Federal Appeals Court Rejects False Claims Act Suit Based on Drug Packaging cGMP Violations

by Reed Smith

Last Friday, the U.S. Court of Appeals for the Fourth Circuit affirmed the dismissal of a False Claims Act (“FCA”) case brought against Omnicare.1 United States ex rel. Rostholder v. Omnicare, Inc., No. 12-2431, 2014 WL 661351 (4th Cir. Feb. 21, 2014) (a copy of the court of appeals' opinion can be found here.) In a published decision, the Fourth Circuit rejected Relator Barry Rostholder’s claim that Omnicare violated the FCA when it sought government reimbursement for drugs that it allegedly packaged in violation of the Food and Drug Administration's (“FDA”) Current Good Manufacturing Practices regulations (“cGMP”). Concluding that government reimbursement for drugs is not tied to compliance with cGMP regulations, the court of appeals rejected Rostholder’s assertion that cGMP violations alone can give rise to FCA liability. In so holding, the Fourth Circuit’s decision is in keeping with that court’s faithful adherence to the FCA’s statutory elements, and its refusal to allow regulatory violations to be transformed into a fraud case under the FCA.

Rostholder was a former employee of Heartland Repack Services LLC (“Heartland Repack”), a facility owned and operated by Omnicare. Heartland Repack, an operation that repackaged drugs into convenient units for patient use, was housed in the same building as Heartland Healthcare Services (“Heartland Pharmacy”), a dispensing pharmacy. In his FCA suit against Omnicare, Rostholder alleged that Heartland Repack's repackaging of non-penicillin drugs violated certain packaging cGMPs because penicillin drugs were handled by Heartland Pharmacy in the same building. According to Rostholder, these regulatory violations rendered the drugs at issue presumptively adulterated, and therefore ineligible for reimbursement under government programs such as Medicare and Medicaid. Omnicare’s claims for reimbursement for those drugs, Rostholder claimed, were therefore false under the FCA.

The U.S. District Court for the District of Maryland granted Omnicare’s motion to dismiss Rostholder’s complaint, holding that Rostholder’s allegations of cGMP violations were insufficient to state an FCA claim because he had failed to allege that Omnicare made a false statement or engaged in any fraudulent conduct. See United States ex rel. Rostholder v. Omnicare, Inc., No. CCB-07-1283, 2012 WL 3399789 (D. Md. Aug. 14, 2012) (a copy of the district court's opinion can be found here).

The Fourth Circuit affirmed. Hewing to its FCA precedents, the court of appeals pointed out that the alleged cGMP violations—even if they were material to the government’s decision to pay for the drugs at issue—were not enough to make out an FCA claim because Rostholder also had to allege a false statement or course of conduct. On that score, after carefully analyzing the statutes and regulations governing cGMPs and government reimbursement for drugs, the court concluded that because compliance with the cGMPs was not required for drug reimbursement by Medicare and Medicaid, Omnicare could not be held liable under the FCA because it had not made a false claim—it had not asked for reimbursement for drugs that were ineligible for reimbursement. The court went a step further and also ruled that Omnicare lacked the required scienter to be liable under the FCA because it did knowingly seek payment for drugs that it knew or should have known were not eligible for reimbursement.

Of equal significance was the Fourth Circuit’s policy discussion of efforts such as Rostholder’s to turn regulatory violations into FCA violations. The court stressed that accepting Rostholder’s regulatory violation-based theory of FCA liability would improperly “sanction use of the FCA as a sweeping mechanism to promote regulatory compliance”—an outcome that the Fourth Circuit and its sister circuits have repeatedly rejected. It reasoned that when an agency, such as the FDA in this case, has broad powers to enforce its own regulations, allowing FCA liability based on regulatory non-compliance could “short-circuit the very remedial process the Government has established to address non-compliance with those regulations.”

The Fourth Circuit’s decision in Rostholder has important repercussions for the pharmaceutical industry and FCA jurisprudence more broadly. It signals that the court of appeals will carefully review statutes and regulations when relators attempt to use violations of those statutes and regulations to make out an FCA claim, and will rigorously enforce the FCA’s statutory requirements. Likewise, it represents yet another circuit precedent emphatically rejecting attempts to equate regulatory violations with FCA liability, and respecting the role of government agencies in ensuring regulatory compliance. More narrowly—but no less notably—the Fourth Circuit’s decision establishes that once a drug has been approved by the FDA and thus qualifies for reimbursement under the Medicare and Medicaid statutes, a reimbursement request for that drug cannot constitute a false claim under the FCA on the sole basis that the drug was processed in violation of the cGMPs.

1  Reed Smith represented Omnicare in both the lower court and appellate court proceedings.

Written by:

Reed Smith

Reed Smith on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.