Ritu Bhambhani, LLC v. NeurAxis, Inc.
| Docket Number | Civil RDB-22-1732 |
| Decision Date | 25 May 2023 |
| Parties | RITU BHAMBHANI, LLC d/b/a COMPLETE CARE OF MARYLAND, et al., Plaintiffs, v. NEURAXIS, INC. f/k/a INNOVATIVE HEALTH SOLUTIONS, INC., et al., Defendants. |
| Court | U.S. District Court — District of Maryland |
Richard D. Bennett, United States Senior District Judge.
This case features allegations of fraud, conspiracy, and related misconduct in the sale of the Neuro-Stim System, an electroacupuncture device designed to treat chronic pain. Plaintiffs, a collection of limited liability companies owned by Drs. Ritu Bhambhani and Sudhir Rao, allege that Defendants Neuraxis, Inc. (“Neuraxis”), Acclivity Medical LLC (“Acclivity”), and Joy Long (“Long”) “fraudulently sold and marketed the [Neuro-Stim] as a surgically implantable medical device not just a tool for acupuncture,” and falsely assured prospective consumers that this device was billable to Medicare under a set of standardized billing codes. (Compl ¶¶ 3, 6, ECF No. 1.) They bring claims for: (I) civil violations of the Racketeering Influenced and Corrupt Organizations Act (“RICO”), pursuant to 18 U.S.C § 1962(c) (Count One); (II) conspiracy to violate RICO (Count Two), pursuant to 18 U.S.C. § 1962(d); (III) fraudulent misrepresentation (Count Three); (IV) intentional misrepresentation (Count Four); and (V) civil conspiracy (Count Five). (Id. ¶¶ 86-118.)
Three dispositive motions are now pending before this Court: (1) Defendant Neuraxis, Inc.'s Motion to Dismiss (ECF No. 23); (2) Defendant Acclivity Medical, LLC's Motion to Dismiss (ECF No. 26); and (3) Defendant Joy Long's Motion to Dismiss (ECF No. 31). Neuraxis, joined by its co-Defendants,[1] contends that Plaintiffs have failed to state a claim under Counts I and II, alleging civil violations of RICO, and argues in the alternative that all of Plaintiffs' claims should be dismissed for failure to exhaust all available administrative remedies under the federal Medicare Act, 42 U.S.C. § 1935 et seq. .) The parties' submissions have been reviewed and no hearing is necessary. See Local Rule 105.6 (D. Md. 2021). For the reasons that follow, Defendants' Motions to Dismiss (ECF Nos. 23, 26, 31) are GRANTED in part and DENIED in part. Specifically, Counts I and II, asserting civil claims under RICO, are dismissed with prejudice as to all Defendants. Defendants' motions are DENIED with respect to Counts III, IV, and V, which remain pending.[2]
When evaluating a motion to dismiss, this Court must “accept as true all well-pleaded facts in a complaint and construe them in the light most favorable to the plaintiff.” Wikimedia Found. v. Nat'l Sec. Agency, 857 F.3d 193, 208 (4th Cir. 2017) (citing SD3, LLC v. Black & Decker (U.S.) Inc., 801 F.3d 412, 422 (4th Cir. 2015)). The facts outlined below reflect the substance of Plaintiff's operative Complaint and will be accepted as true for the purpose of Defendant's Motion to Dismiss.
Defendant Neuraxis, Inc. (“Neuraxis”)[3] is an Indiana-based corporation that produces medical devices. (Compl. ¶ 23, ECF No. 1.) Neuraxis manufactured and marketed the Neuro-Stim System (“Neuro-Stim”), an electro-acupuncture device designed to alleviate chronic pain by using electrode arrays to stimulate the peripheral and cranial nerves in the outer ear. (Id. ¶¶ 2, 23.) In 2011, the Centers for Medicare and Medicaid Services (“CMS”) determined that a substantially identical electroacupuncture device was ineligible for Medicare reimbursement, (id. ¶ 29), and in 2014, the Food and Drug Administration (“FDA”) only approved the Neuro-Stim for use in the practice of acupuncture, (id. ¶ 2). Plaintiffs allege that Defendants “fraudulently sold and marketed the [Neuro-Stim] as a surgically implantable medical device, not just a tool for acupuncture,” and falsely advertised that this device was “billable to third-party payers, including Medicare” under standardized Current Procedural Terminology (“CPT”) codes that are used across the medical industry. (Id. ¶¶ 3, 6.)[4]
I. Development and Marketing of the P-STIM and Neuro-Stim
The Neuro-Stim was not the first electroacupuncture tool Neuraxis brought to market. Before developing the Neuro-Stim, Neuraxis was the FDA-registered primary distributor of the “P-STIM,” a device manufactured by Austrian company Biegler GmbH. (Id. ¶ 26.) According to the Complaint, Neuraxis “invested substantial sums” in the P-STIM-marketing the device throughout the United States and selling tens of thousands of units to healthcare providers. (Id.) Throughout this promotional campaign, Neuraxis assured its customers that the P-STIM was eligible for Medicare reimbursement. (Id. ¶¶ 27-28.) However, in 2011, CMS determined that electroacupuncture tools, including the P-STIM, were ineligible for Medicare coverage. (Id. ¶ 29.) Consequently, the P-STIM was no longer billable under the CPT codes that Neuraxis had previously advertised. (Id.)
