CONGRESS STRENGTHENS THE FEDERAL FALSE CLAIMS ACT
Minnesota Passes its Own State False Claims Act

On May 20, 2009, President Obama signed into law the Fraud Enforcement and Recovery Act of 2009 (FERA). FERA significantly changes the federal False Claims Act (FCA). The FCA authorizes the federal government to recover money and penalties from those found liable for submitting false claims to the government. The FCA also authorizes whistleblowers to sue on the government’s behalf and share in the money recovered. FCA lawsuits often target health care providers and pharmaceutical and medical device companies because of the federal dollars they directly or indirectly receive. Over the past several years, federal courts, including the U.S. Supreme Court have limited the FCA, making FCA cases more defensible. FERA’s purpose is to reverse that trend.

Some of FERA’s changes to the FCA, and the possible impact of those changes on medical device makers, are highlighted below.

 
The FCA now applies to some indirect recipients of government funds. 

FERA significantly expands the FCA’s reach by subjecting to potential liability some entities that indirectly receive government funds, such as subcontractors and sub-grantees. Entities such as medical device makers may now be liable under the FCA even if they do not contract directly with the federal government, but only indirectly receive money or property from the government.

FCA liability can be based on retention of overpayments. 

FERA eliminates the requirement that a party take an affirmative step—a false representation—to defraud the government. Medical device makers may now be liable for their retention of overpayments they receive from the federal government, even if the overpayments were not caused by the device makers.

FERA expands federal regulatory authority.

FERA authorizes Department of Justice attorneys investigating alleged FCA violations to issue civil investigative demands ("CIDs") compelling oral testimony, documents, and interrogatory answers. Previously, the Attorney General had to personally approve the use of such CIDs. FERA also expands the federal government’s ability to share information, including greater discretion to disclose materials to counsel for FCA whistleblowers. The potential for increased disclosure of sensitive company information increases the risks associated with FCA suits for medical device and other companies.

FERA protects more whistleblowers.

Formerly, the FCA protected only "employees" who were retaliated against for filing a FCA case. FERA expands these protections to include "[a]ny employee, contractor, or agent". This provision subjects medical device makers and other companies to a broader array of retaliation claims.

MINNESOTA PASSES ITS OWN STATE FALSE CLAIMS ACT

Medical device makers also face increased false claims act exposure on the state front. On May 16, 2009, Governor Pawlenty signed into law an omnibus appropriations bill (S 2082-3) which creates Minnesota’s False Claims Act. It is effective July 1, 2010. Minnesota’s new FCA generally mirrors the federal FCA before FERA’s amendments. The state and federal acts differ in some ways, including:   

• The Minnesota FCA applies to fraudulent claims made to the State and political subdivisions of the State, making its potential scope quite broad.
• The Minnesota FCA adds an important defense not present in the federal FCA—namely, that except in cases where proof of specific intent to defraud is found, parties are not liable if they repay the false claims within 45 days once informed of the claims by the original source who discovered the fraud. If the party has a compliance officer, the Act deems the party to have been informed when the original source reported the fraud to the compliance officer.

  
IMPLICATIONS OF THESE NEW LAWS

FERA and the new Minnesota FCA expand the potential liability for those who make false claims to the federal and state governments, including by improperly retaining overpayments. The expansion of federal law to encompass indirect claims to the government may have special significance for medical device makers, which are generally less directly involved in submitting payment claims to the government. In recent years, the government has used the FCA to impose liability on medical device makers that engage in off-label marketing. This subjects device makers to potential liability and fines not available under the Food, Drug & Cosmetics Act. It is likely that there will be a significant increase in federal and state FCA enforcement activity involving the medical device industry in the wake of these new laws.

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