Feds Argue for False Claims Act ‘Fraud in Inducement’
The federal government has filed an amicus brief with the 1st Circuit Court of Appeals to argue the position that “fraud in the inducement” is a potentially viable theory of False Claims Act (FCA) liability. The brief was filed in an appeal of a Massachusetts federal court whistleblower suit against ev3, Inc., a medical device manufacturer.
The whistleblower alleged that the company and other defendants caused false claims to be submitted to federal healthcare programs as a result of their marketing two medical devices — the Onyx embolization system and Axium coils. The whistleblower based claims on two theories. First was “fraud in the inducement,” saying that the defendants made a series of misrepresentations to FDA concerning Onyx and Axium. Thus, the suit claimed that the defendants misled FDA by proposing an overly narrow indication for Onyx, while concealing their robust marketing strategy for unapproved uses. The suit said that because defendants’ fraud allegedly induced FDA to approve Onyx, reimbursement claims for procedures involving Onyx for unapproved uses were fraudulent. The whistleblower also said that the company failed to submit accurate adverse event reports for Oxyx and Axium and that FDA would have recalled the devices or restricted their use if it had known the truth.
The whistleblower’s second theory of FCA liability was that the Axium devices were defective and improperly manufactured. The suit also said that the company’s conduct caused doctors to perform procedures using Axium, and that such procedures were not reasonable and necessary for the diagnosis of treatment of illness or injury and thus not reimbursable by Medicare.
The amicus brief speaks to the district court’s dismissal of the suit against ev3. The court had ruled that the allegations were not sufficiently specific as required by federal court rules and failed to state an acceptable claim.
“The district court broadly rejected relator’s ‘fraud-in-the-inducement’ and defective-device theories,” the brief says. “In the district court’s view, relator’s claims ask the court to ‘usurp FDA’s prerogative’ and to ‘reevaluate years of FDA decisions concerning the approval or recall’ of the devices…. The court further suggested that the availability of alternative legal and administrative remedies warn against recognizing an FCA action.”
The federal government’s brief says that the district court’s reasoning was erroneous and, if adopted, would seriously impair FCA enforcement in any case involving conduct subject to federal agency oversight. “FCA cases routinely implicate decisions within the authority and expertise of an agency,” it says. “Moreover, the availability of alternative legal and administrative remedies does not foreclose FCA liability…. There is no reason to categorically foreclose the ‘fraud-in-the-inducement’ theory in cases invoking fraud on FDA. In appropriate circumstances, it is possible to state a claim for FCA liability when a defendant uses deceit to gain or maintain FDA approval or clearance of a medical device, resulting in subsequent reimbursement or payment by the government.” The brief says that the government takes no position on whether the whistleblower has stated a claim for relief under any theory of liability and takes no position on whether the whistleblower’s allegations satisfy the pleading requirements.