practical effects that counsel in favor of not allowing state-law fraud-on-the-FDA claims.  See Buckman Co. v. Plaintiffs’ Legal Committee, 531 U.S. 341, 349-51 (2001).  If jurors in a single qui tam case could determine precisely what representations were essential to approval, which experts to believe, and how the FDA interpreted submissions made to it, some potential applicants who would otherwise seek approval for new products might be deterred, others might swamp the FDA with more data than it wants, and the “FDA’s responsibility to police fraud consistently with the Administration’s judgment and objectives” might be undercut.  Id. at 350.

Id. at 8-9.

Additionally, as already mentioned in connection with Nargol, the D’Agostino decision also relied upon the “demanding” materiality standard for “implied certification” FCA claims.  Id. at 7.  That agency fraud supposedly “could have” influenced FDA approval wasn’t enough.  “[C]ould have . . . falls short of pleading a causal link between the representations made to the FDA and the [false claim] payments.”  Id.

If the representations did not actually cause the FDA to grant approval it otherwise would not have granted, [the government] would still have paid the claims. In this respect, [relator’s] fraudulent inducement theory is like a kick shot in billiards where the cue ball “could have” but did not in fact bounce off the rail, much less hit the targeted ball.

Id.  Moreover, the D’Agostino fraud-on-the-FDA allegations failed for lack of causation.  If the FDA’s response to the fraud allegations is “doesn’t impress me much,” and the FDA thus doesn’t rescind its decision, then causation is impossible – and that’s what happened in D’Agostino:

In the six years since [relator] surfaced the alleged fraud, the FDA has apparently demanded neither recall nor relabeling of [the product] − this notwithstanding the agency’s [list of enforcement options].  The FDA’s failure actually to withdraw its approval . . . in the face of [plaintiff’s] allegations precludes [plaintiff] from resting his claims on a contention that the FDA’s approval was fraudulently obtained.

Id. at 8.  “[C]ausation is an element of the fraudulent inducement claims [plaintiff] alleges and . . . the absence of official action by the FDA establishing such causation leaves a fatal gap.”  Id. at 9.

In Southeast Laborers Health & Welfare Fund v. Bayer Corp., 444 F. Appx. 401, 410 n.2 (11th Cir. 2011), the court held that plaintiffs could not pursue a fraud on the FDA-based RICO causation theory.  However, the court’s discussion of RICO simply referred back to its prior discussion of why a similar state-law claim could not survive:

A theory of causation relying solely on an allegation that the medication in question would not have been on the market absent the alleged fraudulent conduct is no more than a state law “fraud on the FDA” theory, a theory that has been specifically rejected by the Supreme Court. . . .  Accordingly, [our prior decision] could not have implicitly approved of a state law “fraud on the FDA” theory of causation . . . whereby a third-party payor is permitted to state a causal nexus between the alleged fraudulent conduct and the payor’s ascertainable loss by simply asserting that absent the allegedly fraudulent conduct, the FDA would not have approved the medication to be on the market.

Id. at 407 (Buckman discussion omitted).

Those are all the appellate cases having anything to do with agency fraud that cite Buckman in the same paragraph as one of the four federal statutes we earlier identified.  As for district courts, United States ex rel. v. Medtronic, Inc., 2017 WL 4023092 (C.D. Cal. Sept. 11, 2017), likewise rejected a fraud on the FDA-based FCA claim:

[C]laims of fraud are disfavored if made by third parties who seek to second guess a decision by the FDA to certify a device.  Relator’s claims are in effect such a challenge as to the decision of the FDA to grant §510(k) clearance for the Subject Devices. Alleged fraudulent conduct directed to the FDA, without more, is inadequate to support an FCA claim.  [discussion of Buckman omitted]

Given the resources available to the FDA to investigate and approve medical devices, and to pursue remedies for alleged violations that arise in connection with the process, the policy concerns expressed in [Buckman] are material here.  The premise of the alleged fraud in the FAC is that Defendants misled the FDA during the §510(k) certification process.  However, an FCA action is not the proper way to bring such a claim.

Id. at *7 (citing inter alia the district court opinion in D’Agostino, 153 F. Supp.3d 519).

On the other side, we have also found a couple of district court FCA cases that have allowed the sort of fraud on the FDA-based allegations that Nargol and D’Agostino reject.  See United States ex rel. Brown v. Pfizer, Inc., 2016 WL 807363, at *9 (E.D. Pa. March 1, 2016) (“The claims in Buckman were state law tort claims, not claims brought under the FCA.  Defendant has provided no authority, and we are aware of none, that has extended the holding in Buckman to FCA claims.”); United States ex rel. Krahling v. Merck & Co., 44 F. Supp. 3d 581, 593 (E.D. Pa. 2014) (“alleg[ations] that Defendant consistently and deliberately withheld pertinent information as to the safety and efficacy of a medication from the government . . . is [a] grounds for FCA liability.”).  Neither of these cases had the benefit of Nargol or D’Agostino, and neither addressed causation/materiality, so it is questionable whether they would be decided in the same fashion today.

