By Elena Eyber, J.D.
Relators’ failed to sufficiently allege their claims against the manufacturer of replacement knee device under state FCAs. However, they sufficiently alleged their claims under federal FCA.
A federal district court in Alabama granted in part a medical device manufacturer’s motion to dismiss relator’s amended complaint to the extent that relators’ claims under the state FCAs were dismissed without prejudice and denied in part as to the federal claims. The court held that relators failed to state a claim under the state FCAs. Additionally, the court found that the amended complaint was not an impermissible shotgun pleading with respect to the federal claims. The court further found that relators sufficiently alleged their claims under federal FCA (U.S. ex rel. Wallace v. Exactech, Inc., August 5, 2020, Coogler, L.).
Procedural history. Relators brought an action on behalf of the United States, 23 states, and themselves against the manufacture of the Optetrak Total Knee Replacement (TKR) system for use during knee replacement surgeries. Relators accused the manufacturer of violating and conspiring to violate the federal False Claims Act (FCA) 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 alleged that the manufacturer violated the Anti-Kickback Statute (AKS) and the FCA by paying remuneration to physicians who suspected the defects to induce them to continue to buy the manufacturer’s products.
State FCA claims. The manufacturer argued that relators failed to state a claim under the state FCAs upon which relief can be granted. The amended complaint contained no allegations that any false claims were presented to any State Medicaid or other state programs. The relators acknowledged that they were not themselves in position to identify the specific state Medicaid patients who had been harmed. Accordingly, the court dismissed relators’ claims under the state FCAs without prejudice.
Shotgun pleading. The manufacturer also argued that the amended complaint was an impermissible shotgun pleading that should have been dismissed with prejudice since relators already once failed to cure the complaint’s deficiencies. The court struck without prejudice relators’ original complaint as an impermissible shotgun pleading of the first and second types. In this case, the court found that the amended complaint was not an impermissible shotgun pleading.
First type. The court held that the amended complaint cured the deficiencies which rendered the original complaint a shotgun pleading of the first type. Relators’ original complaint was a shotgun pleading of the first type because each of its 30 counts incorporated by reference the allegations in all preceding paragraphs, including all preceding counts. In relators’ amended complaint, however, the allegations of each count were not rolled into every successive count on down the line. Rather, each of its 29 counts incorporated by reference only the facts specifically alleged in paragraphs 1-203 of the complaint, which were the factual allegations that preceded the counts but none of the counts themselves. The court found that relators’ amended complaint provided the manufacturer adequate notice of the federal claims against it and the factual allegations that supported those claims. Specifically, relators added subsections in the amended complaint and changed the titles of others, simplifying the task of connecting the 203 factual paragraphs to Counts I–VI. In addition to better organizing the factual allegations, relators also improved the amended complaint by alleging specific facts within Counts I–VI that pertained to those particular counts. Accordingly, the court concluded that the amended complaint was not a shotgun pleading of the first type with respect to the federal claims.
Second type.The court also found relators’ initial complaint to be a shotgun pleading of the second type in part because it was replete with immaterial facts. In this case, the court found that the amended complaint omitted these irrelevant details and included only information such as when individuals were employed by the manufacturer, the length of time they worked for the manufacturer, and what they claimed to have personal knowledge of regarding the conduct giving rise to this suit. The amended complaint also cut in half the discussion of the process for replacing a knee and statistics relating to patients of knee replacements in the U.S. and healthcare programs. Therefore, the court found that relators sufficiently cured the deficiencies in their complaint as they related to the inclusion of immaterial facts, and that the amended complaint was not a shotgun pleading of the second type.
Federal FCA claims. The manufacturer argued that all federal claims were due to be dismissed for failure to state a claim under Rule 12(b)(6) and failure to allege fraud with particularity under Rule 9(b).
Counts I & II – 31 U.S.C. §3729(a)(1)(A). By plausibly alleging that the manufacturer’s device was misbranded and not reasonable and necessary in violation of governing healthcare laws, relators sufficiently alleged that claims for payment of the device were false under the FCA. Relators alleged with sufficient particularity that the manufacturer indirectly caused the presentment of false claims to Medicare and Medicaid and directly presented false claims to the VA. Additionally, relators sufficiently alleged that the manufacturer’s noncompliance with healthcare laws was material to the government’s decision to pay for the device. Further, relators sufficiently alleged that the manufacturer knew the device was defective. Relators sufficiently alleged that the manufacturer had knowledge that the defective device was being implanted in patients covered by government healthcare programs. Relators also sufficiently alleged that the manufacturer knowingly submitted and caused to be submitted false claims to federal healthcare programs.
