In United States ex rel. Dan Abrams Co. LLC v. Medtronic Inc., No. 19-56377, 2021 WL 1235845 (9th Cir. Apr. 2, 2021), the court of appeals affirmed in part and reversed in part the district court's dismissal of the relator's FCA lawsuit. The relator alleged that Medtronic 1) fraudulently obtained FDA approval for several devices used for spinal surgery, 2) illegally marketed the devices for off-label and contraindicated uses and 3) unlawfully compensated physicians to use the devices. The relator put forth two primary theories of liability: the "off-label/contraindicated-use theory" and the "fraud-on-the-FDA theory," each of which was dismissed by the district court.
The court of appeals began with the relator's "off-label/contraindicated-use theory" of FCA liability. "The fundamental problem with this theory," the court wrote, "is that relator incorrectly assumes that the federal government will not reimburse for an off-label use of a medical device"; however, "the federal government has recognized that doctors may use medical devices for off-label purposes as long as it is medically necessary." "[T]o be reimbursable, [then,] a device must [simply] (1) have FDA approval/clearance, (2) be 'reasonable and necessary,' and (3) meet any other pertinent regulations." The court of appeals found that Medtronic had satisfied each of the three requirements. First, the FDA cleared the devices through the 510(k) submission process. Second, the relator had not plausibly alleged that the devices were not "reasonable and necessary." The court observed that "a device is not reasonable and necessary—and thus is not eligible for Medicare coverage—if it is (a) not safe and effective, (b) experimental, (c) not appropriate for the individual beneficiary's needs, or (d) substantially more costly than a medically appropriate and realistically feasible alternative pattern of care." The relator, the court found, had made "no allegations about published studies demonstrating the cervical use of vertebral body replacement (VBR) is medically unsafe or ineffective." Nor had the relator alleged that "VBR use in the cervical spine is contrary to accepted stands of medical practice." The relator had merely "point[ed] to a few anecdotal examples of harm caused by the [devices] ... [and] [m]erely showing that harm can occur is insufficient." Although the relator argued that this "is not a case of merely off-label use, but contraindicated use," the court found that "neither the federal government nor the judiciary appears to carve out an exception for contraindicated use in discussing off-label uses." Third, the "[r]elator point[ed] to no statute, regulation, or administrative manual that specifically states that a contraindicated use of a device is categorically not reasonable and necessary." Based on its review, the court of appeals affirmed the district court's dismissal of the relator's off-label/contraindicated label claim.
The court of appeals then turned to the relator's "fraud-on-the-FDA theory" of FCA liability, pursuant to which the devices, which require FDA approval, would have been ineligible for reimbursement but for Medtronic's fraud. With regard to the first group of devices at issue, the "extra-use devices," which "could be used for their stated intended use but which were contraindicated for use in the cervical spine," the court of appeals agreed with the district court that "the materiality element cannot be met ... because the federal government allows reimbursement for off-label and even contraindicated used." But with regard to the second group of devices at issue, "contraindicated-only devices," which allegedly "cannot be used for their labeled intended use" and "can only be used for their contraindicated use," "Medtronic's alleged fraud went 'to the very essence of the bargain.'" Indeed, the relator alleged that, due to Medtronic's fraud, "the contraindicated-only devices were not properly cleared for any use: they cannot be used for their labeled intended use (and are thus not substantially similar to the predicate device), and they can only be used for their contraindicated use." Although Medtronic argued that the Ninth Circuit should join the First Circuit in holding that the Federal Food, Drug, and Cosmetic Act (FDCA) bars private parties from asserting FCA claims that the device manufacturer defrauded the FDA during the 510(k)-clearance process concerning a device's intended use, the Ninth Circuit rejected Medtronic's argument and reversed the district court's dismissal of the relator's "fraud-on-the-FDA theory" with respect to contraindicated-only devices.
Finally, the court of appeals addressed the relator's AKS claim, which also was dismissed by the district court. The relator first alleged that "Medtronic entered into improper rebate agreements with hospitals to buy the Subject Devices." But because the AKS exempts from its scope discounts offered to providers if properly disclosed to and reflected in charges to the federal program" and "Medicaid allows rebate agreements so long as the state Medicaid programs are offered the same pricing," the relator could not state a claim. The relator next alleged that "Medtronic remunerated physicians by paying the costs, including food, travel, and promotional expenses, in connection with certain business development events." But because the relator's "general allegations d[id] not identify any physicians, or categories of them, who actually received payment in connection with decisions—in which they participated—to purchase or use  any of the Subject Devices," the relator did not state a claim. Accordingly, the court of appeals affirmed the district court's dismissal of the relator's AKS claim.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.