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.
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
The relators filed their complaint on November 17, 2008, under seal, to allow the United States to decide whether it wanted to intervene.
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."
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.
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).
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.
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));
Medicare reimbursements for off-label uses of medical devices are not addressed within the Medicare Act itself. See generally Yale-New Haven Hosp. v. Leavitt, 470 F.3d 71, 73 (2d Cir.2006). Broad wording excludes from Medicare coverage "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 of the Department of Health and Human Services "is responsible for specifying those services that are covered under the `reasonable and necessary' standard" and "has wide discretion in selecting the means for doing so." Yale-New Haven Hosp., 470 F.3d at 74 (citing 42 U.S.C. § 1395ff(a); Heckler v. Ringer, 466 U.S. 602, 617, 104 S.Ct. 2013, 80 L.Ed.2d 622 (1984)). Traditionally, the Secretary has acted through "formal regulations and (informal) instructional manuals and letters." Id. Before 1995, the Medicare Hospital Manual, the Medicare Carriers Manual, and the Intermediary Manual stated that payment could not be made 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)." In re Cardiac Devices Qui Tam Litig., 221 F.R.D. 318, 323 (D.Conn.2004) (citing Medicare Hospital Manual § 260.1(B) (effective July 15, 1986); Medicare Carriers Manual § 230.1; Intermediary Manual § 3151.1); see also Yale-New Haven Hosp., 470 F.3d at 74 (discussing the history of the manual provisions). In 1995, the Secretary of the United States Department of Health and Human Services published regulations superseding the manual provisions and allowing Medicare coverage for Category B investigational devices under the "reasonable and necessary" standard. Yale-New Haven Hosp., 470 F.3d at 71. As one court has summarized:
In re Cardiac Devices Qui Tam Litig., 221 F.R.D. 318, 325 (D.Conn.2004).
The allegations in this case are that a Category B non-experimental/investigational medical device the FDA approved
Two newer forms of treatment for atrial fibrillation are catheter ablation and surgical ablation. In catheter ablation, an electrophysiologist—a specialized cardiologist—threads a catheter through the patient's leg and into the heart. The catheter is equipped with a device that delivers radiofrequency waves to ablate heart tissue. The relators allege that catheter ablation is often an outpatient procedure. (Id. at ¶¶ 50-52). The relators allege that a large number of studies and scientific organizations have recently recognized catheter ablation as an effective procedure to treat atrial fibrillation. In 2006, catheter ablation was included within the "Guidelines" for treating atrial fibrillation as a "third-tier treatment option, following drug therapy and cardioversion." (Id. at ¶¶ 52-53).
The relators allege that surgical ablation is a more recent ablation method. Surgical ablation treats atrial fibrillation by using radiofrequency waves to ablate heart tissue to disrupt the normal pathways for electrical impulses. (Id. at ¶¶ 46, 54-55). It is typically an inpatient procedure performed by cardiothoracic surgeons. It can be performed as an additional procedure during open-chest surgery for other cardiac conditions or as a stand-alone procedure. As part of other open-chest procedures, a surgeon uses the cardiac ablation device to create incisions on tissue similar to the incisions made in a "maze" procedure. In a stand-alone surgical ablation, sometimes referred to as a "mini maze" procedure, a surgeon makes three to four incisions on a patient's chest and directs an ablation device through those incisions to the heart. According to the relators, stand-alone surgical ablation "unlike traditional open heart surgery, does not require opening the thoracic cavity to expose the heart and lungs and does not require a heart-lung machine." (Id. at ¶ 65). It is an inpatient but minimally invasive surgery.
As the relators acknowledge, Cardioblate system devices are classified for Medicare reimbursement purposes as Class II devices. (Id. at ¶ 75); see also 21 C.F.R. § 878.4400 (identifying "electrosurgical cutting and coagulation device and accessories ... intended to remove tissue and control bleeding by use of high-frequency electrical current" as a Class II device). Under Medicare regulations, a device "believed to be in ... Class II" is a Category B—"nonexperimental/investigational"—device. 42 C.F.R. § 405.201(b). Class II devices "require special controls, such as performance standards or postmarket surveillance, to provide reasonable assurance of safety and effectiveness." 42 C.F.R. § 405.201(b). Medicare contractors may approve coverage for Category B devices. Id. at § 405.211(b). The relators acknowledge that there is no "national coverage determination" for reimbursement for surgical ablation using radiofrequency
The Medicare billing scheme is the context for this FCA suit. Under its "prospective payment system," Medicare prepays hospitals specific predetermined amounts based on codes for the diagnosis and procedure performed. (Docket Entry No. 27, ¶¶ 25, 29). The complex billing scheme includes a lengthy list of codes that reflect medical and administrative judgments.
The amounts hospitals receive for inpatient procedures depend on the Diagnosis Related Group ("DRG") code assigned to a patient. In addition to basic information about the patient and the diagnosis, the procedure performed on the patient is a factor in determining a patient's DRG. 42 C.F.R. § 412.60(c)(1) (stating that the DRG is based on "essential data extracted from the inpatient bill for that discharge" including "the patient's age, sex, principal diagnosis, ... secondary diagnoses, procedures performed, and discharge status"). Hospitals enter a procedure code when they submit Form HCFA-1450 (UB-92) to obtain reimbursement for items and services provided to a patient. Cardiac Devices, 221 F.R.D. at 328-29; United States ex rel. Smith v. Yale Univ., 415 F.Supp.2d 58, 91-92 (D.Conn.2006). These codes are based on the International Classification of Diseases, Ninth Revision, Clinical Modification
The amounts Medicare pays physicians for services provided in conjunction with a procedure performed at a hospital are based on Current Procedural Terminology ("CPT") codes published by the American Medical Association. Physicians typically provide the CPT code and submit claims for payment on Form CMS-1500. (Docket Entry No. 27, ¶¶ 29-33).
The Medtronic Cardioblate system includes a radiofrequency-power generator, surgical probes to create lesions, and a MAPS device that evaluates the effectiveness of ablation. (Id. at ¶¶ 62-65). Medtronic's Cardioblate system can be used either in conjunction with other cardiac surgical procedures or for stand-alone surgical ablation. As noted, the FDA has approved Medtronic's Cardioblate system for the coagulation of cardiac tissue using radiofrequency [] energy during cardiac surgery"; for use "during general surgery to coagulate soft tissues; and "to remove tissue and control bleeding by use of high-frequency electrical current." (Id. at ¶ 76); see also 510(k) Premarket Submission —Medtronic—Cardioblate System (Jan. 25, 2002) (granting premarket approval for the Medtronic Cardioblate Radiofrequency Ablation System "to ablate cardiac tissue during cardiac surgery using radiofrequency energy")
The relators allege facts showing disagreement and uncertainty in the medical community about surgical ablation's efficacy in treating atrial fibrillation. The relators allege that at a May 2007 American Association of Thoracic Surgeons Society meeting, several surgeons reported the efficacy rate of surgical ablation to treat atrial fibrillation to be under 50% in some clinical studies. (Docket Entry No. 27, ¶ 59). The relators also cite a joint statement by the Heart Rhythm Society, European Heart Rhythm Association, and European Cardiac Arrhythmia Society that "prospective multicenter clinical trials are needed to better define the relative safety and efficacy of surgical [ablation] tools and techniques," and that "[t]he true success rates of these procedures are likely to be lower than reported." (Id. at ¶ 60).
