Merle M. DeLancey Jr., Jay P. Lessler, and James R. Staiger
Earlier today, the United States Court of Appeals for the Federal Circuit issued a decision that is sure to send shockwaves through the generic drug industry. In Acetris, the Federal Circuit held that a generic drug manufactured in the United States complied with the Trade Agreements Act (“TAA”) and could be sold to the Department of Veterans Affairs. The court made this determination even though the drug’s active pharmaceutical ingredient (“API”) came from a non-designated country, India. In reaching its decision, the court broke away from longstanding Customs and Border Protection (“CBP”) precedent that the country where the API was produced dictated the location of “substantial transformation” and thus the country of origin for any resulting drug. The court held that under the Federal Acquisition Regulation (“FAR”), to qualify as a “U.S.-made end product” under the TAA, a drug must be either “manufactured” in the United States or “substantially transformed” in the United States—but not be both.
For years, generic drug manufacturers that manufacture drugs in the United States from API produced in India and China have been precluded from selling their drugs to the U.S. Government under the TAA. The Federal Circuit’s Acetris decision opens up the U.S. Government market for generic drugs manufactured in the U.S. from API produced in India and China.
A recent decision in the federal district court for the Eastern District of California is one of the first to recognize application of the False Claims Act (“FCA”) to Department of Defense (“DoD”) cybersecurity requirements, and will likely encourage future lawsuits alleging noncompliance with federal cybersecurity procurement regulations. In United States ex rel. Markus v. Aerojet Rocketdyne Holdings, Inc., No. 2:15-cv-2245 WBS AC, 2019 WL 2024595 (E.D. Cal. May 8, 2019), the court denied the defendant contractor’s motion to dismiss qui tam complaint fraud allegations against the company. The complaint—brought by a former employee from the company’s cybersecurity department a month after his termination from the company—alleged the defendant fraudulently entered into DoD and National Aeronautics and Space Administration (“NASA”) contracts despite knowing that it did not meet the minimum standards required to receive the awards. The court permitted the case to move forward despite the government declining to intervene.
The U.S. Supreme Court has granted a 
Over two years ago, the Supreme Court in Universal Health Servs. v. U.S. ex rel. Escobar, 136 S. Ct. 1989 (2016) upheld the implied certification theory of liability under the federal False Claims Act (“FCA”). Applying a two-part test, the Court stated that implied liability would attach where “at least two conditions” are satisfied: (1) the claim makes specific representations about goods or services provided and (2) the defendant’s failure to disclose noncompliance with a material statutory, regulatory, or contractual requirement renders those representations “misleading half-truths.” Courts interpreting Escobar have disagreed as to whether this two-part test is the exclusive means for establishing liability under the implied certification theory, or whether other circumstances might also trigger liability. For example, several courts have noted that Escobar’s reference to “at least two conditions” implies that other, unspecified factors might also be sufficient to create an implied certification claim. The Fourth Circuit, along with several other district courts, have adopted this more liberal view. Most other circuits that have addressed this issue, however, have found the two-part test to be mandatory. The First, Third, Fifth, and Seventh Circuits, as well as many district courts, have either explicitly or implicitly held that Escobar’s two-part test is the exclusive means of establishing implied certification. 
No one knows exactly how much fraudulent conduct costs the United States healthcare system. Some suggest it may cost Medicare, Medicaid, and private insurers $100 billion each year. Regardless of the exact amount, everyone agrees that the fraudulent activities result in more expensive healthcare and possibly the deprivation of healthcare for some.