Medical Device Daily

A Massachusetts district court has dismissed a government fraud case that alleged device distributors of giving kickbacks to doctors who used Medtronic (Minneapolis) products. The whistleblower claims were brought under the False Claims Act in 2007.

In the distributors' motion to dismiss, Foley Hoag partner Nicholas Theodorou and associate Ara Gershengorn argued that the plaintiff's fraud claims were not pleaded with specificity and that the claims were barred by the public disclosure and first-to-file rules of the False Claims Act. The court dismissed all of the plaintiff's claims against all of the defendants.

In 2007 plaintiff Jacqueline Poteet, a former Medtronic employee, sued 120 spine surgeons and the device distributors, claiming that they had defrauded the federal government. She claimed that, in 2006, the distributors gave the surgeons kickbacks in exchange for paid "consulting fees" totaling more than $8 million to promote off-label uses of Infuse, a Medtronic device used in spinal fusion operations. Poteet is a former manager of travel services for Medtronic Sofamor Danek (Memphis), a Medtronic subsidiary. In June 2007, the federal government declined to intervene in the case, and the plaintiff decided to continue to pursue the case as a private action, Foley Hoag noted.

There were 18 device distributors in total, but two were never served, Gershengorn told Medical Device Daily. Foley Hoag represented the 16 distributors that were served in the lawsuit.

Gershengorn said the plaintiff's claims in the case failed to meet the jurisdictional hurdles in the False Claims Act. She said the fraud claims, which did not identify individual false claims submitted for payment, were not pleaded with specificity.

Late last month the district court granted all the defendants' motions and ruled in favor of the defendants. Judge Richard Stearns dismissed the lawsuit and denied the plaintiff's request to amend the complaint.

"The False Claims Act is an important statute and it is important for the court to separate out meritorious claims from other me too' lawsuits," Gershengorn said.

In this case, she noted, the plaintiffs were not able to present any real information about the alleged fraud.

"These were general allegations of kickbacks and general allegations that false claims were filed with the government," Gershengorn said.

The lawyers representing the surgeons in the case argued and the Foley Hoag lawyers also argued on behalf of the distributors that when a fraud claim is made the whistleblower "has to be someone who really knows what happened and it can't be based on what's been in the press," Gershengorn said.

In this case, the court decided that there had been similar cases against Medtronic that had been reported on.

In 2007 U.S. Senator Charles Grassley (R-Iowa) sent a letter to Medtronic concerning its payments to orthopedic surgeons using spinal repair products made by the company's Sofamor Danek unit (Medical Device Daily, Sept. 28, 2007). Overall, those payments appeared at that time to have reached over $6 million, even after Medtronic made a penalty payment of $40 million in July 2006 (MDD, Aug. 2, 2006). That $40 million payout by Medtronic was the result of a suit filed on behalf of Poteet in 2003. While the company paid that fine, it took the standard pro forma opportunity to deny any wrongdoing.

Grassley's curiosity into these payments stemmed from repeated complaints to Congress by attorney Andrew Carr concerning the six-figure payouts to physicians. Carr said then that the U.S. Justice Department's investigation into the matter had been inadequate and that "sham payments" to doctors have continued. Carr, of the firm Bateman Gibson, represented Poteet.

A Medtronic spokesperson told news outlets at that time that the payments in question were legitimate, and that their size running to hundreds of thousands of dollars in some cases reflected the time and effort provided by practicing physicians.

With the passage of the American Recovery and Reinvestment Act of 2009 the False Claims Act is more important than ever before, given the significant amount of federal funds that will be granted to help jumpstart the economy.

"The False Claims Act is going to have a big role to play going forward not only in the medical device area ... with regards to the stimulus package, the government is very worried and is going to be careful in making sure its money is used properly," Gershengorn said. "So a case like this is really important; the courts have become really willing to not let the case go forward [if it is without merit]."

Last year, Theodorou and Gershengorn and other Foley Hoag attorneys had a similar success representing CuraScript Pharmacy in a qui tam case that was also dismissed by a Massachusetts federal court on specificity grounds, the firm noted.

"Companies need to know in dealing with the government they have to turn square corners, they have to make sure to dot all the Is and cross all the Ts ... it's good that the courts are there to make sure that these cases, when they are brought, are brought the way they're supposed to be," Gershengorn said.