We’ll Say It Again: Regulatory Noncompliance Does Not an FCA Case MakeFebruary 24, 2014
By Jennifer M. Thomas –
The writers of this blog have often noted with dismay Relators’ attempts to enforce the FDCA and FDA regulations through the False Claims Act. Here, and here, for example. Last week, the Fourth Circuit confirmed that this is a losing strategy for Relators.
Relator in United States ex rel. Barry Rostholder v. Omnicare, Inc., No. 12-2431 (Feb. 21, 2014), may have thought he had a slam dunk. As described by the Fourth Circuit Court, the fact of Omnicare’s alleged non-compliance with current Good Manufacturing Practices ("cGMPs") was well-established, as demonstrated by multiple FDA enforcement actions. Relator had instigated and assisted in FDA’s investigation every step of the way, leading the Court to conclude that Relator’s claims were not based on public disclosures, and that he was undeniably an original source. Not only that, but Relator pleaded that he had informed the company of their cGMP violations long ago, only to be ignored as the company continued to violate the law.
Nevertheless, even after providing a detailed description of the company’s alleged cGMP violations, the Fourth Circuit readily affirmed the lower court’s dismissal of Relator’s case. With all Relator’s allegations of bad acts, he had failed to allege the sine qua non of a False Claims Act claim – namely, a false claim. The Court found that to qualify for reimbursement under the statutes governing Medicare and Medicaid, “a drug merely must be approved by the FDA,” and that those statutes “do not provide that when an already-approved drug has been produced or packaged in violation of FDA safety regulations, that particular drug may not be the proper subject of a reimbursement request under Medicare and Medicaid.” Thus, “because compliance with the cGMPs is not required for payment by Medicare and Medicaid, Omnicare has not falsely stated such compliance to the government, as contemplated by the FCA.”
Not satisfied with rejecting Relator’s claim on statutory grounds alone, the Fourth Circuit went on to reject the policy argument implicit in claims like Relator’s, reasoning that “[w]ere we to accept relator’s theory of liability based merely on a regulatory violation, we would sanction use of the FCA as a sweeping mechanism to promote regulatory compliance, rather than a set of statutes aimed at protecting the financial resources of the government from the consequences of fraudulent conduct. . . . Congress did not intend that the FCA be used as a regulatory-compliance mechanism . . . .”
We couldn’t have said it better ourselves.