United States ex rel. Wallace v. Exactech, Inc.
| Decision Date | 05 August 2020 |
| Docket Number | 2:18-cv-01010-LSC |
| Parties | UNITED STATES OF AMERICA, et al., ex rel. BROOKS WALLACE, ROBERT FARLEY and MANUEL FUENTES, et al., Plaintiffs, v. EXACTECH, INC., Defendant. |
| Court | U.S. District Court — Northern District of Alabama |
This is a qui tam action brought by Relators on behalf of the United States, 23 states, and themselves against Defendant Exactech, Inc. ("Exactech"), a medical device manufacturer. Relators accuse Exactech of violating and conspiring to violate the federal False Claims Act ("FCA"), 31 U.S.C. § 3729 et seq., and corresponding state FCAs by knowingly causing false claims to be submitted to federal and state healthcare programs for defective replacement knee devices surgically implanted by unsuspecting physicians and by using false statements material to those claims. Relators also allege that Exactech violated the Anti-Kickback Statute ("AKS"), 42 U.S.C. § 1320a-7b, and the FCA by paying remuneration to physicians who suspected the defects in order to induce them to continue to buy Exactech products.
Before this Court is Exactech's Motion to Dismiss Relators' Amended Complaint. (Doc. 57.) The motion has been fully briefed and is now ripe for review. For the reasons stated below, Exactech's motion is due to be granted in part and denied in part.
Exactech manufactures the Optetrak Total Knee Replacement ("TKR") system for use during knee replacement surgeries. The Optetrak TKR system involves implanting into the patient a "tibia tray," a component which is anchored to the patient's tibia and connects to the mechanical knee. A patient's first TKR surgery is called a Primary Knee Replacement or "Primary TKR." If such a patient experiences a problem with the Primary TKR device or procedure, the patient may be required to undergo a revision surgery called a "Revision TKR," which is more complex and involves a larger, heavier implant. One reason a Primary TKR device fails and requires a revision surgery is when the metal device inserted into the patient's tibia becomes loose and begins to wobble, known as "tibial loosening," causing pain and immobility. Until 2011, Exactech had only two options for tibiatrays within their Opetrack product line: (1) the allegedly defective Finned Tibia Tray, used in Primary TKRs, and (2) the "Trapezoid" Tray, used in the revision system.
Relators Brooks Wallace ("Wallace") and Robert Farley ("Farley") became Exactech sales representatives in August 2011 and 2012, respectively. Relator Manuel Fuentes ("Fuentes") is a physician who was employed by Exactech from 2006 to 2011. Wallace and Farley marketed and sold the Finned Tibia Tray to multiple physicians and hospitals in Alabama and Northwest Florida, including Dr. James Floyd ("Dr. Floyd") and Dr. David Lemak ("Dr. Lemak") in Birmingham. Fuentes was involved in Exactech's internal investigation, described in further detail below, into potential causes of the Finned Tibia Tray's tibial loosening problems.
No later than 2008, Exactech learned that the Finned Tibia Tray failed in approximately 30-35% of patients within the first three years of implantation. This failure rate is ten times the failure rate of comparable knee replacement devices and six times the failure rate at which a device should be voluntarily recalled. The Finned Tibia Tray failures involved tibial loosening, causing pain and immobility and necessitating a Revision TKR to remedy the failure. In 2007 and early 2008, Exactech learned that the Finned Tibia Tray failed at "alarming" rates, includingfailures for 51 specific patients of Dr. Wayne Moody, an orthopedic surgeon in Auburn, Maine; 35 specific patients of Dr. Chris Hutchins, an orthopedic surgeon in New Haven, Connecticut; and numerous patients of surgeons in Florida and Georgia. Dr. Moody and Exactech Distributor Timothy O'Neill ("O'Neill") made a detailed presentation to Exactech regarding the device failures, and Exactech assured them that it would put together a "committee" to address them. Exactech also told them that Dr. Moody was the only surgeon from whom it was hearing of these device failures and that the problem was not with the Finned Tibia Tray but instead with one of Dr. Moody's surgical techniques. According to Relators, these statements to O'Neill and Dr. Moody were false because Exactech had already received reports from other physicians about tibial loosenings due to defective Finned Tibia Trays that required revision surgeries.
