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First Circuit Punts on Implied Certification as a Basis for FCA Liability

Written by: Ellyn L. Sternfield

In August, I wrote about the unusual decision by the U.S. Department of Justice (DOJ) to appeal a district court’s dismissal of a declined qui tam brought under the federal and state false claims acts (FCAs). In appealing U.S. ex rel Ge v. Takeda, DOJ did not take issue with the district court’s finding under Rule 9(b) that the Complaint lacked the requisite specificity. DOJ did, however, challenge the court’s finding under Rule 12(b)(6) that FCA liability could not be premised on an alleged failure to comply with FDA adverse event reporting rules when the rules were not a material precondition to Medicaid or Medicare claims submission.

DOJ appealed the dismissal because of concerns that the district court order would stand as precedent to defend against health care FCA cases brought under a theory of liability through implied certifications. Now the U.S. Court of Appeals for the First Circuit has issued its opinion, sustaining the lower court’s dismissal of the Ge case.

The Court of Appeals opinion purports to address three questions:

  1. Whether Ge’s qui tam Complaint was specific enough to meet the demands of Rule 9(b);
  2. Whether the district court abused its discretion in not allowing Ge to, once again, amend her Complaint; and
  3. Whether the district court’s analysis sustaining dismissal under Rule 12(b)(6) relied on an "overly restrictive conception" of FCA liability.

Because the Court of Appeals found the answer to the first two questions was no, it decided it need not address the third question. So, in losing the appeal, did DOJ in fact win its argument?

On the issue of specificity, the Court of Appeals emphasized that the basis of FCA liability is false claims. Therefore, it is not enough under the FCA for a relator to allege defense misconduct, the relator must sufficiently establish that false claims were actually submitted to the government for payment. Here, Ge failed to establish that Takeda’s alleged misconduct in filing FDA reports actually resulted in the filing of false Medicare or Medicaid claims for the drugs at issue.

Ge filed her initial Complaint in June 2010, and over the next two years she filed an additional Complaint and twice amended both Complaints. While Takeda’s Motion to Dismiss was pending before the district court, Ge alluded to filing amended pleadings but she did not actually seek leave to amend until after the district court sustained the Motion to Dismiss. Under the circumstances, the Court of Appeals found no abuse of discretion in denying her another chance to amend.

The Appellate Court acknowledged the district court findings under 12(b)(6) and in a footnote further acknowledged DOJ’s objections to those findings. But because it found dismissal was warranted under 9(b), the Court never substantively addressed whether the district court’s view of FCA liability was in fact "too restrictive." As a result, while DOJ didn’t necessarily win the argument, it didn’t lose it either. The opinion of record in the case makes no findings regarding implied certifications as liability for FCA claims.

It is no accident that we are seeing more litigation surrounding FCA Motions to Dismiss under Rules 9(b) and 12(b)(6). More and more relators are electing to pursue qui tam cases after government declination. Without the benefit of government claims data to analyze, relators may be hard pressed to show the impact of alleged misconduct through the submission of actual false claims. Because Ge was not able to establish that any false claims were actually submitted to the government, the First Circuit was able to duck the secondary question: Can alleged administrative violations be bootstrapped into FCA liability for Medicare and Medicaid claims, when neither law nor regulation establishes a link between the rules at issue and claims submission? Given the state of FCA litigation, other courts will surely be called on to directly address that question.

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Theresa C. Carnegie is a Mintz attorney who advises health care clients on a wide array of transactional, regulatory, compliance, fraud and abuse matters, and health law issues. She counsels health plans, pharmacy benefit managers, pharmacies, device manufacturers, and distributors.