In United States ex rel. Rostholder v. Omnicare, Inc., --- F.3d ---, No. 12-2431, 2014 WL 661351 (4th Cir. Feb. 21, 2014), the United States Court of Appeals for the Fourth Circuit affirmed the dismissal of a qui tam complaint against a pharmaceutical services provider under Federal Rule of Civil Procedure 12(b)(6) on the ground that Relator’s allegations failed to plead a false statement and scienter.
Relator alleged that Omnicare, Inc. and a subsidiary (Defendants) failed to comply with the FDA’s Current Good Manufacturing Practice regulations (CGMPs) by repackaging penicillin in the same facility as non-penicillin drugs, which caused the non-penicillin drugs to be “adulterated.” Relator brought claims under the federal False Claims Act (FCA) and various state analogous statutes. Defendants moved to dismiss arguing that Relator had failed to state a claim under Rule 12(b)(6). The district court granted Defendants’ motion.
United States ex rel. Rostholder v. Omnicare, Inc., No. 07-1283, 2012 WL 3399789 (D. Md. Aug. 14, 2012).
The Fourth Circuit affirmed the district court’s dismissal. The Court first rejected Relator’s argument that Defendants violated the Medicare and Medicaid statutes, holding that “once a new drug has been approved by the FDA and thus qualifies for reimbursement under the Medicare and Medicaid statutes, the submission of a reimbursement request for that drug cannot constitute a ‘false’ claim under the FCA on the sole basis that the drug has been adulterated as a result of having been processed in violation of FDA safety regulations.” 2014 WL 661351, at *5. Second, the Court rejected Relator’s assertion that a false claim had been stated because compliance with the CGMPs is material to the government’s reimbursement for regulated drugs. Id. The Court explained that “because compliance with the CGMPs is not required for payment by Medicare and Medicaid, [Defendants have] not falsely stated such compliance to the government, as contemplated by the FCA.” Id. (footnote omitted). Finally, the Court held that “[b]ecause the Medicare and Medicaid statutes do not prohibit reimbursement for drugs packaged in violation of the CGMPs, [Defendants] could not have knowingly submitted a false claim for such drugs.” Id. at *6 (footnote omitted). Thus, the Court concluded that Relator “cannot plausibly allege that [Defendants] acted with the requisite scienter when submitting claims to the government for drugs not in compliance with the CGMPs.” Id.
Relators in FCA actions often assert claims based on alleged violations of various FDA regulations. The Omnicare decision demonstrates that failure to comply with FDA regulations is insufficient to create liability under the FCA when reimbursement was not conditioned upon compliance with those regulations. The case should be useful precedent for challenging FCA actions based on such alleged violations.