United States ex rel. Nowak v. Medtronic, Inc.

• Decision Date: 27 July 2011
• Docket Number: Civil Action Nos. 1:08–cv–10368,1:09–cv–11625.
• Parties: UNITED STATES of America et al., ex rel. Tricia NOWAK and Enda Dodd, Plaintiffs, v. MEDTRONIC, INC., Defendant.
• Court: U.S. District Court — District of Massachusetts

806 F.Supp.2d 310

UNITED STATES of America et al., ex rel. Tricia NOWAK and Enda Dodd, Plaintiffs,

v.MEDTRONIC, INC., Defendant.

Civil Action Nos. 1:08–cv–10368

1:09–cv–11625.

United States District Court, D. Massachusetts.

July 27, 2011.

Adam J. Schwartz, U.S. Department of Justice, Washington, DC, Edward Notargiacomo, Hagens Berman Sobol Shapiro LLP, Cambridge, MA, Shayne Stevenson, Steve W. Berman, Hagens Berman Sobol Shapiro, Seattle, WA, for Plaintiffs.

Michael K. Fee, Richard D. Batchelder, Jr., Ropes & Gray, Boston, MA, Christopher P. Conniff, Douglas Hallward–Driemeier, Ropes & Gray LLP, New York, NY, Kim B. Nemirow, Ropes & Gray, Washington, DC, for Defendant.

MEMORANDUM AND ORDER

DOUGLAS P. WOODLOCK, District Judge.

Relators Tricia Nowak and Enda Dodd (the “relators”) bring this qui tam action against Medtronic, Inc., on behalf of the United States, twenty-two states, and the District of Columbia. The relators allege that Medtronic knowingly and intentionally made false statements and caused to be submitted false claims in violation of the False Claims Act (“FCA”), 31 U.S.C. § 3729(a), and similar state statutes and that it wrongfully terminated Nowak in violation of the anti-retaliation provision of the FCA, 31 U.S.C. § 3730(h) and related California laws. Medtronic has moved to dismiss the relators' claims. I will grant in part and deny in part Medtronic's motion to dismiss.

I. STATUTORY FRAMEWORK

A. False Claims Act

The False Claims Act, 31 U.S.C. § 3729 et seq., permits an individual, or relator, to file a qui tam action on behalf of the United States against persons or entities who knowingly submit or cause to be submitted false claims to the government or who knowingly make, use, or cause to be made false records or statements to get a false claim paid by the government. 31 U.S.C. § 3729(a)(1); 31 U.S.C. § 3730(a)(2).¹ Complaints filed in qui tam actions are filed under seal and first served upon the government, which has sixty days to decide whether to intervene and assume primary responsibility over the action. 31 U.S.C. § 3730(b)(2), (b)(4), (c). The complaint may be unsealed and served on the defendant only at the court's direction. 31 U.S.C. § 3730(b)(2). The relator is eligible to collect as much as thirty percent of any damages awarded in such an action regardless of whether the government intervenes. 31 U.S.C. § 3730(d).²

The FCA also provides whistleblower protection to employees who take action to prevent FCA violations. 31 U.S.C. § 3730(h).³ An employee terminated because she attempts to stop a violation of the False Claims Act is entitled to reinstatement, back pay, and other appropriate compensation. 31 U.S.C. § 3730(h)(2).

The considerable financial incentive to bringing a False Claims Act action both “encourages would-be relators to expose fraud” and “serves to attract those looking to capitalize on fraud already exposed by others.” United States ex rel. Poteet v. Bahler Med., Inc., 619 F.3d 104, 107 (1st Cir.2010). Consequently, there are several statutory limitations to filing qui tam actions under the FCA. Once a relator files a qui tam action against a defendant, “no person other than the Government may intervene or bring a related action based on the facts underlying the pending action.” 31 U.S.C. § 3730(b)(5). In addition to this “first-to-file” bar, no person may bring a False Claims Act action against a defendant based on prior public disclosures of the alleged fraud “in a criminal, civil, or administrative hearing, in a congressional, administrative or Government Accounting Office report, hearing, audit, or investigation, or from the news media.” ⁴ 31 U.S.C. § 3730(e)(4)(A). When this public disclosure bar applies, only the Attorney General or an “original source of the information” may bring such an action. 31 U.S.C. § 3730(e)(4)(A). A relator claiming to be an “original source” must (1) “ha[ve] ‘direct and independent knowledge’ of the information supporting her claims and (2) [must have] ‘provided the information to the Government before filing an action.’ ” United States ex rel. Duxbury v. Ortho Biotech Prods., L.P., 579 F.3d 13, 16 (1st Cir.2009), cert. denied, ––– U.S. ––––, 130 S.Ct. 3454, 177 L.Ed.2d 1054 (2010) (quoting 31 U.S.C. § 3730(e)(4)(B)).