Beyond the FCA, we found a magistrate’s opinion, Meijer, Inc. v. Ranbaxy Inc., 2016 WL 4697331 (Mag. D. Mass. Sept. 7, 2016), that the case “present[ed] an issue of apparent first impression: whether Sherman Act claims . . . may be predicated on an underlying fraud on the [FDA].”  The Magistrate effectively gave antitrust plaintiffs free rein to assert fraud-on-the-FDA claims:

The FDA’s enabling statute does not entrust it with policing antitrust or RICO; therefore, Plaintiffs’ claims do not usurp the agency’s statutory right to… calibrate a measured response to alleged fraud committed against it.  The question of whether or not particular acts of regulatory gaming harm competition is and should be an antitrust question

Id. at *11 (citations and quotation marks omitted).  See Id. at *19 (“these claims sound in antitrust, not violations of the FDCA”).  We note that Meijer evidently differs from the vast majority fraud-on-the-FDA pleadings, in that the plaintiffs allege that the FDA actually did determine that it had been misled and took affirmative corrective action.  Id. at *5, 13.  Perhaps that is the reason that Meijer nowhere cited the otherwise extremely pertinent D’Agostino district court decision.  Also of interest, permission for an interlocutory appeal has been granted, Meijer, Inc. v. Ranbaxy Inc., 245 F. Supp.3d 312 (D. Mass. 2017), and that appeal in pending in the First Circuit.  In the interim, of course, the First Circuit has decided both Nargol and D’Agostino since the district court originally decided Meijer.

Finally, we expected to find agency fraud claims brought under the Lanham Act, but didn’t.  There are certainly enough other types of attempted private FDCA enforcement that have been asserted under the Lanham Act.  But our search (which required the term “Lanham” to appear in the same paragraph as “Buckman” or several variants of “fraud on the FDA”) didn’t produce anything directly on point.  The closest approximation was Intra-Lock International, Inc. v. Choukroun, 2015 WL 11422285 (S.D. Fla. May 4, 2015), which alleged the sale of a “medical device” without getting any form of FDA pedigree.  There was no fraud on the FDA, because there were no interactions with the FDA at all. The Lanham Act claim in Intra-Lock was dismissed because plaintiff’s theory of selling a medical device without a license was purely a violation of the FDCA.  Id. at *7.  But the case wasn’t – at least overtly – a true agency fraud claim.  Cf. Organ Recovery Systems, Inc. v. Preservation Solutions, Inc., 2012 WL 116041, at *7-8 (N.D. Ill. Jan. 16, 2012) (allowing non-FDA-related Lanham Act claims while making clear that plaintiff’s preempted agency fraud claims were not based on the federal statute).

So far, there hasn’t been an appellate court in the country that has allowed a private plaintiff to avoid Buckman by bringing a fraud-on-the-FDA claim disguised as a federal statutory claim.  While we’re not out of the woods, yet, the current trend can be described as favorable.

We have always thought that the False Claims Act resides in some sort of alternate universe when it comes to pharmaceutical products. The central concept behind the FCA is easy:  The FCA penalizes anyone who presents, or causes to be presented, to the federal government “a false or fraudulent claim for payment or approval.”  31 U.S.C. § 3729(a)(1).  In other words, you can’t swindle the government.  That is the basic point you need to know to understand the Act, but if you want more detail you can review our recent FCA primer here.

It starts to get fuzzy when a plaintiff (or more accurately the “relator” under the FCA) tries to append the FCA to allegations of off-label promotion of prescription drugs. In the case of truthful off-label promotion, there is no falsity.  And, the defendant drug manufacturer has usually made no claim to the government for payment.  So where is the eponymous “false claim”?  Add to that the increasingly common practice of applying Rule 9(b)’s particularized pleading standard to FCA allegations across the board, and you see an increasing number of opinions holding that plaintiffs cannot use off-label promotion as the basis for their FCA claims.

That is what a divided Sixth Circuit panel decided in United States ex re. Ibanez v. Bristol-Myers Squibb Co., No. 16-3154, 2017 U.S. App. LEXIS 21328 (6th Cir. Oct. 27, 2017).  In Ibanez, two former sales representatives brought a qui tam action on behalf of the government alleging that the defendants “engaged in a complex, nationwide scheme” to improperly promote the prescription drug Abilify through off-label promotion and illegal kickbacks to physicians. Id. at *2.  Their claims failed, however, for the same reason that most FCA claims fail in this context:  The relators could not allege with particularity a connection between the manufacturers’ alleged conduct and a claim for payment made to the government.  The court’s synopsis of the pleading standard highlights how a relator has to allege facts linking it all together:

A claim under [the FCA] “requires proof that alleged false or fraudulent claim was ‘presented’ to the government.” At the pleading stage, this requirement is stringent:  “where a relator alleges a ‘complex and far-reaching fraudulent scheme,’ in violation of [the FCA] it is insufficient to simply plead the scheme; [s]he must also identify a representative false claim that was actually submitted to the government.”

. . . . Rule 9(b) requires relators to adequately allege the entire chain—from start to finish—to fairly show defendants caused false claims to be filed.

Id. at *9-*10 (citations omitted, emphasis added). When applied to alleged improper promotion of prescription drugs, the causal chain gets sketchy:

First, a physician to whom [the manufacturers] improperly promoted Abilify must have prescribed the medication for an off-label use or because of improper inducement. Next, that patient must fill the prescription.  Finally, the filling pharmacy must submit a claim to the government for reimbursement on the prescription.

Id. at *10. According to the Sixth Circuit, this chain “reveals just what an awkward vehicle the FCA is for punishing off-label promotion schemes.” Id.

