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Focus on Regulation

Medical Device Contractor Settles FCA Allegations Based on TAA Violations

On Thursday, August 8, 2019, the Department of Justice (“DoJ”) announced that Danish medical device company Ambu, Inc. (“Ambu”) will pay $3.3 million to settle False Claims Act (“FCA”) allegations that it violated the Trade Agreements Act (“TAA”) (19 U.S.C. § 2518) by selling products to the Defense Logistics Agency (“DLA”) and the Department of Veterans Affairs (“VA”) that were made in China and Malaysia.  The TAA restricts the Federal government’s purchase of “end products” to only those (1) manufactured in the United States or wholly manufactured in a “designated country,” or (2) ‘‘substantially transformed’’ in the United States or a designated country.  China and Malaysia are not designated countries.

According to the DoJ press release, Ambu executives certified that its products came from TAA compliant countries despite allegedly knowing that most of the products were manufactured in noncompliant locations.  Between December 2011 and March 2015, more than 80% of the product sold by Ambu to the Federal government came from noncompliant countries.

FCA settlements are not new to the healthcare industry.  Nearly 90% of recoveries during 2017 and 2018 under the FCA came from the healthcare industry, according to an analysis by Bloomberg Law.  The TAA focus of the allegations, however, is notable.

In recent years, there have been policy changes that have arguably increased the ability of the government to purchase products that do not meet the TAA standard.  In 2016, the VA adopted a blanket non-availability determination for its Federal Supply Schedule contract that applies to innovator pharmaceutical products that are considered “covered drugs” under the Veterans Health Care Act of 1992.  In addition, a 2018 decision by the Court of Federal Claims broadened the definition of “U.S.-made end product,” under the Federal Acquisition Regulation TAA clause to include products subject to partial manufacture in the U.S.  that do not otherwise meet the TAA “substantial transformation” test.  See Acetris Health, LLC v. United States, No. 18-433C (Fed. Cl. July 10, 2018).  However, this interpretation is pending appeal and may not survive.

Despite these changes, the Ambu settlement demonstrates that the government is still focused on and enforcing TAA compliance.  In addition, private whistleblowers can initiate FCA complaints.  (It is unclear whether or not a whistleblower was involved in the Ambu case.)  To avoid FCA liability, it is important for companies to understand the evolving landscape and ensure that all certifications under Federal contracts are current and accurate.

Should you have any questions about this alert or otherwise, please do not hesitate to contact our Federal contracts team.