Count III - 31 U.S.C. §3729(a)(1)(B). Relators sufficiently alleged that the manufacturer made or caused to be made multiple false statements. Relators’ allegations described the particular documents containing false statements, the statements that were false, when those documents were provided, who at the manufacturer provided those false statements, to whom those false statements were provided, how the statement was false, and what the manufacturer obtained as a result. Additionally, relators sufficiently alleged that the false statements made, or caused to be made, by the manufacturer to relators, surgeons, and the FDA were material to false claims. Finally, relators sufficiently alleged that the manufacturer knew or should have known that its conduct violated regulations or statutes and that the violation was material to the government’s payment decision.
Count VI – Federal False Claims based on AKS 31 U.S.C.§3729(a)(1)(A); 42 U.S.C. §1320a-7b. Relators sufficiently alleged the falsity, knowledge, and materiality required to establish FCA liability. In addition, the court found that relators sufficiently alleged that the manufacturer paid remuneration to a surgeon to induce him to purchase the manufacturer’s products or services for which payment may be made under a federal health care program. Specifically, relators sufficiently pleaded that the purpose of the manufacturer’s consulting payments to the surgeon was to induce him to continue purchasing the manufacturer’s products. Relators sufficiently alleged a causal connection between the illegal payments to the surgeon and false claims submitted to Medicare. The court found that it did not need to decide the extent of the link that relators must allege, as the court found that they satisfied the more stringent standard of showing that the manufacturer’s provision of illegal remuneration actually caused the submission of false claims to the government. Relators sufficiently alleged violations of the FCA based on the manufacturer’s violation of the AKS.
Count IV – Conspiracy under 31 U.S.C. §3729(a)(1)(C). Relators sufficiently alleged a plausible FCA conspiracy claim. The surgeon communicated to the manufacturer his dissatisfaction with the extent of the tibial loosening and his concern that there was a problem with the device. The manufacturer then offered the surgeon a consulting agreement and made payments to him under the agreement. These payments qualified as acts performed in furtherance of the conspiracy. Moreover, it was reasonable to infer that the manufacturer made the payments to the surgeon to induce him to continue buying the manufacturer’s products. Considering the entirety of the amended complaint’s allegations about the behavior of the alleged conspirators, it was plausible to infer that the manufacturer and the surgeon agreed to get false claims paid by the government. The U.S. was damaged in that it paid for the defective devices through its federal healthcare programs. Accordingly, the court held that relators sufficiently alleged a conspiracy to violate the FCA.
Count V – Reverse False Claims under 31 U.S.C. §3729(a)(1)(G). Relators sufficiently alleged that the surgeons were reimbursed for false claims to Medicare and Medicaid. Because those reimbursement claims were false, and the manufacturer had knowledge of their falsity, the surgeons were not entitled to those reimbursements, making them overpayments. And because the surgeons did not return these overpayments, they were obligations for reverse false claim purposes. Additionally, relators alleged that the manufacturer falsely told surgeons that the device was safe and concealed its long history of failures. Through those false statements, the manufacturer prevented surgeons from learning that they had submitted false claims for payment and therefore had an obligation to repay Medicare or Medicaid for the false claims. Accordingly, the court held that relators sufficiently alleged that the manufacturer knowingly concealed an obligation to return money to the government.
The case is No. 2:18-cv-01010-LSC.
Attorneys: Don B. Long, III, U.S. Attorney's Office, for the United States. J Elliott Walthall (Frohsin Barger & Walthall LLC) for Brooks Wallace, Roberta Farley and Manuel Fuentes. Brandon Keith Essig (Lightfoot Franklin & White, LLC) for Exactech Inc.
Companies: Exactech Inc.
MainStory: TopStory CaseDecisions CMSNews AntikickbackNews FCANews QuiTamNews AlabamaNews
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