“Awkward vehicle.” Those are the Sixth Circuit’s words, not ours, but the description is apropos.  These relators were unable to allege a single representative false claim, because they could not allege the causal chain from beginning to end.  Although they alleged that the defendants made false statements in order increase Abilify prescriptions, they could not allege any connection between the alleged statements and any claim to the government. Id. at *14.  They could not allege a conspiracy to violate the FCA either because having a plan to increase prescriptions through improper promotion “may be condemnable,” but it does not amount to an agreement “made in order to violate the FCA.” Id. at *16 (emphasis in original).  The court acknowledged an exception to this stringent pleading requirement—the so-called Prather exception—where a relator has personal knowledge directly related to billing practices, supporting a “strong inference that a false claim was submitted.” Id. at *11-*12.  But these relators were former sales representatives with no involvement in government billing.  The majority held that their lack of personal knowledge negated the Prather exception, although the dissenting judge disagreed. Id. at *13, *34-*37.

The relators therefore failed to state a claim, and the Sixth Circuit also rejected their proposed amended complaint because it had all the same problems as the former complaint: The relators alleged that various pharmacies submitted claims to Medicaid for Abilify prescriptions, but they could not identify the prescribing physicians or otherwise connect the claims to the defendants’ alleged conduct. Id. at *23-*24.  They alleged that certain physicians prescribed Abilify covered by Medi-Cal, but could not allege that the prescriptions were off label or resulted from any improper promotion. Id. at *24.  They alleged that a certain patient was prescribed Abilify off label, but they could not allege that the prescription was presented to the government for payment or was connected to the alleged improper promotion. Id. at *24-*26.

The proposed conspiracy claim in the amended complaint failed for similar reasons: The claims were not adequately tied to any allegedly false statements made by the defendants.  “Thus, the connection between the false statements and claims submitted to the government remains ‘too attenuated to establish liability.’” Id. at *27-*28.

There are other wrinkles in the opinion, but we have covered the essentials. If there is one takeaway from the opinion (and this blogpost), it is this:  An FCA claim based on improper promotion of prescription drugs will almost always fail because there are too many links in the causal chain leading from the alleged promotional activity to a claim for payment submitted to the government.  The first link may be the most difficult.  Physicians exercise their independent medical judgment in writing prescriptions every day, including prescribing drugs for off-label uses.  Who is say whether any one decision was actually influenced by off-label promotion?  When adding in the patient’s decision to fill the prescription and the pharmacy’s decision to submit a claim for government reimbursement, the connection becomes “too attenuated.”  Or, as the Sixth Circuit put it, awkward.

With Bexis having originally conceived the preemption argument that became Buckman Co. v. Plaintiffs Legal Committee, 531 U.S. 341 (2001), we are always on the lookout for ways in which plaintiffs attempt to circumvent Buckman’s result and thus  to pursue private litigation over fraud on the FDA.

Plaintiffs love to claim fraud on the FDA. It’s their all-purpose response to any FDA action that they don’t like.  For over fifteen years, now, Buckman has severely cramped their style.

One group of plaintiffs thought they had found their way around Buckman – relators bring cases under a federal statute, the False Claims Act, 31 U.S.C. §3729 (“FCA”).  Since the FCA is a federal statute, the preemption rationale by which the FDCA, and specifically 21 U.S.C. §337(a), prohibiting private enforcement, bars conflicting state-law theories would not apply.  These plaintiffs thought they had reached the promised land.

Not so fast.

Actually, all they’d come up with were a few bits of legal trumpery. The Oxford Dictionary offers four definitions for trumpery:

  • “Attractive articles of little value or use.”
  • “Practices or beliefs that are superficially or visually appealing but have little real value or worth.”
  • “Showy but worthless.”
  • “Delusive or shallow.”

When the word fits, use it. All the definitions (the first two are nouns; the last two adjectives) fit here.

We saw the end coming, in this post, discussing United States ex rel. D’Agostino v. EV3, Inc., 153 F. Supp.3d 519 (D. Mass. 2015), and it has now drawn nigh.  First, D’Agostino was affirmed. D’Agostino v. ev3, Inc., 845 F.3d 1 (1st Cir. 2016).  We discussed that decision, with great glee, here.  Fraud on the FDA, unless the FDA actually found fraud, didn’t cut it under the FCA, because causation would be entirely speculative – plaintiffs would have to prove a counterfactual hypothesis, that the FDA would have done something other than what it in fact did:

If the representations did not actually cause the FDA to grant approval it otherwise would not have granted, [the government] would still have paid the claims.  In this respect, [relator’s] fraudulent inducement theory is like a kick shot in billiards where the cue ball “could have” but did not in fact bounce off the rail, much less hit the targeted ball.

Id. at 7.  Where the FDA didn’t act on an FCA plaintiff’s allegations, those claims are mere trumpery.  The materiality standard for FCA claims is tough – “[i]t is a ‘demanding’ standard.”  Id. (quoting Universal Health Services, Inc. v. United States, 136 S.Ct. 1989, 2003 (2016)).  If it’s not enough to impress the FDA directly under the FDCA, purported fraud on the FDA is certainly not enough to move the needle under the FCA.

