False claims by any other name: Medtronic and Omnicare cases illustrate the interplay between the False Claims Act and other federal laws regulating commerce with Medicare and Medicaid

by Saul Ewing LLP
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In Brief

  • Government allegations of Medtronic’s alleged incentives to physicians for prescribing its medical devices lead company, while denying wrongdoing, to settle False Claims Act suit predicated on Anti-Kickback Statute.
  • Omnicare, meanwhile, faces a potential appeal to the Supreme Court in a False Claims Act suit premised on the Food, Drug, and Cosmetic Act.

Medtronic, Inc. has agreed to pay $9.9 million to the U.S. government to bring a False Claims Act (“FCA”) suit focused on eight years’ worth of alleged illegal kickbacks to a close, and Omnicare, Inc. awaits the Supreme Court’s decision on a petition for certiorari in a whistleblower case with the potential to render goods or services that violate regulations “false or misleading” under the FCA when paid for by the federal government.

Medtronic

In its civil suit against Medtronic, United States ex rel. Schroeder v. Medtronic, Inc., No. 2:09-cv-0279 WBS EJB (E.D. Cal.), the government alleged that Medtronic influenced physicians to prescribe its brand of pacemakers and implantable defibrillators by paying physicians to speak at events in exchange for their referral business, by providing implanting physicians with free marketing plans and gifts including wine and alcohol, trips to strip clubs, and sporting event tickets. These pacemakers and defibrillators were then billed to Medicare and Medicaid. The suit describes a plan to instruct sales representatives to “review patient charts in friendly doctor’s offices” and to suggest which patients should receive an implant. The lawsuit further alleged that physicians were influenced to implant devices into patients whose mild heart conditions did not warrant such procedures under applicable Food and Drug Administration (“FDA”) criteria.

The Department of Justice press release quotes Assistant Attorney General Stuart F. Delery of the Justice Department’s Civil Division, saying, “This case demonstrates the Department of Justice’s commitment to pursue medical device manufacturers that use improper financial relationships to influence physician decision-making.”

While paying out a hefty sum under the terms of the settlement agreement, Medtronic expressly denies any wrongdoing. The lawsuit itself originated with a complaint filed under the qui tam provisions of the FCA by whistleblower Adolfo Schroeder, a former Medtronic employee. Approximately $1.73 million will flow to Schroeder as a result of the settlement. The Department of Justice Civil Division, the U.S. Attorney’s Office for the Eastern District of California, and the Office of Inspector General of the U.S. Department of Health and Human Services all collaborated on the settlement.

This case highlights the civil ramifications of the Anti-Kickback Statute (“AKS”), which itself is a criminal statute.  In 2010, the FCA, 31 U.S.C. §§ 3729-33, was amended to make clear that claims submitted to the government in violation of the Anti-Kickback Statute, 42 U.S.C. 1320a-7b(b), automatically constitute violations of the FCA. The AKS makes criminal the offer (and receipt) of remuneration in exchange for referring patients to receive certain government-funded services. Thus, any allegation of kickbacks may lead to criminal and civil action.

In Schroeder, the allegation of kickbacks was sufficient to permit the government to proceed under the FCA without the need to plead a false or misleading statement regarding goods or services provided. Non-kickback cases with no showing of fraud do not fare as well – though one case pending before the Supreme Court seeks to challenge that. 

Omnicare

In February 2014, we brought you the story of a whistleblower who appealed the dismissal of his suit to the U.S. Circuit Court of Appeals for the Fourth Circuit, which affirmed the dismissal, in U.S. ex rel Rostholder v. Omnicare, Inc., 745 F.3d 694 (4th Cir. 2014). There, qui tam relator Barry Rostholder had alleged that products sold by Omnicare and reimbursed by Medicare and Medicaid violated the FCA because they were “adulterated” within the meaning of the Food, Drug, and Cosmetic Act. The appellate court reasoned that “the submission of a reimbursement request for [an approved] drug cannot constitute a ‘false’ claim under the FCA on the sole basis that the drug has been adulterated as a result of having been processed in violation of FDA safety regulations.” The court had rejected the reasoning that inferior quality in and of itself can be “misleading” under the FCA.

Rostholder seeks to challenge that determination, and filed a petition for certiorari on May 22, 2014. If the Court overturns the decision below, the result could have wide-reaching ramifications. Not only will it open the door nationwide to civil liability under the FCA for sale of goods and services to the government that violate any applicable regulation, but it may incite a wave of qui tam litigation that seeks to test the boundaries of a newly-interpreted FCA.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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