After receiving reports about the Finned Tibia Tray failures, Exactech hired Dr. Ivan Gradisar to audit patient outcomes and develop a better understanding of the tibial loosening problem. Dr. Gradisar reviewed patients from an Ohio hospital who had received a revision knee replacement surgery over a seventeen-month period and a fifteen-month period between 2004 and 2008. Dr. Gradisar was one of the primary designers of the Optetrack TKR and, as a result, he was viewed as a"friend of the company" and also received significant income through royalties on Optetrack TKR sales. (Doc. 54 ¶ 73.) Relators allege that Exactech and Dr. Gradisar conspired to manipulate the outcome of the audit, minimize the extent of the known device failures, and "protect the company." (Id.) They further allege numerous flaws in Dr. Gradisar's audit methods and conclusions that were designed to manipulate the outcome, many details of which are not relevant to the Court's decision. Notwithstanding the alleged attempts to manipulate the outcome, Dr. Gradisar's audit stated that, out of 47 patients who received a TKR revision surgery between January 1, 2007, and March 31, 2008, 24 required revision due to tibial loosening from a failed Finned Tibia Tray implant. Relators describe this ratio—more than 50%—as "well outside the industry norm." (Id. ¶¶ 75, 79.) The audit further stated Dr. Gradisar's belief that there were "multiple" causes of the device failures, including the improper "cement technique" of the implanting surgeons. (See id. ¶ 77.) Relators allege that Dr. Gradisar's audit and report triggered an FDA reporting requirement regarding the device failures identified therein; however, Exactech did not submit such a report.
As a result of the reports of device failures, revision surgeries, and Dr. Gradisar's audit, Exactech conducted an internal investigation into the loosening problem, where its engineers identified several design engineering andmanufacturing flaws they believed contributed to the failures, all of which were introduced around mid-2006.2 Exactech determined that these numerous defects created a "perfect storm" of issues, each contributing to the mounting device failures and necessitating revision surgeries. (See doc. 54 ¶ 88.) According to Relators, Exactech eventually stopped the investigation, replaced the device, and tried to cover up the problems. Relator Fuentes personally attended Exactech's investigatory committee meetings. During one meeting attended by "leading engineers, product managers and executives within Exactech," Exactech's Director of Marketing proposed that Exactech issue a recall, pull the Finned Tibia Tray inventory from the market, and replace it with the Revision TKR's "Trap Tray." (Id. ¶¶ 90-91.) Exactech's CFO responded that recalling the Finned Tibia Tray was not an option because it would be too financially detrimental, explaining that Exactech was "drowning in [Finned Tibia Tray] inventory" and the company could not afford to absorb the inventory cost. (Id. ¶ 92.) Additionally, the CFO's positionwas that "if Exactech adhered to its legal and ethical obligations and disclosed" the device failures, "the financial damage to [Exactech] would be too great and thus disclosure of any kind was not a viable financial option." (Id.) Exactech's Vice President of Regulatory and Clinical did not object to this plan. The Vice President further cautioned that, because the FDA requires each revision that may have been caused by the Finned Tibia Tray be reported, following these reporting requirements would suggest a device defect. Exactech decided not to issue a recall of the Finned Tibia Tray nor to disclose any problems related to the device to the FDA, Centers for Medicare or Medicaid, its surgeon customers, their patients, or the Department of Justice.
According to Relators, Exactech "sequestered" all information related to hundreds of device failures in order to hide them from physicians and patients and to avoid federal reporting obligations. Surgeons who were experienced with the device and gained independent knowledge of its defects, however, refused to purchase and implant it. And so, Exactech provided certain surgeons who experienced device failures with a different device and with consulting agreements in order to induce them to continue to use Exactech's products.
Thereafter, Relators say that Exactech falsely informed unsuspecting distributors and surgeons who lacked actual knowledge of the Finned Tibia Tray'sdefects that the device was an industry leader in its survival rate. This representation was made even though Exactech knew that the failure rate was actually ten times the industry standard and six times the rate at which orthopedic devices should be voluntarily recalled. Exactech made and used numerous marketing materials, including the "Optetrak-A Comprehensive Knee System Main Brochure," that falsely touted the Finned Tibia Tray's survival rates. According to Relators, the marketing materials propounding the false survival rates relied upon studies that were outdated, unreliable, and related to a completely different device. Id.3
Through its marketing materials and through its employees Bob Purcell and Dave Petty, Exactech presented this false survival rate data to Relators Wallace and Farley and to Dr. Lemak and other...
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