D’Agostino was good, but a more recent case, United States ex rel. Nargol v. DePuy Orthopaedics, Inc., 865 F.3d 29 (1st Cir. 2017), is even better.  The allegations in Nargol were practically indistinguishable from what the Bone Screw plaintiffs alleged two decades ago in Buckman itself.  The plaintiff, a pair of doctors who “claim to be experts in hip-replacement techniques and devices,” id. at 31, claimed that the manufacturer of a such a device “made a series of false statements to the FDA . . ., but for which the FDA would not have approved the [product] or would have withdrawn that approval.”  Id. at 32.  Sounds like a broken record to us:

Plaintiffs say petitioner made fraudulent representations to the Food and Drug Administration (FDA or Administration) in the course of obtaining approval to market the [product]. . . .  Had the representations not been made, the FDA would not have approved the devices, and plaintiffs would not have been injured.

Buckman, 531 U.S. at 343.  This plaintiff-side trumpery also reminds us of an advertising “slogan” from the Onion.  The only difference between Nargol and Buckman were the purported damages – while Buckman invoked fraud on the FDA to allege that every use of the device in question was automatically a tort, Nargol pushed the same theme to claim that every such use (on Medicare and certain other patients) was automatically a false claim.

Talk about allegations “of little use or value.”

Focusing on the claims, “whether direct or indirect, that rest on the allegation that [defendant] misrepresented the safety and effectiveness of the product’s design in order to secure or maintain FDA approval,” the panel “appl[ied and extend[ed]” D’Agostino to affirm dismissal.  Id. at 31, 34.  Unlike D’Agostino, which had involved a PMA medical device, Nargol involved a device that had been cleared for marketing as “substantially equivalent” under so-called “§510(k) clearance.” Id. at 34.  That difference didn’t matter, since the claims in both cases sought to attack the integrity of the process by which the FDA allowed the products in question to be marketed.

The claim in this case is not quite on all fours with the claim we confronted in D’Agostino because the FDA does not independently assess the safety and effectiveness of a [510(k)] medical device. . . .

Nevertheless, the process constitutes the government’s method of determining whether a device is safe and effective as claimed.  That determination is what makes the product marketable, and Relators offer no suggestion that government reimbursement rules require government health insurance programs to rely less on section 510(k) approval than they do other forms of FDA approval.

Id. (emphasis added) (citations to Lohr and Buckman omitted).  We would be remiss if we failed to note that, in this respect Nargol is congruent with what the FDA itself said earlier this year – that, yes, the 510(k) process does involve determinations of device safety and effectiveness.  Lohr is anachronistic on this point, and will eventually be reconsidered.

But we digress.  Back to fraud on the FDA, where Buckman, by comparison, isn’t out-of-date at all.

The FDA, as Buckman observed, wields plenty of tools to protect itself from being defrauded and to punish anyone so bold as to try.  531 U.S. at 349 (listing administrative powers).  Its lack of exercise of such powers in Nargol demonstrates the trumpery nature of the plaintiffs’ claims:

The FDA, in turn, possesses a full array of tools for “detecting, deterring, and punishing false statements made during . . . approval processes.”  Its decision not to employ these tools in the wake of Relators’ allegations so as to withdraw or even suspend its approval of the . . . device leaves Relators with a break in the causal chain between the alleged misstatements and the payment of any false claim.

865 F.3d at 34 (emphasis added) (Buckman citation omitted).  For this reason, the FDA’s decision not to act “also renders a claim of materiality implausible.”  Id.

Even in an ordinary situation not involving a misrepresentation of regulatory compliance made directly to the agency paying a claim, when “the Government pays a particular claim in full despite its actual knowledge that certain requirements were violated, that is very strong evidence that those requirements are not material.”

Id. at 34-35 (quoting UHS, 136 S. Ct. at 2003).  Such evidence is not just “strong,” but “compelling” when “an agency armed with robust investigatory powers to protect public health and safety is told what Relators have to say, yet sees no reason to change its position.”  Id. at 35.

Thus, without an FDA finding that it was defrauded, fraud on the FDA allegations by FCA relators are both too speculative to plead causation plausibly and not material.  That’s not quite preemption but is satisfyingly close.  Fraud on the FDA allegations, without support from the FDA itself, amount to trumpery:

[T]here is no allegation that the FDA withdrew or even suspended product approval upon learning of the alleged misrepresentations.  To the contrary, the complaint alleges that Relators told the FDA about every aspect of the design of the . . . device that they felt was substandard, yet the FDA allowed the device to remain on the market. . . .  Such evidence does show that the FDA was paying attention.  But the lack of any further action also shows that the FDA viewed the information, including that furnished by Relators, differently than Relators do.

Id. at 35 (emphasis added).  Right.  The FDA considered these allegations to be fake news.

Plaintiffs had a fallback position – that even after the device was approved, its mere use could constitute a “false claim.”  To wit:  “In theory, a product may be sufficiently ‘safe’ and ‘effective’ to secure FDA approval for a given use, yet its use might nonetheless not be sufficiently ‘reasonable and necessary’ for patient care to warrant Medicare reimbursement.”  Id.  More trumpery, held Nargol.  The “complaint was devoid of particularized allegations,” the differences being claimed were within the “maximum failure rate provided under industry guidelines,” and ultimately “simply runs Relators back into” their fraud on the FDA claims.  Id. at 36.  Thus, no causation and no materiality:

We see no reason, though, why such a likely and customary repetition of the statements made to the FDA renders it more plausible that a materially false statement caused the payment of a claim that would not have been made otherwise.  The government, having heard what Relators had to say, was still paying claims . . . but because the government through the FDA affirmatively deemed the product safe and effective.

Id..  Yes, a 510(k) clearance means “the FDA affirmatively deemed the product safe and effective.”

