Fourth Circuit Affirms Dismissal of FCA Suit Alleging Regulatory Violations

03/04/2014

The Fourth Circuit recently held that selling contaminated drugs in violation of FDA regulations does not give rise to False Claims Act liability where compliance with the regulations is not a condition of federal reimbursement. See United States ex rel. Barry Rostholder v. Omnicare, Inc., No. 12-2431 (4th Cir. Feb. 21, 2014). In affirming dismissal of the whistleblower’s complaint, the Fourth Circuit staked out a position that treats the False Claims Act as a tool to combat fraud, not police potential regulatory violations. 

A former Omnicare employee filed a qui tam suit accusing Omnicare of selling contaminated drugs in violation of FDA regulations. The employee argued that, because the drugs failed to comply with FDA regulations, any claims for Medicare or Medicaid reimbursement for those drugs were false.

The district court disagreed and granted Omnicare’s motion to dismiss the lawsuit. On appeal, the Fourth Circuit affirmed, explaining that complying with the FDA regulations was not a prerequisite of Medicare or Medicaid reimbursement. Thus, Omnicare’s claims for reimbursement for such drugs could not be “false.” Although “the correction of regulatory problems is a worthy goal,” the court held, it is “‘not actionable under the FCA in the absence of actual fraudulent conduct.’” According to the Fourth Circuit, Congress did not intend the FCA to substitute for the FDA’s power to bring regulatory actions where fraudulent conduct does not exist.

Impact

The Fourth Circuit’s decision emphasizes that the primary purpose of the FCA is to combat fraud and to protect the government’s financial resources, not to enforce regulatory compliance. According to the court, that job should be left to the government agencies charged with regulatory enforcement – such as the FDA here. The court’s decision importantly underscores that evidence of regulatory violations, without more, is not actionable under the FCA.

Haynes and Boone has extensive experience defending clients in qui tam and False Claims Act investigations and lawsuits. If you have any questions or would like to discuss these issues further, please visit the False Claims Act/Qui Tam litigation page of the Haynes and Boone, LLP website or contact:

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