The relators also allege facts showing competition among hospitals and physicians for atrial fibrillation patients. The competition is particularly acute between physicians who perform catheter ablations (electrophysiologists) and those who perform surgical ablations (cardiothoracic surgeons). The relators unabashedly take the electrophysiologists' side in this competition. The relators accuse Medtronic of, among other things, seeking to change the referral patterns so that physicians will refer atrial fibrillation patients directly to cardiothoracic surgeons for treatment, rather than to cardiologists, who according to the relator are more likely to refer patients to electrophysiologists for treatment. (Id. at ¶¶ 90-91, 108).
The relators allege four categories of what they characterize as actionable conduct by Medtronic promoting off-label use of the Cardioblate systems.
The relators allege that these promotional efforts "caused physicians and hospitals to perform an increased number of costly inpatient surgical ablation procedures in cases where less costly and less invasive treatments otherwise have been performed." (Id. at ¶ 140). The relators allege that Medtronic "knowingly made, used, and caused to be made and used false records and statements in order to obtain reimbursement from the United States for surgical ablation services performed with [Medtronic's] surgical ablation products." (Id. at ¶ 143).
In its motion to dismiss under Rule 12(b)(6), Medtronic argues that the relators have not alleged that it made or caused any false claim to be submitted to Medicare. Medtronic emphasizes both that the complaint does not link Medtronic's marketing practices to the submission of a false claim and that Medtronic's promotional tactics are not "material" to the government's decisions to pay Medicare claims for surgical ablations. Medtronic also argues that the relators did not allege sufficient facts to support a reasonable inference that hospitals or physicians falsely certified compliance with the antikickback statute. Finally, Medtronic argues that the relators have not met Federal Rule of Civil Procedure 9(b)'s heightened pleading requirements for fraud because they fail to identify the "who, what, when, where, and how of the alleged fraud." See United States ex rel. Thompson v. Columbia/HCA Healthcare Corp., 125 F.3d 899, 903 (5th Cir.1997).
The relators respond that Medtronic's promotional efforts caused physicians and hospitals to perform more surgical ablations to treat atrial fibrillation than would otherwise have been performed and, as a result, more that were not medically necessary. As a result, physicians and hospitals submitted claims for reimbursement for procedures that were not medically necessary and that would not have been submitted but for the off-label promotion. (Docket Entry No. 45, at 8); 42 U.S.C. § 1320c-5(a)(3) ("medically necessary"); 42 U.S.C. § 1395y(a)(1)(A) ("reasonable and necessary"). The relators argue that
In its reply, Medtronic argues that although the FDA has not specifically approved the Cardioblate system for surgically treating Atrial Fibrillation, such use can be and often is "medically necessary." Medtronic emphasizes that the decision whether to use its device in surgically treating atrial fibrillation is a medical decision, made by a physician, and that nothing in the complaint alleges that any physician made such a decision knowing that it was not a medically necessary treatment in the specific use. Medtronic argues that the relators' failure to plead any specific unnecessary procedure means that they cannot meet Rule 9(b)'s particularity requirement. For both relators' antikickback claims and upcoding claims, Medtronic argues that the relators have failed to meet Rule 9(b) because they fail to identify any physicians or hospitals who upcoded or submitted false certifications—implied or express—of compliance.
Each argument and response is analyzed below.
Medtronic moves to dismiss the allegations based solely on the alleged off-label promotion of the Cardioblate surgical ablation devices and the allegations of the antikickback statute in connection with the sale of these devices under Rule 12(b)(6). Medtronic also moves to dismiss under Rule 9(b) because of the failure to plead fraud with the requisite particularity. Claims brought under the FCA are fraud claims that must comply with the requirements of Rule 9(b). Hopper v. Solvay Pharms., 588 F.3d 1318, 1325 (11th Cir. 2009); Thompson, 125 F.3d at 903; United States ex rel. Longhi v. Lithium Power Techs., Inc., 575 F.3d 458, 468 (5th Cir. 2009). The parties also analyze the application of 31 U.S.C. § 3729(a).
Rule 12(b)(6) allows dismissal if a plaintiff fails "to state a claim upon which relief can be granted." FED. R. CIV. P. 12(b)(6). In Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007), and Ashcroft v. Iqbal, ___ U.S. ___, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009), the Supreme Court confirmed that Rule 12(b)(6) must be read in conjunction with Rule 8(a), which requires "a short and plain statement of the claim showing that the pleader is entitled to relief." FED. R. CIV. P. 8(a)(2). To withstand a Rule
When a plaintiff's complaint fails to state a claim, the court should generally give the plaintiff at least one chance to amend under Rule 15(a) before dismissing with prejudice. See Great Plains Trust Co. v. Morgan Stanley Dean Witter & Co., 313 F.3d 305, 329 (5th Cir.2002) ("[D]istrict courts often afford plaintiffs at least one opportunity to cure pleading deficiencies before dismissing a case, unless it is clear that the defects are incurable or the plaintiffs advise the court that they are unwilling or unable to amend in a manner that will avoid dismissal."); see also United States ex rel. Adrian v. Regents of the Univ. of Cal., 363 F.3d 398, 403 (5th Cir. 2004) ("Leave to amend should be freely given, and outright refusal to grant leave to amend without a justification ... is considered an abuse of discretion." (internal citation omitted)). However, a plaintiff should be denied leave to amend a complaint if the court determines that "the proposed change clearly is frivolous or advances a claim or defense that is legally insufficient on its face...."6 CHARLES A. WRIGHT, ARTHUR R. MILLER & MARY KAY KANE, FEDERAL PRACTICE AND PROCEDURE § 1487 (2d ed.1990); see also Ayers v. Johnson, 247 Fed.Appx. 534, 535 (5th Cir. 2007) (unpublished) (per curiam) ("`[A] district court acts within its discretion when dismissing a motion to amend that is frivolous or futile.'") (quoting Martin's Herend Imports, Inc. v. Diamond & Gem Trading United States of Am. Co., 195 F.3d 765, 771 (5th Cir.1999)).
"In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person's mind may be alleged generally." FED. R. CIV. P. 9(b). "At a minimum, Rule 9(b) requires that a plaintiff set forth the `who, what, when, where, and how' of the alleged fraud." Thompson, 125 F.3d at 903 (quoting Williams v. WMX Techs., Inc., 112 F.3d 175, 179 (5th Cir.1997)). The pleader must "specify the statements contended to be fraudulent, identify the speaker, state when and where the statements were made, and explain why the statements were fraudulent."
In United States ex rel. Longhi v. Lithium Power Techs., Inc., the Fifth Circuit adopted a four-prong test for § 3729(a) claims. 575 F.3d 458 (5th Cir. 2009). The Fifth Circuit requires: "(1) a false statement or fraudulent course of conduct; (2) made or carried out with the requisite scienter; (3) that was material; and (4) that caused the government to pay out money or to forfeit moneys."
