Citing recent statements by three Supreme Court justices, a manufacturer of orthopedic devices has asked a federal district court to dismiss a whistleblower suit brought against it under the False Claims Act (FCA), arguing that the qui tam provisions of the statute are unconstitutional (United States ex rel. Wallace v. Exactech, Inc., No. 7:18-cv-01010-LSC (N.D. Ala.)).

In a qui tam complaint filed in March 2020 in the U.S. District Court for the Northern District of Alabama against Exactech Inc., three relators — an orthopedic physician formerly employed by the company and two former sales representatives — alleged that the device maker submitted and caused the submission of false reimbursement claims to Medicare, Medicaid, the Veterans Administration, TRICARE and other government health care programs.

The relators alleged that the filing of false claims resulted from the company’s marketing of its Optetrak Total Knee Replacement with Finned Tibia Tray “when this device was known by Exactech to be defective and not reasonable and necessary for treatment.”

They also alleged that the company concealed the device’s defects and failures “in furtherance of a conspiracy to submit false claims and to conceal and avoid repayment of obligations to repay the government.”

“Exactech offered and provided illegal remuneration in order to prevent the disclosure of device failures and to induce orthopedic surgeons to continue to use its products,” the relators told the court. “Exactech’s scheme callously caused severe patient harm to veterans, the elderly and the poor, all to profit from taxpayers and avoid business losses.”

Article II

In a 39-page memorandum of law filed Aug. 15 in support of its motion to dismiss and for judgment on the pleadings, Exactech said that FCA qui tam suits “fundamentally violate Article II of the Constitution.”

According to the company, Article II of the Constitution “vests the executive power — including the power to litigate in the government’s name — in the president alone.

Quoting the Supreme Court’s decision in Buckley v. Valeo, 424 U.S. 1 (1976), Exactech asserted that “only persons who are ‘officers of the United States’ and over whom the president has significant control may exercise the power to conduct civil litigation in the courts of the United States for vindicating public rights.”

“Yet the FCA allows private citizens to take responsibility for litigating on the government’s behalf,” the company said.

The relators, Exactech said, made the initial decision to pursue the case, decided to move forward with the litigation after the government declined to intervene, and engaged in “multiple rounds of dispositive briefing” and extended settlement negotiations with the government, “notably without the government’s involvement.”

Signals From Supreme Court Justices

Exactech asserted that what it called the conflict between the FCA’s grant of authority to relators and the requirements of Article II “has been noted for decades.”

Recently, the company pointed out, in United States ex rel. Polansky v. Executive Health Resources, Inc., 143 S. Ct. 1720 (2023), three Supreme Court justices — Associate Justice Clarence Thomas in a dissenting opinion and Associate Justices Brett M. Kavanaugh and Amy Coney Barrett in a concurring opinion — “acknowledge the substantial arguments that Congress cannot authorize a private relator to wield executive authority to represent the United States’ interests in civil litigation.”

“Justice Kavanaugh, joined by Justice Barrett, wrote that the Supreme Court ‘should consider the competing arguments on the Article II issue in an appropriate case,’” Exactech said. “This is that case.”

Appointments, Take Care Clauses

Despite the Department of Justice’s decision to decline to intervene in the FCA case, the device manufacturer said, “yet Relators continue to prosecute this action in the government’s name — and in so doing have made significant and consequential policy decisions on the government’s behalf.”

“This violates Article II of the Constitution, which requires individuals with primary responsibility for litigation on behalf of the government to be appointed in accordance with the Appointments Clause,” the company asserted. “Qui tam relators are not appointed at all, much less in accordance with the Appointments Clause.”

Moreover, the company argued, the FCA violates the Article II clause requiring the president to “take care that the laws be faithfully executed,” because of “the broad authority granted to relators under the FCA and the limited ability of the president to exercise control over relators.”

History of the FCA

Examining the history of the FCA and other federal qui tam statutes, Exactech noted that enaction of the statute was precipitated by “the widespread fraudulent use of federal funds during the Civil War.”

Nevertheless, the company asserted, “the FCA’s adoption long after [the founding of the nation] — and in response to the unique exigency created by the Civil War — does not justify the continuing violation of Article II of the Constitution more than 200 years later.”

“Even courts upholding the FCA’s constitutionality recognize that criminal prosecution — a power that cuts to the heart of the Executive’s constitutional duty — may not be delegated to private citizens. Reliance on history alone does not offer a rational way to limit Congress from letting loose a posse of ad hoc deputies to prosecute cases in the government’s stead.”

Standing

Because their “continued prosecution” of the case violates Article II, Exactech further asserted, the relators lack Article III standing to litigate the case.

“Relators do not allege any individual injuries,” the company argued. “Relators’ Article III standing must rest, if at all, on an assignment from the government. Because the government may not assign its authority to Relators under Article II, however, there is no valid assignment, and Relators thus lack Article III standing.”

Relators’ Theory of the Case

With regard to the relators’ FCA allegations, Exactech said that their theory of the case “has evolved into a complicated set of novel regulatory propositions.”

“Relators argue that every time Exactech learned that a surgeon performed a revision surgery to replace a Finned Tibial Tray (the tibial-tray component of Exactech’s Optetrak knee prosthesis) that had prematurely loosened — for whatever reason — Exactech was required to submit an adverse event report to the FDA,” the company said. “If Exactech did not submit that report on every single occasion, Relators say that Exactech violated its mandatory reporting obligations and contend that this regulatory violation rendered the device misbranded.”

Despite the Medicare coverage standard — authorizing coverage for medically “reasonable and necessary” devices — and the fact that the FDA cleared the device through the premarket notification (510(k)) process, the company said, “Relators argue that reimbursement is contingent on unrealistically perfect compliance with all FDA regulations.”

“In short,” Exactech said, “Relators assert that regulatory noncompliance, no matter how minor or insubstantial, renders a medical device categorically ineligible for reimbursement by Medicare if the device can be deemed misbranded.”

In the company’s view, the relators asserted that every Medicare claim for the device was a false claim under the FCA because misbranded devices cannot be sold in the United States — i.e., that failure to submit “even one adverse event report” renders a device ineligible for reimbursement as a matter of law, “thereby giving rise to potential treble damages and substantial per-claim penalties.”

“Relators ignore that their false certification claim is legally unsupportable, Exactech said. “Because compliance with FDA regulations is not required for payment by Medicare and Medicaid, the manufacturer has not falsely stated such compliance to the government.”

“Given the novelty and untenability of Relators’ position,” the company added, “it is unsurprising that Relators presented no support from FDA or [Centers for Medicare and Medicaid Services (CMS)] officials to corroborate their theories.”

The district court scheduled the relators’ response to Exactech’s motion to dismiss to be filed by Sept. 7 and for the company’s reply brief to be filed 11 days later.