Originally published in California Society for Healthcare Attorneys – California Health Law News Spring 2025 issue. Posted with permission.
As the new administration implements its “America First” trade policy, healthcare and life sciences companies participating in global supply chains face both increasing costs and elevated risks associated with navigating customs requirements. A series of recent executive actions has imposed new, sweeping tariffs impacting many healthcare suppliers, with anticipated pharma-specific tariffs on the horizon. Each of these new tariff requirements carries with it potential exposure under the False Claims Act (FCA), 31 USC § 3729 et seq.
Healthcare and life sciences companies are no strangers to the FCA. Of the more than $2.9 billion in FCA settlements and judgments reported by the Department of Justice (DOJ) in fiscal year 2024, over $1.67 billion related to matters involving the healthcare industry, including managed care providers, hospitals and other medical facilities, pharmacies, pharmaceutical companies, laboratories, and physicians.
The FCA does not apply to traditional tax-related matters (though those who track California’s False Claims Act (CFCA), Cal. Gov. Code § 12650 et seq., will note that in March 2025, California Attorney General Rob Bonta unveiled legislation that would amend the CFCA to cover tax fraud). However, while tariffs are essentially taxes on goods imported to the United States, tariffs are not treated as traditional taxes for FCA purposes. Tariff evasion can trigger substantial “reverse false claims” liability under the FCA, including treble damages and business-debilitating civil penalties.
Historically, the number of FCA actions based on alleged noncompliance with customs requirements is small compared to other types of FCA claims involving healthcare companies and government healthcare programs (such as alleged upcoding, double billing, or violations of the federal Anti-Kickback Statute and Stark Law). Still, new and evolving trade obligations have created an environment ripe for increased enforcement activity, by both the government and qui tam relators.
On May 12, 2025, the head of DOJ’s Criminal Division issued a memorandum outlining the division’s enforcement priorities. The memorandum identifies trade and customs fraud, including tariff evasion, as a high-impact area for which DOJ is prioritizing investigation and prosecution. It further amends the division’s corporate whistleblower awards pilot program to provide for whistleblower award eligibility when individuals provide DOJ with original information relating to trade, tariff, and customs fraud by corporations. Given that California is home to many of the busiest US ports (including Los Angeles, Long Beach, and Oakland, which are the primary ports for goods imported from Asia), many enforcement actions stemming from trade law violations likely will be brought in federal districts in California and spearheaded by US attorneys’ offices throughout California.
Accordingly, healthcare suppliers—especially importers of medical devices and pharmaceutical products—should appreciate the risks associated with violations of trade rules. Stakeholders should promptly strengthen their compliance frameworks and ensure their customs and tariff practices are current and tailored to mitigate potential liability under both the FCA and underlying civil enforcement statutes.
President Trump’s Tariffs
The central role of tariffs in the administration’s approach to global trade has been apparent since the first day of President Trump’s second term, when the President set forth an “America First” trade policy aimed at enhancing national security, addressing trade deficits, and promoting American economic interests and public health. Since then, President Trump has issued a series of memoranda, executive orders, and proclamations establishing new and unprecedented tariff requirements.
While the US Constitution expressly allocates the tariff power to Congress, the President imposed many of his tariffs under the International Emergency Economic Powers Act of 1977 (IEEPA), 50 USC § 1701 et seq., which provides the President with expanded regulatory authority over imports to address unusual and extraordinary threats with respect to declared national emergencies. Several US states and US-based importers subsequently filed suit challenging the President’s tariff orders based on the argument that the IEEPA does not grant the President statutory authority to unilaterally impose tariffs. On May 28, 2025, the US Court of International Trade (CIT) issued an order in V.O.S. Selections, Inc. v. United States, Case No. 25-00066, holding that the IEEPA did not authorize any of the President’s tariff orders challenged by the plaintiffs, which the CIT vacated and permanently enjoined. Shortly thereafter, in a separate action, the US District Court for the District of Columbia also declared certain tariffs derived from the President’s executive orders to be unlawful and granted a preliminary injunction against them, which the court stayed for fourteen days to facilitate review by the US Court of Appeals, in Learning Resources, Inc. v. Trump, Case No. CV 25-1248 (RC).
