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Tuesday, October 15, 2019

Fourth Circuit: False Claims Act can't be used to penalize regulatory non-compliance

By John O'Brien | Mar 5, 2014

RICHMOND, Va. (Legal Newsline) - Omnicare Inc., an Ohio-based long-term care pharmacy, was recently handed a win by a federal appeals court in a False Claims Act lawsuit that sought to penalize it for not complying with FDA regulations.

On Feb. 21, the U.S. Court of Appeals for the Fourth Circuit sided with Omnicare in former employee Barry Rostholder's qui tam lawsuit against the company that alleged it submitted false claims for reimbursement to the Medicare and Medicaid programs.

Rostholder said Omnicare violated Food and Drug Administration regulations that require penicillin and non-penicillin drugs to be packaged in complete isolation from one another. He alleged drugs at a facility in Toledo, Ohio, became contaminated and were not eligible for reimbursement from Medicare and Medicaid.

However, a Maryland federal court dismissed Rostholder's because he failed to allege that Onmicare and had made a false statement. It also refused to allow him to amend his complaint for a third time.

The Fourth Circuit affirmed both decisions.

"Were we to accept relator's theory of liability based merely on a regulatory violation, we would sanction use of the FCA as a sweeping mechanism to promote regulatory compliance, rather than a set of statutes aimed at protecting the financial resources of the government from the consequences of fraudulent conduct," Fourth Circuit Judge Barbara Milano Keenan wrote.

"When an agency has broad powers to enforce its own regulations, as the FDA does in this case, 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.'"

Rostholder filed his whistleblower suit in 2007 in Baltimore federal court.

The lawsuit concerned a Toledo facility shared by Omnicare-owned Heartland Repack Services and an Omnicare pharmacy. Omnicare pharmacies usually serve nursing homes owned by its partner, Health Care Resources.

While Heartland repackaged non-penicillin drugs for distribution, the Omnicare pharmacy processed penicillin drugs. The two were separated by rolling garage-type doors and were serviced by a single ventilation system.

Rostholder was a pharmacist at Heartland for nine years. In 2004, the repackaging of penicillin products at Heartland began. He resigned two years later, citing quality control efforts.

After alerting the FDA, which issued a warning letter, he filed his lawsuit. He alleged Omnicare knowingly and recklessly repackaged drugs, creating unsafe products that were no longer in their FDA-approved form and thus ineligible for coverage under government programs.

The plaintiff was represented by Gerald C. Robinson of Minneapolis, while Omnicare was represented by attorneys at Reed Smith in Pittsburgh and Washington, D.C.

A week after the decision, Omnicare settled allegations that it received kickbacks from Amgen Inc. to promote the drug Aranesp, resolving another whistleblower suit. It agreed to pay $4.19 million to states and the federal government

From Legal Newsline: Reach editor John O'Brien at

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