Medical Device Companies Face Severe FCA Penalties For TAA Violations

Author:Mr Lawrence Sher, Lawrence P. Block and Jeffrey Orenstein
Profession:Reed Smith

A spate of recent multi-million dollar settlements has shown that medical device manufacturers are subject to substantial liability under the False Claims Act (FCA) if they misstate the country of origin of their products in violation of the Trade Agreements Act (TAA).1 The TAA requires that certain products sold to the U.S. government originate either in the United States or in one of the designated countries with which the United States has special trade agreements.2 Government contractors, therefore, are required to determine the proper country of origin of their products and certify that they are providing the government with TAA-compliant products. If this certification proves to be false, however, the contractor may be subject to substantial civil and criminal penalties under the FCA, including debarment and suspension or exclusion from Medicare.

Recent Settlements Most recently, a global manufacturer of medical device products agreed to an $8.3 million settlement to resolve a qui tam lawsuit alleging it violated the FCA by improperly certifying products as TAA-compliant.3 The company allegedly failed to segregate TAA-compliant orthopedic devices from products that were repackaged in the United States but were originally imported from Malaysia (a non-designated country). As a result, the company could not ensure that all the goods it sold the Department of Veterans' Affairs (VA) under its Federal Supply Schedule contract complied with the TAA as certified. The company voluntarily disclosed potential violations to both the VA and the Department of Defense inspector general. Nevertheless, a former employee filed suit under the FCA's whistleblower provisions, which enabled him to receive a portion of the settlement amount. The Department of Justice (DOJ) declined to intervene in the case, but it was involved in the settlement by which the company paid $8.3 million without admitting to any wrongdoing. This is the first such FCA settlement for a medical device manufacturer based on TAA compliance.

The substantial FCA liability that medical device manufactures face for TAA violations is also demonstrated by cases in other sectors, like the recent $2.3 million settlement involving Samsung Electronics America, Inc. (Samsung).4 The Samsung case involved products that were made in China (a non-designated country) and sold to the government through resellers under General Service Administration Multiple Award Schedule (MAS) contracts. Samsung...

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