The False Claims Act (FCA) is the government’s primary civil remedy to recover money that should not have been paid by the government in various areas such as health care, defense and national security, food safety and inspection, federally insured loans and mortgages, highway funds, small business contracts, agricultural subsidies, disaster assistance, and import tariffs. In 1986, Congress strengthened the Act by amending it to increase incentives for whistleblowers to file lawsuits alleging false claims on behalf of the government.
Most false claims actions are filed under those whistleblower, or qui tam, provisions, which allow private citizens with independent knowledge of fraud against the government to come forward and help recoup money on behalf of the state or federal government. It is so effective that the FCA has allowed for the recovery of more than $4.7 billion just in the 2016 fiscal year, alone. Of the $4.7 billion recovered, $2.5 billion came from the health care industry, including drug companies, medical device companies, hospitals, nursing homes, laboratories, and physicians. The $2.5 billion recovered in fiscal year 2016 reflects only federal losses. In many of these cases, the recoveries included additional millions of dollars for state Medicaid programs. This is the seventh consecutive year where health care fraud recoveries have exceeded $2 billion.
The next largest recoveries came from the financial industry in the wake of the housing and mortgage fraud crisis. Settlements and judgments in cases alleging false claims in connection with federally insured residential mortgages totaled nearly $1.7 billion in fiscal year 2016 – the second highest annual recovery in this area. In large part because of its effectiveness, it should come as no surprise that the FCA has come under attack in recent years. In 2015, the United States Supreme Court issued an opinion that verified the theory of “implied certification;” the Court urged careful scrutiny of the facts underlying whistleblower’s complaints. Since that decision, (Universal Health Services v. U.S. ex rel. Escobar) courts across the country have dismissed more and more complaints. Until recently, that is.
In a win for the Plaintiff’s bar, the Ninth Circuit Court of Appeals resurrected a multibillion-dollar FCA suit accusing Gilead Sciences Inc. of defrauding taxpayers by concealing information about drug suppliers and contamination, saying the whistleblower suit passes muster under Escobar. In a unanimous decision, the Ninth Circuit rekindled the complaint, brought by Jeffrey and Sherilyn Campie, who have worked on quality control matters at Gilead.
At issue is whether Gilead breached the FCA by secretly switching to a Chinese active ingredient supplier after winning approval for several HIV drugs and by concealing information about contaminated ingredients when it later sought approval to use that supplier. The case involves HIV drugs Atripla, Truvada and Emtriva. In 2008 and 2009 – a key period in the case – Gilead received more than $5 billion from the government for those drugs. In the case at bar, the Ninth Circuit wrote, quoting from Escobar:
As was the case in Escobar, the claims in this case do more than merely demand payment. They fall squarely within the rule that half-truths – representations that state the truth only so far as it goes, while omitting critical qualifying information – can be actionable misrepresentations.
Importantly, the Appeals Court also rejected the idea that continued U.S. Food and Drug Administration (FDA) approval and government reimbursement for Gilead drugs meant that any violations weren’t “material” under the FCA. Although the Escobar decision called continued reimbursement strong evidence of immateriality, the Ninth Circuit distinguished Gilead’s situation. The panel said:
To read too much into the FDA’s continued approval – and its effect on the government’s payment decision – would be a mistake. First, to do so would allow Gilead to use the allegedly fraudulently obtained FDA approval as a shield against liability for fraud. Second … there are many reasons the FDA may choose not to withdraw a drug approval, unrelated to the concern that the government paid out billions of dollars for nonconforming and adulterated drugs.
This decision is a much-needed step in the right direction for the future of FCA cases. Fraud-based allegations, like those required for an FCA case, are difficult to bring even without case law altering the statutory pleading requirements. We must remember that the FCA is designed to encourage individuals to come forward to help recover government money; money that should never have been paid to line the pockets of companies like the pharmaceutical companies in this case. Hopefully, the trend will continue. If you need more information, contact Rebecca Gilliland, a lawyer in our firm’s Consumer Fraud & Commercial Litigation Section, at 800-898-2034 or by email at Rebecca.Gilliland@beasleyallen.com.
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