The Worm Turns: the Government Stakes Out a Standard that May Foreclose Many Federal False Claims Act Cases Based on Certain Alleged FDCA Violations

By John R. Fleder –

For many years, FDA has taken the public position that nongovernmental entities cannot enforce the Federal Food, Drug, and Cosmetic Act.  That position has not deterred lawsuits against businesses under statutes other than the FDCA, arguing that the defendants’ conduct violated the FDCA.  Examples include class action and individual product liability cases, suits filed under the federal Lanham Act (relating to alleged false advertising), and alleged securities law violations involving companies that publicly indicate their compliance with the FDCA.

The federal False Claims Act, 31 U.S.C. §§ 3729-3733 (“FCA”), is a commonly used statute these days.  Alleged whistleblowers seek to recover money on behalf of the United States, and of course, themselves in situations where the alleged whistleblower (relator) believes that companies and others have caused the federal government to pay out money based on “false claims” that were submitted by the defendant or someone else.

We have seen numerous relators file creative lawsuits under the FCA claiming that companies regulated by FDA violated the FCA because those companies sold products that: (1) violated the FDCA in some respect; and (2) the federal government reimbursed someone for the costs of those products.  For instance, relators have claimed that companies have illegally marketed products off-label, have engaged in manufacturing practices that violated FDA’s cGMP requirements, have sold unapproved products, have conducted clinical trials that were not cleared by FDA, and have failed to report to FDA adverse events associated with a product (see, e.g., here and here).  One relator unsuccessfully tried to argue that a defendant’s alleged failure to comply with an FDA Consent Decree provided authority for that relator to obtain a recovery under the FCA.  There have undoubtedly been other cases where relators have pushed other FDCA-related theories pursuant to the FCA.

The government has declined to take over the prosecution of many, but certainly not all, of these FDA/FDCA cases.  One example of a case where the federal government intervened was the GlaxoSmithKline case, which involved alleged cGMP violations (see our previous post here).

Now, the United States has staked out a position on these cases.  In United States ex rel. Ge v. Takeda Pharmaceutical Co., the Department of Justice filed a brief on August 5, 2013, in the U.S. Court of Appeals for the First Circuit, Case No. 13-1089.  Takeda was alleged to have violated the FCA by failing to report adverse events associated with its drugs.  The district court dismissed the case because he concluded that relator had failed to plead his case with sufficient particularity.  The court also indicated that FDA’s regulatory scheme barred this FCA action because FDA had a regulatory mechanism whereby the public can petition FDA to take action against violators of the FDCA, and that mechanism precluded an FCA suit.  Even though the United States’ brief did not take a position on whether the dismissal was appropriate with regard to whether the complaint was pleaded properly, the government did weigh in on whether the court’s reliance on FDA’s regulatory scheme was correct.  The government’s brief to the Court of Appeals asserts that the court below erred in relying on FDA’s Citizen Petition procedures as an “alternative administrative mechanism” that bars FCA actions.

The brief also argues that failure to report adverse events to FDA can theoretically form the basis for FCA liability.  The brief states that pharmaceutical companies must report adverse events associated with their drugs to FDA.  It states that the government can seek to withdraw approval of the drug or bring civil or criminal proceedings against the allegedly offending company.  The government indicates that FDA approval is relevant to whether the government can reimburse for drugs under some government programs.

So far, so good for the relator.  But then the worm turns.

The relator claimed that all of the claims for reimbursement submitted with regard to Takeda’s drugs were “false” because Takeda had not properly filed adverse events reports.  The district court rejected that theory.  On appeal, the government concludes that the circumstances where a failure to report an adverse event could form the basis for FCA liability are “rare.”  Indeed, the government states that simply “alleging that a company failed to comply with FDA’s adverse event reporting requirements is insufficient to state an FCA claim.”  The government further argues that compliance with the FDCA’s adverse event reporting requirements “is not, in itself, a material precondition of payment under Medicare or Medicaid.”  In the government’s view, only when it is determined that the unreported adverse events “are so serious that the FDA would have withdrawn a drug’s approval for all indications had these events been properly reported” would the failure to report be material to the government’s payment decisions and thus trigger a potential FCA action.  Withdrawal of approval because of unreported adverse events is pretty rare.  It is so rare, in fact, that we cannot recall an instance in which it has happened.

The standard suggested by the government in its brief, if adopted by the courts, should foreclose many if not most of the FCA cases that are based on alleged FDCA violations involving adverse drug events, alleged cGMP violations and many other “routine” alleged FDCA violations.  The brief may not deter relators from filing cases, but it should be a valuable tool for defendants to present to courts around the country to combat such suits.