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Sidley False Claims Act Blog DOJ Defends Viability of FDA Fraud Theory in Statement of Interest

Over the past decade, reporters have attempted to extend the long-established liability theory of “fraudulent inducement” to a new theory of “FDA fraud.” The fraudulent inducement theory posits that when a defendant’s fraudulent conduct induces a government entity to enter into a contract with the defendant, the claims for payment submitted under that contract are false. However, the FDA Fraud Theory extends this chain of causation by asserting that fraudulent conduct directed against the FDA can cause payment claims submitted to an entirely different government entity, such as CMS, to be false. The courts are divided as to the viability of this theory (as we have discussed here and here).

Relations led the charge in advancing and arguing this theory of liability, with the DOJ watching largely from the sidelines. Indeed, in 2019, the DOJ decided to dismiss an FDA fraud case despite the parent’s objections. However, in a recently filed Expression of Interest, the DOJ offered a vigorous defense of the theory. In the underlying case, the parent alleged that a manufacturer of blood glucose tests knowingly distributed defective test strips after discovering and covering up manufacturing defects, and that these test strips were therefore tampered with or mislabeled as violation of the Food, Drug, and Cosmetic Act (“FDCA”). As a result, the complaint alleged that the defendant caused federal health care programs “to reimburse unsafe and worthless blood glucose testing products “.

The DOJ declined to intervene but submitted a statement of interest to the district court. The DOJ briefly addressed the worthless services liability theory that was central to the parent’s complaint, explaining that “in certain situations, manufacturing defects that violate FDCA or FDA regulations could materially affect the safety, effectiveness or the performance of a device such as the product is essentially “worthless” and cannot be paid for by the government.”

However, the DOJ devoted the majority of its brief to explaining how the FDA fraud theory might also be viable in this case. In its motion to dismiss, the defendant had argued that to identify a false allegation based on violations of the FDCA, the parent “must link the alleged conduct, i.e., violations of the FDCA, to (1) a ‘misrepresentation or fraudulent conduct’ towards the paying government; and (2) showing that the conduct had an impact on the government’s decision to pay.” (internal citations omitted).

The DOJ disagreed, arguing that when “a manufacturer defrauds the FDA by withholding material information regarding the safety or effectiveness of a device – either during or after the approval process, or to avoid a recall – and federal health care programs then pay for this device, this fraud may be “part of a causal chain leading to payment” and actionable under the FCA The DOJ found that federal health care programs, in deciding whether to pay for a drug or device, rely on the FDA to determine whether that drug or device is safe and effective, and the FDA relies on manufacturers’ compliance with the FDCA, including adverse event reporting requirements, to assess safety and effectiveness.Thus, the DOJ took the position that where a defendant’s misrepresentations “masked problems s “that” caused the FDA to institute or require a product recall, subsequent claims about affected devices could be rendered “false or fraudulent,” because the government failed to pay claims for those affected devices. would have been the conduct of the defendant. »

The district court has yet to rule on the defendant’s pending motion to dismiss. A copy of the DOJ Expression of Interest is available here.

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