Ultimately D’Agostino prevailed.  Plaintiffs “offer[ed] no rebuttal at all to D’Agostino’s observation that six jurors should not be able to overrule the FDA.”  Id.  Their arguments “offer[ed] no solution to the problems of proving that the FDA would have made a different approval decision in a situation where a fully informed FDA has not itself even hinted at doing anything.”  Id.

Between them, D’Agostino and Nargol should slam the door on plaintiffs’ attempt to assert fraud on the FDA under the guise of FCA claim (unless the FDA itself has reached the same conclusion).  See In re Plavix Marketing, Sales Practice & Products Liability Litigation (No. II), 2017 WL 2780744, at *21-23 (D.N.J. June 27, 2017) (rejecting similar FCA fraud on the FDA allegations against prescription drug).  Moreover, the emphasis in these cases on the speculative nature of attempting proof of what the FDA might have done if presented with a different set of facts also casts doubt on the Third Circuit’s terrible Fosamax decision, which, as we have pointed out, would saddle juries with the task of doing just that.

Our day job has been keeping us busy, so busy with depositions, motions, delayed flights, and assorted drama that we have not posted in more than a month.  After such a long layoff, we had hoped to return with a vengeance, a “the North remembers” sort of vengeance.  Instead, we get fair market value, Current Procedural Terminology codes, and a Daubert challenge to a defense expert accountant.  Eh.  The decision is in a False Claims Act case about Medicare fraud and kickbacks, about which we care and have even spent some billable time.  But the reason we are writing about U.S. ex rel Lutz v. Berkeley Heartlab, Inc., No. 9:14-cv-00230-RMG, 2017 U.S. Dist. LEXIS 107481 (D.S.C. July 12, 2017), is because the rejection of opinions offered by the expert in this case undercuts the damages claims we see in other cases.

Lutz involves allegations that the defendants overbilled Medicare in connection with blood tests.  One part of the alleged scheme was that the defendant labs charged high processing and handling fees.  (We will ignore the issues of FCA materiality and causation that seem to flow from the absence of evidence of Medicare payment on processing and handling charges.) From what we can tell, the defendant’s expert opined that these fees were consistent with the fair market value—a defined term under the, aptly named, Stark Act—and did not represent kickbacks to referring physicians.  He offered a “charge-based methodology” to conclude that the fees were consistent with fair market value because physicians allegedly expected to recover for time spent on processing handling, not just for the actual blood draw.

“[I]t is no secret that the sticker price of services listed in physician bills and hospital chargemasters are totally unmoored from the reality of arm’s-length transactions actually taking place in the marketplace.” Id. at *12.  We think you can see where we are going with this.  In product liability cases, economic damages related to medical care, past and future, are typically based on amounts incurred.  The collateral source rule is often used offensively to create a windfall of the difference between the amount on the bills and the portion of that amount anybody ever paid or will pay.  We have called this “phantom damages.”  In FCA, RICO, and consumer protection cases, for instance, the plaintiff’s theory of price gouging or other impropriety sometimes relies on the list price of a drug or the amounts appearing on bills, regardless of what typically gets paid.  Although in the context of granting a challenge to an expert for healthcare providers that wanted the charges to matter, the Lutz decision supports the more typical defense position.

Actual transactions, not just bills, are a better indicator of fair market value because “physicians deliberately set their fees higher than the amount they either expect to receive or do in fact receive to ensure that no money is left on the table.” Id. at *16.  The court identified a number of decisions, from various types of cases, recognizing that “physicians’ billed charges do not necessarily reflect the market value of physician services.” Id. at **17-18 (citing cases).  So, the next time you have a case where the plaintiff says her damages include the total of all her medical bills and the only support she needs is her expert mouthing that “the charges were all reasonable and necessary,” think about whether Lutz and the cases it cites help you push back.  That was our return:  brief, a little bloody, and with the promise of more to come.

The New Jersey Supreme Court has ruled that once the Attorney General declines to take over a qui tam action, he can no longer use administrative subpoenas to compel testimony and documents from defendants and witnesses. In the Matter of the Enforcement of New Jersey False Claims Act Subpoenas, __ A.3d__, 2017 WL 2458163 (N.J. June 7, 2017).

The background of the case is set out in the Appellate Court’s decision at 134 A.3d 1012 (N.J. Super. App. Div. Mar. 18, 2016). The underlying complaint in federal court is a qui tam action alleging that a pharmacy benefits manager defrauded the state by retaining rebates that were supposed to be passed along to its clients in violation of the federal False Claims Act and the New Jersey False Claims Act (“NJFCA”). Id. at 1013. When a private citizen brings a qui tam action seeking to enforce the NJFCA on behalf of himself and the state, the complaint must be filed under seal and served on the Attorney General. The Attorney General then has 60 days to decide whether to intervene and take over the action. That time can be extended upon the Attorney General’s request and upon a showing of good cause. Id. at 1015.

In this case, that extension provision was liberally and repeatedly applied to afford the Attorney General approximately 600 days to decide whether to intervene, with the “final” intervention deadline set for June 2, 2015. Id. at 1014. The appellate decision mentions in passing that it was both not convinced and need not decide whether defendants engaged in delay tactics as “it neither explains nor excuses the Attorney General’s failure to proceed more expeditiously for such an extraordinary length of time. Id. The final deadline passed and the Attorney General did not exercise his option to take over the case. Id. at 1015. After June 2, however, the Attorney General sought enforcement of a subpoena previously served on the defendant and two subpoenas served after June 2 on additional witnesses. The federal court decided that the issue of the enforceability of the subpoenas was best resolved by the New Jersey state courts. Id.