B. Federal Regulation of Medical Devices

The Federal Food, Drug, and Cosmetic Act (“FDCA”), 21 U.S.C. § 301 et seq., regulates the approval and marketing of medical devices. No medical device may be marketed in the United States without prior approval by the Food and Drug Administration (“FDA”) for its intended use. 21 U.S.C. § 360.

The FDCA creates three categories of devices that are subject to increasing levels of regulatory oversight: Class I (low risk, general controls), Class II (medium-risk, special controls), and Class III (high-risk, premarket approval). 21 U.S.C. § 360c(a)(1). Class III devices include those for which it is impossible to establish special regulations that assure safety, those “purported or represented to be for use in supporting or sustaining human life or for a use which is of substantial importance in preventing impairment of human health,” and those that “present[ ] a potential unreasonable risk of illness or injury.” 21 U.S.C. § 360c(a)(1)(C).

In order to market a Class III device, a manufacturer must submit a comprehensive application to the FDA for premarket approval. 21 U.S.C. § 360e(c). The device is approved only for its “intended uses” or “the objective intent of the persons legally responsible for the labeling of the devices.” 21 C.F.R. § 801.4. The FDA must also approve any changes to the intended uses of a Class III device. 21 C.F.R. §§ 801.4, 807.81.

There are two ways in which to avoid the costly and time-consuming premarket-approval process: the investigational device exception, 21 C.F.R. § 812.1 et seq. , and “510(k)” clearance based upon prior approval of a substantially equivalent device, 21 U.S.C. § 360; 21 C.F.R. § 807.87(k).

To obtain 510(k) clearance to market a device, the manufacturer must submit a premarket notification, including a certified “statement that the submitter believes, to the best of his or her knowledge, that all data and information submitted in the premarket notification are truthful and accurate and that no material fact has been omitted.” 21 C.F.R. § 807.87(k). The notification must include the intended uses of the device, the conditions the device is designed to treat, and the relevant patient population. 21 C.F.R. § 807.92(a)(5).

Clearance through the 510(k) process does not constitute FDA “approval” of the device; it limits the cleared use of the device to those indications listed in the application as the intended uses. 21 U.S.C. § 352(f); 21 C.F.R. § 801.5; 21 C.F.R. § 807.97. These limited indications must be listed on the label, and a manufacturer may only promote a device for cleared or approved indications. 21 U.S.C. § 352(f); 21 C.F.R. § 807.81(a)(3).

Any promotion of a device for any indication not approved or cleared by the FDA and indicated on the label is considered an “off-label” promotion and is unlawful. See 21 U.S.C. § 331(d). However, off-label use of devices by physicians is not per se unlawful. See Buckman Co. v. Plaintiffs' Legal Comm., 531 U.S. 341, 350, 121 S.Ct. 1012, 148 L.Ed.2d 854 (2001) (recognizing that “ ‘off-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” (citations omitted)). Courts have also recognized that “off-label use of a drug or medical device is not the same as a medically unnecessary use of that drug or device.” United States ex rel. Bennett v. Medtronic, Inc. (“Bennett I”), 747 F.Supp.2d 745, 751 (S.D.Tex.2010) (collecting cases); see also Svidler v. U.S. Dep't of Health & Human Servs., No. C 03–3593, 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 Wash. Legal Found. v. Friedman, 13 F.Supp.2d 51 (D.D.C.1998))).

C. Federal Reimbursement for Medical Devices

Medicare is the federally subsidized health insurance program for the elderly and disabled established under the Social Security Act (“Medicare Act”), 42 U.S.C. § 1395 et seq. Whereas Medicare coverage for off-label uses of pharmaceuticals is highly restricted, “Medicare reimbursements for off-label uses of medical devices are not addressed within the Medicare Act itself.” Bennett I, 747 F.Supp.2d at 752 (citing Yale–New Haven Hosp. v. Leavitt, 470 F.3d 71, 73 (2d Cir.2006)). The Medicare Act provides only “[b]road wording,” Yale–New Haven Hosp., 470 F.3d at 73, excluding “any expenses incurred for items or services [which] are not reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member,” 42 U.S.C. § 1395y(a)(1)(A). The Secretary for the Department of Health and Human Services (“DHHS”) has “wide discretion” in “specifying those services that are covered under the ‘reasonable and necessary’ standard.” Yale–New Haven Hosp., 470 F.3d at 74 (citing 42 U.S.C. § 1395ff(a)).

Before 1995, the DHHS manuals prohibited Medicare reimbursement “for devices not approved by the FDA for commercial distribution because they were not considered ‘reasonable and necessary’ under 42 U.S.C. § 1395y(a)(1).” See Bennett I, 747 F.Supp.2d at 752 (citations and internal quotation marks omitted); see also In re Cardiac Devices Qui Tam Litig., 221 F.R.D. 318, 329 (D.Conn.2004) (“Between July 1986 and November 1995, payment by Medicare for any medical procedure in which a medical device was used was expressly predicated upon the FDA's approval of the medical device for marketing.”). In 1995, the DHHS Secretary published superseding regulations “allowing Medicare...