The U.S. Court of Appeals for the Fourth Circuit recently upheld the dismissal of a False Claims Act (FCA) suit against Omnicare, Inc., in which the relator alleged that certain drugs repackaged by Omnicare’s subsidiary were adulterated and ineligible for Medicare or Medicaid reimbursement because of Food and Drug Administration (FDA) regulation violations and that Medicare claims for reimbursement for the drugs were therefore false. The Fourth Circuit refused to permit a relator to “use of the FCA as a sweeping mechanism to promote regulatory compliance.” Rather, the court held that the FCA was “a set of statutes aimed at protecting the financial resources of the government from the consequences of fraudulent conduct.”

In reaching its result, the Fourth Circuit concluded that the relator’s recitation of alleged regulatory violations did not constitute the identification of any false statement or fraudulent misrepresentation made to the government, as is required under the FCA. The court held that a drug must only be FDA-approved to qualify for reimbursement and that the Medicare and Medicaid statutes do not prohibit reimbursement for adulterated drugs and do not require compliance with FDA safety regulations as a “precondition” to payment. Consequently, the submission of the reimbursement requests did not constitute a false claim under the FCA. The court refused to allow the FCA to be used as an all-encompassing regulatory enforcement tool. The court stated that the “correction of regulatory problems is a worthy goal, but is ‘not actionable under the FCA in the absence of actual fraudulent conduct.'”

The court also rejected the relators’ attempt to proceed under implied certification or worthless services theories of FCA liability.

This case is significant as it rejects the efforts by many government lawyers and relators to use the FCA to remedy a myriad of regulatory violations. The holding narrows the focus of FCA claims to those that relate to preconditions to payment under the applicable program, instead of allowing the FCA to serve as a regulatory-compliance/enforcement mechanism.

United States ex rel. Rostholder v. Omnicare, Inc., No. 12-2431 (4th Cir. Feb. 21, 2014)