Health Law Daily Appeals court revives fraud claim against Medtronic
Tuesday, April 6, 2021

Appeals court revives fraud claim against Medtronic

By Wendy Biddle, J.D.

The court dismissed most FCA claims against Medtronic, but reversed the claim of defrauding the FDA.

The Ninth Circuit affirmed the dismissal of a False Claim Act (FCA) suit against Medtronic for off-label device use and violations of the anti-kickback statute, finding that the relator failed to show how the device use was unreasonable or unnecessary and that specific physicians were paid for their decisions to use the devices off-label. The appeals court did however resurrect the relator’s fraud claim that certain devices can only be used off-label and not for their FDA approved function, finding that the alleged fraud goes to the very essence of the bargain in FDA class certification. The court did dismiss the fraud charges regarding off-label device use because the government allows and reimburses for off-label device use (U.S. ex. rel. Dan Abrams Company LLC v. Medtronic, April 2, 2021, per curiam).

The relator alleged that Medtronic Inc. and various related entities fraudulently obtained FDA clearance for several devices used in spinal fusion surgeries and unlawfully marketed them for an off-label and contraindicated use, and illegally compensated physicians to use them and these practices caused physicians to submit false claims to Medicare. The district court dismissed all claims and the relator appealed.

Off-label use. The relator alleged that Medtronic marketed the devices in question without FDA approval for use in the cervical spine area, an off-label or contraindicated use. But the Ninth Circuit pointed out that the federal government has recognized that doctors may use medical devices for off-label purposes if it is medically necessary and reasonable and reimbursement requires the doctor to show only that the device has FDA clearance, its use is reasonable and necessary, and it meets any other pertinent regulations.

Here, the FDA granted the devices in question Class II certification. The relator did not allege that cervical use of vertebral body replacement is medically unsafe or ineffective or contrary to standard medical practice. The relator did allege that the devices were potentially harmful, but showing harm can occur is not enough, the court ruled. The appellate court also noted that there is no statute or regulation that states that using a contraindicated device is unreasonable or unnecessary. Because the relator failed to show that the devices were unreasonable or unnecessary for contraindicated use, the Ninth Circuit affirmed the district court’s dismissal of the off-label use claims.

Fraud. The relator alleged that Medtronic defrauded the FDA into granting the devices in question Class II clearance. The devices fall into two groups: those that were falsely represented in its clearance application that they were intended for use in the thoracolumbar spine when in fact they could not be used there and could only be used in the cervical neck area (the "contraindicated use only devices"; and those that could be used for their stated intended use but were contraindicated for use in the cervical spine area (the "extra-use devices"). The relator alleged that Medtronic secretly intended to sell the extra-use devices for their contraindicated use. The Ninth Circuit agreed with the district court in regard to the "extra-use devices" finding that Medtronic’s omission was immaterial because the federal government allows reimbursement for off-label and contraindicated uses. The appellate court therefore affirmed the district court for claims based on "extra-use devices."

However, the Ninth Circuit found that because the relator alleged that the "contraindicated use only devices" could not be used for their intended use and can only be used for the contraindicated use, then it could be a question of safety and Medtronic should have been required to obtain Class III approval. The safety of the intended use of the devices are precisely those considerations that the FDA takes into account in granting Class II certification. The appellate court therefore reversed the district court for claims based on "contraindicated use only devices."

Anti-kickback statute. The relator alleged that Medtronic entered into improper rebate agreements with hospitals as an incentive to buy the devices in question. The Ninth Circuit, however, noted that Medicaid allows rebate agreements as long as the state Medicaid programs are offered the same pricing. Similarly, the anti-kickback statute exempts rebates so long as they are properly disclosed and reflected in the charges to the federal program.

The relator also alleged that Medtronic paid doctors by paying for certain costs associated with business development events, like food, travel, etc. However, the Ninth Circuit agreed with the lower court, stating that those types of general allegations do not identify any doctors who actually received payment in connections with decisions to purchase or use any of the devices in question. The Ninth Circuit affirmed the dismissal of the anti-kickback statute claims.

The case is No. 19-56377.

Attorneys: Celine Cutter (Cutter Law PC) for Dan Abrams Co. LLC.

Companies: Dan Abrams Co. LLC

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