On May 29, 2025, the US Court of Appeals for the Federal Circuit temporarily stayed the CIT’s order and reinstated the President’s tariffs while it considered whether to stay such tariffs during the pendency of the government’s appeal, in V.O.S. Selections, Inc. v. Trump, Case No. 2025-1812. On June 10, 2025, the Federal Circuit further issued an order staying the CIT’s ruling pending the government’s appeal, which is scheduled to be heard on July 31, 2025. Accordingly, while the tariff landscape remains in flux, stakeholders should appreciate the scope of the various executive actions regarding tariffs since the President’s inauguration.
- Reciprocal Tariffs. On April 2, 2025, the president issued Executive Order 14257 declaring a national emergency due to US goods trade deficits, which he attributed to non-reciprocal trade practices by foreign partners. With limited exceptions, the president imposed a 10% tariff on all countries, effective April 5, 2025, with higher tariffs for countries with significant trade deficits taking effect on April 9, 2025. Executive Order 14257 provides that reciprocal tariffs will remain in effect until the administration determines that the threats posed by trade deficits and underlying nonreciprocal treatments are satisfied, resolved, or mitigated.
On April 9, 2025, the president suspended reciprocal tariffs higher than 10% for 90 days (except for the tariff rate on Chinese imports, which he increased). On April 29, 2025, to avoid cumulative or stacking tariffs (which the president deemed unnecessary to achieve his intended policy goals), the president set forth the process for determining applicable tariffs when articles are subject to overlapping tariffs. - Pharmaceuticals. Executive Order 14257 excepted pharmaceutical products from the higher reciprocal tariffs, but not from the universal 10% tariff on imports from all countries. However, the day before the president announced the reciprocal tariffs, the president directed the secretary of commerce to investigate the effects on the national security of imports of pharmaceuticals and pharmaceutical ingredients. The administration has recently signaled that pharma-specific tariffs are forthcoming.
- China. Prior to issuing Executive Order 14257, the president had already ordered a 10% tariff (increased to 20%) on Chinese imports, which was further specifically increased by an additional 84% and then 125%, effective April 10, 2025. Effective May 2, 2025, the president also ended the duty-free de minimis treatment for low-value Chinese imports, exempting qualifying imports valued at or under $800 from tariffs. On May 12, 2025, the president reduced the total additional tariffs imposed on Chinese imports from 145% to 30% for 90 days following recent discussions between the US and China.
- Canada and Mexico. On February 1, 2025, the president imposed a 25% tariff on Mexican imports and Canadian imports (except for Canadian energy resources, which were hit with a 10% tariff). (Tariffs on Canadian and Mexican imports, 2025). These tariffs were initially set to take effect on February 4, 2025, but were paused until March 4, 2025. The president subsequently suspended the 25% tariff for goods that qualify for duty-free treatment under the US-Mexico-Canada Trade Agreement (USMCA). Goods that do not qualify are subject to the additional 25% tariff.
- Aluminum and Steel, Copper, Timber and Lumber, Critical Minerals, and Automobiles. The president has separately restored a 25% tariff on steel imports, elevated the tariff on aluminum imports to 25%, directed the secretary of commerce to investigate the national security risks posed by imports of copper, timber and lumber, and critical minerals (and their derivatives), and proclaimed tariffs on imports of automobiles and certain automobile parts.
Healthcare Supply Chain Impacts
Chief among those impacted by the new tariff requirements are healthcare and life sciences companies, especially importers of healthcare supplies, medical devices, and pharmaceutical products. Most hospital major equipment, parts, and technology are manufactured outside the US, including ventilators, and anesthesia and imaging machines. Many US hospitals also rely entirely on foreign suppliers for routine items such as surgical gloves and masks, gowns, syringes, intravenous catheters, and other durable medical equipment. Further, a significant portion of active pharmaceutical ingredients (APIs)—used in both generic and brand-name drugs—and finished medications are manufactured abroad, with a substantial percentage of APIs originating from India, China, and Europe.
While the American Hospital Association and many others in the health sector have advocated that medical devices, supplies, and pharmaceuticals be permanently excepted from President Trump’s reciprocal tariffs, medical devices and supplies are presently not exempt, and the administration has already signaled that pharma-specific tariffs are imminent. Accordingly, apart from prioritizing compliance with federal healthcare program coverage rules and regulations, companies involved in healthcare supply chains must remain vigilant for tariff developments.
