U.S. v. Medtronic Inc.

• Citation: 747 F.Supp.2d 745
• Decision Date: 30 September 2010
• Docket Number: Civil Action No. H–08–3408.
• Parties: UNITED STATES of America, ex rel. Elaine BENNETT and Donald P. Boone, Plaintiffs,v.MEDTRONIC, INC., Defendant.
• Court: U.S. District Court — Southern District of Texas

747 F.Supp.2d 745

UNITED STATES of America, ex rel. Elaine BENNETT and Donald P. Boone, Plaintiffs,

v.MEDTRONIC, INC., Defendant.

Civil Action No. H–08–3408.

United States District Court, S.D. Texas, Houston Division.

Sept. 30, 2010.

David W. Sanford, Sanford Wittels et al., Washington, DC, Mitchell R. Kreindler, Kreindler & Associates, Mary Michelle Zingaro, Office of U.S. Attorney, Houston, TX, for Plaintiffs.Stacy L. Brainin, Haynes and Boone LLP, Dallas, TX, Christopher P. Conniff, David J. Przygoda, Ropes & Gray, LLP, New York, NY, Michael K. Fee, Ropes & Gray LLP, Boston, MA, Samantha Barrett Badlam, Ropes & Gray LLP, Washington, DC, for Defendant.

MEMORANDUM AND OPINION

LEE H. ROSENTHAL, District Judge.

This case raises the question of when a manufacturer's promotion of a medical device for an “off-label” use may provide the basis for a qui tam action by private plaintiffs suing under the False Claims Act.¹ The relators, Elaine Bennett and Donald P. Boone, allege that Medtronic, Inc. improperly promoted its Cardioblate system device for an off-label use and that the promotional activities caused physicians and hospitals to submit false claims for reimbursement from Medicare or Medicaid. The FDA has approved the Cardioblate system for the general uses of ablating tissue to control bleeding during general surgery and to coagulate cardiac tissue during general surgery. The relators allege that Medtronic has improperly promoted the use of the device for surgical ablation to treat atrial fibrillation, both in conjunction with other cardiac surgery and as a standalone procedure, which are off-label uses.

Medtronic has moved to dismiss under Rule 12(b)(6) and Rule 9(b) of the Federal Rules of Civil Procedure. Medtronic argues that the allegations of off-label promotional activities are insufficient to plead that it caused physicians or hospitals to submit false reimbursement claims to Medicare. (Docket Entry No. 30). The relators responded, (Docket Entry No. 41), and Medtronic replied, (Docket Entry No. 47).

Based on the pleadings, the motion, the responses, and applicable law, this court grants Medtronic's motion to dismiss, for the reasons explained in detail in this Memorandum and Opinion. Because there has been only one amendment, and because Rule 15 embodies a liberal amendment policy, the relators may amend no later than October 29, 2010, consistent with this Memorandum and Opinion.

I. BackgroundA. Procedural History

The relators filed their complaint on November 17, 2008, under seal, to allow the United States to decide whether it wanted to intervene.² This is one of five qui tam actions filed by one of the relators, Elaine Bennett, against medical-device manufacturers. (Docket Entry No. 4). Bennett also filed qui tam actions against Boston Scientific Corp. and Guidant Corp., United States of America ex rel. Bennett v. Boston Sci. Corp., Civil Action No. H–07–2467; Atricure, Inc., United States of America ex rel. Bennett v. Atricure, Inc., Civil Action No. H–07–2702; St. Jude's Medical, Inc. and Epicor Medical, Inc., United States of America ex rel. Bennett v. St. Jude's Med. Inc., Civil Action No. H–07–2704; and Endoscopic Technologies, Inc., United States ex rel. Bennett v. Endoscopic Tech., Inc., Civil Action No. H–07–2705. All these suits alleged off-label promotion of surgical-ablation devices to treat atrial fibrillation. The Boston Science allegations involved a “microwave ablation device,” ( Civil Action No. H–07–2467, Docket Entry No. 58, at 3); the Atricure allegations involved a “bipolar ablation system,” (Civil Action No. H–07–2702, Docket Entry No. 23, at 1); the St. Jude allegations involved “Epicor's cardiac ablation products,” (Civil Action No. H–07–2704, Docket Entry No. 25, at 2); and the Endoscopic Tech. allegations involved “Cobra ablation products,” (Civil Action No. H–07–2705, Docket Entry No. 26, at 2). In each complaint,³ the alleged unlawful promotional tactics included: encouraging sales representatives to promote the device for off-label use in treating atrial fibrillation; training doctors to use the device to treat atrial fibrillation; encouraging physicians and hospitals to “upcode” minimally invasive, stand-alone surgical ablations as open-chest procedures to obtain favorable Medicare reimbursement rates; marketing the high reimbursement-to-cost ratio of ablation devices compared to other atrial fibrillation treatments; encouraging the off-label use of the device by providing remuneration in forms that included (for physicians) referrals, free advertising, and direct payments, and (for hospitals) free products, volume discounts, and “lock-in” arrangements, all outside the antikickback statute's safe harbors.⁴ On the government's motion, the cases were placed under joint administration. (Docket Entry Nos. 4, 6).⁵ The United States declined to intervene in this suit against Medtronic on August 2009. The relators filed an amended complaint in July 2009, (Docket Entry No. 12), and an unredacted version of that complaint in December 2009, (Docket Entry No. 27).

