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Does District Court Dismissal of Declined Qui Tam Threaten Future DOJ False Claims Enforcement?

Written by: Ellyn L. Sternfield

The U. S. Department of Justice (DOJ) has taken the unusual step of appealing a federal district court’s dismissal of a declined qui tam brought under the federal and multiple state false claims acts (FCA).  Could the underlying opinion pose a threat to future DOJ health care enforcement efforts?

In late 2012, Massachusetts federal judge F. Dennis Saylor sustained a Motion to Dismiss two qui tam FCA actions brought by Dr. Helen Ge against her former employer, Takeda Pharmaceutical Company.  Ge asserted that Takeda's failure to properly report post-marketing adverse events for specified drugs as required by the FDA was actionable under the FCA for causing a false record or statement to be used that was material to a false or fraudulent claim.  Ge theorized that had the adverse events been properly reported to the FDA, Medicare, Medicaid and other federally funded health care programs may not have paid for the drugs at issue.

District Court Ruling

After DOJ declined to intervene in the case, Takeda’s Motion to Dismiss was granted, with Judge Saylor finding that:

  1. Ge failed to allege specific details showing that false claims were actually submitted to the government programs at issue.  Indeed, while Ge had provided aggregate spending data for the drugs, she provided no specifics of spending by any of the identified government programs.
  2. While Ge asserted that all claims for the drugs at issue were false, that inference was not supported by the facts alleged.  Had Takeda filed accurate adverse event reports with the FDA, the FDA had discretion to pursue multiple options and may not necessarily have withdrawn the drugs at issue.  And Ge had the option of filing a Complaint directly with the FDA, which she chose not to do, in lieu of filing her qui tam.    

On the second issue, Saylor acknowledged that false claims liability could be premised on the basis of an implied representation of compliance with preconditions not specified in statute, citing the First Circuit in Blackstone; but, he found no support in the record that the claims at issue included an implied representation of compliance with FDA reporting requirements. In other words, Ge “has not adequately established that compliance with adverse event reporting requirements was a material precondition to the payment of the claims at issue.”  And it is that later statement that is apparently causing DOJ heartburn.

DOJ’s Appeal

In its recently filed brief to the First Circuit, DOJ does not take issue with Judge Saylor’s dismissal of the case for lack of specificity in the pleadings.  But DOJ does challenge the suggestion that FCA liability could not be premised on a failure to comply with the FDA’s adverse event reporting requirements and goes so far as to state that “were this Court to adopt such reasoning, the government’s enforcement of the FCA could be significantly impaired.”

What is DOJ Afraid of?

DOJ’s appeal of this case comes on the heels of a Sixth Circuit finding that violations of technical Medicare enrollment requirements are not necessarily conditions of payment justifying FCA liability.  Companies are more inclined these days to fight back on DOJ’s and relators’ use of the FCA as a mechanism to enforce regulatory requirements.  DOJ recognizes that Judge Saylor’s opinion in this case could be fodder in any such fight.

DOJ is asking the First Circuit to find that under the FCA a false statement is material if it either has a “natural tendency to influence” or is “capable of influencing” the government’s decision to pay claims.  If an agency could have denied payment based on the violations, asserts DOJ, FCA liability is warranted.  DOJ is also concerned that Judge Saylor factored into his decision the fact that the FDA has alternative administrative mechanisms to address violations of the adverse event reporting requirements. DOJ is looking for the First Circuit to rule that the existence of alternative remedies does not affect, let alone preclude, an FCA action.   

It remains to be seen whether DOJ will receive a favorable response from the First Circuit.  If not, DOJ has not seen the last of Judge Saylor’s opinion.

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Theresa advises clients on all aspects of the pharmaceutical supply chain, including counseling industry stakeholders on a range of business, legal, transactional, and compliance matters. She provides clients with strategic counseling and creative business modeling that considers legal restrictions and regulatory risk in light of innovation and business goals.