Tariff Evasion and Reverse False Claims Liability
Because importing merchandise into the United States requires making representations and payments to the government, tariff and import noncompliance potentially exposes companies and individuals to FCA liability. The FCA is one of the DOJ’s oldest and most versatile enforcement statutes and the government’s principal civil tool for combatting fraud against the government. The FCA imposes liability for knowingly submitting false claims for payment to the government and knowingly avoiding obligations to pay money to the government (known as “reverse false claims,” under 31 USC § 3729(a)(1)(G)).
US importers must declare, among other things, their goods’ country of origin and value, whether the goods are covered by anti-dumping duties or countervailing duties, and the amount of duties owed. Anti-dumping duties are tariffs imposed on imports priced below fair market value, while countervailing duties are used to offset government subsidies provided by exporting country. US Customs and Border Protection (CBP) relies on these representations to determine the correct amount of any duties. Thus, importers bear an affirmative duty to use “reasonable care” to ensure that such information is accurate. Importers who fall short and knowingly provide false information to CBP risk FCA liability. Critically, because the FCA’s knowledge standard embraces not just actual knowledge, but also deliberate ignorance or reckless disregard, taking affirmative measures to ensure reporting accuracy when goods cross US borders is essential to minimizing potential FCA exposure.
Indeed, recent FCA actions—as well as sizeable associated settlements—premised on alleged avoidance of customs duties and import violations by healthcare companies, reflect increased use of the FCA by both relators and the government. These cases include claims that importers of healthcare products falsely represented countries of origin, and undervalued or misclassified goods in an effort to avoid tariff obligations.
Recent Intervention in California Case Illustrates FCA Risk for Failure to Pay Customs Duties
This past January, DOJ intervened in U.S. ex rel. Lee v. Barco Uniforms et al., Case No. 2:16-cv-1805 DC-JDP (E.D. Cal.) (Barco Uniforms), a FCA qui tam action filed in US District Court for the Eastern District of California in 2016, shortly before President Trump began his first term. The Barco Uniforms relator is a former employee of Barco Uniforms, Inc. (Barco), a company based in Gardena, California which sells licensed uniforms to large healthcare providers and other businesses. The relator alleged that Barco, along with several associated apparel manufacturers, suppliers, and distributors, were liable under the FCA because they falsified customs entry documents to avoid paying customs duties.
On April 11, 2025, after an investigation spanning nearly a decade, DOJ filed its complaint in intervention in Barco Uniforms. The government’s complaint alleges that Barco, its longtime suppliers Kenny Chan and David Chan, and a constellation of interrelated Chan-controlled entities executed a years-long scheme to evade millions of dollars in customs duties on garments manufactured in the China and imported into the US. Specifically, the government contends that the defendants knowingly falsified the declared value of imported apparel, submitted fabricated invoices, and misrepresented key data on Entry Summaries (CBP Form 7501) so that CBP would assess artificially low duties. According to the complaint, Barco benefited from the resulting cost savings by underbidding competitors for lucrative uniform programs with major clients, while the Chan defendants pocketed the duties that should have been paid to the government.
Central to the alleged conspiracy were “cost sheets” that Barco required all vendors to complete when bidding on new uniform programs. For the Chan defendants, Barco allegedly manipulated these spreadsheets by either pre-populating impossibly low duty amounts or leaving the duty cell open for manual entry so that the Chan entities could “back into” whatever figure was needed to hit Barco’s target price. Once a bid was accepted, the Chan defendants allegedly orchestrated a “double invoicing” scheme by generating two sets of invoices: (i) a real invoice reflecting the actual price Barco had agreed to pay, and (ii) a fake invoice showing a deeply discounted price. The latter was furnished to CBP and referenced on Form 7501, thereby concealing the true transaction value from CBP and triggering under-assessed duties. The government’s complaint details dozens of examples in which duty obligations allegedly were understated by 40% to 50% or more.
When government scrutiny intensified—first through 2016 CBP summonses and later through 2018 Civil Investigative Demands—the defendants allegedly took additional steps to hide their conduct. The Chan entities allegedly changed corporate names and email domains, and Barco directed that its own name be omitted from Form 7501 or replaced with a third-party logistics company to obscure its role as ultimate consignee.
