A decision from the Third Circuit this week makes it harder for whistleblowers to qualify as an “original source” under the False Claims Act (FCA).

The Third Circuit ruled in United States et al. v. AstraZeneca Pharmaceuticals LP that whistleblowers bringing lawsuits under the FCA must have firsthand knowledge of the alleged fraud in order to qualify as an “original source” for the purpose of clearing the FCA’s “public disclosure” bar.

The FCA’s public disclosure bar prevents whistleblowers from bringing lawsuits that are based upon information that was previously publicly disclosed, unless they can prove they are the “original sources” of the information. See 31 U.S.C. § 3730(e)(4)(B).

The whistleblower in this case, Karl Schumann, made allegations that the companies Bristol-Myers Squibb Co. and AstraZeneca Pharmaceuticals LP paid kickbacks to MedCo Health Solutions Inc. so that the company would buy and recommend brand name drugs.

Schumann claimed he discovered the alleged conduct while working as an executive at MedCo Health by reviewing files and by discussing documents with individuals who participated in the alleged scheme. However, by the time Schumann filed his lawsuit, relevant information had already become part of the public domain, thus implicating the FCA’s public disclosure bar.

The Third Circuit’s decision narrows the definition of “original source”

Affirming the district court’s dismissal of the case, the Third Circuit concluded that Schumann had no independent and direct knowledge of the alleged conduct and therefore could not overcome the FCA’s public disclosure bar as an “original source.”

The Third Circuit explained that “direct knowledge” is knowledge that is obtained solely by the relator, through the relator’s own efforts and firsthand observations.

The Court concluded that Schumann failed to meet this definition because his knowledge was based on information he obtained from other sources, namely company files and other people’s firsthand accounts.

Similarly, the Court concluded that Schumann’s knowledge was not “independent” because it was merely based on publicly disclosed information, rejecting the argument that his knowledge was independent because it was based on his own conclusions that kickbacks had been paid.

Decision applies to conduct prior to ACA’s effective date

However, this decision may have limited reach since it only applies to cases involving conduct prior to the 2010 effective date of the Patient Protection and Affordable Care Act (ACA), which amended the definition of “original source” so that it now only requires “knowledge that is independent of and materially adds” to the publicly disclosed allegations, as opposed to knowledge that is “direct and independent.”

The Court applied the previous definition to Schumann’s case because it was originally filed in 2003, and the ACA has not been applied retroactively.

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