In a case against two medical device makers in which DOJ (reasonably) declined to intervene, the U.S. Eighth Circuit Court of Appeals recently affirmed the district court’s dismissal of a series of False Claims Act allegations. The court’s opinion provides clear, relatively short, and thoughtful explanations of both the public disclosure bar and the original source exception—and why the relator’s allegations were improperly based on public disclosures for which he was not an original source. The opinion is a helpful refresher in the policy behind and the application of these rules barring claims of parasitic relators.
U.S. ex rel Paulos v. Stryker Corp., et al. involved False Claims Act allegations related to two companies’ “marketing of their pain pumps to encourage the placement of [the devices] directly into patients’ joint spaces after orthopedic procedures.” (Such placement was associated with a spike during the early 2000s of patients developing chondrolysis, which is a “painful medical condition whereby an individual loses articular cartilage in a joint.”) Although the FDA had issued what is called a “§ 510(k)” approval for the marketing of pain pumps for “intraoperative” use,” the agency had refused such approval for orthopedic placement in joint spaces. The relator alleged that the companies failed to disclose material information regarding pain pumps, fraudulently marketed their pain pumps as approved for use in joint spaces, and provided false labeling regarding the pain pumps. Such practices purportedly became federal false claims via sales through federal programs such as Medicaid and Tricare.
The problem with Paulos’ claims was that they were indistinguishable from “numerous media reports, FDA reports, and federal regulatory disclosures” that pre-dated the relator’s allegations. 31 USC § 3730(e)(4)(A)—the public disclosure bar—requires dismissal of an FCA complaint that alleges “substantially the same allegations or transactions” which were previously disclosed publicly. This makes sense, as a relator should not be able to profit from reciting information already known to the public or the Government in the form of an FCA complaint. The relator tried to argue that his allegations could be distinguished from the information in the public record before the complaint; like the district court, the Eight Circuit didn’t buy Paulos’ argument.
Section 3730 (e)(4)(B) provides an exception to the public disclosure bar for relators who were an “original source” of the information that was became known to the public. To qualify as an original source, the relator must voluntarily disclose relevant information to the Government before the public disclosures (which Paulos unquestionably did not do) or the complaint must show “knowledge that is independent of and materially ads to the publicly disclosed allegations or transactions” that was provided to the Government before the complaint was filed. The appellate opinion explained that nothing in the record gave “any clear sense about what new information Dr. Paulos brings to the table” with respect to the purported causal relation between device and disease.
In resolving the original source inquiry, the Eight Circuit also concentrated its attention where it belongs, i.e., on whether the relator’s information was “focus[ed] . . . on knowing fraud in seeking federal funds.” The court explained that “the FCA is generally unconcerned with claims of negligence or underlying ‘regulatory noncompliance.’” Because the court could not “see how the addition of Dr. Paulos’ personal insight on the science behind chondrolysis would contribute much more than tangentially relevant information to the central questions of [the] fraud claim,” his allegations did not add anything meaningful in support of the legal claims and did not support application of the “original source” exception.
The Paulos case doesn’t break any substantial new ground for Government contractors facing FCA allegations, but it does provide a clear and appropriate application of the public disclosure bar and original source exception.