A threshold issue is whether the amended or earlier version of 31 U.S.C. § 3729 applies. The Fraud Enforcement Recovery Act of 2009 (FERA) amended sections of the False Claims Act, including two subsections implicated in this action, 31 U.S.C. § 3729(a)(1) and (2).
123 Stat. 1617 § 4(f). For the § 3729(a)(1) claim, this court must apply the pre-FERA version of § 3729(a)(1) because the relators filed this suit in November 2008, before the "date of [FERA's] enactment." Section 4(f)'s exception—"subparagraph (B) of section 3729(a)(1)"—applies to the § 3729(a)(2) claim. Section 4(f) states that the amended version of subsection (a)(2), now found at 31 U.S.C. § 3729(a)(1)(B), applies to all "claims" under the FCA pending on or after June 7, 2008. The pre- and post-FERA versions of the FCA define "claim" similarly. The pre-FERA FCA defines claim as
31 U.S.C. § 3729(c), amended by 31 U.S.C. § 3729(b)(2). The post-FERA amendments define "claim" as "any request or demand, whether under a contract or otherwise, for money or property ... [that] is presented to an officer, employee, or agent of the United States...." 31 U.S.C. § 3729(b)(2). Neither definition refers to cases or causes of action under the FCA. Instead, both definitions refer to claims "for money or property" from the government. Because "claim" is a defined term in the FCA, the reference to "claims" in FERA § 4(f)(1) must be read in accordance with that definition. See United States ex rel. Gonzales v. Fresenius Med. Care N. Am., No. EP-07-CV-247-PRM, 748 F.Supp.2d 95, 107-08, 2010 WL 1645971, at *9 (W.D.Tex. Mar. 31, 2010) (reaching the same conclusion). Under this approach, the post-FERA version of § 3729(a) (2), 31 U.S.C. § 3729(a)(1)(B), applies if the false claims alleged by the relators were pending on or after June 7, 2008.
Most of the district courts that have ruled on this issue have reached the same conclusion. See, e.g., United States ex rel. Compton v. Circle B Enters., Inc., No. 7:07-CV-32, 2010 WL 942293, at *2 n. 5 (M.D.Ga. Mar. 11, 2010) ("The revised version of section (a)(1)(B) does not apply to this case because none of Defendants' claims (the ... reimbursement claims) at issue here were pending on or after June 7, 2008."); United States ex rel. Putnam v. E. Idaho Reg'l Med. Ctr., 696 F.Supp.2d 1190, 1196 (D.Idaho 2010) ("[B]ecause the claims for Medicaid reimbursement at issue in this case were neither pending on nor filed after June 7, 2008, the pre-FERA version of § 3729(a)(2) governs...."); Mason v. Medline Indus., Inc., No. 07-C-5615, 731 F.Supp.2d 730, 735, 2010 WL 653542, at *3 (N.D.Ill. Feb. 18, 2010) ("The court interprets § 4(f)(1) to apply to `claims' as defined in the FCA. Accordingly, FERA's amendment does not apply retroactively to this case."); United States ex rel. Sanders v. Allison Engine Co., Inc., 667 F.Supp.2d 747, 752 (S.D.Ohio 2009) ("[T]he clear indication from Congress is that the revised language at issue here is applicable to `claims' pending on June 7, 2008, and not to `cases' pending on June 7, 2008. Since the Defendants in this case had no `claims' pending on June 7, 2008, the retroactivity clause does not apply to them...."); United States v. Sci. Applications Int'l Corp., 653 F.Supp.2d 87, 107 (D.D.C.2009) ("[S]ection 4(f)(1) will be interpreted to apply to `claims' as defined in
The relators' amended complaint does not appear to involve claims pending on or after June 7, 2008. The amended complaint refers to 31 U.S.C. § 3729(a)(2), not 31 U.S.C. § 3729(a)(1)(B). The relators' allegations of unlawful promotional tactics date back to 2001. (Docket Entry No. 12, ¶ 17). The relators' allegations of false or fraudulent claim submission refer to 1,000 claims submitted at various times before February 2008 by physicians at LDS Hospital in Salt Lake City. (Id. at ¶ 132). Finally, the amended complaint contains no allegations of false claims pending after June 7, 2008. Medtronic has pointed out that the FCA has been amended, (Docket Entry No. 30, at 6 n. 6). The relators have not argued whether the amended FCA or the prior version applies to their claims. Medtronic argues that the result is the same under either version and the relators have not addressed this issue. (Docket Entry No. 30, at 6 n. 6).
The Supreme Court has cautioned that the FCA does not punish every type of fraud committed upon the government. See United States v. McNinch, 356 U.S. 595, 599, 78 S.Ct. 950, 2 L.Ed.2d 1001 (1958). "The [FCA] attaches liability, not to the underlying fraudulent activity, but to the `claim for payment.'" United States ex rel. Hopper v. Anton, 91 F.3d 1261, 1266-67 (9th Cir.1996) (finding on summary judgment that violation of Individuals with Disabilities Education Act regulations is not also an FCA violation unless compliance certification is a prerequisite to receive federal funds); see also United States ex rel. Siewick v. Jamieson Sci. and Eng., Inc., 214 F.3d 1372, 1376-77 (D.C.Cir.2000) (upholding district court's determination on summary judgment that even if the defendants had violated 18 U.S.C. § 207, "a criminal statute aimed at `revolving door' abuses by former government employees," there was no fact issue as to an FCA violation because defendants were not required to certify compliance with the statute); United States ex rel. Willard v. Humana Health Plan of Tex. Inc., 336 F.3d 375, 382-83 (5th Cir.2003) (upholding district court's dismissal because the plaintiff only alleged violations of HMO enrollment antidiscrimination laws but did not allege that the United States "conditioned payment ... on any implied certification of compliance with the anti-discriminatory provisions"); United States ex rel. Roop v. Hypoguard USA, Inc., 559 F.3d 818, 824 (8th Cir.2009) (upholding district court's dismissal because the plaintiff alleged violations of the FDA medical-device-reporting regulations by selling defective products but did not allege that certification with these regulations was a prerequisite to payment).
In the specific context of reimbursement claims for using a drug or device in a way that violates the FDA, the courts have held that the "mere fact" of "violating FDA regulations does not translate into liability for causing a false claim to be filed." United States ex rel. Polansky v. Pfizer, No. 04-cv-0704 (ERK), 2009 WL 1456582, at *7 (E.D.N.Y. May 22, 2009); see also United States ex rel. Rost v. Pfizer, 507 F.3d 720, 732 (1st Cir.2007), overruled on other grounds by Allison Engine Co. v. United States ex rel. Sanders, 553 U.S. 662, 128 S.Ct. 2123, 170 L.Ed.2d 1030 (2008) (noting that the alleged marketing practices, "while illegal, are not a sufficient basis for an FCA action because they do not involve claims for government reimbursement"); Thompson, 125 F.3d at 902 ("[C]laims for services rendered in violation of a statute do not necessarily constitute false or fraudulent claims under the FCA.").
