Citing Campie, Ninth Circuit Partially Reverses Dismissal of FCA Complaint Alleging Underlying Fraud on the FDA; United States Court of Appeals for the Ninth Circuit No. 19-56377, U.S. ex rel. The Dan Abrams Company LLC v. Medtronic Inc., et al.

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The Ninth Circuit partially reversed a lower court’s dismissal of a qui tam case alleging the defendants defrauded the Food and Drug Administration, resulting in the later submission of false claims for payment. The relator alleged the defendants lied to FDA when they sought approval of certain medical devices, because the devices were later marketed for off-label or contraindicated use. The Ninth Circuit partially affirmed the dismissal of the claims, explaining that the government contemplates payment for off-label use of medical devices, provided the use is reasonable and necessary. Because the relator did not allege the use was not reasonable or necessary, the court found the claims failed on materiality. However, the court reversed the dismissal of a related claim. The relator alleged the defendant submitted for approval a device that could never be used for its stated purpose and that was always intended for a different procedure. According to the relator, the defendant was concerned that FDA would require a higher-level certification had it submitted the device under its intended use. The Ninth Circuit found that FDA explicitly considers intended use and safety questions when granting certifications, and that the alleged misrepresentation went to the benefit of the bargain with the government. While the defendant urged the court not to extend a fraud on the FDA theory to the FCA context, the Ninth Circuit concluded that its decision in Campie had already opened the door.

Relator the Dan Abrams Company appealed the district court’s decision to dismiss its qui tam complaint alleging that Medtronic Inc. and various related entities fraudulently obtained Food and Drug Administration clearance for several devices used in spinal fusion surgeries, unlawfully marketed them for an off-label and contraindicated use, and illegally compensated physicians to use them.

The court examined each theory in turn, beginning with the allegations of off-label or contraindicated use of the devices. The relator alleged that Medtronic marketed the devices without FDA approval or clearance, and therefore the defendant engaged in misbranding, mislabeling, and adulterating in violation of the Food, Drug, and Cosmetics Act.

The Ninth Circuit found the relator incorrectly assumed that the federal government will not reimburse for an off-label use of a medical device. Instead, the government has recognized that doctors may use devices in this manner, provided the use is medically necessary and reasonable. The court found the government does not distinguish between on-label and off-label uses when determining whether to pay claims for medical devices.

Instead, the question turned on whether the devices had FDA approval; were used in a reasonable and necessary manner; and met other pertinent regulations. First, the court noted the devices had received FDA approval. Second, the court found the relator had not plausibly alleged that their use for off-label purposes was not reasonable and necessary. For example, the relator did not allege the use of not safe or effective, or that the procedure was experimental, inappropriate, or more expensive than a reasonable alternative. While the relator alleged harm could occur due to the off-label use of the devices, the court found this allegation too vague, as any surgery carries the risk of harm.

The relator also alleged that other, less expensive options were available, but the court found the relator did not connect any alleged false statements and the pricing criterion of Medicare coverage, as the district court also held.

The relator argued that the use of the devises was not merely off-label but contraindicated, but the Ninth Circuit found that neither the federal government nor the judiciary appears to have carved out an exception for contraindicated use in discussing off-label uses. Rather, the FDCA specifically contemplates that devices may be cleared even if contraindicated uses are expected. The court found that as long as a doctor finds an off-label use to be medically reasonable and necessary, then the off-label use is permitted, even if the particular use is contraindicated on the label.

Finally, the court found the relator cited to no statute, regulation, or guidance that specifically states that a contraindicated use of a device is categorically not reasonable and necessary. The relator cited to Campie to argue that misbranded and adulterated devices are not eligible for Medicare reimbursement. However, the relator in Campie alleged that the pharmaceutical in question had been adulterated by the use of unapproved ingredients. IN this case, the relator did not allege any defect in the device, but merely that they had been marketed for off-label use. Because the government recognizes that such use can be reasonable and necessary, the court found this use was not material to the government’s payment decision. Accordingly, the court affirmed the district court’s decision to dismiss on these grounds.

Second, the relator alleged that Medtronic defrauded the FDA into granting the devices a Class II clearance. According to this theory, since Medicare reimbursement requires FDA clearance, the devices would have been ineligible for reimbursement but for Medtronic’s fraud.

The relator divided the devices into two categories. The first category consisted of devices that cannot be used for their labeled purpose but can only be used for the contraindicated procedure at issue. For these devices, the relator alleged that Medtronic represented that the devices were intended for one use, when in fact they could not be deployed in those procedures but could be used only for the contraindicated use.

The second category consisted of devices that could be used for their stated purpose as well as for contraindicated procedures. The relator alleged Medtronic fully intended to use these devices for the contraindicated purpose, but withheld this from FDA.

The district court dismissed this count for failure to state a claim, finding that the allegations were offered solely as a predicate for the claim that the subject devices were intended for off-label use. The Ninth Circuit affirmed the district court’s decision regarding the second category of devices, those use for the intended purpose and extra uses. The circuit court again noted the federal government allows reimbursement for off-label and contraindicated uses. In other words, Medtronic’s failure to disclose that it would market its devices for off-label use was not material to FDA’s approval.

However, the court found that the other category of device could give rise to FCA liability. For those devices, the relator alleged that they were never properly cleared, because they cannot be used for the stated purpose at all, but only for the contraindicated use.

The relator claimed that Medtronic knew that the devices posed different questions of safety to its previously approved devices, and that FDA may have required a Class III approval had it known the devices were intended for a different use. The court found that those considerations—intended use, similarity to a predicate device, and different questions about safety—are precisely what FDA considers in granting Class II certification. In other words, Medtronic’s alleged fraud went “to the very essence of the bargain.”

Medtronic argued that the FCA is not the proper vehicle to bring a claim of fraud on the FDA. In Buckman, the Supreme Court held that the FDCA bars a private party from asserting state law claims that the device manufacturer defrauded the FDA during the 510(k)-clearance process concerning a device’s intended use. Further, the First Circuit extended Buckman’s holding to the FCA context.

However, the Ninth Circuit held that its decision in Campie precluded such a holding in this case. In Campie, the court noted that other jurisdictions had cautioned against allowing claims under the False Claims Act to wade into the FDA’s regulatory regime, yet it allowed the relator’s fraud-on-the-FDA theory to go forward. Accordingly, the court reversed the district court’s decision on the claims involving the devices that could never be used for the approved purposes.

Next, the court considered the allegations of improper kickbacks. The relator alleged that Medtronic entered into improper rebate agreements with hospitals to buy the subject devices. However, the court found the complaint did not explain how the rebate program violated the AKS. The court noted the statute exempts discounts that are properly disclosed and offered to the government. Because the relator failed to allege Medtronic failed to extend the same pricing to the government or otherwise failed to disclose its rebate program, the Ninth Circuit affirmed the dismissal of this count.

The relator also alleged that Medtronic remunerated physicians by paying the costs, including food, travel, and promotional expenses, in connection with certain business development events. However, the circuit court agreed with the district court’s finding that the allegations were too vague and affirmed the dismissal.

FCA - Abrams v Medtronic