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False Claims Act Statistics, News & Analysis

Just What the Doctor Ordered: First Circuit Curtails Fraudulent-Inducement Theory Where Government Took No Action After Learning of FCA Allegations

In a pro-Defense bar, post-Escobar decision handed down shortly before the holidays, the First Circuit held that a relator could not proceed with an FCA claim based on alleged fraud in the inducement on the Food and Drug Administration because the FDA had not withdrawn or suspended its approval of the defendants’ medical device in response to relator’s allegations. D’Agostino v. ev3, Inc., No. 16-1126, 2016 WL 7422943 (1st Cir. Dec. 23, 2016). The opinion also doubles down on the First Circuit’s Cyberonics decision that we wrote about here, again rejecting as insufficiently particular under Rule 9(b), allegations that identify a fraudulent scheme but fail to show that false claims actually were submitted to the government as a result.

Relator alleged that defendants made false representations to the FDA that “could have” influenced the FDA to grant approval of a device to treat malformed blood vessels in the brain. During the premarket FDA approval process, defendants allegedly made statements to an advisory panel of outside experts highlighting the narrow set of circumstances in which the device would be used and the rigorous training program required for physicians using the device. The advisory panel—which placed great weight on the training requirements—ultimately recommended approval of the device, and the FDA adopted the panel’s recommendation. After receiving FDA approval, and in alleged contradiction of defendants’ earlier representations, defendants allegedly encouraged marketing the device for off-label procedures and provided inadequate training for physicians using the device. Relator alleged that physicians performing procedures with the device and hospitals where such procedures were performed then submitted claims for reimbursement to the Centers for Medicare and Medicaid Services (“CMS”), which required FDA approval as a precondition for reimbursement.

In a decision with potentially broad implications for all cases in which a relator relies on a theory of fraudulent inducement, the Court held that “[t]he FDA’s failure actually to withdraw its approval of [the medical device] in the face of [relator’s] allegations precludes [relator] from resting his claims on a contention that the FDA’s approval was fraudulently obtained.” The Court expressed concern that recognizing an FCA theory like relator’s might interfere with the FDA approval process by allowing non-expert relators, courts, and juries to second-guess FDA judgments regarding the safety of medical devices. As to causation, the Court rejected relator’s claims on the grounds that relator had failed to establish a causal link between defendants’ representations to the FDA and payments made by CMS. Citing Escobar, the Court also stated that CMS’s decision to continue reimbursing claims for procedures involving defendants’ device despite relator’s allegations cast “serious doubt” on the materiality of the alleged fraudulent representations.

D’Agostino suggests that the government’s continued payment of claims, despite knowledge of allegations of fraud, can be fatal to establishing materiality of an FCA claim. The court’s language (although only dicta) stands in contrast to Escobar on remand, in which the First Circuit noted that “mere awareness of allegations concerning noncompliance with regulations is different from knowledge of actual noncompliance.” See United States ex rel. Escobar v. Universal Health Servs., Inc., 842 F.3d 103, 112 (1st Cir. 2016). As we discussed here, the Escobar court expressed skepticism toward the defendant’s non-materiality arguments in the absence of any evidence that the government had actual knowledge of the allegations, “much less their veracity,” as it paid defendant’s claims. See id.

The Court in D’Agostino separately evaluated relator’s claims about alleged misrepresentations related to defendants’ training program and rejected those claims as insufficiently particular under Rule 9(b). Relator argued that claims for payment were necessarily submitted to the government because the physicians who performed procedures involving defendants’ device had many patients insured under government programs. In rejecting that argument, the Court emphasized the distinction between merely alleging that a certain percentage of patients carried government insurance and alleging that a claim for a procedure involving defendants’ device was actually submitted to the government. The Court found that relator’s allegations were insufficient to create a “strong inference” that false claims were actually filed.

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Joshua S. Johnson

Joshua S. Johnson Counsel