The Attorney General argued that his right to investigate the claims did not disappear with the passing of the intervention deadline citing his statutorily granted subpoena power. But the court concluded that was not an “additional or separate font of power” once the Attorney General declines to intervene. Id. at 1016. The Attorney General has a duty to investigate possible NJFCA violations and is given tools to do so, but is also given a time period in which to do so. The Attorney General’s broad interpretation would mean that he could investigate “for so long as he cared” and “seek leave to intervene . . . at any time up until the entry of final judgment.” Id. That would render the 60-day deadline meaningless and it is the goal of the court to interpret statutes “in a way that gives meaning to every part.” Id. The court also pointed out that the Attorney General’s repeated requests for extensions of the 60-day deadline contradict his argument that his right to continue his investigation and enforce subpoenas survives that deadline. Id. at 1017. Why else would he need the extensions?

Indeed the landscape changes once the Attorney General decides not to proceed. From that point forward, the person who initiated the action has the right to conduct the action and the Attorney General’s decision to opt out is final and not reviewable. Id. In other words, “there is no turning back.” Id. The Attorney General then becomes a bystander. He can request copies of the pleadings, motions and depositions only at his own cost. And finally, he remains on the sidelines unless he can convince the court that he has “good cause” to intervene at a later date. Id. The Attorney General urged a broad reading of that final provision, but the court said it had to be construed with the other three provisions, all of which heavily favor a legislative intent that the relator be allowed to control the qui tam action uninhibited. Id.

The appellate court also found that the Attorney General should not be allowed to proceed with a separate investigation that might interfere with the federal judge’s management of the qui tam action to which the Attorney General is not a party. Id. at 1018.

The New Jersey Supreme Court adopted the reasoning of the appellate decision, but elaborated on an additional argument advanced by the Attorney General that NJFCA does not contain the same provision as the federal False Claims Act which expressly bars U.S. Attorney Generals from enforcing subpoenas after electing not to intervene. In the Matter of the Enforcement of New Jersey False Claims Act Subpoenas, __ A.3d__, 2017 WL 2458163 at *4. Because the NJFCA does not contain the same provision, the Attorney General argued that the New Jersey legislature must have intended to allow the issuance of administrative subpoenas after opting out.

But the FCA and the NJFCA differ in many ways. The NJFCA was not modeled on the FCA such that deletion of a specific provision would be evidence of a specific legislative intent to diverge from the federal approach. Id. The NJFCA tracks neither the structure nor the text of the FCA. So instead the court must look to the provisions of the NJFCA. As set out above, those provisions all support that the Attorney General’s right to enforce subpoenas ends with the decision not to take over the action. Id. at *5. So defendants don’t have to defend NJFCA violation allegations on competing fronts, thankfully.

This guest post by Andrew C. Bernasconi, of Counsel at Reed Smith, is about a hopeful development in a False Claims Act case we’ve already blogged about once.  The previous post queried, what happens when a FCA relator, blinded by the dollar signs in his/her eyes, resorts to questionable means to gin up “facts” that substitute for the personal knowledge that the statute assumes the relator has, but in this case did not?

This time, the chickens came home to roost.  Read and enjoy.

As always, our guest bloggers are 100% responsible for their insights – entitled to all the credit (and any blame – maybe for the asides about the greatest Super Bowl ever played).

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“I’m sure you all share my view when I say, ‘Go, Patriots.’”

These words from Boston-based U.S. Judge Dennis Saylor IV of the District of Massachusetts, when closing out a motion to dismiss hearing just a few weeks prior to Super Bowl 51, undoubtedly intended to reference the mighty New England Patriots and their impending appearance in what would become a historic win over the outmatched Atlanta Falcons.

Judge Saylor’s recent decision dismissing a qui tam False Claims Act (FCA) case, based on what he determined were deceit and ethical violations by plaintiff’s counsel, calls to mind the words of a different kind of patriot, Chief Justice John Marshall:

“Let the end be legitimate, let it be within the scope of the constitution, and all means which are appropriate, which are plainly adapted to that end, which are not prohibited, but consist with the letter and spirit of the constitution, are constitutional.”

McCulloch v. Maryland 17 U.S. 316, 421 (1819) (interpreting the Necessary and Proper Clause).  While the context of Judge Saylor’s recent decision differs dramatically from the issues considered by Justice Marshall in 1819, the focus of both on just ends and means provides a common theme.

We first blogged back in November about the case of U.S. ex rel Leysock v. Forest Laboratories LLC, where we explained that the defendant filed a motion to dismiss the qui tam relator’s False Claims Act allegations that were premised on false claims tied to alleged off-label marketing of a drug indicated to treat Alzheimer’s Disease.  Although the court denied a prior motion to dismiss relator’s complaint, finding that it contained sufficient particularity to satisfy Rule 9(b)’s heightened pleading standard, the defendant took the unusual step of filing a subsequent motion to dismiss while discovery was ongoing.  In the subsequent motion to dismiss, the defendant relied on discovery showing that relator’s counsel had hired a physician as an “investigator” to persuade other unwitting physicians, under the guise of conducting a “research study,” to provide confidential patient medical records for what (unknown to these other physicians) turned out to be for litigation purposes.  Relator’s counsel, of course, vigorously opposed the motion and contended that they had not engaged in any wrongdoing.

