United States ex rel. Powell v. Medtronic, Inc., 2024 U.S. Dist. LEXIS 165116 (S.D.N.Y. Sept. 12, 2024), is an interesting defense win in a False Claims Act (FCA) case involving alleged off-label use – reuse of single use devices (actually a component of a device – and that ends up mattering). Much of the Powell decision (about pleading of false claims) is FCA specific and thus is more product liability adjacent rather than directly in our wheelhouse. But the sections of the opinion dismissing the case for failure to state a claim address issues commonly arising with off-label use.
Powell was the relator (hence the "ex rel.") in the case. (Do not be thrown or overly impressed by the inclusion of "United States" in the case caption. In this case, the United States declined to intervene. We defense hacks typically interpret that to signal a certain fragility in the case.) The relator described herself as a "diabetes educator" and "clinician". She underwent the defendant's training program with respect to a glucose monitoring system. While that glucose monitoring system was designed for multiple patient use, one component of the system was an inserter device designed for single patient use. The relator alleged that the defendant improperly encouraged multiple patient use of the inserter device. The relator contended that such multiple patient use of the inserter device exposed patients "to an unnecessary risk of infection." Thus, so the argument goes, the reuse rendered the device "adulterated," rendered the associated care not medically "reasonable and necessary" and – here we get to the literal payoff of this qui tam lawsuit – rendered usage of the glucose monitoring system "not reimbursable by federal healthcare programs." Accordingly, the relator asserted that the defendant "knowingly caused Medicare, and other federal healthcare programs, to pay millions of dollars in false claims" for the glucose monitoring system.
The defendant moved to dismiss the Second Amended Complaint (SAC). The essence of the motion was that the SAC failed to allege that (1) reuse of the inserters was not a falsehood material to government payment decisions, and (2) the defendant acted knowingly or with reckless disregard.
As you might imagine, falsity is pretty important to a False Claims Act case. Here, the SAC did not adequately allege falsity because submitted claims for payment were not solely for the device but for the general costs of related treatment. That treatment was, in fact, provided. So where is the falsehood? At this point, the relator fell back on the "implied false certification theory," which hinged on the alleged increased health risk of multiple use of the inserter, as well as the "adulterated" status of the device.
The court rejected the implied false certification theory First, merely because reuse poses an infection "risk," that does not mean that the off-label use fails Medicare's "reasonable and necessary" standard for reimbursement. A mere safety risk does not add up to a false claim. That harm can occur does not demonstrate that a medical device used off-label actually caused such harm. The relator's allegation of harm turns out to be too speculative to be "authoritative evidence" that the product is unsafe or ineffective. No actual harm was alleged, nor any FDA enforcement action, nor adverse event reports, nor scientific literature supporting the relator's allegation of harm.
Second, there was no basis for considering the device adulterated. The defendant's alleged off-label promotion did not alter the "commodity itself," but only addressed how it could be used by physicians. The Powell court looked at the FDA's definition of adulteration and found that it pertained to the product, not its potential misuse. Moreover, the Powell court doubted that technical "adulteration" by itself could create a false claim. Bare FDCA violations are not actionable under the FCA.
So much for falsity.
In addition, the Powell qui tam claims flunked the requirement of materiality. The relator failed to allege facts that could establish physician off-label use as material to the government's payment of claims. The relator did not allege that (1) "the government's decision to pay was expressly conditioned on single-patient use" of the inserter, (2) the government routinely refused to pay claims in such instances, or (3) single-patient use of the inserter went to the "essence" of the providers' "bargain" with government payors. These failures made the SAC's materiality claims "fatally deficient."
Materiality is a standard you probably first encountered in securities fraud cases. But it does crop up in other areas, such as FCA cases. Materiality is a useful concept. It means that whatever falsehoods were alleged in a lawsuit, they simply did not make any difference. That concept is also useful in product liability or consumer fraud cases. It is often the case that a plaintiff's lawsuit is much ado about nothing.
This article is presented for informational purposes only and is not intended to constitute legal advice.