The courts have held that a claim may be false or fraudulent under the FCA because it includes a certification of compliance with a federal statute, regulation, or contract that is a prerequisite to obtaining the government benefit. United States ex rel. Graves v. ITT Educ. Servs., Inc., 284 F.Supp.2d 487, 497 (S.D.Tex. 2003), aff'd, 111 Fed.Appx. 296 (5th Cir. 2004). Such "legally false" certification differs from "factually false" certification, which involves an incorrect description of goods or services provided or a request for reimbursement for goods or services never provided. See Mikes v. Straus, 274 F.3d 687 (2d Cir.2001). The Fifth Circuit has held that a claim is "legally false" only when a party affirmatively and explicitly certifies compliance with a statute or regulation
Liability under both the pre- and post-FERA versions of the FCA requires that an actionable false statement be "material." Longhi, 575 F.3d at 467 (citing Thompson, 125 F.3d at 899); see also Allison Engine Co., Inc. v. United States ex rel. Sanders, 553 U.S. 662, 128 S.Ct. 2123, 2126, 170 L.Ed.2d 1030 (2008) (explaining that a § 3729(a)(2) "plaintiff must prove that the defendant intended that the false statement be material to the Government's decision to pay or approve the false claim"). The Fifth Circuit applies the "natural tendency" test to determine materiality. Longhi, 575 F.3d at 470. This test asks whether "the false or fraudulent statements either (1) make the government prone to a particular impression, thereby producing some sort of effect, or (2) have the ability to effect the government's actions, even if this is a result of indirect or intangible actions on the part of the Defendants." Id. "All that is required under the test for materiality, therefore, is that the false or fraudulent statements have the potential to influence the government's decisions." Id.
An FCA claim must allege that the false statements were "knowingly" made or caused to be made. The FCA defines "knowing or knowingly" to mean "that a person, with respect to information," (i) "has actual knowledge of the information"; (ii) "acts in deliberate ignorance of the truth or falsity of the information"; or (iii) "acts in reckless disregard of the truth or falsity of the information." 31 U.S.C. § 3729(b)(1-3). Because an FCA claim alleges a fraudulent or false statement knowingly made or caused to be made, Longhi, 575 F.3d at 468, "[c]laims brought under the FCA must comply with Rule 9(b)."
Although the parties' discussion of Rule 12(b)(6) cites Twombly and Iqbal as the most recent statements by the Supreme Court under the rule, the arguments do not turn on a claim that the analysis and result in this case are different under those decisions than they would have been earlier. The parties' briefs do not argue whether the facts alleged are sufficient to make the claim of an FCA violation "plausible." Rather, Medtronic argues that taking the facts alleged as true, as a matter of law, the FCA does not provide a basis for relief for the promotional activities and remuneration alleged. (Docket Entry No. 30, at 14, 22).
The relators do argue for a relaxed application of Rule 9(b). The cases are clear that Rule 9(b) applies in FCA cases. Longhi, 575 F.3d at 468, Thompson, 125 F.3d at 903; Hopper, 588 F.3d at 1325. The cases also recognize two exceptions that the relators urge. "It is possible that the pleading requirements of Rule 9(b) may be relaxed in certain circumstances—when, for instance, the facts relating to the fraud are `peculiarly within the perpetrator's knowledge.'" United States ex rel. Doe v. Dow Chem. Co., 343 F.3d 325, 330 (5th Cir.2003) (quoting United States ex rel. Russell v. Epic Healthcare Mgmt. Grp., 193 F.3d 304, 308 (5th Cir.1999)). "Fraud may be pleaded on information and belief under such circumstances." United States ex rel. Willard v. Humana Health Plan of Texas Inc., 336 F.3d 375, 385 (5th Cir.2003). But the Fifth Circuit has held that a plaintiff should not be relieved from complying with the Rule 9(b) requirements "where the documents containing the requisite information are in the possession of, and presumably available from, other sources." United States ex rel. Rafizadeh v. Cont'l Common, Inc., 553 F.3d 869, 873 n. 6 (5th Cir.2008) (citing Doe, 343 F.3d at 330); see also Polansky, 2009 WL 1456582, at *8 ("The rationale for reducing the pleading burden when information is in the defendant's possession appears to spring from the fact that an adverse party would not willingly divulge incriminating information. Where the information needed to fill out the complaint is in the hands of third parties, rather than defendants, this rationale for reducing the pleading burden does not apply.").
United States ex. rel. Atkins v. McInteer, 470 F.3d 1350, 1360 (11th Cir.2006).
The relators argue that this court should relax the pleading standard because they do not have access to certain information. In the Fifth Circuit, the pleading standard is not relaxed when such information is available from third party entities and individuals. Rafizadeh, 553 F.3d at 873 n. 6. Medtronic notes that it does not have billing or reimbursement information; doctors, hospitals, and government agencies do. There is no basis to relax the Rule 9(b) pleading standard in this case under the applicable precedents. See Polansky, 2009 WL 1456582, at *8 (refusing to relax the pleading the standard in off-label qui tam against drug manufacturer because the needed information available was in the hands of third parties).
Even under a relaxed pleading standard, the relators must still state a factual basis for their beliefs. See United States ex rel. King v. Alcon Labs., Inc., 232 F.R.D. 568, 572 (N.D.Tex.2005) (finding that even under a relaxed pleading standard, the relators failed to plead fraud with particularity because the relator did not identify a single person involved in the alleged fraud, did not did not identify specific fraudulent claims, and did not identify a single date on which fraudulent activity occurred); United States ex rel. Lam v. Tenet Healthcare, 481 F.Supp.2d 673, 688 (W.D.Tex. 2006) (finding that even under a relaxed pleading standard, the relators failed to set forth a factual basis for their beliefs because they failed to name one physician who violated the anti-referral statute; did not specifically identify one fraudulent transaction; and failed to specifically allege the fraud's "when" by alleging only that the fraudulent events occurred "at some point in the 1980s, between 1995 and 2002, and in 1999)." Cf. Rost, 507 F.3d at 732-33 (recognizing that Rule 9(b) may be satisfied where "although some questions remain unanswered, the complaint as a whole is sufficient to pass muster under the FCA," but upholding dismissal because the relator did not identify specific physicians who submitted claims for reimbursement for off-label prescriptions).
In addition, "some district courts in the Fifth Circuit [] relaxed Rule 9(b)'s pleading standard where the alleged fraud occurred over an extended period of time and consists of numerous acts." Bristol—Myers Squibb Co., 587 F.Supp.2d at 821 (listing cases). In such cases, courts have allowed the plaintiff to "plead the fraudulent scheme with particularity and provide representative examples of specific fraudulent acts conducted pursuant to that scheme." United States ex rel. Bledsoe v. Cmty. Health Sys., Inc., 501 F.3d 493,
Recently, a number of qui tam actions alleging FCA violations caused by off-label marketing by drug companies have been filed in federal courts.
