Fraud-on-the-FDA As A Basis for A False Claims Act Lawsuit: Is It Dead Or Just Resting?

Legal doctrines can be like parrots.  Sometimes it is hard to know if they are dead or just resting.

Under the False Claims Act (FCA), if a company’s fraudulent conduct induces a governmental entity to enter into a contract with the company, then any claims for payments under that contract are false.  This fraudulent inducement theory is well‑established by statute and case law.  An offshoot legal doctrine that relators invoke to expand this FCA theory of liability has been termed “fraud-on-the FDA,” and suggests that fraudulent conduct directed at one governmental entity (FDA) renders a claim for payment to a different governmental entity (CMS) to be false.

Back in 2016, the First Circuit’s decision in United States ex rel. D’Agostino v. ev3, Inc., 845 F.3d 1 (1st Cir. 2016), was seen as a death knell for the fraud‑on-the-FDA theory in FCA cases.  The First Circuit essentially ruled that an allegation of fraud on FDA cannot simply allege that the defendant made material misrepresentations that may have induced FDA’s decision.  Rather, a relator must plead official FDA action demonstrating fraud in the inducement.  That rarely happens.

In subsequent years, however, it appears that not all courts have adopted the holding of the ev3 decision.  Specifically, last year, the Ninth Circuit allowed a fraud‑on‑the‑FDA claim to proceed, even though the supporting allegation was that material information was withheld that might have led FDA to a different approval decision.  There was no allegation of official FDA action confirming an alleged fraud.

So is fraud‑on‑the‑FDA dead or is it just resting?

The latest attempt to say the parrot is alive comes from the Southern District of Florida.  In that case, the DOJ filed a statement of interest, arguing that a violation of the Federal Food, Drug, and Cosmetic Act (FDCA) or implementing regulations may sometimes be “material to the government’s decision whether to pay for the affected product, and thus relevant in an FCA case.”

In the underlying case, the relator alleged that the defendant Trividia Health, among other things, hid material information that could have led FDA to require a product recall, and thus that payments for affected devices were based upon false representations.  The DOJ’s statement of interest claims that these or similar facts could potentially support a fraud-on-the-FDA theory of FCA liability.  The DOJ contends that a failure to report adverse events as required under FDA’s regulations could mask problems that would have led FDA “to institute or require a product recall.”

The DOJ notes that “device manufacturers are required to investigate adverse events and report information to the FDA within 30 days of becoming aware of information that the marketed device “[h]as malfunctioned . . . and would be likely to cause or contribute to a death or serious injury if the malfunction were to recur.” If there were a failure to comply, “subsequent claims relating to the affected devices could be rendered ‘false or fraudulent’ because the government would not have paid the claims for those affected devices but for the defendant’s conduct.”

This position directly contradicts the First Circuit’s ev3 decision.  The DOJ effectively is urging the trial court to accept a complaint based on mere theorizing that FDA would have instigated a recall had proper adverse event reporting taken place.  If the ev3 decision were applied instead, such allegations would be insufficient to establish causation.  It would be necessary for FDA to institute an actual recall or otherwise confirm the alleged fraud.

Many of the First Circuit’s reasons for rejecting fraud‑on‑the‑FDA also apply to the DOJ’s statement of interest.  As just one example, the First Circuit was concerned that allowing juries to find FDA has been defrauded in the premarket review process could lead to manufacturers to “swamp FDA with more data than it wants.”  Likewise, in the DOJ’s hypothetical, manufacturers would be incentivized to report all malfunctions to avoid the possibility of FCA liability, regardless of whether a malfunction met the regulatory standard for reporting.  The increased number of reports would likely swamp FDA’s data systems, creating even more signal to noise than already exists.

(Note the vagueness of the regulatory standard in the first place.  One of us has argued that this standard is so vague it potentially violates the constitutional requirements of fair notice and due process.)

There are other objections to the DOJ’s proposed use of adverse event reporting to support a fraud‑on‑the‑FDA theory.  The DOJ, however, does not attempt to answer any objections.  Rather, the DOJ merely suggests to the court that the fraud-on-the‑FDA theory might still be alive, without trying to argue persuasively for it.  The DOJ seemingly just wants to convince the court to refrain from any decision that would potentially preclude the DOJ from invoking a fraud‑on‑the‑FDA theory in future cases.

In other words, as far as the DOJ is concerned, the parrot is just resting.