This week, a federal district court denied Cephalon Inc.’s (Cephalon) motion to dismiss a third amended complaint filed under the False Claims Act (FCA) by three qui tam relators in United States ex rel. Boise v. Cephalon, Inc. The motion to dismiss relates to claims made by the whistleblowers under 31 U.S.C.§ 3729(a)(1)(G) (“. . . knowingly makes, uses, or causes to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the Government, or knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government . . .”). Specifically, the relators allege that Cephalon promoted its drugs Provigil and Nuvigil for off-label purposes and paid unlawful kickbacks to health care professionals, and failed to report this conduct in violation of its 2008 corporate integrity agreement (CIA) with the U.S. Department of Health and Human Services Office of Inspector General (OIG).

The court held that Cephalon’s contractual obligation to pay the government stipulated penalties for breach of its obligations under the CIA is “an ‘established duty’ as contemplated by § 3729(b)(3) upon breach of the CIA’s relevant requirements and that therefore relators have stated a claim under § 3729(a)(1)(G).” Recognizing a circuit split, the court stated that it agreed with the court in Ruscher v. Omnicare Inc. (Civil Action No. 08-3396, S.D. Texas), in which the court reasoned that “the decision by the OIG that Stipulated Penalties are ‘appropriate’ is identical to the decision by any contracting party to sue for a breach” and, therefore, “concealing a violation of the CIA could give rise to liability for reverse false claims under the FCA before the OIG demanded payment.”

Health care and life sciences companies subject to a CIA must be aware of, and carefully consider, the potential ramifications of this court decision. Companies subject to a CIA must ensure that they have an effective corporate compliance program and policies, procedures and processes for identifying, correcting and appropriately reporting matters to the OIG in accordance with the CIA.