Building upon its success marketing the P-STIM, Neuraxis developed its own electroacupuncture device-the Neuro-Stim System. (Id. ¶¶ 27-28.) Plaintiffs allege that the Neuro-Stim was “‘substantially similar' to the P-STIM both in functionality and outcomes.” (Id. ¶ 27.) In 2014, FDA approved the Neuro-Stim for use in acupuncture services only. (Id. ¶¶ 2, 28.) Thereafter, Neuraxis proceeded to market its new device through a series of “exclusive-rights” agreements with various “Sales Agents,” including Innovative Healthcare Solutions (“IHCS”) and Acclivity. (Id. ¶¶ 3-4, 28.)[5] Neuraxis and its Sales Agents ran an extensive advertising campaign, promoting the Neuro-Stim in online and printed media, at trade shows, and through outreach to physicians. (Id. ¶¶ 3-4.) Collectively, they employed the same marketing strategies they had used to sell the P-STIM, “focusing on representations . . . related to the billing, coding, and reimbursement of the device.” (Id. ¶ 28.)
Plaintiffs allege at length that Neuraxis misrepresented the nature of the Neuro-Stim and its eligibility for Medicare coverage. When CMS determined that the P-STIM was ineligible for reimbursement, Neuraxis contrasted the two devices, and assured medical providers that the Neuro-Stim would be highly profitable, billable to Medicare under a code that authorized “between $4,800.00 and $11,400.00 per patient in reimbursement for a procedure with little associated cost.” (Id. ¶¶ 7, 29.) To accomplish this, Defendants allegedly concealed the nature of the device and the limited scope of its FDA approval. For example, Neuraxis President Brian Carrico instructed the company's Sales Agents, including IHCS and Acclivity, to market the device as “a peripheral neurostimulator,” and instructed them not to “ever use the word acupuncture or meridian point or anything like that.” (Id. ¶ 30.) Sales Agents assured medical providers they would receive “extraordinary reimbursement” for the Neuro-Stim, and that the Neuro-Stim “is clearly delineated from acupuncture and other neuro-stimulator treatments.” (Id. ¶¶ 33, 34, 36, 37, 42, 58.) Neuraxis provided its Sales Agents with promotional materials claiming that the Neuro-Stim was billable under CPT codes for implantable nerve stimulators and approved by the FDA to treat chronic and acute pain. (Id. ¶¶ 37-42.)
II. Plaintiffs are Solicited to Purchase the Neuro-Stim
Plaintiffs are a collection of Maryland-based limited liability companies owned by Ritu Bhambhani, M.D., and Sudhir Rao, M.D., two board-certified anesthesiologists practicing in the State of Maryland. (Id. ¶¶ 17-22, ECF No. 1.)[6] Bhambhani operates entity-Plaintiffs Ritu Bhambhani, LLC, and Box Hill Surgery Center, LLC (the “Bhambhani Practice Entities”) and is affiliated with several hospitals in the Abingdon, MD area. (Id. ¶ 19.) Rao operates entity Plaintiffs Pain and Spine Specialists of Maryland LLC, and SimCare ASC LLC (the “Rao Practice Entities”) and is affiliated with practices in Maryland, Virginia, and Pennsylvania. (Id. ¶ 22.) Collectively, Plaintiffs allege that they relied on Defendants' representations related to the Neuro-Stim's billing and coding eligibility to purchase large quantities of the device for use in their anesthesiology and pain medicine practices. (Id. ¶¶ 36-67.)
IHCS marketed the Neuro-Stim to the Bhambhani Practice Entities. On August 17, 2015, Robert A. Smith, Vice President of Sales and Marketing for IHCS, sent Dr. Bhambhani an email describing the Neuro-Stim as a market-first, FDA-approved “nerve stimulator” that was approved to treat chronic and acute pain. (Id. ¶ 36, Ex. 7.) This email included an educational video and a powerpoint slideshow highlighting the “extraordinary reimbursement and high profit” available for physicians who used the Neuro-Stim in their practices. (Id. ¶ 42.) The presentation claimed that the Neuro-Stim was eligible for reimbursement by workers' compensation, health insurance, and personal injury insurance, and instructed physicians to bill Neuro-Stim treatment under “CPT 64555, Percutaneous Implantation of Neurostimulator Electrodes at a Peripheral Nerve”-the same code that Neuraxis used to promote the P-STIM until CMS limited its eligibility in 2011. (Id. ¶¶ 37-42.) Nowhere in this presentation did IHCS mention that the Neuro-Stim had been approved only for use in acupuncture. (Id. ¶ 43.)
Defendant Acclivity marketed the Neuro-Stim to the Rao Practice Entities. On August 15, 2015, Matthew Miller, a Distributor/Principal of Acclivity, contacted Dr. Rao to advertise the Neuro-Stim as a pain management treatment eligible for Medicare reimbursement. (Id. ¶¶ 54-56.) Miller shared many of the marketing documents prepared by Neuraxis-including fact sheets brochures, and exemplar...
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