Back to Basics with the Original Source: Pre-ACA Public Disclosure Bar
With the fate of the Affordable Care Act in question these days, the FCA community nevertheless continues its struggle to understand and cope with the changes wrought to the statute over seven years ago through the 2010 ACA amendments. And yet, due in large part to the quirky nature of the FCA’s sealing provision, which results in cases existing “undercover” for years, application of pre-ACA law remains an occasional necessity. In September, the Eighth and Fifth Circuits each examined the question of what it means to be a pre-ACA “original source,” the saving grace for relators whose allegations would otherwise be subject to dismissal under the public disclosure bar.
Under current, post-ACA law, the public disclosure bar is non-jurisdictional,
and permits relators to qualify as an original source of their allegations so
long as they provide information that “materially adds” to what previously had
been publicly disclosed and voluntarily disclose it to the government pre-suit.
Under pre-ACA law, however, the public disclosure bar had considerably sharper
teeth. If relators failed to qualify as an original source, the bar was
jurisdictional and would mean the death of their FCA claim. Furthermore, an
original source could not merely “add” to the publicly disclosed information;
rather, the original source had to have “direct and independent knowledge of
the information on which the allegations [were] based” and had to have provided that information to the government before
filing the FCA lawsuit.
The Eighth Circuit case, In re
Baycol Products Litigation, came to the court of appeals after the district
court dismissed allegations that the defendant pharmaceutical company had
concealed drug risks in its marketing efforts, and subsequently entered into
contracts with the Department of Defense to promote the product. No. 15-2220,
2017 WL 3927021 (8th Cir. Sep. 8, 2017). However, the allegations had
previously been disclosed in a prior lawsuit, various news articles, public
filings, and medical literature, thus triggering the public disclosure bar. The
district court had held that in order to qualify as an original source under
the pre-ACA public disclosure bar and save her complaint from dismissal, the
relator needed to demonstrate direct and independent knowledge of
communications between the defendant and the government that could form the
basis of a false claim or fraudulent inducement.
The Eighth Circuit rejected that reasoning, concluding it would “not
seem to serve the purposes of the [FCA]” to read the “original source” test to require
that a relator provide the government information about communications to it —
communications which, by definition, the government would already be aware of.
Rather, to qualify as an original source, the relator need only possess direct
and independent knowledge of any essential element
of the underlying fraud transaction. The court remanded the case to the
district court for reconsideration of whether this relator qualified under this
more relaxed reading of the exception, as well as other arguments the defendant
raised about knowledge and statute of limitations.
Just south of Baycol, relators
in the Fifth Circuit fared worse. The appeal in United States ex rel. King v. Solvay Pharmaceuticals, Inc. came
about after the district court granted the defendants summary judgment, holding
that the relators had failed to sustain their allegations of off-label
marketing and kickback schemes to promote three different drugs. No. 16-20259,
2017 WL 4003473 (Sep. 12, 2017). The district court had confronted four
different theories of liability, and disposed of each individually, including
by application of the public disclosure bar in its pre-ACA incarnation,
focusing on whether these relators had provided the requisite information to
the government before filing their suit. The Fifth Circuit analyzed the
information relators provided to determine whether their pre-suit disclosures
had sufficiently connected their information about off-label marketing and
kickbacks to “any false claims presented to the government.” Those disclosures,
in the form of a PowerPoint presentation made to the Food and Drug
Administration, made no mention of the FCA or of any false claims presented to
the government as a result of the marketing and kickback schemes alleged. Accordingly,
the Fifth Circuit affirmed the district court’s grant of summary judgment,
holding that while the information might suggest violations of drug-licensing
law, relators’ pre-suit disclosure had insufficiently disclosed the information
related to their FCA claims.
It would be tempting to think cases such as these, dealing with pre-ACA interpretations of the FCA, are mere relics of the FCA pipeline, soon to become obsolete as a new generation of cases works their way to the front of the line. Yet while pre-ACA law may sound like yesterday’s news, careful FCA practitioners (in the healthcare industry or otherwise) would do well to keep an eye on decisions applying the pre-ACA text. That pipeline is quite long – one case we tracked last year had been pending for seventeen years before it was finally resolved. And a savvy FCA defendant may yet find a way to leverage pre-ACA holdings in a post-ACA world, particularly one where courts continue to wrestle with whether the ACA amendments represented changes in kind, or only of degree.