April 17, 2018

Supreme Court Considers Revisiting Key FCA Decision

Supreme CourtBy the C|C Whistleblower Lawyer Team

Yesterday, the justices asked the Trump Administration’s Office of the Solicitor General’s views on a petition for certiorari in United States ex rel. Campie v. Gilead Scis., a False Claims Act (FCA) suit against pharmaceutical giant Gilead Sciences. The suit, which was brought by two former Gilead employees turned whistleblowers, alleges the company made false statements about its compliance with relevant FDA regulations related to certain Gilead-produced HIV drugs. Gilead receives federal reimbursement for the drugs both directly, through the Department of Defense, Department of Veterans Affairs, Federal Bureau of Prisons, USAID, and the Public Health Service, and indirectly via reimbursement programs including Medicare, Medicaid, TRICARE, FEHBP, and the Ryan White Program. In 2008 and 2009 alone, the government paid Gilead more than $5 billion for the three relevant medications: Atripla, Truvada, and Emtiva.

When a pharmaceutical manufacturer seeks necessary FDA approval of a new medication, it must submit a “new drug application” (NDA), in which it reveals the drug’s chemical composition; specifies the facilities where the medication, and its component compounds, will be manufactured; and states the methods and controls used in the manufacturing process. Federal law and regulation empower the FDA to deny an NDA or revoke a previously approved application if it finds facilities or methods inadequate. Any major changes to the manufacture of an approved product require similar approval based on the submission of a “prior approval supplement” (PAS). The whistleblowers’ claims that Gilead’s alleged false statements rendered its drugs unapproved, and therefore ineligible for government payment or reimbursement. The allegedly false statements at issue involved representations Gilead made in its NDAs and PASs about the origin facilities for a key ingredient—FTC—in the three anti-retroviral drugs. The whistleblowers further allege that Gilead failed to notify the FDA about negative test results, contamination, and adulteration problems related to FTC sourced from the undisclosed facilities.

The case was initially dismissed at the trial court level, when the judge rule that plaintiffs’ failed to state an actionable claim, but that decision was later overturned by the Ninth Circuit Court of Appeals. The main issue in the case has become materiality, or whether the company’s false representations were likely to affect the government’s decision in making a payment. Here, the government continued to pay for the products even after learning of alleged infractions.

After the 2016 Supreme Court decision in Universal Health Services, Inc. v. United States ex rel. Escobar, many defendants have argued that the government’s decision to continue payment after knowledge of alleged fraud proves that the fraud was immaterial to them, and thus not actionable under the FCA. The Ninth Circuit applying Escobar’s “demanding” standard, concluded that although “at all times relevant, the drugs at issue were FDA-approved,” and in spite of the fact that the government “continues to make direct payments and provide reimbursements” for the drugs, a determination that such approval and continued payment would preclude FCA liability would be inconsistent with Escobar. In reaching its ruling, the court noted that “to read too much into the FDA’s continued approval—and its effect on the government’s payment decision—would be a mistake” given, among other factors, the “many reasons the FDA may choose not to withdraw a drug approval,” unrelated to concerns about fraud.

Other courts have taken a more defendant-friendly interpretation, including the Middle District of Florida and the Fifth Circuit, which overturned jury verdicts of $350M and $600M when applying Escobar.

The Court’s request of the Administration followed a Friday conference at which the Justices discussed the Gilead case for the first time. If the Supreme Court grants certiorari to the case, it would allow it to resolve the Escobar interpretation of the materiality standard which has been inconsistently applied in the lower courts.

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