In Franklin v. Parke—Davis, the relator, a doctor formerly employed by Parke—Davis to promote its drug Neurotonin, alleged that Parke—Davis engaged in a "fraudulent scheme to promote the sale of the drug Neurotonin for `off-label uses' ... and that this illegal marketing campaign caused the submission of false claims to the Veterans Administration and to the federal government for Medicaid reimbursement." 147 F.Supp.2d at 43. The FDA approved Neurotonin "for use as an adjunctive treatment for epilepsy in doses from 900 to 1800 mg per day." Id. at 45. The relator alleged that Parke— Davis promoted Neurotonin for off-label use "as mono-therapy for epilepsy, for control of bipolar disease, and as treatment for attention deficit disorder." Id. Parke—Davis's alleged off-label promotional tactics included using medical liaisons such as the relator to make "exaggerated or false claims concerning the safety and efficacy of Parke—Davis drugs for off-label uses"; rewarding physicians who prescribed large quantities of Parke— Davis drugs with kickbacks; and paying physicians to create "sham" studies urging off-label uses that "had no scientific value." Id. at 45-46.
The relator also alleged that "when questions arose concerning the availability of reimbursement for prescriptions for off-label uses of Parke—Davis drugs" Parke— Davis made efforts to conceal the fraud. Id. at 46. Medical liaisons "were instructed to coach doctors on how to conceal the off-label nature of the prescription" and Parke—Davis "shredd[ed] documents, falsif[ied] documents, and encourag[ed] medical
Parke—Davis moved to dismiss. Unlike the medical device case in which there is FDA approval for general use related to the specific purpose being promoted, there was no dispute as to whether "an off-label prescription submitted for reimbursement is a false claim within the meaning of the FCA." Id. at 51. The court granted Parke—Davis's motion in part and denied it in part. Id. at 44.
The court found that the complaint met Rule 9(b)'s pleading requirements with respect to submissions to Medicaid because it sufficiently alleged fraudulent schemes to "increase the submission of off-label prescriptions for Neurotonin for payment by Medicaid" and "to induce off-label prescriptions for Neurotonin" by physicians. Id. at 48. It reasoned that the relator identified the fraud's "who" by naming Parke—Davis employees who instructed medical liaisons on how to fraudulently promote off-label use of Neurotonin, listing the medical liaisons by name, and identifying the physicians contacted; identified the fraud's "what" by alleging that the off-label promotion resulted in the submission of ineligible claims for reimbursement for off-label use of Neurotonin; identified the fraud's "when" by alleging the term of the relator's employment; and the fraud's "how" by alleging a detailed description of the marketing scheme that included "misleading" materials Id. The relator also alleged eleven "specific examples of fraudulent statements which medical liaisons ... were trained to give to physicians, and did give to physicians, to induce the purchase of Neurotonin for off-label uses." Id. In contrast, the court found that the complaint did not sufficiently allege a fraudulent scheme to cause false submissions to the Veterans Administration because it did not "specify which Parke—Davis personnel engaged in this conduct, where such conduct took place, which VA personnel were involved, or any specific fraudulent statements made to personnel at the [VA]." Id. at 50.
With respect to the Medicaid allegations, the court rejected Parke—Davis's causation challenges. Parke—Davis argued that the FCA does not impose liability for violating FDA regulations because such violations do not involve a claim or statement to the government. The court stated:
Id. at 51-52 (internal citations omitted). The court also rejected Parke—Davis's argument that off-label promotion does not always entail a false statements. Parke— Davis argued that off-label promotion may involve only the distribution of one physician's finding of new drug's use to another physician. The court responded that the relator alleged "more than a mere technical violation of the FDA" by alleging that physicians distributed findings they knew to be false. The court also rejected Parke—Davis's argument that physicians' independent determinations that an off-label prescription provided the best treatment for a patient cut off Parke—Davis's liability because it was an intervening
However, the Parke—Davis Court dismissed the relator's kickback allegations. The court rejected the relator's argument that a violation of the antikickback statute is a per se violation of the FCA. It reasoned that though an FCA violation might arise based on a theory of "`implied certification' [of compliance with the antikickback statute] by virtue of the defendant's participation in the federal program," the relator "failed to allege that physicians either expressly certified or, through their participation in a federally funded program, impliedly certified their compliance with the federal antikickback statute as a prerequisite to participating in the federal program." Id. The court reasoned further that "while Defendant's payment of kickbacks may well be illegal," the relator did not allege that "Parke—Davis caused or induced a doctor and/or pharmacist to file a false or fraudulent certification regarding compliance with the anti-kickback statute." Id. at 55.
In Hess, the relator alleged that Sanofi-Synthelabo's off-label promotion of its drugs Eloxatin—approved for "second line treatment of fourth stage colorectal cancer"—and Elitek—approved for the treatment and prevention of tumor lyses syndrome—caused the submission of false claims for payment for off-label uses of the respective drugs. 2006 WL 1064127, at *2. The relator alleged that Sanofi—Synthelabo promoted Eloxatin for treatment in both "first-line" and "adjuvant" settings by training sales representatives to use off-label data when promoting Eloxatin to physicians, creating sales goals impossible to meet without off-label usage, and by providing sales representatives with monographs containing information on adjuvant and first-line trials for Eloxatin. Id. at *8. The relator further alleged that the data provided to physicians was "immature, unreliable, and misleading." Id. With respect to Elitek, the relator alleged that Sanofi—Synthelabo trained sales representatives to promote off-label uses and pressured sales representatives to derive a substantial number of sales from off-label use. Id. at *6. Sanofi—Synthelabo moved to dismiss arguing that the relator did not allege any false representations to physicians or the government, any improper prescriptions, or that doctors who prescribed the drugs also sought reimbursement from Medicare. Sanofi—Synthelabo also argued that the relator failed to alleged fraud with the required particularity. Id. at *4. Specifically as to Eloxatin, Sanofi—Synthelabo argued that because Medicare does not require a physician to specify the stage of cancer in submitting claims for reimbursement, physicians made no false statements in submitting claims for use of Eloxatin to treat colorectal cancer in first-line and adjuvant setting. Id. at *8. The court granted Sanofi—Synthelabo's motion to dismiss, addressing the allegations involving each drug separately.
The court dismissed the allegations related to Elitek under Rule 9(b) because the relator failed to allege the "who, what, when, where, and how of fraud." Id at *6. The court noted that the relator did not
The court also dismissed the Eloxatim allegations because the relator did not allege a "material" misrepresentation. In United States ex rel. Costner v. United States, the 8th Circuit adopted a materiality requirement for FCA claims requiring that the misrepresentation have the natural tendency to influence an agency action, the same test adopted by the Fifth Circuit in Longhi. 317 F.3d 883, 887-88 (8th Cir. 2003). The court accepted Sanofi—Synthelabo's argument that the alleged false claims for reimbursement did not contain a material false statement because the reimbursement forms did not require that the physician indicate the stage of cancer, only that the patient has cancer. Thus the only statement material to Medicare reimbursement is that the patient has cancer; the government does not inquire further into whether the drug is approved for a particular cancer stage. Id. at *7.