On April 28, 2017, Judge Saylor issued his opinion (copy here), in which he granted the defendant’s motion and dismissed the relator’s complaint. Leysock, No. 12-11354-FDS, slip op, (D. Mass. Apr. 28, 2017).  In a well-reasoned decision, Judge Saylor found there was “no dispute” that relator’s counsel had engaged in a scheme that involved “an elaborate series of falsehoods, misrepresentation, and deceptive conduct,” including:  (1) designing an investigation to obtain confidential information from physicians under the guise of a medical research study and (2) employing a physician as their agent to tell other physicians that records supplied by physicians to facilitate the “study” would remain confidential.  Slip op. at 14.

According to the court, this conduct violated ethical rules prohibiting knowing false statements of material fact made to third persons (Mass. R. Prof. Conduct 4.1(a)), and engaging in conduct involving dishonesty, fraud, deceit, or misrepresentation (Mass. R. Prof. Conduct 8.4(c)).  Slip op. at 15.  While acknowledging limited exceptions to these rules, where counsel may employ deception in investigations (e.g., using “discrimination testers” or investigators to uncover evidence of racial discrimination), the court concluded that the extreme conduct authorized by relator’s counsel – obtaining the confidential health information of innocent and unsuspecting patients under false pretenses from innocent physicians, and then breaching the disclosing-physicians’ trust by publishing confidential patient information in a lawsuit – easily distinguished this case from those where counsel’s deception was permissible.  Id. at 15-21.  [Editor’s note:  As a fan of the Patriots, Judge Saylor was well-positioned to evaluate whether sleazy schemes involved permissible deception or something worse.  Take that how you want, good reader.]

The court also rejected the argument by relator’s counsel that the ends justified the means.  Slip. op. at 21-23.  Relator’s counsel essentially argued that if relators are not permitted to use the type of deception at issue here, then it would be “difficult, if not impossible” for qui tam relators to satisfy the Rule 9(b) particularity requirement applicable to FCA cases.  Id. at 22.

This is where the concerns we mentioned in our earlier blog post, about opportunistic plaintiffs’ attorneys who manufacture cases lacking legitimate factual bases in hopes of obtaining financial windfalls, come to mind.  As Judge Saylor recognized, the FCA is designed to encourage claims by relators with actual, personal knowledge of fraudulent conduct, slip. op. at 22-23 – not by those who must resort to such deceptive tactics, like now-adjudicated unethical intrusions into the sanctity of the physician-patient relationship, as their only basis to prepare a complaint with sufficient information to survive a Rule 9(b) motion to dismiss.  A proper whistleblower has knowledge.  Different labels apply to those who mislead people for their own gain.

Employing the court’s inherent powers, Judge Saylor removed from relator’s complaint all information derived from the unethical investigation, and evaluated whether the remaining allegations could satisfy Rule 9(b).  They could not.  In other words, relator’s complaint had survived the defendant’s initial motion to dismiss only because of the information obtained from the unethical investigation.  Slip. op. at 23-27.  As a sanction, the court dismissed the relator’s complaint with prejudice to the relator (and without prejudice as to the United States, the real party in interest in qui tam cases).  Id. at 27.  But for a benevolent fan of patriots and Patriots (is there any other kind?), who determined that individual sanctions against relator’s attorneys were “not appropriate in this proceeding,” slip. op. at 24, there could have been more severe monetary or other sanctions for the use of deceptive or fraudulent means to advance that case.

As Judge Saylor held, the ends did not justify the unethical means employed by relator’s counsel.  Thus, for the defendant, justice finally (albeit belatedly) prevailed in this case.  If only relator’s counsel had been fans of patriots like Chief Justice Marshall, and employed only “means which are appropriate” to reach legitimate ends, this entire situation could have been avoided.

Happy birthday to Stan Lee, the main man behind Marvel Comics. He wrote the stories for The Amazing Spider Man which, when we were 10 years old, we read with a good deal more enthusiasm than we presently feel when encountering the deathless prose in (a) a plaintiff motion to compel, or (b) pretty much any opinion out of the Missouri state courts. When we were at Comic Con in San Diego last Summer, the only autograph we wanted was Stan Lee’s. But the line was indecently long. Hundreds of Thors, Daredevils, and X-men stood between us and the object of our adoration. We knew any hope of meeting our hero was pure fantasy. Anyway, if our friends at the Abnormal Use blog do not have a picture of a Marvel comic at the top of today’s post, we will be very much disappointed.

Happy birthday, also, to Denzel Washington. Most of you probably know him from his movies, such as Glory, Malcolm X, Training Day, and, currently, Fences. But we first laid eyes on Washington when he appeared in the very fine television show, St. Elsewhere. That program was set in a Boston hospital. It ran from 1982 to 1988. Denzel Washington was in the cast all six years. The entire cast was superb, and the writing was inventive. It is possible that the ending of St. Elsewhere (cleverly titled “The Last One”) was a little too inventive. It turned out that everything that happened in the series was the fantasy of an autistic child. To our eyes, it seemed a bit of a cheat. But maybe it was a commentary on art. Art is artifice. It is a lie in service of some bigger truth. It is a fine falsehood.