B. The Parties

Medtronic develops, manufactures, and markets medical devices, including surgical devices. The relators, Elaine Bennett and Donald P. Boone, describe themselves as “industry insiders” who have never worked for Medtronic but have worked for other medical-device manufacturers. Bennett alleges that she worked for Boston Scientific for four months as a sales representative. She alleges that she has knowledge of Medtronic's “illegal billing and coding practices.” ⁶ Boone alleges that he worked as a sales representative for Guidant, in a management position for St. Jude Medical, and most recently at Endoscopic Technologies, which manufactures devices that compete with Medtronic in treating atrial fibrillation. ( Id. at ¶¶ 16–17). Boone alleges that he became familiar with the practices alleged in this complaint while working for Guidant and St. Jude.

C. The False Claims Act

The False Claims Act prohibits the knowing submission of false or fraudulent claims for payment, or causing the submission of such claims, to the federal government, and prescribes fines and treble damages to penalize offenders. 31 U.S.C. § 3729(a). The FCA establishes liability for “[a]ny person who ... knowingly presents or causes to be presented, a false or fraudulent claim for payment or approval ... [or] knowingly makes, uses, or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the government.” 31 U.S.C. § 3729(a)(1–2), amended by 31 U.S.C. § 3729(a)(1)(A–B).

When a qui tam suit is brought by a private relator and the government declines to intervene, the relator is entitled to between 25 and 30% of the recovery, § 3730(d)(2), as well as attorneys' fees. As has often been pointed out, the Act does not create a cause of action against all fraudulent conduct affecting the government. Rather, FCA liability attaches to a “false or fraudulent claim for payment” or to a “false record or statement [made] to get a false or fraudulent claim paid by the government.” 31 U.S.C. § 3729(a)(1)-(2), amended by 31 U.S.C. § 3729(a)(1)(A–B). “Evidence of an actual false claim is the ‘sine qua non of a False Claims Act violation.’ ” United States ex rel. Clausen v. Lab. Corp. of Am., Inc., 290 F.3d 1301, 1311 (11th Cir.2002).

In this case, there are no specific allegations that Medtronic itself submitted false claims. Instead, the complaint alleges that Medtronic knowingly caused the submission of fraudulent claims by physicians and hospitals in the form of claims for reimbursement for off-label uses of a Medtronic device. The complaint does not identify any specific false claim presented by others to Medicare/Medicaid. Nor does the complaint identify any entity or person who actually submitted such a claim. Instead, the complaint alleges that as a result of Medtronic's marketing campaign and illegal kickbacks, the Medtronic Cardioblate system has been widely used for the off-label purpose of treating atrial fibrillation by physicians and hospitals and that this use “would result in the submission of fraudulent claims.” (Docket Entry No. 27, ¶ 136).

D. Off–Label Use of Medical Devices

The FDA approves products for specific indications, which are stated in the label. When a medical device is approved for one purpose or indication and used outside this approved purpose, that use is deemed “off label.” Off-label promotion involves disseminating information about product uses not approved by the FDA. The FDA generally restricts a manufacturer from marketing for off-label purposes but does not restrict a hospital from purchasing or a doctor from prescribing or using a medical device for an off-label purpose. Off-label use of many products and drugs is an accepted medical practice.⁷

Courts recognize that off-label use of a drug or medical device is not the same as a medically unnecessary use of that drug or device. See Buckman Co. v. Plaintiffs' Legal Comm., 531 U.S. 341, 121 S.Ct. 1012, 1018, 148 L.Ed.2d 854 (2001) (“ ‘[O]ff-label’ usage of medical devices ... is an accepted and necessary corollary of the FDA's mission to regulate in this area without directly interfering with the practice of medicine.”); Svidler v. United States Dep't of Health and Human Servs., No. C–03–3593 MJJ, 2004 WL 2005781, at *5 (N.D.Cal. Sept. 8, 2004) (“[T]he FDA can restrict a company from marketing off-label uses, but cannot prevent a doctor from prescribing a device for an off-label use for any purpose she deems medically necessary.”) (citing Washington Legal Foundation v. Friedman, 13 F.Supp.2d 51 (D.D.C.1998)); United States ex rel. Polansky v. Pfizer, No. 04–cv–0704 (ERK), 2009 WL 1456582, at *6 (E.D.N.Y. May 22, 2009) (“[T]he FDA has acknowledged that ‘accepted medical practice often includes drug use that is not reflected in approved drug labeling.’ ”) (citing Food & Drug Admin., Use of...