Though the court's decision on the Eloxatim allegations rested on this ground, the court considered other arguments. It agreed with Sanofi—Synthelabo's argument that the relator did not sufficiently plead the FCA's knowledge requirement because the plaintiff did not allege that the "Defendant deliberately lied nor that the data provided by Defendant either to its sales representatives or to doctors was incorrect or false." Id. at *9. The court distinguished the alleged promotion tactics in Parke—Davis by noting that "none of the actions which Plaintiff alleges on the part of the Defendant ... involve conduct which was designed to present false information; rather ... the Defendant sought to disseminate date and information from trials and studies." Id. at *10. Further, the court found that the relator did not sufficiently allege any false statements to Medicare. The court noted that while typically Medicare reimburses only on-label prescriptions, "such approval is not necessarily a requirement." Id. The court also noted that—unlike the facts in Parke— Davis—the relevant Medicare administrator chose to apply an exception allowing coverage for off-label prescriptions of Eloxatin and concluded that "because ... the Medicare administrator included off-label uses of Eloxatin for reimbursement purposes, Plaintiff can prove no set of facts to establish that Defendant violated the FCA." Id. at *9. Finally, the court, applying Parke—Davis, found that the relator did not allege fraud with the particularity required by Rule 9(b). The court found that the complaint did not identify the fraud's "who" because it did not "identify doctors whom sales representatives allegedly contacted nor ... doctors who allegedly made claims for Medicare reimbursement for off-label uses" or the fraud's "how" because it did not provide "examples of the allegedly false information which Defendant allegedly gave its sales representatives." Id.
In Solvay, the relators alleged that Solvay Pharmaceuticals's off-label promotion of Marinol caused the submission of false claims for reimbursement to Medicare. 588 F.3d at 1321. The FDA approved Marinol, a synthetic form of THC, a hallucinogenic compound found in marijuana, for use as an appetite stimulant for AIDS patients and for the treatment of nausea and vomiting associated with cancer chemotherapy.
The Eleventh Circuit upheld the district court's dismissal. In reaching this conclusion, the Eleventh Circuit discussed its decisions in United States ex rel. Clausen v. Lab. Corp. of Am., 290 F.3d 1301 (11th Cir.2002); Corsello v. Lincare, Inc., 428 F.3d 1008 (11th Cir.2005); and United States ex rel. Atkins v. McInteer, 470 F.3d 1350 (11th Cir.2006). In Clausen, the court upheld the district court's dismissal of a complaint alleging the submission of claims for reimbursement for unnecessary laboratory tests even though the complaint "included detailed allegations of a scheme to overcharge, [] identified the patients who received tests, specified which tests were improper, and set forth the dates on which the tests were performed" because the complaint "failed to provide any information linking the testing schemes to the submission of false claims." Solvay, 588 F.3d at 1325 (citing Clausen, 290 F.3d at 1303). Absent an allegation linking the schemes to the submission of false claims, the Eleventh Circuit found that the allegations were conclusory. Id. (citing id.). In Corsello, the court upheld the district court's dismissal of a complaint alleging that medical equipment companies engaged in a "kickback and referral scheme to falsify certificates of medical necessity to submit false claims for Medicare payments" because "it did not allege that a specific fraudulent claim was in fact to submitted to the government." Id. (citing Corsello, 428 F.3d at 1013-14). In Atkins, the court upheld the district court's dismissal of a complaint alleging "an elaborate scheme for defrauding the government by submitting false claims" for payments from Medicare for psychiatric services that were not actually rendered. Id. (citing Atkins, 470 F.3d at 1354). The complaint cited "particular patients, dates and corresponding medical records for services" not eligible for reimbursement. Id. (citing id. at 1359). In upholding the dismissal, the Atkins court reasoned that the relator "failed to provide the next link in the [FCA] liability chin: showing that the defendant actually submitted reimbursement claims for the services he described." Id. (quoting id.). The Solvay court noted that unlike Clausen, Corsello, and Atkins, the complaint contained "a highly-detailed compelling statistical analysis [that] rendered inescapable the conclusion that a huge number of claims for ineffective uses of Marinol resulted from [Solvay's illegal marketing] campaign." Id. at 1326. Nonetheless, the court upheld the dismissal because it did not "allege the existence of a single actual false claim." Id. Under these precedents, the Solvay court upheld the district court's dismissal because the relators did not allege "the actual presentment of a false claim." Id. at 1324.
The Solvay court also found the allegations insufficient under Rule 9(b) because they did not "identify specific persons or entities that participated in any step of the
In re Cardiac Devices discussed an FCA claim based on off-label use of a medical device, but unlike the present suit, that case involved the pre-1995 Medicare regulations that prohibited reimbursement for devices the FDA did not approve for marketing. In Cardiac Devices, a sales representative for cardiovascular-device manufacturers alleged that 132 clinical-trial hospitals from thirty states submitted Medicare reimbursement claims for services involving "nearly sixty different investigational cardiac devices that had not been approved for marketing by the [FDA]" in direct contravention of the manual instructions.
The separate complaints for each hospital generally alleged that the hospitals received cardiac devices the FDA had not pursuant to an "Investigation Device Exemption" that restricted their use to "carefully monitored clinical trials ... to gather evidence of the safety and effectiveness of the devices." Id. at 329. The complaints alleged that the hospitals had submitted claims for reimbursement to Medicare and Medicaid for the use of the devices in treatment and received "millions of dollars in Medicare and Medicaid reimbursements." Id. at 330. The complaints broke "down the number of procedures performed involving each particular cardiac device." Id. For example, the complaint for one hospital stated "that it charged Medicare and/or Medicaid for at least thirty-seven procedures involving prosthetic heart valves manufactured by St. Jude that had not received marketing approval from the FDA." Id. The complaints also alleged that the defendant hospitals "were on notice ... that Medicare considered medical procedures involving cardiac devices that had not been approved for marketing by the FDA ... to be non-covered
Id. at 331.
In denying the defendant's motion to dismiss, the court first held that the plaintiffs were entitled to a relaxed pleading standard because the alleged fraud involved a "complex scheme" with numerous transactions and "the specific factual information" was peculiarly within the defendants' control. Id. at 333-34. By contrast, no such relaxation is warranted here under the Fifth Circuit case law. The court rejected the defendant's first argument—that violation of the manual provision's "reasonable and necessary" requirement is only a regulatory violation and not fraud per se—finding that a physician's certification that the use of the device was "reasonable and necessary" was an "underlying condition to payment." Id. at 335-36. The court also found that the complaints alleged both specific false submissions by the hospitals including the "who, what, where, when, and how" of the alleged fraudulent statement.
Id. Finally, the court found that the complaints alleged facts giving rise to a strong inference of fraudulent intent. Because the FCA only requires that a defendant act "knowingly," the complaints do not to
The defendant's second motion to dismiss argued that the complaints failed to state a claim for relief under Federal Rule of Civil Procedure 12(b)(6) because they did not allege that the claims were "false or fraudulent." Id. at 342. The court first determined that hospitals requests for payments on form HCFA-1450 (UB-82
Cardiac Devices, 221 F.R.D. at 345. The court found that the claims were false under the "factually false" and "legally false/expressly false certification" theories. The claims were alleged to be factually false because the forms instructed hospitals "to enter any remarks not shown elsewhere on the bill but which were necessary for proper payment" and to list "[n]on-covered charges." Id. The hospitals' failure to state that experimental procedures, which were non-covered charges, were performed constituted a factually false claim. The court also found that as alleged the claims were "legally false" because "42 U.S.C. § 1395y(a)(1)(A) contains an express condition of payment—'no payment may be made [under Medicare] for any expenses incurred for items or services which ... are not reasonable and
Id. at 347.
