The Department of Justice (DOJ) recently announced that it had recovered $3.8 billion under the False Claims Act (FCA) in Fiscal Year 2013.  According to DOJ, $2.6 billion of this recovery was associated with health care fraud, and some of the largest recoveries resulted from judgments or settlements involving companies in the pharmaceutical and medical device industries.  The Office of Inspector General of the Department of Health and Human Services reported earlier this month that DOJ will continue to focus enforcement efforts on both industries.  Although the majority of health care related recoveries under the FCA resulted from claims submitted to Medicare and Medicaid, DOJ highlighted that a number of recoveries stem from other federal programs as well, including TRICARE, veterans’ health care programs, and the Federal Employee Health Benefits Program.

The success of DOJ’s efforts may signal an increase in enforcement actions under the FCA.  A recent decision in the Eastern District of Pennsylvania, however, provides medical device manufacturers working with the government some comfort that limits exists with regard to the future enforcement of the FCA.  In United States ex. rel. Thomas v. Siemens AG, the court rejected a claim that a medical device manufacturer could be held liable under the FCA for failing to disclose the full extent of its commercial discounts, because of the absence of proof that any misrepresentation or omission induced the government to enter into a contract with the manufacturer.  The court’s decision extensively discusses the potential implications under the FCA of providing the government with inaccurate or misleading pricing information during contract negotiations.

The government uses discount information provided by contractors to determine whether it has been offered a fair and reasonable price.  Thomas indicates that a manufacturer could be found liable under the FCA for making a misrepresentation with respect to its commercial discounts if the government relied on that information in entering into a contract with the manufacturer.  According to the court’s reasoning, a manufacturer could face liability under a fraudulently induced contract for any claim that it submits to the government—regardless of the claim’s validity—as a result of the entire contract being tainted by fraud.

The court ultimately concluded that the device manufacturer in Thomas was not shown to have fraudulently induced the government to enter into a contract due to ambiguities with respect to the extent of the manufacturer’s obligation to provide discount information to the government, as well as the government’s failure to question the information provided by the manufacturer after auditing the manufacturer’s pricing information.  The court’s decision adopts a practical view of the exchange of information between device manufacturers and the government, representing a common sense approach to enforcement of the FCA.

Government reliance may have been particularly difficult to establish in Thomas given the government’s failure to intervene in the case.  In addition, the court may have reached a different conclusion under the 2009 amendments to the FCA, which arguably modified the analysis of the materiality of a false claim in the circumstances at issue.  Nevertheless, device manufacturer’s should view the decision as a positive development indicating the limitations of the potential reach of FCA liability.