So fantasy and falsehood seem to be our themes for the day. Massachusetts has an interesting history of falsehoods in legal history. The Salem Witch trials had their origin in a silly girl’s lies. It is easy to read the trial transcripts of the Sacco and Vanzetti trial, or the trial of Lizzy Borden, and conclude that great injustices were done. More recently, and more to the point for the sort of law we practice, the history of False Claim Act cases against drug and device companies in the Bay State has been inglorious. Cases have marched forward and cost companies many millions of dollars in the absence of any actual falsehoods. We are even more dismayed when we consider the overly aggressive and incoherent positions sometimes adopted by our former employer, the Department of Justice. But maybe, just maybe, courts in the Bay State are starting to exercise some control over, and impose reasonable limits on, False Claims Act cases.

Continue Reading First Circuit Affirms Dismissal of False Claims Act Case

Ever since Buckman Co. v. Plaintiffs’ Legal Committee, 531 U.S. 341 (2001), held that state-law claims alleging fraud on the FDA are preempted, plaintiffs have been attempting to find some other way of bringing claims that attribute FDA actions to a defendant’s false pretenses.  Since preemption is based on the Supremacy Clause, and the constitutional relationship between the federal and state legal systems, the doctrine doesn’t apply where recovery is sought under a federal statute.  Since the False Claims Act (“FCA”) is a federal statute, sporadic attempts have been made to bring private fraud-on-the FDA-claims under that statute.  Bexis, who invented what became the Buckman fraud-on-the-FDA/implied-preemption defense in the Bone Screw litigation, even worked on an amicus brief in one such case, United States ex rel. Gilligan v. Medtronic, Inc., 403 F.3d 386 (6th Cir. 2005), that was ultimately decided (favorably to the defense) on other grounds.

A little less than a year ago we reported on an excellent FCA result in United States ex rel. D’Agostino v. EV3, Inc., 153 F. Supp.3d 519 (D. Mass. 2015).  Ever since we’ve been holding our breath, because the First Circuit has been known for pro-plaintiff rulings in cases against our drug and medical device clients.  Indeed, the First Circuit once led our list the worst drug/medical device cases of the year for two years running – in 2012 and 2013.  Whether something’s changed since then in the First Circuit, we can’t say.  But we can report that the district court’s dismissal of fraud-on-the-FDA-based FCA claims in D’Agostino has just been affirmed with an excellently reasoned decision.  See D’Agostino v. EV3, Inc., ___ F.3d ___, 2016 WL 7422943 (1st Cir. Dec. 23, 2016).

The facts in D’Agostino were thoroughly explained in our prior post.  Briefly, the relator (a fired sales rep) alleged that the defendants pulled fast ones on the FDA with respect to the approvals/supplemental approvals of two medical devices, one called “Onyx” and the other “Axium” (these defendants evidently like “x” as much as did the former Standard Oil of New Jersey).  The relator-plaintiff claimed that the defendants:  (1) sought approval of Onyx for a narrow indication, but intended to promote it more broadly off-label (exactly the claim in Buckman); (2) failed to live up to promises made to the FDA concerning extensive surgeon training in using Onyx (also a form of fraud on the FDA); (3) concealed the failure of Onyx’s active ingredient in a different device (ditto); and (4) failed to recall earlier versions of Axium after obtaining FDA approval (not fraud on the FDA, but a theory that could dangerously penalize innovation).  See D’Agostino, 2016 WL 7422943, at ??? (for some reason WL has omitted star paging, so we’ll also cite to the slip opinion), slip op. at 4-8.  Critically, although the FDA was informed of all of these claims, the Agency never instituted any enforcement action, nor did the government elect to join the D’Agostino FCA action.  Id. at 9, 15.  As discussed in the prior post, the district court dismissed all of these claims with prejudice as futile.

Continue Reading Fraud on the FDA Doesn’t Fly Under the FCA Either

It took us a long time to understand how off-label promotion of prescription drugs had anything to do with the False Claims Act, and we’re still not so sure that the two are a fit. The FCA penalizes anyone who presents, or causes to be presented, to the federal government “a false or fraudulent claim for payment or approval.”  31 U.S.C. § 3729(a)(1).  Easy, right?  As we explained just last month in this quick primer on the FCA, Congress enacted the FCA after the Civil War to curb abuses in government procurement.  That part we get.  If you sell the Army 1,000 horses and send them a bill for 2,000 horses, that’s a false claim.

We’re writing about this today because the First Circuit issued an opinion last month that comes to the correct result and also illustrates how FCA claims are alleged in connection with off-label promotion—and how they fail. In Lawton v. Takeda Pharmaceuticals Co., No. 16-1382, 2016 U.S. App. LEXIS 20943 (11th Cir. Nov. 22, 2016), a patent lawyer filed a qui tam action against the manufacturer of a prescription diabetes medication.  He did not actually use the medication, nor did he buy or sell it.  So what did he allege?  He alleged that the manufacturer engaged in an elaborate scheme to promote the drug for un-approved uses—off-label promotion—and that the manufacturer thereby induced medical providers to make allegedly false claims for reimbursement to Medicare and Medicaid. Id. at **4-7.

It’s a two-step process. The manufacturer did not itself make a false claim, but rather engaged in alleged conduct that induced someone else to make a claim, whether the claimant knew it was false or not.  The problem for the plaintiff (or more accurately, the “relator”) is that he alleged neither falseness nor a claim.  We call that a double whammy.  Or maybe it’s a double fault.

Continue Reading This Is How A False Claims Act Case Works—And Fails