The relators allege that Medtronic's off-label promotion of the Cardioblate system for the treatment of atrial fibrillation caused physicians and hospitals to submit claims to the government falsely stating that the use of Cardioblate was "reasonable and necessary" or "medically necessary." See, e.g., Mikes, 274 F.3d at 700-01 (finding that HCFA-1500 forms implicitly certify that requests for reimbursement comply with 42 U.S.C. § 1395y(a)(1)(A)'s requirement that the items and services provided were "reasonable and necessary"). The relators' "central claim" is that the use of the Cardioblate system for treating atrial fibrillation cannot be medically necessary because "no element of the Cardioblate system has ever received approval for the treatment of Atrial Fibrillation." (Docket Entry No. 45, at 4) (emphasis in original).
Importantly, there is no allegation that Medtronic concealed or misstated the limits of the FDA's approval on the use of the Cardioblate system. Compare Parke—Davis, 147 F.Supp.2d at 46 (describing Parke—Davis's efforts to conceal the lack of FDA approval). Unlike the Medicare coverage at issue in Cardiac Devices, Medicare may cover medically necessary uses of the Cardioblate system. Medicare contractors may approve coverage for Category B devices. 42 C.F.R. § 405.211(b). The decision on medical necessity is made by individual physicians exercising independent professional judgment based on the knowledge of their particular patients. The cases recognize that off-label use of a drug or medical device is distinct from a medically unnecessary use of that drug or device. See Buckman, 121 S.Ct. at 1018; Polansky, 2009 WL 1456582, at *6; Svidler, 2004 WL 2005781, at *5; Stephens, 664 F.Supp.2d at 1318-19. For medical devices like the Cardioblate system, the relators must allege sufficient facts to support an inference that the use of the device
The relators cite United States ex rel. Riley v. St. Luke's Episcopal Hosp., 355 F.3d 370, 376 n. 6 (5th Cir.2004), in which the court stated that submitting a request for payment "certifies" that "the services shown on the [payment] form were medically indicated and necessary for the health of the patient." They also point to 42 U.S.C. § 1320c-5(a)(3)'s statement that:
These authorities state that a procedure must be "medically necessary" but do not further define the term. The authorities cited by the relators do not provide a basis to infer that a reimbursement submission for using the Cardioblate system to treat atrial fibrillation, even as a stand-alone procedure, cannot be medically necessary or reasonable and necessary because it is not specifically approved for that purpose.
The relators argue that the use of the Cardioblate system for surgical treatment of atrial fibrillation is not medically necessary because it is viewed as experimental within the scientific community. (Docket Entry No. 45, at 11). But Medicare may cover Class II devices even though they "require special controls, such as performance standards or postmarket surveillance, to provide reasonable assurance of safety and effectiveness." 42 C.F.R. §§ 405.201(b), 405.211(b). The state's Medicare carrier determines "the conditions for coverage and reimbursement of physician charges for surgical cardiac ablation." (Docket Entry No. 27, ¶ 67). The relators do not allege that any state has denied coverage for surgical ablation to treat atrial fibrillation, whether as a stand-alone treatment or in connection with other cardiac procedures. Alleging that the use of the Cardioblate system to treat atrial fibrillation is "experimental" does not allege a basis for an inference that such use of the Cardioblate system is categorically medically unnecessary.
Nor do the relators allege specific false statements by Medtronic that the Cardioblate system is a first-line treatment for atrial fibrillation. The relators allege that the following statements are in Medtronic patient-education brochures: "[e]xperience to date indicates that Mini-Maze surgery eliminates afib in more than 85% of patients who undergo the procedure"; "[m]ost patients with afib are candidates for Mini-Maze. Together, you and your doctor can determine if this surgery is right for you."; "Mini-Maze surgery is the first treatment that can safely, easily and reliably eliminate afib, helping patients avoid lifelong drug therapy and reducing the high risk of stroke and other complications that are associated with afib."; "Catheter Ablation destroys the source of abnormal electrical signals v. Mini-Maze Surgery, which creates a `zone of defense' to permanently eliminate afib"; and "Catheter Ablation procedures take hours to perform, may require a pacemaker, and can cause life-threatening damage to organs near the heart. As a result, they are reserved for the most severe cases of afib. The Mini-Maze experience to date indicates that the surgery corrects afib in
In addition, the relators have failed to plead with sufficient particularity the alleged false claims. The relators have not identified any Medtronic employees who engaged in off-label promotion nor specific physicians or hospitals who received the promotions. They have not alleged the "who" or "where" of the alleged fraud. See, e.g., Thompson, 125 F.3d at 903. Like the allegations involving false submissions to the Veterans Administration the Parke—Davis court dismissed, but unlike the allegations involving Medicaid submissions the court did not dismiss, the relators have identified neither specific Medtronic employees who engaged in off-label promotions nor specific doctors who received such promotion. Parke—Davis, 147 F.Supp.2d at 48. Nor have the plaintiffs identified any physician to whom Medtronic promoted Cardioblate off-label and who also "actually submitted false claims to the Government for off-label uses" of Cardioblate. Hess, 2006 WL 1064127, at *6; see also Solvay, 588 F.3d at 1326 (upholding the district court's dismissal because the relators "did not identify specific persons or entities that participated in any step of the process");
The relators have alleged a number of unlawful promotional tactics. The relators have alleged that physicians and hospitals used the Cardioblate system to treat atrial fibrillation. The cases recognize that even if a drug or device manufacturer's marketing or promotion activities violate FDA regulations, that is insufficient to plead that the manufacturer caused physicians or hospitals to submit false claims for reimbursement. See Rost, 507 F.3d at 732; Hess, 2006 WL 1064127, at *6; Polansky, 2009 WL 1456582, at *7. In Parke—Davis, the relator identified Parke—Davis's unlawful promotional tactics, including using medical liaisons such as the relator to make "exaggerated or false claims concerning the safety and efficacy of Parke— Davis drugs for off-label uses"; rewarding physicians who prescribed large quantities of Parke—Davis drugs with kickbacks;
Id.
The relators argue that Grubbs relaxed the pleading standard for pleading fraud under the FCA. In Grubbs, the Fifth Circuit reversed the district court's dismissal of a qui tam suit alleging that psychiatrists billed Medicare and Medicaid for services not performed. 565 F.3d at 195. Grubbs analyzed the Eleventh Circuit's decision in Clausen requiring allegations of the "specific contents of actually submitted claims, such as billing numbers, dates, and amounts." Id. at 186. rejecting this requirement, the court stated as follows:
Id. at 190.
The relators' complaint is not deficient because it fails to allege the specific contents of fraudulent submissions. The relators have not alleged the type of information that the Grubbs relator did. As the Fifth Circuit explained in Grubbs:
Id. at 191-92. Under Grubbs, Thompson, and other precedents, the relators' complaint does not sufficiently allege that by promoting off-label use, Medtronic caused the submission of false claims and is liable under the FCA.
