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From Health Law Daily, May 08, 2017

Information disclosed, relator wasn’t source? FCA action barred

By Jeffrey H. Brochin, J.D.

A former pharmaceutical employee’s qui tam lawsuit was properly dismissed pursuant to a motion to dismiss under the public disclosure bar where the relator was not the original source of the information, the U.S. Court of Appeals for the 8th Circuit ruled. The issue of a public disclosure bar to a False Claims Act (FCA) (31 U.S.C. §3729 et seq.) lawsuit was appropriately resolved in a motion to dismiss even though the bar no longer poses a jurisdictional question (U.S. ex rel. Ambrosecchia v. Paddock Laboratories, LLC, May 5, 2017, Gruender, R.).

Background. In November 2012, a former employee (relator) of pharmaceutical manufacturer Paddock Laboratories, LLC, filed suit on behalf of the United States, 27 states, and the District of Columbia against Paddock and its parent, Perrigo Company, for violations of the FCA and various state statutes. The 1962 amendments to the Food, Drug, and Cosmetic Act (FDC Act) required drugs that were previously approved by the FDA to undergo a review for effectiveness under the Drug Efficacy Study Implementation Program (DESI). Drugs determined to be less than effective (LTE) and for which a notice of opportunity for a hearing was published (DESI-LTE) were deemed not eligible for Medicare and Medicaid reimbursement unless re-approved.

The relator alleged that Paddock reported reimbursement eligible classification codes to CMS for certain DESI-LTE drugs, which resulted in the United States and relevant state governments providing reimbursement for ineligible drugs. The companies filed a motion to dismiss, arguing that the public disclosure bar, 31 U.S.C. §3730(e)(4), required dismissal. The district court granted the motion and dismissed the FCA claims, finding that the public disclosure bar applied because two separate sources previously revealed substantially the same allegations or transactions as those contained in the relator’s complaint: (1) various federal reports; and (2) the complaint in another recent district court case. The district court held that the relator was not the original source within the meaning of the original source exception to the bar (see The public disclosure bar comes down on former pharmaceutical employee’s FCA lawsuit, September 24, 2015). The appellate court affirmed the district court’s dismissal.

Federal reports sufficient as public disclosure. The relator challenged the district court’s reasoning as to the court case, but she did not challenge its reasoning as to the federal reports until her reply brief. The appellate court noted that claims not raised in an opening brief are deemed waived, and ruled that the relator waived her opportunity to challenge the district court’s finding that the federal reports publicly disclosed her claims.

Because the federal reports were independently sufficient to apply the public disclosure bar, the appellate court held that it did not need to decide whether the district court correctly assessed whether the court case also qualified to raise the public disclosure bar.

Assertion of original source exception. The appellate court considered the relator’s contention that she met the criteria for the original source exception to the public disclosure bar. The record established that the relator provided information concerning her contemplated suit to the government prior to filing her lawsuit, but not prior to the public disclosures. She provided information to the government in mid-November 2012, a short time before filing her initial complaint on November 20, 2012. The federal reports that publicly disclosed the claims were published in the second quarter of 2012 or earlier. Accordingly, the appellate court found that the relator did not qualify as an original source under the original source exception to the public disclosure bar.

Material addition to public information. The relator further asserted that even if she was not the original source of the publicly disclosed information, she nevertheless had independent knowledge that materially added to the publicly available information, and that her knowledge was gained from her employment with the companies. The court found that her allegations were not sufficient because the complaint was conclusory as to gaining that information, and did not detail the nature of the information nor explain how it related to the relator’s employment. Accordingly, the court found that even as a purported provider of material additional information, the relator did not satisfy the original source exception.

Proper motion for public disclosure bar. The relator argued that the district court erred because a public disclosure bar cannot be determined on a motion to dismiss. Although the originally enacted public disclosure bar removed a court’s subject matter jurisdiction where allegations and transactions of an FCA action were already disclosed, section 10104 of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) amended the public disclosure bar, which is no longer deemed to be jurisdictional. Therefore, the relator argued that the issue of whether the public disclosure bar applied was a factual question which could not be resolved prior to summary judgment. The appellate court disagreed, ruling that the public disclosure bar was appropriately resolved on a motion to dismiss even though it no longer posed a jurisdictional question.

For the foregoing reasons, the appellate court concluded that the relator relied upon publicly disclosed information, was not the original source of that information nor the provider of material additional information based on independent knowledge, and therefore affirmed the district court’s dismissal.

The case is No. 16-1506.

Attorneys: Robert W. Cockerham (Cockerham & Associates, LLC) for the United States of America. Eric Dubelier (Reed Smith LLP) and Sarah C. Hellmann (Husch Blackwell LLP) for Paddock Laboratories, LLC, and Perrigo Co., PLC.

Companies: United States of America; Paddock Laboratories, LLC; Perrigo Co., PLC

MainStory: TopStory CaseDecisions CMSNews DrugBiologicNews FCANews FraudNews QuiTamNews ArkansasNews IowaNews MinnesotaNews MissouriNews NebraskaNews NorthDakotaNews SouthDakotaNews

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