Earlier this year, a federal judge in California dismissed a whistleblower complaint against Gilead Sciences LTD but gave the plaintiffs an opportunity to refile. On March 6th a new complaint was filed but remains under seal. Whistleblowers Jeff and Sherilyn Campie claim that Gilead defrauded Medicare and Medicaid of millions of dollars by concealing and distributing tainted pharmaceutical drugs.

Gilead Sciences Ltd is a California pharmaceutical company that makes and markets a wide range of prescription drugs including Viread, Truvada, Hepsera, Emtriva, Atripla, Letairis, Cayston, Macugen, Complera and Stribild. The company is known for its HIV/AIDs, cystic fibrosis and hepatitis medications.

According to the original complaint, most of the active pharmaceutical ingredients (API) used by Gilead are contracted out to offshore vendors.

Jeff Campie worked at Gilead from 2006 until 2009. While there, he had quality control oversight of all Gilead’s commercially released drug products and the company’s current Good Manufacturing Practices (cGMP) compliance. Sherilyn Campie was hired by Gilead in 2007 as senior research associate. She remains employed at Gilead, now as a quality control manager.

The Campies filed a lawsuit under the federal False Claims Act alleging that Gilead committed a number of cGMP violations and allowed tainted, adulterated and misbranded pharmaceuticals to be distributed within the United States. According to their complaint, most of those drugs were paid for with Medicare or Medicaid funds.

In addition to the federal False Claims Act violations, the Campies also charged Gilead with violating state Medicaid whistleblower laws in 21 states as well as city ordinances in New York City, Chicago and the District of Columbia. Collectively, these laws allow whistleblowers to be awarded a portion of any recovery from the wrongdoers.

Jeff and Sherilyn Campie claim that the drugs, or their API, were often manufactured in facilities not approved by the FDA. They also say the drugs were “tainted with visible filth, metal content, foreign ingredients, microbial contamination, and other undisclosed adulterations.” Although all the allegations are quite serious and violate FDA cGMP regulations, the microbial contamination claims are especially concerning.

When drugs are no longer sterile and become tainted with biological agents, severe adverse reactions and deaths are common. Several years ago tainted injectable drugs produced by the New England Compounding Pharmacy were linked to an outbreak of fungal meningitis and up to 64 deaths.

The Campies claim that Gilead contracted with Synthetics China in 2008 to manufacture certain APIs for use in Gilead branded drugs. They say Gilead moved manufacture to China to save money and increase profits. According to them, they moved some production two years before obtaining FDA approval. To avoid scrutiny, the API was imported through Gilead’s Canadian subsidiary and then into the United States.

The Campies also claim that at least one of the known contaminated drugs was used in clinical trials on children

In January of this year, U.S. District Court Judge Edward Chen dismissed the Campie’s complaint but granted them and the intervening government parties the right to refile. A new complaint was filed in March but is currently under seal.

In his decision, Judge Chen found that even accepting all of the Campies allegations as completely true, the couple failed to demonstrate a violation of the False Claims Act. Although the drugs may have been contaminated or adulterated, there was no proof that Gilead ever certified to Medicare or Medicaid that their products complied with FDA safety or cGMP regulations.

In a rather contorted stretch of logic, the court found that any alleged fraud and untruthful statements were directed at the FDA and not the Centers for Medicare and Medicaid Services.

“Relators have failed to state a claim under the FCA under either a false certification or promissory fraud theory. Fundamentally, they have failed to allege that Gilead engaged in any fraudulent conduct or made any false statement to the Centers for Medicare and Medicaid Services (“CMS”) —the governmental agency that administers reimbursement under the Medicare and Medicaid regimes— as part of a request for payment… What Relators have alleged, instead, is that Gilead (1) falsely certified to the FDA during the drug approval process that it would comply with GMP regulations while, at the same time, knowingly flouting those regulations and (2) withheld or falsified information and test results in various submissions to the FDA. The Court finds that false certifications, statements, or other fraudulent conduct directed at the FDA during the approval process do not render subsequent Medicare or Medicaid reimbursement requests made to CMS “false” under the FCA. Based on the plain text of the FCA and Ninth Circuit authority interpreting that language, the Court concludes that Relators have failed to state an FCA claim by failing to allege a false claim was made to CMS “for payment.”

Few courts have dealt with this issue. The central question is whether a false statement or certification to the FDA regarding a drug can be the basis of a false claims act violation. We believe the answer is yes.

At least two trial courts have recently allowed cGMP violations to result in False Claims Act recoveries. U.S. ex rel Thakur v. Ranbaxy Laboratories Ltd, Case No. 1:07-cv-00962 (D. Md. 2013) and U.S. ex rel. Eckard v. GlaxoSmithKline Holdings, Case No. 1:04-cv-962 (D. Ma 2010). Those two cases resulted in almost $150 million being paid to whistleblowers.

The only appellate court to address the issue was the 4th Circuit. In U.S. ex rel. Rostholder v. Omnicare, Inc. (4th Cir. 2014), the court ruled that a cGMP violation without more was not a violation of the False Claims Act. That decision, however, did involve actual contaminated pharmaceuticals in the marketplace.

We believe the court in the Campies case misapplied the law. Because another amended complaint has been filed, it could be many more months before a final decision is made in that case. Depending on the outcome, it could be another year or longer to know how the 9th Circuit will rule.

In addition to misapplying the law, we believe the court also erred because the drugs as sold to Medicare and Medicaid were worthless. The Ninth Circuit and other courts have recognized a “worthless services” exception to the False Claims Act. Knowingly or recklessly billing for worthless services can violate the False Claims Act even without a false certification. Thus, even if Gilead failed to make a false certification to the Medicare, selling dangerously contaminated drugs still constitutes a worthless service.

In recent years, big pharma has outsourced much of its production and most of the API function offshore. Most generic medications are also made offshore. The most common manufacturing sites today are China and India.

While there is nothing wrong with outsourcing production, quality control seems to have suffered greatly and the FDA is struggling to keep up with inspections. Unless the industry does a better job of self-policing or more whistleblowers begin to come forward, popping a pill or injecting insulin is becoming a dangerous game of Russian roulette.

The 2013 whistleblower payment of $48 million in the Ranbaxy case was a big victory for whistleblower advocates such as us. It marked one of the first times that a foreign national was paid a whistleblower award. (Mr. Thakur is a dual national who continues to spend time in India.)

We believe that with careful drafting and investigation, cGMP violations remain a potent weapon in the fight to keep dangerous drugs from reaching our shores… and our medicine cabinets. Indeed, the Justice Department has publically stated that it welcomes additional whistleblower lawsuits from concerned industry workers.