The relators allege that Medtronic instructed hospitals and physicians to "upcode" stand-alone surgical ablations—minimally invasive, closed-chest procedures— by entering the code associated with open-chest procedures, ICD-9 procedure code 37.33, in reimbursement claims. The relators allege that physicians and hospitals should have entered procedure code 37.99, which is more appropriate for such minimally invasive procedures. The relators allege that entering code 37.33 instead of code 37.99 generates a significantly higher Medicare reimbursement and that Medtronic sales representatives were instructed to inform physicians and hospitals that they "could make great profit by over-billing Medicare." (Docket Entry No. 27, ¶ 122). The relators allege that Medtronic marketing materials identified code 37.33 as the appropriate code for stand-alone surgical ablations, not code 37.99. Because there was an economic incentive to "upcode," because Medtronic pointed out the opportunity to do so, and because stand-alone ablation procedures were performed, the relators argue that they have alleged a sufficient basis to support an inference that Medtronic caused hospitals to "upcode" and submit false claims to Medicare.
Under the applicable case law authority, the relators have not pleaded this scheme to defraud with sufficient particularity to withstand dismissal. The relators have not identified any Medtronic sales representative or employee who encouraged hospitals or physicians to "upcode" improperly or any hospital or physician who did in fact "upcode" improperly in a Medicare reimbursement submission. These allegations fail to allege information about the "who, what, when, where, and how of the alleged fraud." Thompson, 125 F.3d at 903.
The cases involving FCA upcoding allegations against physicians support this result. In United States ex rel. Bledsoe v. Cmty. Health Sys., a district court dismissed a relator's allegations that a hospital submitted numerous false claims for reimbursement to Medicare and Medicaid. 501 F.3d 493 (6th Cir.2007). The appellate court upheld the dismissal even though the relator identified the CPT codes incorrectly entered in reimbursement submissions because the allegations did "not meet the minimum standard of the `time, place and content of the alleged misrepresentation on which [the injured party] relied.'" Id. at 513 (citing United States ex rel. Bledsoe v. Cmty. Health Sys., 342 F.3d 634, 643 (6th Cir.2003)). Although the Fifth Circuit backed away from the "time, place, and contents" standard in Grubbs, the relators' complaint in this case is still deficient. While the relators in this case have alleged codes physicians and hospitals should use in submitting claims for reimbursement for minimally invasive, stand-alone surgical ablation procedures, the relators have not identified any physicians or hospitals that put the incorrect code on a Medicare reimbursement claim. These allegations are insufficient under the applicable case law.
One other point is worth noting. Procedure codes and DRGs are part of Medicare's Prospective Payment System (PPS). One court has explained PPS as follows:
The relators allege that Medtronic provided remuneration in various forms to hospitals and physicians to induce them to purchase and use the Cardioblate system, in violation of the antikickback statute, 42 U.S.C. § 1320a-7b(b)(1-2). The relators allege that compliance with the antikickback statute is a prerequisite to seeking reimbursement under Medicare and that a false certification of compliance is a basis for a claim under the FCA. See Thompson, 125 F.3d at 902; Graves, 284 F.Supp.2d at 497. The Fifth Circuit has held that payment of Medicare claims may be "conditioned upon certification of compliance with laws and regulations including the anti-kickback statute." Id.; see also United States ex rel. Thompson v. Columbia/HCA Healthcare Corp., 20 F.Supp.2d 1017, 1041-42 (S.D.Tex.1998) (finding on remand that allegations that the defendant expressly certified compliance with the antikickback statute in annual cost reports sufficiently states a claim under the FCA because the certifications were a condition of retaining Medicare payments made during the prior year and a condition of continued eligibility for the Medicare program).
The antikickback statute provides:
42 U.S.C. § 1320a-7b(b)(1-2).
The facts alleged by the relators are insufficient under the applicable case law to state a claim under the certification theory of FCA liability. The cases demonstrate that the basis of liability is the certification of compliance, not the payment or acceptance of remuneration. See Siewick, 214 F.3d at 1376-77 (upholding district court's determination on summary judgment that even if the defendants had violated 18 U.S.C. § 207, "a criminal statute aimed at `revolving door' abuses by former government employees," there was no fact issue as to an FCA violation because defendants were not required to certify compliance with the statute); Willard, 336 F.3d at 382-83 (upholding district court's dismissal because the plaintiff only alleged violations of HMO enrollment antidiscrimination laws but did not allege that the United States "conditioned payment... on any implied certification of compliance with the anti-discriminatory provisions"); Roop, 559 F.3d at 824 (upholding district court's dismissal because the plaintiff alleged only violation of FDA medical-device-reporting regulations by selling defective products but did not allege that certification with these regulations was a prerequisite to payment).
The relators allege that Medtronic paid unlawful remuneration to hospitals and physicians for their use of the Cardioblate system, that physicians and hospitals accepted the remuneration, and that physicians and hospitals made reimbursement claims to Medicare. However, the relators have not alleged that Medtronic caused any physicians or hospital to make false certifications of compliance. In Parke— Davis, the relator's failure to make this allegation warranted dismissal. See 147 F.Supp.2d at 55 (noting that the relator did not allege that "Parke—Davis caused or induced a doctor and/or pharmacist to file a false or fraudulent certification regarding compliance with the anti-kickback statute"). Because the relators have not alleged that Medtronic caused any hospital or physician to certify compliance with the antikickback statute, these allegations are dismissed.
The relators requested leave to amend should this court dismiss their complaint. (Docket Entry No. 45, at 25). The relators have only amended once, (Docket Entry No. 12), before the filing of Medtronic's motion to dismiss. Medtronic does not argue that the relators' complaint is frivolous. See Ayers, 247 Fed.Appx. at 535. This court grants the relators leave to amend. See Great Plains Trust Co., 313 F.3d at 329; Adrian, 363 F.3d at 403. An amended complaint must be filed by
Medtronic's motion to dismiss is granted, without prejudice. The relators may amend their complaint by
United States ex rel. Franklin v. Parke—Davis, 147 F.Supp.2d 39, 44-45 (D.Mass.2001).
The parties dispute whether this court should take judicial notice of an FDA warning letter sent to St. Jude Medical, Inc. about its marketing of a different surgical-ablation device for treating atrial fibrillation. The relators filed a motion for this court to take judicial notice, (Docket Entry No. 48); Medtronic responded, (Docket Entry No. 49); and the relators replied, (Docket Entry Nos. 50-52). The FDA warning letter informs St. Jude that promotion of its surgical ablation device for the treatment of atrial fibrillation violates FDA regulations. (Docket Entry No. 48, Ex. A). Medtronic, citing Lovelace, argues that this court's notice is limited to the existence of the document, not the "veracity" of its contents. 78 F.3d at 1018. In Lovelace, the court stated,
Id. The letter only informs St. Jude that its promotion of its surgical ablation device violated FDA regulations. The court may take judicial notice of this document without resolving whether its contents are true. The relators' motion for judicial notice, within this limit, is granted.
