On June 3, 2022, the Washington, D.C., office of the Civil Division of the Department of Justice (DOJ) filed a statement of interest in a relator’s action in the Southern District of Florida, captioned U.S. ex rel. Patricia Crocano v. Trividia Health Inc., arguing that “[c]onduct giving rise to a regulatory violation can also give rise to [False Claims Act] liability.” Specifically, requesting “that the ruling not foreclose the possibility that, under certain circumstances, conduct giving rise to violations of the [Federal Food, Drug and Cosmetic Act] or FDA regulations could be material to the government’s payment decisions and provide a basis for FCA liability assuming all necessary FCA elements are demonstrated,” also known as “fraud on the FDA.” This filing is notable because it makes clear the DOJ’s decision to reawaken a theory of liability thought to be dead. First rejected by the First Circuit in 2016, the Ninth Circuit gave the theory a second chance resulting in a circuit split on this issue.
Fraud on the FDA
The fraud-on-the-FDA theory stems from the well-established legal doctrine of fraudulent inducement. Fraudulent inducement under the FCA occurs when a company’s fraudulent conduct induces the government to enter into a contract with the company, making any claims for payment under the contract false. Under the theory, fraudulent inducement occurs when a company’s violations of the Federal Food, Drug and Cosmetic Act (FDCA) or FDA regulations materially and wrongfully induce the FDA to approve a product, device, etc., which in turn, causes payments made by the Centers for Medicare and Medicaid Services (CMS) in relation to those products. This theory inherently suggests that false claims arise regardless if that agency paid for the claims at issue.
First Circuit Decision
In 2016, the First Circuit decided in United States ex rel. D’Agostino v. ev3, Inc. that a relator’s fraud-on-the-FDA claim could not move forward because no causal link between the defendant’s alleged false statements to the FDA and the later CMS payment of the related claims existed. The court reasoned that if the FDA was not, in fact, defrauded, the company that submitted the data to the FDA could not have caused the submission of false claims to CMS as a matter of law. The FDA would have to withdraw its approval or take another official action to confirm that it was, in fact, defrauded. Without such confirmation, a relator could not base a FCA claim on the theory that FDA approval was fraudulently obtained. The court noted that the FDA does not itself pay claims for medical devices. Rather, such claims are paid by CMS, generally on the condition that FDA had approved or cleared them for marketing.
Ninth Circuit Decisions
In contrast, the Ninth Circuit has allowed claims based on the fraud-on-the-FDA theory to continue in two instances.
In 2017, in United States ex rel. Campie v. Gilead Scis., Inc., the court found that “[m]ere FDA approval cannot preclude False Claims Act liability, especially where, as here, the alleged false claims procured certain approvals in the first instance.” Reasoning that while “other courts have cautioned against allowing claims under the False Claim Act to wade into the FDA’s regulatory regime… it is not the purpose of the [FCA] to ensure regulatory compliance” nor is it the “FDA’s purpose to prevent fraud on the government.”
In 2021, the court revisited Campie and found in United States ex rel. Dan Abrams Company LLC v. Medtronic Inc. that a claim under the FCA could be sustained when a medical device was allegedly not properly cleared by the FDA for any proper use. For example, in Medtronic, some medical devices only worked for their off-label or contraindicated use and not for the labelled intended use. The court reasoned that this alleged fraud went “to the very essence of the bargain.” It distinguished this situation from medical devices that could be used for their stated intended use and the contraindicated use, finding that the alleged omission of the company’s intention to market the devices for a contraindicated use was immaterial to the FDA’s clearance of the device.
Statement of Interest
The DOJ’s statement of interest in Trividia Health expresses the United States’ “substantial interest in the development of the law in this area and in the correct application of that law in this, and similar cases.” It also intends for the statement of interest to clarify its position on certain legal arguments in the motion dismiss at issue. In sum, it argues:
- “FDCA violations may, in certain circumstances, be material to the government’s decision whether to pay for the affected product, and thus relevant in an FCA case.”
- “Violations of the FDCA may be relevant in FCA cases where the violations are significant, substantial, and give rise to actual discrepancies in the composition, functioning, safety or efficacy of the affected product.”
- A regulatory violation is relevant, for example, when the product’s quality, safety and efficacy falls below FDA specified levels but is still cleared through its approval process. Citing to 21 U.S.C. §§ 351(b), 351(c), 351(e), 360d, 360k.
- Manufacturing deficiencies are relevant when they “affect the quality, safety, and efficacy of the affected products such that the FDA never would have approved or cleared the affected product-or allowed them to remain on the market-if it had known the truth, claims involving those devices never would have been eligible for federal healthcare program reimbursement.”
- Examples of relevant manufacturing deficiencies include when a medical device manufacturer obtains FDA approval or clearance for a device and “then palm[s] off a defective version of that device both directly on the government itself and on the unsuspecting government payors.”
The statement of interest is a sign that fraud-on-the-FDA-based FCA claims are and have been on the DOJ’s mind. The circuit split between the First and Ninth Circuits makes the outcome of this case unpredictable. Regardless, be prepared for an uptick of DOJ-driven and qui tam investigations and actions based on fraud-on-the-FDA FCA claims, or even fraud-on-any-federal-agency FCA claims.