The government’s complaint asserts four counts against the defendants, including two based on the FCA’s “reverse false claims” provision, as well as a conspiracy claim under the FCA and a common law claim for unjust enrichment. It further contends that the fraudulent undervaluation by the defendants not only deprived the US of significant revenue, but also distorted competition in the uniform-apparel market. The defendants have yet to file responsive pleadings.
Similar allegations are forming the basis for an increasing number of FCA settlements. On April 12, 2023, DOJ announced a $765,000 settlement with Danco Laboratories, LLC (Danco), a US pharmaceutical distributor. The settlement resolved qui tam allegations brought in 2021 by a Napa, California-based non-profit organization that Danco violated the FCA by failing to properly mark Chinese imports of the oral drug mifepristone. The relator contended that Danco knowingly submitted false or incomplete Forms 7501 and related entry documents to CBP, thereby concealing its obligation to pay 10% marking duties. And shortly before the president announced the imposition of reciprocal tariffs, another California-based importer and its owners agreed to pay $8.1 million to resolve allegations that they violated the FCA by knowingly and improperly evading customs duties on imports from China. The settlement resolved a qui tam action filed by a competitor in the Central District of California in 2020.
Country-of-Origin Violations
Apart from FCA liability associated with tariff evasion, companies that supply government purchasers—including the US Department of Defense (DoD) in connection with TRICARE and the US Department of Veterans Affairs (VA)—should also be conscious of FCA risks associated with violations of country-of-origin requirements. These requirements mandate that certain goods purchased by the United States be made either in the US or (for some categories of goods) in certain specified foreign countries. Even the largest global medical device companies have run afoul of country-of-origin requirements.
In December 2022, Coloplast, a manufacturer of ostomy, continence, interventional urology, and wound care products, paid $14.5 million to resolve FCA liability after Coloplast self-disclosed that it overbilled the VA and reported incorrect countries of origin for several Coloplast-manufactured medical and pharmaceutical products in violation of federal procurement rules and the Trade Agreements Act (TAA), 19 USC § 2501, which requires certain products sold to the US government be either manufactured or “substantially transformed” in the US or a designated TAA-compliant country.
Medtronic Inc. (Medtronic) and various Medtronic-affiliated companies similarly paid a $4.41 million settlement to resolve a qui tam whistleblower action brought by several Medtronic employees who worked in Medtronic’s distribution centers. The relators alleged that Medtronic knowingly violated the FCA by misrepresenting the country of origin of thousands of medical-surgical products sold and delivered to VA Medical Centers and the Walter Reed Army Medical Center under the Federal Supply Schedule (FSS) and other indefinite-delivery contracts that required TAA compliance. Medtronic allegedly certified that the products were manufactured or substantially transformed in the United States or a TAA-designated country, but the relators contended that Medtronic sourced a significant number of products from non-designated countries such as China, India, and Malaysia, then shipped them to its US distribution center, where employees allegedly repackaged and relabeled the items to conceal their foreign origins before fulfilling federal orders.
Given the administration’s emphasis on using tariffs and trade policy to promote domestic manufacturing, companies should anticipate an increase in FCA actions premised on violations of county-of-origin requirements.
Prioritize Tariff Compliance to Mitigate FCA Exposure
As President Trump’s trade policy evolves, participants in international supply chains must stay alert and adapt to shifting tariff obligations. This is especially true for importers of healthcare supplies originating abroad, but also for hospitals and others who buy from tariff-evading suppliers, who may find themselves ensnared in conspiracy theories of FCA liability. Not only does failure to comply with customs requirements carry significant financial risk in the event of an FCA judgment or settlement, but allegations by competitors and whistleblowers can spark lengthy and expensive government investigations, particularly in the absence of effective and well-documented internal compliance and vetting practices.
The administration’s use of tariffs to pursue international trade objectives and DOJ’s continued reliance on the FCA as a key enforcement tool mean international market participants face heightened risk associated with violations of customs laws, particularly in the near term. Accordingly, all healthcare companies involved in international trade should take action to assess, track, and ensure compliance with updated tariff and customs rules. Healthcare entities should exercise some supply-chain due diligence and maintain appropriate recordkeeping of such efforts, especially if the relationship with a supplier is closer than arms-length.
Further, given the significant threat of FCA actions by qui tam relators, companies should instill a culture of compliance among their workforces through trainings, incentives, and other measures, and promptly investigate and address any internal or publicized reports of misconduct.